Delaware
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90-1002689
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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1151 Maplewood Drive
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Itasca, Illinois
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60143
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Page
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•
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MCE designs and manufactures innovative acoustic products, including microphones and audio processing technologies used in mobile handsets, wearables and other consumer electronic devices. Locations include the corporate office in Itasca, Illinois; sales, support and engineering facilities in North America, Europe and Asia; and manufacturing facilities in Asia.
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•
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SC specializes in the design and manufacture of specialized electronic components used in medical and life science applications, as well as high-performance solutions and components used in communications infrastructure and a wide variety of other markets. SC’s transducer products are used principally in hearing aid applications within the commercial audiology markets, while its oscillator products predominantly serve the telecom infrastructure market and its capacitor products are used in applications including radio, radar, satellite, power supplies, transceivers and medical implants serving the defense, aerospace, telecommunication and life sciences markets. Locations include the corporate office in Itasca, Illinois; and sales, support, engineering and manufacturing facilities in North America, Europe and Asia.
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•
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MCE -
Includes analog and digital MEMS microphones, smart microphones, software, ultrasonic sensors, and acoustic processors.
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•
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SC -
Includes transducers, oscillators, capacitors and filters.
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Revenue
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|||||||
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Years Ended December 31,
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|||||||
(in millions)
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2016
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2015
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2014
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|||
Mobile Consumer Electronics
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51
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%
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50
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%
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50
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%
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Specialty Components
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49
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%
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50
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%
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50
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%
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As of December 31,
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(in millions)
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2016
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2015
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Mobile Consumer Electronics
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$
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976.4
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$
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1,059.0
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Specialty Components
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535.7
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542.7
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Corporate / eliminations
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2.1
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1.8
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Discontinued operations
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0.9
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93.0
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Total
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$
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1,515.1
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$
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1,696.5
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•
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Audio - Transducer products used in hearing health and premium headset applications will be moved from the SC segment to the new Audio segment which will also include the historical MCE segment.
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•
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Precision Devices - Oscillator and capacitor products formerly in the SC segment will be included in the Precision Devices segment.
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•
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Smartphone growth from feature phone substitution
. The smartphone segment within the mobile handset device market has exhibited unit growth over the past several years. There continues to be a positive mix shift to higher-performance smartphones from feature phones (i.e., non-smartphones). The average smartphone continues to drive higher audio content including more microphones than its feature phone counterpart, compounding the growth of acoustic content as mobile phone sales rise.
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•
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High-end consumer elasticity
. Consumers are reluctant to downgrade from a high-end smartphone to a low-end smartphone in most circumstances. This is especially true as high-end smartphones will likely continue to offer significant performance advantages and new functionality compared to low-end smartphones.
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•
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Proliferation of premium acoustics and multiple microphone adoption
. Consumers are seeking improved acoustic solutions, regardless of the country they live in or the type of device they are using. As a result, acoustic dollar content is generally expanding per device for two primary reasons. First, many of the solutions we are introducing are higher performance and command higher value. Second, a majority of OEMs are increasing the number of acoustic components per device. Over the past several years, we have seen an increase in the number of microphones used in high end smartphones. The benefits to the user are substantial, including reduced background noise, improved voice recognition, better hands-free communication and enhanced audio recording and playback capabilities. OEMs and their customers recognize the importance of these features in their next-generation products. We believe an additional opportunity exists for these trends to expand to mid-range phones and tablets, as well as emerging wearable devices. Knowles can capitalize on these market demands by leveraging our acoustics and audio processing expertise, as well as our proprietary process technologies, to deliver solutions that improve the performance of our OEM customers’ devices.
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•
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Smartphone OEM market share shifts are likely to remain volatile for some time
. Over the past several years, Nokia, Blackberry and Samsung have lost significant market share to other United States and Asian-based OEMs who have released smartphones that have been more readily accepted due to, among other factors, perceived feature sets and price points. We expect the OEM market to continue to be dynamic over time, characterized by rapid market share shifts driven by new product introductions, price points and feature sets.
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•
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Medical and life sciences (i.e., transducers, hearing aids, capacitors).
Sales are largely driven by aging demographics, healthcare spending, the rise of a middle class in emerging markets and government subsidies.
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•
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Aerospace and defense communications (i.e., capacitors, filters, oscillators).
Aerospace and defense spending and automation (largest end market), telecom regional coverage and bandwidth expansion and growing industrial power supply requirements are a few of the end market trends driving the product sales in this sector.
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•
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Telecom infrastructure (i.e., capacitors, filters, oscillators).
Sales are typically levered to the expansion of large telecom companies looking to increase wireless signal in new or existing territories, although these products are also sold to aerospace and defense companies (i.e., airplane radio frequencies).
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•
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MCE
- AAC Technologies, Goertek, Invensense and ST Microelectronics; and
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•
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SC
- Sonion, Rakon, Kyocera and Epson Electronics.
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(in millions)
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Years Ended December 31,
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2016
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2015
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2014
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||||||
Asia
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$
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626.1
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$
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602.1
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$
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671.8
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Europe
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96.6
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97.5
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105.0
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Other Americas
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7.1
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7.6
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9.6
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Other
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7.7
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6.5
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4.7
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Subtotal non-United States
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$
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737.5
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$
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713.7
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$
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791.1
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United States
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121.8
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135.9
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123.9
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Total
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$
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859.3
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$
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849.6
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$
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915.0
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o
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Labor unrest and strikes, particularly in Asia, where the majority of our manufacturing operations are located;
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o
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earthquakes, floods and other natural disasters or catastrophic events, particularly in Asia , where the majority of our manufacturing operations are located;
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o
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acts of terrorism;
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o
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government embargoes, trade restrictions and import and export controls;
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o
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transportation delays and interruptions.
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o
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requiring us to use cash to pay the principal of and interest on our indebtedness, thereby reducing the amount of cash flow available for other purposes;
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o
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limiting our ability to obtain additional financing for working capital, capital expenditures, acquisitions, stock repurchases, dividends or other general corporate and other purposes;
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o
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limiting our flexibility in planning for, or reacting to, changes in our business and our industry; and
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o
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increasing our vulnerability to interest rate fluctuations to the extent a portion of our debt has variable interest rates.
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o
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Our products are manufactured and sold outside the United States which increases our net exposure to changes in foreign exchange rates.
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o
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Our products, which are typically sold in U.S. dollars, may become less price-competitive outside the United States as a result of unfavorable foreign exchange rates;
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o
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Certain of our revenues that are derived from customer sales denominated in foreign currencies could decrease;
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o
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Our foreign suppliers may raise their prices if they are impacted by currency fluctuations, resulting in higher than expected costs and lower margins;
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o
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Foreign exchange hedging transactions that we engage in to reduce the impact of currency fluctuations may require the payment of structuring fees, limit the U.S. dollar value of royalties from licensees’ sales that are denominated in foreign currencies, cause earnings volatility if the hedges do not qualify for hedge accounting and expose us to counterparty risk if the counterparty fails to perform;
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o
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The cost of materials, products, services and other expenses outside the United States could be adversely impacted by a weakening of the U.S. dollar; and
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o
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Based on our current sales and manufacturing activity, a sustained 10% weakening of the U.S. dollar for a period of one year would reduce our operating results by approximately $20.9 million pre-tax.
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o
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the inability of our stockholders to call a special meeting or act by written consent;
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o
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rules regarding how stockholders may present proposals or nominate directors for election at stockholder meetings;
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o
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the right of our Board of Directors to issue preferred stock without stockholder approval;
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o
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the division of our Board of Directors into three approximately equal classes of directors, with each class serving a staggered three-year term;
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o
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a provision that stockholders may only remove directors for cause;
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o
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the ability of our directors, without a stockholder vote, to fill vacancies on our Board of Directors (including those resulting from an enlargement of the Board of Directors); and
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o
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the requirement that stockholders holding at least 80% of our voting stock are required to amend certain provisions in our certificate of incorporation and our by-laws.
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Total
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Number and nature of facilities:
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Manufacturing and Distribution
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14
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Other Facilities (principally sales, research and development and headquarters)
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18
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Square footage (in 000s):
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Owned
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895
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Leased
(1)
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876
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Locations:
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Asia
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18
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North America
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10
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Europe
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4
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Name
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Age
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Position
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Jeffrey S. Niew
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50
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President & Chief Executive Officer
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John S. Anderson
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53
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Senior Vice President & Chief Financial Officer
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Christian U. Scherp
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51
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President, Performance Audio
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Raymond D. Cabrera
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50
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Senior Vice President, Human Resources & Chief Administrative Officer
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Daniel J. Giesecke
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49
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Senior Vice President & Chief Operating Officer
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Thomas G. Jackson
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51
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Senior Vice President, General Counsel & Secretary
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Bryan E. Mittelman
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46
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Vice President, Controller
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2016
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2015
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||||||||||||
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Market Prices
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Market Prices
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||||||||||||
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High
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Low
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High
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Low
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||||||||
First Quarter
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$
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14.04
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$
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9.98
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$
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24.97
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$
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17.09
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Second Quarter
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$
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15.82
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$
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12.27
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$
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21.98
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$
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17.67
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Third Quarter
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$
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16.20
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$
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12.87
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$
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19.60
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$
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13.31
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Fourth Quarter
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$
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17.36
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$
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13.91
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$
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22.33
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$
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12.74
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Years Ended December 31,
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||||||||||||||||||
Statement of Earnings Data
(1)
(in millions, except for share and per share amounts)
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2016
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2015
(2)
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2014
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2013
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2012
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||||||||||
Revenue
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$
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859.3
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$
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849.6
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$
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915.0
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$
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961.0
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$
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846.9
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Gross profit
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328.6
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312.3
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355.5
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436.9
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390.1
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|||||
Earnings from continuing operations
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$
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19.1
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$
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16.5
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$
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119.6
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$
|
185.9
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$
|
128.1
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||||||||||
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||||||||||
Adjusted for:
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||||||||||
Interest expense, net
(3)
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20.4
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12.7
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6.6
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16.3
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29.8
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|
|||||
Provision for income taxes
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11.7
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6.1
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12.9
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19.1
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17.2
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|||||
EBIT
(4)
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$
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51.2
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$
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35.3
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$
|
139.1
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$
|
221.3
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|
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$
|
175.1
|
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Basic earnings per share from continuing operations
|
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$
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0.22
|
|
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$
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0.19
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|
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$
|
1.41
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|
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$
|
2.19
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|
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$
|
1.51
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Diluted earnings per share from continuing operations
|
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$
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0.21
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|
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$
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0.19
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|
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$
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1.40
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$
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2.19
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$
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1.51
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Basic shares outstanding
(5)
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88,667,098
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86,802,828
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85,046,042
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85,019,159
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85,019,159
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|||||
Diluted shares outstanding
(5)
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89,182,967
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86,992,254
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85,292,959
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85,019,159
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85,019,159
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|||||
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||||||||||
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As of December 31,
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||||||||||||||||||
Balance Sheet Data
(in millions)
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2016
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2015
(2)
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
Total assets
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$
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1,515.1
|
|
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$
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1,696.5
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|
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$
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1,998.5
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$
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2,170.1
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|
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$
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2,051.1
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Total third party debt and lease obligations
(6)(7)
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313.8
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|
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447.5
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404.3
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1.6
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2.3
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|||||
Notes payable to Former Parent, net
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N/A
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N/A
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N/A
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|
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N/A
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|
|
528.8
|
|
|||||
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||||||||||
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Years Ended December 31,
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||||||||||||||||||
Other Data
(1)
(in millions)
|
|
2016
|
|
2015
(2)
|
|
2014
|
|
2013
|
|
2012
|
||||||||||
Depreciation and amortization
|
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$
|
73.0
|
|
|
$
|
76.8
|
|
|
$
|
75.4
|
|
|
$
|
105.4
|
|
|
$
|
90.1
|
|
Capital expenditures
|
|
34.2
|
|
|
48.4
|
|
|
61.2
|
|
|
62.4
|
|
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80.5
|
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(1)
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On July 7, 2016, the Company completed the sale of its speaker and receiver product line. All amounts presented are on a continuing operations basis. For addition information, refer to
Note 2. Disposed and Discontinued Operations
to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."
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(2)
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On July 1, 2015, the Company completed its acquisition of all of the outstanding shares of common stock of Audience, Inc. ("Audience"). The Consolidated Statements of Earnings and Consolidated Balance Sheets include the results of operations, net assets acquired and depreciation and amortization expense related to Audience since the date of acquisition. For additional information on the Audience acquisition, refer to
Note 3. Acquisition
to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."
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(3)
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On January 27, 2014, we entered into five-year credit facilities totaling $500.0 million and borrowed $400.0 million on February 28, 2014 to finance a cash payment to our Former Parent in connection with the Separation. On April 27, 2016, the Company entered into a fourth amendment to its Credit Facilities in connection with the Company's offering of the 3.25% Convertible Senior Notes ("the Notes"). The interest expense, net for the periods ending
December 31, 2016
,
2015
and
2014
relates to these borrowings. The interest expense, net during all other periods presented relate to interest expense on the net notes payable to our Former Parent that were settled during the fourth quarter of 2013 in anticipation of the Separation. See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Borrowings" section for additional information related to our post-Separation debt.
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(4)
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We use the term “EBIT” throughout this Annual Report on Form 10-K, defined as net earnings plus (i) interest expense and (ii) income taxes. EBIT is not presented in accordance with accounting principles generally accepted in the United States of America ("GAAP" or "U.S. GAAP") and may not be comparable to similarly titled measures used by other companies. We use EBIT as a supplement to our GAAP results of operations in evaluating certain aspects of our business, and our Board of Directors and executive management team focus on EBIT as a key measure of our performance for business planning purposes. This measure assists us in comparing its performance between various reporting periods on a consistent basis, as this measure removes from operating results the impact of items that, in our opinion, do not reflect our core operating performance. We believe that our presentation of EBIT is useful because it provides investors and securities analysts with the same information that we use internally for purposes of assessing our core operating performance. For a reconciliation of EBIT to net earnings, the most directly related GAAP measure, please see the Statement of Earnings Data table above. The Company does not consider these non-GAAP financial measures to be a substitute for the information provided by GAAP financial results.
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(5)
|
On July 1, 2015, the Company issued 3.2 million shares to former stockholders of Audience and for the conversion of vested in-the-money Audience stock options. The Company also converted unvested in-the-money Audience stock options and restricted stock units for an aggregate of 461,371 shares of its common stock. On February 28, 2014, the distribution date, Former Parent stockholders of record as of the close of business on February 19, 2014 received one share of Knowles common stock for every two shares of Former Parent's common stock held as of the record date. Basic and diluted earnings per common share and the average number of common shares outstanding for the periods prior to the Separation were calculated using the number of Knowles common shares outstanding immediately following the distribution.
See Note 19. Earnings per Share
to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data" for information regarding earnings per common share.
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(6)
|
On January 27, 2014, we, as a borrower, entered into a $200.0 million five-year senior secured revolving credit facility with a group of lenders, as well as a $300.0 million five-year senior secured term loan facility pursuant to a Credit Agreement ("Original Credit Agreement"), which are referred to collectively as the “Credit Facilities.” In connection with the Separation, we incurred $100.0 million of borrowings under the revolving credit facility and $300.0 million of borrowings under the term loan facility, in each case to finance a cash payment to our Former Parent immediately prior to the Separation. On December 31, 2014, we amended our Credit Facilities to increase the amount of the revolving credit facility in the Original Credit Agreement to $350.0 million but incurred no additional borrowings. On July 1, 2015, we amended our Credit Facilities to facilitate our ability to consummate the Audience acquisition. We funded the cash portion of the consideration through a drawdown of our existing revolving Credit Facility and cash on hand. On February 9, 2016, the Company entered into a third amendment to its Credit Facilities in connection with the Company’s decision to sell the speakers and receivers product line of the Company’s Mobile Consumer Electronics segment, which also includes permanent reduction by the Company of the aggregate revolving commitment under the Original Credit Agreement from $350.0 million to $300.0 million. On April 27, 2016, the Company entered into a fourth amendment to its Credit Facilities in connection with the Company's offering of the Notes. The fourth amendment to the Credit Facilities, among other things (i) added language to permit the Company to execute the offering of the Notes and the related transactions, (ii) amended the requirement of the Leverage Ratio for it not to exceed
3.75
to 1.0 (previously
3.25
to 1.0) and (iii) added a definition for the Senior Secured Leverage Ratio and set a requirement for it not to exceed
3.25
to 1.0. See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Borrowings" section for additional information related to our post-Separation debt.
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(7)
|
Also includes current portion of long-term debt and capital lease obligations.
|
•
|
MCE designs and manufactures innovative acoustic products, including microphones and audio processing technologies used in mobile handsets, wearables and other consumer electronic devices. Locations include the corporate office in Itasca, Illinois; sales, support and engineering facilities in North America, Europe and Asia; and manufacturing facilities in Asia.
|
•
|
SC specializes in the design and manufacture of specialized electronic components used in medical and life science applications, as well as high-performance solutions and components used in communications infrastructure and a wide variety of other markets. SC’s transducer products are used principally in hearing aid applications within the commercial audiology markets, while its oscillator products predominantly serve the telecom infrastructure market and its capacitor products are used in applications including radio, radar, satellite, power supplies, transceivers and medical implants serving the defense, aerospace, telecommunication and life sciences markets. Locations include the corporate office in Itasca, Illinois; sales, support, engineering and manufacturing facilities in North America, Europe and Asia.
|
•
|
Audio - Transducer products used in hearing health and premium headset applications will be moved from the SC segment to the new Audio segment which will also include the historical MCE segment.
|
•
|
Precision Devices - Oscillator and capacitor products formerly in the SC segment will be included in the Precision Devices segment.
|
|
|
Years Ended December 31,
|
||||||||||
(in millions, except per share amounts)
|
|
2016
|
|
2015
|
|
2014
|
||||||
Revenues
|
|
$
|
859.3
|
|
|
$
|
849.6
|
|
|
$
|
915.0
|
|
|
|
|
|
|
|
|
||||||
Gross profit
|
|
$
|
328.6
|
|
|
$
|
312.3
|
|
|
$
|
355.5
|
|
Non-GAAP gross profit
|
|
$
|
335.0
|
|
|
$
|
337.5
|
|
|
$
|
377.3
|
|
|
|
|
|
|
|
|
||||||
Earnings from continuing operations before interest and income taxes
|
|
$
|
51.2
|
|
|
$
|
35.3
|
|
|
$
|
139.1
|
|
Adjusted earnings from continuing operations before interest and income taxes
|
|
$
|
106.1
|
|
|
$
|
115.5
|
|
|
$
|
187.5
|
|
|
|
|
|
|
|
|
||||||
Provision for income taxes
|
|
$
|
11.7
|
|
|
$
|
6.1
|
|
|
$
|
12.9
|
|
Non-GAAP provision for income taxes
|
|
$
|
4.5
|
|
|
$
|
5.7
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
|
||||||
Earnings from continuing operations
|
|
$
|
19.1
|
|
|
$
|
16.5
|
|
|
$
|
119.6
|
|
Non-GAAP net earnings from continuing operations
|
|
$
|
85.6
|
|
|
$
|
97.1
|
|
|
$
|
156.3
|
|
|
|
|
|
|
|
|
||||||
Earnings per share from continuing operations - diluted
(1)
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
1.40
|
|
Non-GAAP diluted earnings per share from continuing operations
|
|
$
|
0.94
|
|
|
$
|
1.10
|
|
|
$
|
1.83
|
|
|
|
Years Ended December 31,
|
||||||||||
(in millions, except share and per share amounts)
|
|
2016
|
|
2015
|
|
2014
|
||||||
Gross profit
|
|
$
|
328.6
|
|
|
$
|
312.3
|
|
|
$
|
355.5
|
|
Stock-based compensation expense
|
|
1.5
|
|
|
1.2
|
|
|
0.8
|
|
|||
Fixed asset, inventory and other charges
|
|
0.3
|
|
|
3.3
|
|
|
0.2
|
|
|||
Restructuring charges
|
|
1.5
|
|
|
2.7
|
|
|
7.7
|
|
|||
Production transfer costs
(2)
|
|
3.1
|
|
|
16.0
|
|
|
13.1
|
|
|||
Other
(3)
|
|
—
|
|
|
2.0
|
|
|
—
|
|
|||
Non-GAAP gross profit
|
|
$
|
335.0
|
|
|
$
|
337.5
|
|
|
$
|
377.3
|
|
|
|
|
|
|
|
|
||||||
Earnings from continuing operations
|
|
$
|
19.1
|
|
|
$
|
16.5
|
|
|
$
|
119.6
|
|
Interest expense, net
|
|
20.4
|
|
|
12.7
|
|
|
6.6
|
|
|||
Provision for income taxes
|
|
11.7
|
|
|
6.1
|
|
|
12.9
|
|
|||
Earnings from continuing operations before interest and income taxes
|
|
51.2
|
|
|
35.3
|
|
|
139.1
|
|
|||
Stock-based compensation expense
|
|
21.5
|
|
|
15.2
|
|
|
8.6
|
|
|||
Intangibles amortization expense
|
|
19.6
|
|
|
19.6
|
|
|
17.2
|
|
|||
Fixed asset, inventory and other charges
|
|
0.5
|
|
|
4.2
|
|
|
0.2
|
|
|||
Restructuring charges
|
|
11.8
|
|
|
14.3
|
|
|
7.6
|
|
|||
Impairment of intangible assets
|
|
—
|
|
|
1.4
|
|
|
—
|
|
|||
Production transfer costs
(2)
|
|
3.1
|
|
|
16.0
|
|
|
13.8
|
|
|||
Other (gain) loss
(4)
|
|
(1.6
|
)
|
|
9.5
|
|
|
1.0
|
|
|||
Adjusted earnings from continuing operations before interest and income taxes
|
|
$
|
106.1
|
|
|
$
|
115.5
|
|
|
$
|
187.5
|
|
|
|
|
|
|
|
|
||||||
Interest expense, net
|
|
$
|
20.4
|
|
|
$
|
12.7
|
|
|
$
|
6.6
|
|
Interest expense, net non-GAAP reconciling adjustments
(5)
|
|
4.4
|
|
|
—
|
|
|
—
|
|
|||
Adjusted Interest Expense
|
|
$
|
16.0
|
|
|
$
|
12.7
|
|
|
$
|
6.6
|
|
|
|
|
|
|
|
|
||||||
Provision for income taxes
|
|
$
|
11.7
|
|
|
$
|
6.1
|
|
|
$
|
12.9
|
|
Income tax effects of non-GAAP reconciling adjustments
|
|
(7.2
|
)
|
|
(0.4
|
)
|
|
11.7
|
|
|||
Non-GAAP provision for income taxes
|
|
$
|
4.5
|
|
|
$
|
5.7
|
|
|
$
|
24.6
|
|
|
|
|
|
|
|
|
||||||
Earnings from continuing operations
|
|
$
|
19.1
|
|
|
$
|
16.5
|
|
|
$
|
119.6
|
|
Non-GAAP reconciling adjustments
(6)
|
|
54.9
|
|
|
80.2
|
|
|
48.4
|
|
|||
Interest expense, net non-GAAP reconciling adjustments
(5)
|
|
4.4
|
|
|
—
|
|
|
—
|
|
|||
Income tax effects of non-GAAP reconciling adjustments
|
|
(7.2
|
)
|
|
(0.4
|
)
|
|
11.7
|
|
|||
Non-GAAP net earnings from continuing operations
|
|
$
|
85.6
|
|
|
$
|
97.1
|
|
|
$
|
156.3
|
|
|
|
|
|
|
|
|
||||||
Non-GAAP diluted earnings per share from continuing operations
|
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
1.40
|
|
Earnings per share non-GAAP reconciling adjustment
|
|
0.73
|
|
|
0.91
|
|
|
0.43
|
|
|||
Non-GAAP diluted earnings per share from continuing operations
|
|
$
|
0.94
|
|
|
$
|
1.10
|
|
|
$
|
1.83
|
|
|
|
|
|
|
|
|
||||||
Diluted average shares outstanding
|
|
89,182,967
|
|
|
86,992,254
|
|
|
85,292,959
|
|
|||
Non-GAAP adjustment
(7)
|
|
1,758,522
|
|
|
961,841
|
|
|
292,817
|
|
|||
Non-GAAP diluted average shares outstanding
(7)
|
|
90,941,489
|
|
|
87,954,095
|
|
|
85,585,776
|
|
(1)
|
In addition to the GAAP financial measures included herein, Knowles has presented certain non-GAAP financial measures. Knowles uses non-GAAP measures as supplements to its GAAP results of operations in evaluating certain aspects of its business, and its executive management team focuses on non-GAAP items as key measures of Knowles' performance for business planning purposes. These measures assist Knowles in comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles' opinion, do not reflect its core operating performance. Knowles believes that its presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance. The Company does not consider these non-GAAP financial measures to be a substitute for the information provided by GAAP financial results.
|
(2)
|
Production transfer costs represent duplicate costs incurred to migrate manufacturing to new or existing facilities in Asia. These amounts are included in the corresponding Gross profit, Selling and administrative expenses, Operating expenses and Earnings from continuing operations before interest and income taxes for each period presented.
|
(3)
|
Other represents expenses related to the Audience acquisition.
|
(4)
|
In 2016, Other (gain) loss primarily represents a gain on the sale of investment related to a non-controlling interest in a MEMS timing device company partially offset by expenses related to the Audience acquisition. In 2015, Other (gain) loss represents expenses related to the Audience acquisition. In 2014, Other loss represents expenses related to our spin-off from our Former Parent.
|
(5)
|
Under GAAP, the accounting for the Company's convertible debt instrument requires separate consideration of the debt and conversion option components of the instrument in a manner that reflects a nonconvertible debt borrowing rate. Accordingly, for GAAP purposes we are required to recognize imputed interest expense on the Company’s $172.5 million of convertible senior notes due 2021 that were issued in a private placement in May 2016. The imputed interest rate was 8.12% for the convertible notes due 2021, while the actual coupon interest rate of the notes was 3.25%. The difference between the imputed interest expense and the coupon interest expense is excluded from management’s assessment of the Company’s operating performance because management believes that this non-cash expense is not indicative of its core, ongoing operating performance.
|
(6)
|
The Non-GAAP reconciling adjustments are those adjustments made to reconcile Earnings from continuing operations before interest and income taxes to Adjusted earnings from continuing operations before interest and income taxes.
|
(7)
|
The number of shares used in the diluted per share calculations on a non-GAAP basis excludes the impact of stock-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.
|
|
|
Years Ended December 31,
|
||||||||||||||||
(in millions)
|
|
2016
|
|
Percent of Revenues
|
|
2015
|
|
Percent of Revenues
|
|
2014
|
|
Percent of Revenues
|
||||||
Revenues
|
|
$
|
439.8
|
|
|
|
|
$
|
421.7
|
|
|
|
|
$
|
457.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating earnings
|
|
$
|
28.9
|
|
|
6.6%
|
|
$
|
31.1
|
|
|
7.4%
|
|
$
|
113.0
|
|
|
24.7%
|
Other (income) expense, net
|
|
(0.1
|
)
|
|
|
|
0.5
|
|
|
|
|
—
|
|
|
|
|||
Earnings before interest, income taxes and discontinued operations ("EBIT")
|
|
$
|
29.0
|
|
|
6.6%
|
|
$
|
30.6
|
|
|
7.3%
|
|
$
|
113.0
|
|
|
24.7%
|
Stock-based compensation expense
|
|
8.3
|
|
|
|
|
4.3
|
|
|
|
|
1.2
|
|
|
|
|||
Intangibles amortization expense
|
|
10.8
|
|
|
|
|
8.4
|
|
|
|
|
5.6
|
|
|
|
|||
Fixed asset, inventory and other charges
|
|
0.5
|
|
|
|
|
2.1
|
|
|
|
|
0.2
|
|
|
|
|||
Restructuring charges
|
|
7.1
|
|
|
|
|
11.2
|
|
|
|
|
—
|
|
|
|
|||
Impairment of intangibles
|
|
—
|
|
|
|
|
1.4
|
|
|
|
|
—
|
|
|
|
|||
Production transfer costs
(1)
|
|
0.1
|
|
|
|
|
2.8
|
|
|
|
|
1.0
|
|
|
|
|||
Other
(2)
|
|
—
|
|
|
|
|
2.9
|
|
|
|
|
—
|
|
|
|
|||
Adjusted earnings before interest, income taxes and discontinued operations ("Adjusted EBIT")
|
|
$
|
55.8
|
|
|
12.7%
|
|
$
|
63.7
|
|
|
15.1%
|
|
$
|
121.0
|
|
|
26.4%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(1)
Production transfer costs represent duplicate costs incurred to migrate manufacturing to new or existing facilities in Asia. These amounts are included in earnings before interest and income taxes for each period presented.
|
||||||||||||||||||
(2)
In 2015, Other represents expenses related to the Audience acquisition.
|
|
|
Years Ended December 31,
|
||||||||||||||||
(in millions)
|
|
2016
|
|
Percent of Revenues
|
|
2015
|
|
Percent of Revenues
|
|
2014
|
|
Percent of Revenues
|
||||||
Revenues
|
|
$
|
419.5
|
|
|
|
|
$
|
427.9
|
|
|
|
|
$
|
457.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Operating earnings
|
|
$
|
73.8
|
|
|
17.6%
|
|
$
|
60.7
|
|
|
14.2%
|
|
$
|
69.5
|
|
|
15.2%
|
Other (income), net
|
|
(0.4
|
)
|
|
|
|
(0.3
|
)
|
|
|
|
—
|
|
|
|
|||
Earnings before interest and income taxes ("EBIT")
|
|
$
|
74.2
|
|
|
17.7%
|
|
$
|
61.0
|
|
|
14.3%
|
|
$
|
69.5
|
|
|
15.2%
|
Stock-based compensation expense
|
|
2.3
|
|
|
|
|
2.4
|
|
|
|
|
1.7
|
|
|
|
|||
Intangibles amortization expense
|
|
8.8
|
|
|
|
|
11.2
|
|
|
|
|
11.5
|
|
|
|
|||
Fixed asset, inventory and other charges
|
|
—
|
|
|
|
|
2.1
|
|
|
|
|
—
|
|
|
|
|||
Restructuring charges
|
|
3.1
|
|
|
|
|
2.5
|
|
|
|
|
7.6
|
|
|
|
|||
Production transfer costs
(1)
|
|
3.0
|
|
|
|
|
13.2
|
|
|
|
|
12.8
|
|
|
|
|||
Other
|
|
0.1
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|||
Adjusted earnings before interest and income taxes ("Adjusted EBIT")
|
|
$
|
91.5
|
|
|
21.8%
|
|
$
|
92.4
|
|
|
21.6%
|
|
$
|
103.1
|
|
|
22.6%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
(1)
Production transfer costs represent duplicate costs incurred to migrate manufacturing to new or existing facilities in Asia. These amounts are included in earnings before interest and income taxes for each period presented.
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
|
2016
|
|
2015
|
|
2014
|
||||||
Net cash flows provided by (used in):
|
|
|
|
|
|
|
||||||
Operating activities
|
|
$
|
107.5
|
|
|
$
|
78.4
|
|
|
$
|
115.5
|
|
Investing activities
|
|
5.9
|
|
|
(95.2
|
)
|
|
(93.1
|
)
|
|||
Financing activities
|
|
(109.9
|
)
|
|
26.1
|
|
|
(71.4
|
)
|
|||
Effect of exchange rate changes on cash and cash equivalents
|
|
(0.6
|
)
|
|
(1.2
|
)
|
|
(1.4
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
|
$
|
2.9
|
|
|
$
|
8.1
|
|
|
$
|
(50.4
|
)
|
(in millions)
|
|
Years Ended December 31,
|
||||||||||
Free Cash Flow
|
|
2016
|
|
2015
|
|
2014
|
||||||
Cash flow provided by operating activities
|
|
$
|
107.5
|
|
|
$
|
78.4
|
|
|
$
|
115.5
|
|
Less: Capital expenditures
|
|
(38.7
|
)
|
|
(63.1
|
)
|
|
(83.9
|
)
|
|||
Free cash flow
|
|
$
|
68.8
|
|
|
$
|
15.3
|
|
|
$
|
31.6
|
|
Free cash flow as a percentage of revenue
|
|
8.0
|
%
|
|
1.8
|
%
|
|
3.5
|
%
|
|
|
|
|
Payments Due by Period
|
||||||||||||||||
(in millions)
|
|
Total
|
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
||||||||||
Short-term and long-term debt
(1)
|
|
$
|
336.0
|
|
|
$
|
10.8
|
|
|
$
|
152.7
|
|
|
$
|
172.5
|
|
|
$
|
—
|
|
Operating leases
(2)
|
|
69.1
|
|
|
9.4
|
|
|
17.3
|
|
|
16.1
|
|
|
26.3
|
|
|||||
Purchase obligations
(3)
|
|
49.6
|
|
|
49.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Capital leases
(4)
|
|
18.6
|
|
|
2.3
|
|
|
4.6
|
|
|
4.6
|
|
|
7.1
|
|
|||||
Post-retirement benefits
(5)
|
|
16.5
|
|
|
1.3
|
|
|
2.7
|
|
|
3.1
|
|
|
9.4
|
|
|||||
Total obligations
(6)
|
|
$
|
489.8
|
|
|
$
|
73.4
|
|
|
$
|
177.3
|
|
|
$
|
196.3
|
|
|
$
|
42.8
|
|
(1)
Primarily relates to the maturity of indebtedness under our Revolving Credit Facility and Term Loan due in January 2019 and our Notes due in November 2021. Does not give effect to any early repayment of or future amounts which may be drawn under the Revolving Credit Facility.
|
(2)
Represents off-balance sheet commitments related to operating leases. See Note 15. Commitments and Contingent Liabilities to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."
|
(3)
Represents off-balance sheet commitments for purchase obligations related to open purchase orders with our vendors.
|
(4)
Represents obligations related to capital leases. See Note 15. Commitments and Contingent Liabilities to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."
|
(5)
Amounts represent estimated contributions under our subsidiary's non-U.S. defined benefit pension plan through 2026. See Note 16. Employee Benefit Plans to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."
|
(6)
The liability related to unrecognized tax benefits has been excluded from the contractual obligations table because a reasonable estimate of the timing and amount of cash out flows from future tax settlements cannot be determined. See Note 13. Income Taxes to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."
|
|
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
|
|
|
FINANCIAL STATEMENT SCHEDULE
|
|
|
|
Page
|
|
|
|
|
|
|
||
|
||
|
||
|
||
|
||
|
||
|
||
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Revenues
|
$
|
859.3
|
|
|
$
|
849.6
|
|
|
$
|
915.0
|
|
Cost of goods sold
|
529.2
|
|
|
534.6
|
|
|
551.8
|
|
|||
Restructuring charges - cost of goods sold
|
1.5
|
|
|
2.7
|
|
|
7.7
|
|
|||
Gross profit
|
328.6
|
|
|
312.3
|
|
|
355.5
|
|
|||
Research and development expenses
|
100.5
|
|
|
92.8
|
|
|
64.1
|
|
|||
Selling and administrative expenses
|
170.7
|
|
|
171.9
|
|
|
156.9
|
|
|||
Restructuring charges
|
10.3
|
|
|
11.6
|
|
|
(0.1
|
)
|
|||
Operating expenses
|
281.5
|
|
|
276.3
|
|
|
220.9
|
|
|||
Operating earnings
|
47.1
|
|
|
36.0
|
|
|
134.6
|
|
|||
Interest expense, net
|
20.4
|
|
|
12.7
|
|
|
6.6
|
|
|||
Other (income) expense, net
|
(4.1
|
)
|
|
0.7
|
|
|
(4.5
|
)
|
|||
Earnings before income taxes and discontinued operations
|
30.8
|
|
|
22.6
|
|
|
132.5
|
|
|||
Provision for income taxes
|
11.7
|
|
|
6.1
|
|
|
12.9
|
|
|||
Earnings from continuing operations
|
19.1
|
|
|
16.5
|
|
|
119.6
|
|
|||
Loss from discontinued operations, net
|
(61.4
|
)
|
|
(250.3
|
)
|
|
(206.6
|
)
|
|||
Net loss
|
$
|
(42.3
|
)
|
|
$
|
(233.8
|
)
|
|
$
|
(87.0
|
)
|
|
|
|
|
|
|
||||||
Earnings per share from continuing operations:
|
|
|
|
|
|
||||||
Basic
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
1.41
|
|
Diluted
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
1.40
|
|
|
|
|
|
|
|
||||||
Loss per share from discontinued operations:
|
|
|
|
|
|
||||||
Basic
|
$
|
(0.70
|
)
|
|
$
|
(2.88
|
)
|
|
$
|
(2.43
|
)
|
Diluted
|
$
|
(0.68
|
)
|
|
$
|
(2.88
|
)
|
|
$
|
(2.42
|
)
|
|
|
|
|
|
|
||||||
Net loss per share:
|
|
|
|
|
|
||||||
Basic
|
$
|
(0.48
|
)
|
|
$
|
(2.69
|
)
|
|
$
|
(1.02
|
)
|
Diluted
|
$
|
(0.47
|
)
|
|
$
|
(2.69
|
)
|
|
$
|
(1.02
|
)
|
|
|
|
|
|
|
||||||
Weighted average common shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
88,667,098
|
|
|
86,802,828
|
|
|
85,046,042
|
|
|||
Diluted
|
89,182,967
|
|
|
86,992,254
|
|
|
85,292,959
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Net loss
|
$
|
(42.3
|
)
|
|
$
|
(233.8
|
)
|
|
$
|
(87.0
|
)
|
|
|
|
|
|
|
||||||
Other comprehensive (loss) earnings, net of tax
|
|
|
|
|
|
||||||
Foreign currency translation
|
0.8
|
|
|
(71.7
|
)
|
|
(78.6
|
)
|
|||
|
|
|
|
|
|
||||||
Employee benefit plans:
|
|
|
|
|
|
||||||
Actuarial losses arising during period
|
(5.6
|
)
|
|
(0.6
|
)
|
|
(4.5
|
)
|
|||
Amortization or settlement of actuarial losses included in net periodic pension cost
|
0.5
|
|
|
0.8
|
|
|
1.0
|
|
|||
Net change in employee benefit plans
|
(5.1
|
)
|
|
0.2
|
|
|
(3.5
|
)
|
|||
|
|
|
|
|
|
||||||
Changes in fair value of cash flow hedges:
|
|
|
|
|
|
||||||
Unrealized net losses arising during period
|
(2.5
|
)
|
|
(1.4
|
)
|
|
(0.2
|
)
|
|||
Net losses reclassified into earnings
|
0.9
|
|
|
—
|
|
|
—
|
|
|||
Total cash flow hedges
|
(1.6
|
)
|
|
(1.4
|
)
|
|
(0.2
|
)
|
|||
|
|
|
|
|
|
||||||
Other comprehensive loss, net of tax
|
(5.9
|
)
|
|
(72.9
|
)
|
|
(82.3
|
)
|
|||
|
|
|
|
|
|
||||||
Comprehensive loss
|
$
|
(48.2
|
)
|
|
$
|
(306.7
|
)
|
|
$
|
(169.3
|
)
|
|
December 31, 2016
|
|
December 31, 2015
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
66.2
|
|
|
$
|
63.3
|
|
Receivables, net of allowances of $1.7 and $1.8
|
145.1
|
|
|
145.2
|
|
||
Inventories, net
|
108.2
|
|
|
118.4
|
|
||
Prepaid and other current assets
|
10.6
|
|
|
9.2
|
|
||
Total current assets
|
330.1
|
|
|
336.1
|
|
||
Property, plant and equipment, net
|
186.2
|
|
|
215.3
|
|
||
Goodwill
|
894.6
|
|
|
925.8
|
|
||
Intangible assets, net
|
77.4
|
|
|
97.0
|
|
||
Other assets and deferred charges
|
25.9
|
|
|
29.3
|
|
||
Assets of discontinued operations
|
0.9
|
|
|
93.0
|
|
||
Total assets
|
$
|
1,515.1
|
|
|
$
|
1,696.5
|
|
|
|
|
|
||||
Current liabilities:
|
|
|
|
|
|
||
Current maturities of long-term debt
|
$
|
9.7
|
|
|
$
|
29.6
|
|
Accounts payable
|
71.8
|
|
|
77.2
|
|
||
Accrued compensation and employee benefits
|
34.7
|
|
|
31.2
|
|
||
Other accrued expenses
|
26.0
|
|
|
35.9
|
|
||
Federal and other taxes on income
|
6.8
|
|
|
1.5
|
|
||
Total current liabilities
|
149.0
|
|
|
175.4
|
|
||
Long-term debt
|
288.5
|
|
|
399.2
|
|
||
Deferred income taxes
|
21.7
|
|
|
18.4
|
|
||
Other liabilities
|
41.4
|
|
|
43.5
|
|
||
Liabilities of discontinued operations
|
6.0
|
|
|
53.2
|
|
||
Commitments and contingencies (Note 15)
|
|
|
|
|
|
||
Stockholders' equity:
|
|
|
|
||||
Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issued
|
—
|
|
|
—
|
|
||
Common stock - $0.01 par value; 400,000,000 shares authorized; 88,737,284 and 88,451,564 shares issued at December 31, 2016 and December 31, 2015, respectively
|
0.9
|
|
|
0.9
|
|
||
Additional paid-in capital
|
1,499.8
|
|
|
1,449.9
|
|
||
Accumulated deficit
|
(360.1
|
)
|
|
(317.8
|
)
|
||
Accumulated other comprehensive loss
|
(132.1
|
)
|
|
(126.2
|
)
|
||
Total stockholders' equity
|
1,008.5
|
|
|
1,006.8
|
|
||
Total liabilities and equity
|
$
|
1,515.1
|
|
|
$
|
1,696.5
|
|
|
Common Stock
|
|
Additional Paid-In Capital
|
|
Accumulated Deficit
|
|
Accumulated Other Comprehensive Loss
|
|
Net Former Parent Company Investment
|
|
Total Equity
|
||||||||||||
Balance at December 31, 2013
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
36.5
|
|
|
$
|
1,850.6
|
|
|
$
|
1,887.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net loss
|
—
|
|
|
—
|
|
|
(84.0
|
)
|
|
—
|
|
|
(3.0
|
)
|
|
(87.0
|
)
|
||||||
Net transfers to Former Parent Company
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(471.1
|
)
|
|
(471.1
|
)
|
||||||
Separation-related adjustments
|
—
|
|
|
—
|
|
|
—
|
|
|
(7.5
|
)
|
|
(11.8
|
)
|
|
(19.3
|
)
|
||||||
Reclassification of Net Former Parent Company Investment in connection with the Separation
|
—
|
|
|
1,364.7
|
|
|
—
|
|
|
—
|
|
|
(1,364.7
|
)
|
|
—
|
|
||||||
Issuance of common stock at Separation
|
0.9
|
|
|
(0.9
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(82.3
|
)
|
|
—
|
|
|
(82.3
|
)
|
||||||
Common stock issued for exercises of stock options
|
—
|
|
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
||||||
Stock-based compensation expense
|
—
|
|
|
8.7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8.7
|
|
||||||
Balance at December 31, 2014
|
$
|
0.9
|
|
|
$
|
1,372.6
|
|
|
$
|
(84.0
|
)
|
|
$
|
(53.3
|
)
|
|
$
|
—
|
|
|
$
|
1,236.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net loss
|
—
|
|
|
—
|
|
|
(233.8
|
)
|
|
—
|
|
|
—
|
|
|
(233.8
|
)
|
||||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(72.9
|
)
|
|
—
|
|
|
(72.9
|
)
|
||||||
Stock-based compensation expense
|
—
|
|
|
16.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16.5
|
|
||||||
Stock-based restructuring charges
|
—
|
|
|
1.4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.4
|
|
||||||
Tax on restricted stock unit vesting
|
—
|
|
|
(2.2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2.2
|
)
|
||||||
Common stock issues for acquisition
|
—
|
|
|
61.6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
61.6
|
|
||||||
Balance at December 31, 2015
|
$
|
0.9
|
|
|
$
|
1,449.9
|
|
|
$
|
(317.8
|
)
|
|
$
|
(126.2
|
)
|
|
$
|
—
|
|
|
$
|
1,006.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net loss
|
—
|
|
|
—
|
|
|
(42.3
|
)
|
|
—
|
|
|
—
|
|
|
(42.3
|
)
|
||||||
Other comprehensive loss, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
(5.9
|
)
|
|
—
|
|
|
(5.9
|
)
|
||||||
Purchase of convertible note hedges
|
—
|
|
|
(44.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(44.5
|
)
|
||||||
Issuance of warrants
|
—
|
|
|
39.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39.1
|
|
||||||
Equity component of the convertible notes issuance, net
|
—
|
|
|
35.3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35.3
|
|
||||||
Stock-based compensation expense
|
—
|
|
|
21.5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
21.5
|
|
||||||
Tax on restricted stock unit vesting
|
—
|
|
|
(1.5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1.5
|
)
|
||||||
Balance at December 31, 2016
|
$
|
0.9
|
|
|
$
|
1,499.8
|
|
|
$
|
(360.1
|
)
|
|
$
|
(132.1
|
)
|
|
$
|
—
|
|
|
$
|
1,008.5
|
|
|
Years Ended December 31,
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Operating Activities
|
|
|
|
|
|
||||||
Net loss
|
$
|
(42.3
|
)
|
|
$
|
(233.8
|
)
|
|
$
|
(87.0
|
)
|
Adjustments to reconcile net loss to cash from operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
73.7
|
|
|
135.7
|
|
|
151.6
|
|
|||
Stock-based compensation
|
21.5
|
|
|
16.5
|
|
|
9.0
|
|
|||
Loss on sale of business
|
25.6
|
|
|
—
|
|
|
—
|
|
|||
Non-cash interest expense and amortization of debt issuance costs
|
5.6
|
|
|
0.8
|
|
|
0.5
|
|
|||
Impairment of intangibles
|
—
|
|
|
144.7
|
|
|
—
|
|
|||
Impairment charges on fixed and other assets
|
0.9
|
|
|
56.5
|
|
|
1.4
|
|
|||
Deferred income taxes
|
4.0
|
|
|
(25.0
|
)
|
|
1.2
|
|
|||
Non-cash restructuring related charges
|
—
|
|
|
—
|
|
|
18.8
|
|
|||
Other, net
|
(3.2
|
)
|
|
(1.1
|
)
|
|
(2.7
|
)
|
|||
Cash effect of changes in assets and liabilities (excluding effects of foreign exchange):
|
|
|
|
|
|
||||||
Receivables, net
|
35.9
|
|
|
45.2
|
|
|
(24.3
|
)
|
|||
Inventories, net
|
21.9
|
|
|
11.7
|
|
|
(18.2
|
)
|
|||
Prepaid and other current assets
|
(1.2
|
)
|
|
1.6
|
|
|
1.7
|
|
|||
Accounts payable
|
(26.6
|
)
|
|
(42.7
|
)
|
|
38.0
|
|
|||
Accrued compensation and employee benefits
|
(0.7
|
)
|
|
0.3
|
|
|
(3.4
|
)
|
|||
Other accrued expenses
|
(9.6
|
)
|
|
(14.9
|
)
|
|
23.8
|
|
|||
Accrued taxes
|
5.3
|
|
|
(12.9
|
)
|
|
11.6
|
|
|||
Other non-current assets and non-current liabilities
|
(3.3
|
)
|
|
(4.2
|
)
|
|
(6.5
|
)
|
|||
Net cash provided by operating activities
|
107.5
|
|
|
78.4
|
|
|
115.5
|
|
|||
|
|
|
|
|
|
||||||
Investing Activities
|
|
|
|
|
|
|
|
||||
Proceeds from the sale of business
|
40.6
|
|
|
—
|
|
|
—
|
|
|||
Proceeds from the sale of investments
|
2.0
|
|
|
4.0
|
|
|
14.5
|
|
|||
Proceeds from the sale of property, plant and equipment
|
2.0
|
|
|
0.5
|
|
|
0.3
|
|
|||
Additions to property, plant and equipment
|
(38.7
|
)
|
|
(63.1
|
)
|
|
(83.9
|
)
|
|||
Acquisitions of business (net of cash acquired)
|
—
|
|
|
(35.1
|
)
|
|
—
|
|
|||
Capitalized patent defense costs
|
—
|
|
|
(1.0
|
)
|
|
(16.0
|
)
|
|||
Purchase of intellectual property license
|
—
|
|
|
(0.5
|
)
|
|
—
|
|
|||
Purchase of investment
|
—
|
|
|
—
|
|
|
(8.0
|
)
|
|||
Net cash provided by (used in) investing activities
|
5.9
|
|
|
(95.2
|
)
|
|
(93.1
|
)
|
|||
|
|
|
|
|
|
||||||
Financing Activities
|
|
|
|
|
|
|
|
||||
Payments under revolving credit facility
|
(132.0
|
)
|
|
(85.0
|
)
|
|
—
|
|
|||
Borrowings under revolving credit facility
|
32.0
|
|
|
130.0
|
|
|
—
|
|
|||
Principal payments on term loan debt
|
(166.5
|
)
|
|
(15.0
|
)
|
|
—
|
|
|||
Proceeds from issuance of convertible senior notes
|
172.5
|
|
|
—
|
|
|
—
|
|
|||
Proceeds from issuance of warrants
|
39.1
|
|
|
—
|
|
|
—
|
|
|||
Purchase of convertible note hedges
|
(44.5
|
)
|
|
—
|
|
|
—
|
|
|||
Proceeds from term loan debt
|
—
|
|
|
—
|
|
|
400.0
|
|
|||
Debt issuance costs
|
(6.7
|
)
|
|
(0.3
|
)
|
|
(3.3
|
)
|
|||
Payments of capital lease obligations
|
(2.3
|
)
|
|
(1.4
|
)
|
|
—
|
|
|||
Tax on restricted stock unit vesting
|
(1.5
|
)
|
|
(2.2
|
)
|
|
—
|
|
|||
Net proceeds from exercise of stock-based awards
|
—
|
|
|
—
|
|
|
0.1
|
|
|||
Net transfers to Former Parent Company
|
—
|
|
|
—
|
|
|
(468.2
|
)
|
|||
Net cash (used in) provided by financing activities
|
(109.9
|
)
|
|
26.1
|
|
|
(71.4
|
)
|
|||
|
|
|
|
|
|
||||||
Effect of exchange rate changes on cash and cash equivalents
|
(0.6
|
)
|
|
(1.2
|
)
|
|
(1.4
|
)
|
|||
|
|
|
|
|
|
||||||
Net increase (decrease) in cash and cash equivalents
|
2.9
|
|
|
8.1
|
|
|
(50.4
|
)
|
|||
Cash and cash equivalents at beginning of period
|
63.3
|
|
|
55.2
|
|
|
105.6
|
|
|||
Cash and cash equivalents at end of period
|
$
|
66.2
|
|
|
$
|
63.3
|
|
|
$
|
55.2
|
|
|
|
|
|
|
|
||||||
Supplemental information - cash paid during the year for:
|
|
|
|
|
|
||||||
Income taxes
|
$
|
4.2
|
|
|
$
|
19.3
|
|
|
$
|
20.9
|
|
Interest
|
$
|
12.2
|
|
|
$
|
11.2
|
|
|
$
|
6.7
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
•
|
Audio - Transducer products used in hearing health and premium headset applications will be moved from the SC segment to the new Audio segment which will also include the historical MCE segment.
|
•
|
Precision Devices - Oscillator and capacitor products formerly in the SC segment will be included in the Precision Devices segment.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Revenues
|
$
|
52.8
|
|
|
$
|
235.0
|
|
|
$
|
226.3
|
|
Cost of goods sold
|
65.6
|
|
|
253.8
|
|
|
332.3
|
|
|||
Impairment of fixed and other assets
(1)
|
—
|
|
|
50.1
|
|
|
1.2
|
|
|||
Restructuring charges - cost of goods sold
(2)
|
8.8
|
|
|
0.9
|
|
|
15.6
|
|
|||
Gross profit
|
(21.6
|
)
|
|
(69.8
|
)
|
|
(122.8
|
)
|
|||
Research and development expenses
(1)
|
6.8
|
|
|
19.3
|
|
|
18.9
|
|
|||
Selling and administrative expenses
|
6.1
|
|
|
37.6
|
|
|
39.6
|
|
|||
Impairment of intangible and other assets
(1)
|
—
|
|
|
143.3
|
|
|
—
|
|
|||
Restructuring charges
(2)
|
1.7
|
|
|
1.1
|
|
|
6.4
|
|
|||
Operating expenses
|
14.6
|
|
|
201.3
|
|
|
64.9
|
|
|||
|
|
|
|
|
|
||||||
Other expense (income), net
|
—
|
|
|
0.4
|
|
|
(0.1
|
)
|
|||
|
|
|
|
|
|
||||||
Loss on sale of business
|
25.6
|
|
|
—
|
|
|
—
|
|
|||
|
|
|
|
|
|
||||||
Loss from discontinued operations before taxes
|
(61.8
|
)
|
|
(271.5
|
)
|
|
(187.6
|
)
|
|||
(Benefit from) provision for income taxes
|
(0.4
|
)
|
|
(21.2
|
)
|
|
19.0
|
|
|||
Loss from discontinued operations, net of tax
|
$
|
(61.4
|
)
|
|
$
|
(250.3
|
)
|
|
$
|
(206.6
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
Assets of Discontinued Operations:
|
|
|
|
||||
Accounts receivable
|
$
|
0.6
|
|
|
$
|
47.2
|
|
Inventories, net
|
—
|
|
|
33.6
|
|
||
Prepaid and other current assets
|
0.3
|
|
|
2.0
|
|
||
Total current assets
|
0.9
|
|
|
82.8
|
|
||
Property, plant and equipment, net
|
—
|
|
|
9.5
|
|
||
Other assets and deferred charges
|
—
|
|
|
0.7
|
|
||
Total assets
(1)
|
$
|
0.9
|
|
|
$
|
93.0
|
|
|
|
|
|
||||
Liabilities of Discontinued Operations:
|
|
|
|
||||
Accounts payable
|
$
|
2.8
|
|
|
$
|
39.3
|
|
Other current liabilities
|
3.2
|
|
|
11.8
|
|
||
Total current liabilities
|
6.0
|
|
|
51.1
|
|
||
Other liabilities
|
—
|
|
|
2.1
|
|
||
Total liabilities
(1)
|
$
|
6.0
|
|
|
$
|
53.2
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Depreciation
|
$
|
0.8
|
|
|
$
|
36.3
|
|
|
$
|
69.8
|
|
Amortization of intangible assets
|
$
|
—
|
|
|
$
|
22.5
|
|
|
$
|
25.5
|
|
Additions to property, plant and equipment
|
$
|
2.5
|
|
|
$
|
20.5
|
|
|
$
|
31.1
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
•
|
estimated amortization of a definite-lived developed technology intangible asset,
|
•
|
the estimated cost of the inventory step-up to fair value,
|
•
|
the estimated depreciation expense of the fixed asset step-up to fair value,
|
•
|
interest expense associated with debt that would have been incurred in connection with the acquisition and
|
•
|
the reclassification of Audience transaction costs from 2015 to the first quarter of 2014.
|
|
Years Ended December 31,
|
||||||
(in millions except share and per share amounts)
|
2015
|
|
2014
|
||||
Revenue from continuing operations:
|
|
|
|
||||
As reported
|
$
|
849.6
|
|
|
$
|
915.0
|
|
Pro forma
|
879.6
|
|
|
1,028.3
|
|
||
Earnings (loss) from continuing operations
|
|
|
|
||||
As reported
|
$
|
16.5
|
|
|
$
|
119.6
|
|
Pro forma
|
(37.4
|
)
|
|
36.9
|
|
||
Basic earnings (loss) per share from continuing operations:
|
|
|
|
||||
As reported
|
$
|
0.19
|
|
|
$
|
1.41
|
|
Pro forma
|
(0.42
|
)
|
|
0.42
|
|
||
Diluted earnings (loss) per share from continuing operations:
|
|
|
|
||||
As reported
|
$
|
0.19
|
|
|
$
|
1.40
|
|
Pro forma
|
(0.42
|
)
|
|
0.42
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
Raw materials
|
$
|
64.1
|
|
|
$
|
66.4
|
|
Work in progress
|
18.0
|
|
|
14.2
|
|
||
Finished goods
|
60.9
|
|
|
75.2
|
|
||
Subtotal
|
143.0
|
|
|
155.8
|
|
||
Less: reserves
|
(34.8
|
)
|
|
(37.4
|
)
|
||
Total
|
$
|
108.2
|
|
|
$
|
118.4
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
Land
|
$
|
9.2
|
|
|
$
|
11.3
|
|
Buildings and improvements
|
112.3
|
|
|
118.4
|
|
||
Machinery, equipment and other
|
464.8
|
|
|
479.9
|
|
||
Subtotal
|
586.3
|
|
|
609.6
|
|
||
Less: accumulated depreciation
|
(400.1
|
)
|
|
(394.3
|
)
|
||
Total
|
$
|
186.2
|
|
|
$
|
215.3
|
|
(in millions)
|
Mobile Consumer Electronics
|
|
Specialty Components
|
|
Total
|
||||||
Balance at January 1, 2015
|
$
|
729.1
|
|
|
$
|
185.6
|
|
|
$
|
914.7
|
|
Acquisitions
(1)
|
47.8
|
|
|
—
|
|
|
47.8
|
|
|||
Foreign currency translation
|
(36.9
|
)
|
|
0.2
|
|
|
(36.7
|
)
|
|||
Balance at December 31, 2015
|
740.0
|
|
|
185.8
|
|
|
925.8
|
|
|||
Allocation to discontinued operations
|
(18.7
|
)
|
|
—
|
|
|
(18.7
|
)
|
|||
Acquisition adjustment
(1)
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|||
Foreign currency translation
|
(12.8
|
)
|
|
0.1
|
|
|
(12.7
|
)
|
|||
Balance at December 31, 2016
|
$
|
708.7
|
|
|
$
|
185.9
|
|
|
$
|
894.6
|
|
(1)
|
Represents goodwill related to the Audience acquisition.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
December 31, 2016
|
|
December 31, 2015
|
||||||||||||
(in millions)
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
||||||||
Amortized intangible assets:
|
|
|
|
|
|
|
|
||||||||
Trademarks
|
$
|
0.3
|
|
|
$
|
0.2
|
|
|
$
|
0.3
|
|
|
$
|
0.2
|
|
Patents
|
42.9
|
|
|
19.3
|
|
|
42.9
|
|
|
14.5
|
|
||||
Customer relationships
|
156.2
|
|
|
152.8
|
|
|
156.1
|
|
|
143.4
|
|
||||
Unpatented technologies
|
92.2
|
|
|
73.9
|
|
|
92.4
|
|
|
68.6
|
|
||||
Other
|
3.1
|
|
|
3.1
|
|
|
3.1
|
|
|
3.1
|
|
||||
Total
|
294.7
|
|
|
249.3
|
|
|
294.8
|
|
|
229.8
|
|
||||
Unamortized intangible assets:
|
|
|
|
|
|
|
|
||||||||
Trademarks
|
32.0
|
|
|
|
|
32.0
|
|
|
|
||||||
Total intangible assets, net
|
$
|
77.4
|
|
|
|
|
$
|
97.0
|
|
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
Warranty
|
$
|
2.0
|
|
|
$
|
1.9
|
|
Restructuring and exit costs
|
3.6
|
|
|
8.7
|
|
||
Accrued short term capital leases
|
2.4
|
|
|
3.3
|
|
||
Hedging liability
|
3.6
|
|
|
1.1
|
|
||
Sales volume rebates
|
3.2
|
|
|
3.2
|
|
||
Other
(1)
|
11.2
|
|
|
17.7
|
|
||
Total
|
$
|
26.0
|
|
|
$
|
35.9
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
2016
|
|
2015
|
||||
Beginning Balance, January 1
|
$
|
1.9
|
|
|
$
|
13.9
|
|
Provision for warranties
|
2.4
|
|
|
0.5
|
|
||
Settlements made
(1)
|
(2.5
|
)
|
|
(12.5
|
)
|
||
Other adjustments, including currency translation
|
0.2
|
|
|
—
|
|
||
Ending balance, December 31
|
$
|
2.0
|
|
|
$
|
1.9
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Mobile Consumer Electronics
|
$
|
7.1
|
|
|
$
|
11.2
|
|
|
$
|
—
|
|
Specialty Components
|
3.1
|
|
|
2.5
|
|
|
7.6
|
|
|||
Corporate
|
1.6
|
|
|
0.6
|
|
|
—
|
|
|||
Total
|
$
|
11.8
|
|
|
$
|
14.3
|
|
|
$
|
7.6
|
|
(in millions)
|
Severance Pay and Benefits
|
|
Contract Termination and Other Costs
|
|
Total
|
||||||
Balance at January 1, 2014
|
$
|
3.6
|
|
|
$
|
0.5
|
|
|
$
|
4.1
|
|
Restructuring charges
|
6.9
|
|
|
0.7
|
|
|
7.6
|
|
|||
Payments
|
(3.8
|
)
|
|
(0.3
|
)
|
|
(4.1
|
)
|
|||
Other, including foreign currency
|
—
|
|
|
(0.4
|
)
|
|
(0.4
|
)
|
|||
Balance at December 31, 2014
|
$
|
6.7
|
|
|
$
|
0.5
|
|
|
$
|
7.2
|
|
Restructuring charges
|
13.4
|
|
|
0.9
|
|
|
14.3
|
|
|||
Payments
|
(12.0
|
)
|
|
(0.2
|
)
|
|
(12.2
|
)
|
|||
Other, including foreign currency
|
(0.4
|
)
|
|
(0.1
|
)
|
|
(0.5
|
)
|
|||
Balance at December 31, 2015
|
$
|
7.7
|
|
|
$
|
1.1
|
|
|
$
|
8.8
|
|
Restructuring charges
|
9.2
|
|
|
2.6
|
|
|
11.8
|
|
|||
Payments
|
(13.5
|
)
|
|
(3.3
|
)
|
|
(16.8
|
)
|
|||
Balance at December 31, 2016
|
$
|
3.4
|
|
|
$
|
0.4
|
|
|
$
|
3.8
|
|
(in millions)
|
|
December 31, 2016
|
|
December 31, 2015
|
||||
Other accrued expenses
|
|
$
|
3.6
|
|
|
$
|
8.7
|
|
Other liabilities
(1)
|
|
0.2
|
|
|
0.1
|
|
||
Total
|
|
$
|
3.8
|
|
|
$
|
8.8
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
|
Years Ended December 31,
|
||||||||||
Hedge Type
|
Income Statement Line
|
2016
|
|
2015
|
|
2014
|
||||||
Economic Hedges
|
Other (income) expense, net
|
$
|
2.0
|
|
|
$
|
(0.8
|
)
|
|
$
|
—
|
|
(in millions)
|
|
Years Ended December 31,
|
||||||||||
Hedge Type
|
Income Statement Line
|
2016
|
|
2015
|
|
2014
|
||||||
Cash flow hedges
|
Other (income) expense, net
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
3.25% Convertible Senior Notes
|
$
|
135.1
|
|
|
$
|
—
|
|
Term loan and revolving credit facility
|
163.1
|
|
|
428.8
|
|
||
Total
|
298.2
|
|
|
428.8
|
|
||
Less: current maturities
|
9.7
|
|
|
29.6
|
|
||
Total long-term debt
|
$
|
288.5
|
|
|
$
|
399.2
|
|
(in millions)
|
2017
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
||||||||||
Debt principal payments
(1)
|
$
|
10.8
|
|
|
$
|
14.4
|
|
|
$
|
138.3
|
|
|
$
|
—
|
|
|
$
|
172.5
|
|
=
|
during any calendar quarter, if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
|
=
|
during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the trading price per $1,000 principal amount of Notes was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; or upon the occurrence of specified corporate events.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
||
Liability component:
|
|
||
Principal
|
$
|
172.5
|
|
Less: debt issuance costs, debt discount, net of amortization
|
(37.4
|
)
|
|
Total
|
135.1
|
|
|
Less: current maturities
(1)
|
(0.9
|
)
|
|
Long-term portion
|
$
|
136.0
|
|
|
|
||
Equity component
(2)
|
$
|
29.9
|
|
|
Year Ended December 31,
|
||
(in millions)
|
2016
|
||
3.25% coupon
|
$
|
3.7
|
|
Amortization of debt issuance costs
|
0.6
|
|
|
Amortization of debt discount
|
3.6
|
|
|
Total
|
$
|
7.9
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
Term loan due January 2019
|
$
|
118.5
|
|
|
$
|
285.0
|
|
$300.0 million revolving credit facility due January 2019
|
45.0
|
|
|
145.0
|
|
||
Less: debt issuance costs, net of amortization
|
(0.4
|
)
|
|
(1.2
|
)
|
||
Total
|
163.1
|
|
|
428.8
|
|
||
Less: current maturities
(1)
|
10.6
|
|
|
29.6
|
|
||
Long-term portion
|
$
|
152.5
|
|
|
$
|
399.2
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Interest expense
(1)
|
$
|
20.5
|
|
|
$
|
12.8
|
|
|
$
|
6.7
|
|
Interest income
|
(0.1
|
)
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|||
Interest expense, net
|
$
|
20.4
|
|
|
$
|
12.7
|
|
|
$
|
6.6
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Domestic
|
$
|
(60.5
|
)
|
|
$
|
(66.9
|
)
|
|
$
|
(5.8
|
)
|
Foreign
|
91.3
|
|
|
89.5
|
|
|
138.3
|
|
|||
Total earnings before income taxes
|
$
|
30.8
|
|
|
$
|
22.6
|
|
|
$
|
132.5
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Current:
|
|
|
|
|
|
||||||
U.S. Federal
|
$
|
—
|
|
|
$
|
1.9
|
|
|
$
|
2.9
|
|
State and local
|
0.1
|
|
|
—
|
|
|
0.2
|
|
|||
Foreign
|
10.1
|
|
|
12.7
|
|
|
22.3
|
|
|||
Total current tax expense
|
10.2
|
|
|
14.6
|
|
|
25.4
|
|
|||
Deferred:
|
|
|
|
|
|
||||||
U.S. Federal
|
$
|
0.9
|
|
|
$
|
(3.3
|
)
|
|
$
|
(10.4
|
)
|
State and local
|
0.2
|
|
|
(0.1
|
)
|
|
(0.1
|
)
|
|||
Foreign
|
0.4
|
|
|
(5.1
|
)
|
|
(2.0
|
)
|
|||
Total deferred tax expense (benefit)
|
1.5
|
|
|
(8.5
|
)
|
|
(12.5
|
)
|
|||
Total income tax expense
|
$
|
11.7
|
|
|
$
|
6.1
|
|
|
$
|
12.9
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
|||||||
|
2016
|
|
2015
|
|
2014
|
|||
U.S. Federal income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State and local taxes, net of Federal income tax benefit
|
1.0
|
%
|
|
(6.8
|
)%
|
|
(0.3
|
)%
|
Foreign operations tax effect
|
(28.0
|
)%
|
|
(42.6
|
)%
|
|
(10.7
|
)%
|
Research & experimentation tax credits
|
(6.0
|
)%
|
|
(11.3
|
)%
|
|
(1.6
|
)%
|
Valuation allowance
|
74.6
|
%
|
|
103.1
|
%
|
|
(0.1
|
)%
|
Tax contingencies
|
(0.5
|
)%
|
|
(2.1
|
)%
|
|
0.6
|
%
|
Tax holiday
|
(58.6
|
)%
|
|
(79.9
|
)%
|
|
(19.0
|
)%
|
Foreign taxes
|
6.8
|
%
|
|
12.7
|
%
|
|
1.3
|
%
|
Non-deductible transaction costs
|
—
|
%
|
|
5.3
|
%
|
|
—
|
%
|
Stock based compensation
|
8.8
|
%
|
|
4.3
|
%
|
|
—
|
%
|
Other, principally non-tax deductible items
|
4.7
|
%
|
|
8.7
|
%
|
|
2.6
|
%
|
Prior period items
|
0.2
|
%
|
|
0.6
|
%
|
|
2.0
|
%
|
Effective income tax rate
|
38.0
|
%
|
|
27.0
|
%
|
|
9.8
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
|
December 31, 2015
|
||||
Deferred tax assets:
|
|
|
|
||||
Accrued compensation, principally post-retirement and other employee benefits
|
$
|
19.0
|
|
|
$
|
16.2
|
|
Accrued expenses, principally for state income taxes, interest and warranty
|
6.5
|
|
|
5.0
|
|
||
Net operating loss and other carryforwards
|
148.2
|
|
|
123.4
|
|
||
Inventories, principally due to reserves for financial reporting purposes and capitalization for tax purposes
|
7.5
|
|
|
6.8
|
|
||
Convertible Note Hedges
|
14.6
|
|
|
—
|
|
||
Plant and equipment, principally due to differences in depreciation
|
4.4
|
|
|
6.5
|
|
||
Total gross deferred tax assets
|
200.2
|
|
|
157.9
|
|
||
Valuation allowance
|
(161.3
|
)
|
|
(127.4
|
)
|
||
Total deferred tax assets
|
$
|
38.9
|
|
|
$
|
30.5
|
|
|
|
|
|
||||
Deferred tax liabilities:
|
|
|
|
||||
Intangible assets, principally due to different tax and financial reporting bases and amortization lives
|
$
|
(27.3
|
)
|
|
$
|
(30.1
|
)
|
Debt discount on convertible notes
|
(11.6
|
)
|
|
—
|
|
||
Other liabilities
|
(6.7
|
)
|
|
(2.5
|
)
|
||
Total gross deferred tax liabilities
|
(45.6
|
)
|
|
(32.6
|
)
|
||
Net deferred tax liability
|
$
|
(6.7
|
)
|
|
$
|
(2.1
|
)
|
|
|
|
|
||||
Classified as follows in the consolidated balance sheets:
|
|
|
|
||||
Other assets and deferred charges (non-current deferred tax assets)
(1)
|
$
|
15.0
|
|
|
$
|
16.3
|
|
Deferred income taxes (non-current deferred tax liabilities)
(1)
|
(21.7
|
)
|
|
(18.4
|
)
|
||
Net deferred tax liability
|
$
|
(6.7
|
)
|
|
$
|
(2.1
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
Unrecognized tax benefits at January 1, 2014
|
$
|
5.5
|
|
Additions based on tax positions related to the current year
|
0.1
|
|
|
Additions for tax positions of prior years
|
0.7
|
|
|
Reductions for tax positions of prior years
|
(1.3
|
)
|
|
Unrecognized tax benefits at December 31, 2014
|
$
|
5.0
|
|
Reductions for tax positions due to lapsed statutes of limitations
|
(0.6
|
)
|
|
Additions for acquisitions
|
8.4
|
|
|
Unrecognized tax benefits at December 31, 2015
|
$
|
12.8
|
|
Reductions for tax positions due to lapsed statutes of limitations
|
(1.0
|
)
|
|
Unrecognized tax benefits at December 31, 2016
|
$
|
11.8
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Pre-tax stock-based compensation expense
|
$
|
21.5
|
|
|
$
|
15.2
|
|
|
$
|
8.6
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
(3.0
|
)
|
|||
Total stock-based compensation expense, net of tax
|
$
|
21.5
|
|
|
$
|
15.2
|
|
|
$
|
5.6
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Knowles Grants
|
||||||||||
|
2016
|
|
2015
|
|
2014
|
||||||
Risk-free interest rate
|
1.04%
|
to
|
1.25%
|
|
1.24%
|
to
|
1.50%
|
|
1.32%
|
to
|
1.70%
|
Dividend yield
|
—%
|
|
—%
|
|
—%
|
||||||
Expected life (years)
|
4.5
|
|
4.5
|
|
4.5
|
to
|
5.3
|
||||
Volatility
|
37.0%
|
to
|
39.6%
|
|
39.8%
|
to
|
42.4%
|
|
42.9%
|
to
|
49.9%
|
Fair value at date of grant
|
$3.76
|
to
|
$4.83
|
|
$5.94
|
to
|
$6.88
|
|
$7.99
|
to
|
$13.50
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
SSARs
|
|
Stock Options
|
||||||||||||||||||||||
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Aggregate Intrinsic Value
|
|
Weighted-Average Remaining Contractual Term (Years)
|
|
Number of Shares
|
|
Weighted-Average Exercise Price
|
|
Aggregate Intrinsic Value
|
|
Weighted-Average Remaining Contractual Term (Years)
|
||||||||||
(in millions except share and per share amounts)
|
|||||||||||||||||||||||||
Outstanding at December 31, 2015
|
1,013,780
|
|
|
$
|
20.92
|
|
|
|
|
|
|
3,165,556
|
|
|
$
|
22.58
|
|
|
|
|
|
||||
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|
2,038,013
|
|
|
11.20
|
|
|
|
|
|
||||||
Exercised
|
(56,707
|
)
|
|
14.50
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
||||||
Forfeited
|
—
|
|
|
—
|
|
|
|
|
|
|
(410,959
|
)
|
|
18.15
|
|
|
|
|
|
||||||
Expired
|
(58,355
|
)
|
|
$
|
22.06
|
|
|
|
|
|
|
(108,493
|
)
|
|
$
|
22.22
|
|
|
|
|
|
||||
Outstanding at December 31, 2016
|
898,718
|
|
|
$
|
21.25
|
|
|
$
|
0.5
|
|
|
4.9
|
|
4,684,117
|
|
|
$
|
18.03
|
|
|
$
|
10.4
|
|
|
5.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Exercisable at December 31, 2016
|
898,718
|
|
|
$
|
21.25
|
|
|
$
|
0.5
|
|
|
4.9
|
|
938,890
|
|
|
$
|
22.67
|
|
|
$
|
—
|
|
|
5.0
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
SSARs
|
|
|
|
|
|
||||||
Fair value of SSARs that are exercisable
|
$
|
1.9
|
|
|
$
|
0.6
|
|
|
$
|
1.1
|
|
Aggregate intrinsic value of SSARs exercised
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
$
|
0.1
|
|
|
|
|
|
|
|
||||||
Stock Options
|
|
|
|
|
|
||||||
Cash received by Knowles for exercise of stock options
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.1
|
|
Aggregate intrinsic value of options exercised
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
0.2
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Share units
|
|
Weighted-average grant date fair value
|
|||
Unvested at December 31, 2015
|
1,079,994
|
|
|
$
|
24.41
|
|
Granted
|
1,685,512
|
|
|
12.17
|
|
|
Vested
|
(415,905
|
)
|
|
19.81
|
|
|
Forfeited
|
(274,603
|
)
|
|
15.81
|
|
|
Unvested at December 31, 2016
|
2,074,998
|
|
|
$
|
14.94
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
Capital Leases
|
|
Operating Leases
|
||||
2017
|
$
|
2.3
|
|
|
$
|
9.4
|
|
2018
|
2.3
|
|
|
8.8
|
|
||
2019
|
2.3
|
|
|
8.5
|
|
||
2020
|
2.3
|
|
|
8.1
|
|
||
2021
|
2.3
|
|
|
8.0
|
|
||
2022 and thereafter
|
7.1
|
|
|
26.3
|
|
||
Total
|
$
|
18.6
|
|
|
$
|
69.1
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
December 31,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Change in benefit obligation:
|
|
|
|
||||
Benefit obligation at beginning of year
|
$
|
51.0
|
|
|
$
|
55.2
|
|
Benefits earned during the year
|
0.2
|
|
|
0.2
|
|
||
Interest cost
|
1.6
|
|
|
2.0
|
|
||
Benefits paid
|
(1.7
|
)
|
|
(2.5
|
)
|
||
Actuarial gain (loss)
|
10.1
|
|
|
(1.2
|
)
|
||
Settlement and curtailment gains
|
(0.2
|
)
|
|
(0.3
|
)
|
||
Currency translation and other
|
(8.6
|
)
|
|
(2.4
|
)
|
||
Benefit obligation at end of year
|
52.4
|
|
|
51.0
|
|
||
Change in plan assets:
|
|
|
|
|
|
||
Fair value of plan assets at beginning of year
|
45.1
|
|
|
45.9
|
|
||
Actual return on plan assets
|
6.7
|
|
|
0.7
|
|
||
Company contributions
|
1.7
|
|
|
3.3
|
|
||
Benefits paid
|
(1.7
|
)
|
|
(2.5
|
)
|
||
Settlements and curtailments
|
(0.2
|
)
|
|
(0.3
|
)
|
||
Currency translation and other
|
(7.8
|
)
|
|
(2.0
|
)
|
||
Fair value of plan assets at end of year
|
43.8
|
|
|
45.1
|
|
||
Funded status
|
$
|
(8.6
|
)
|
|
$
|
(5.9
|
)
|
|
|
|
|
||||
Amounts recognized in the balance sheets consist of:
|
|
|
|
|
|
||
Other assets and deferred charges
|
$
|
—
|
|
|
$
|
0.4
|
|
Other liabilities
|
(8.6
|
)
|
|
(6.3
|
)
|
||
Funded status
|
$
|
(8.6
|
)
|
|
$
|
(5.9
|
)
|
|
|
|
|
||||
Accumulated Other Comprehensive Loss:
|
|
|
|
||||
Net actuarial losses
|
$
|
20.1
|
|
|
$
|
14.7
|
|
Deferred taxes
|
(3.6
|
)
|
|
(3.5
|
)
|
||
Total Accumulated Other Comprehensive Loss, net of tax
|
16.5
|
|
|
11.2
|
|
||
Net amount recognized at December 31,
|
$
|
7.9
|
|
|
$
|
5.3
|
|
|
|
|
|
||||
Accumulated benefit obligations
|
$
|
51.3
|
|
|
$
|
49.8
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
December 31,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Projected benefit obligation
|
$
|
32.6
|
|
|
$
|
31.3
|
|
Accumulated benefit obligation
|
31.9
|
|
|
30.3
|
|
||
Fair value of plan assets
|
24.2
|
|
|
25.0
|
|
|
Non-U.S. Plans
|
||||||||||
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Service cost
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
Interest cost
|
1.6
|
|
|
2.0
|
|
|
2.3
|
|
|||
Expected return on plan assets
|
(2.4
|
)
|
|
(2.9
|
)
|
|
(2.9
|
)
|
|||
Amortization of recognized actuarial loss
|
0.3
|
|
|
0.4
|
|
|
0.2
|
|
|||
Settlement and curtailment loss
|
—
|
|
|
0.1
|
|
|
0.1
|
|
|||
Total net periodic benefit cost
|
$
|
(0.3
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(0.1
|
)
|
|
Non-U.S. Plans
|
||||
|
December 31,
|
||||
|
2016
|
|
2015
|
||
Discount rate
|
|
|
|
||
Taiwan
|
1.50
|
%
|
|
1.10
|
%
|
United Kingdom
|
2.65
|
%
|
|
3.90
|
%
|
Weighted average
|
2.60
|
%
|
|
3.75
|
%
|
Average wage increase
|
|
|
|
||
Taiwan
|
4.00
|
%
|
|
4.00
|
%
|
United Kingdom
|
4.60
|
%
|
|
4.25
|
%
|
Weighted average
|
4.55
|
%
|
|
4.22
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
|||||||
|
2016
|
|
2015
|
|
2014
|
|||
Discount rate
|
|
|
|
|
|
|||
Taiwan
|
1.10
|
%
|
|
2.00
|
%
|
|
2.00
|
%
|
United Kingdom
|
3.90
|
%
|
|
3.75
|
%
|
|
4.50
|
%
|
Weighted average
|
3.72
|
%
|
|
3.66
|
%
|
|
4.40
|
%
|
Average wage increase
|
|
|
|
|
|
|||
Taiwan
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
United Kingdom
|
4.25
|
%
|
|
4.25
|
%
|
|
4.40
|
%
|
Weighted average
|
4.16
|
%
|
|
4.23
|
%
|
|
4.38
|
%
|
Expected return on plan assets
|
|
|
|
|
|
|||
Taiwan
|
1.50
|
%
|
|
1.50
|
%
|
|
2.00
|
%
|
United Kingdom
|
6.50
|
%
|
|
6.53
|
%
|
|
6.51
|
%
|
Weighted average
|
6.42
|
%
|
|
6.38
|
%
|
|
6.35
|
%
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
December 31, 2016
|
|
December 31, 2015
|
||||||||||||||||||||||||||||
(in millions)
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total Fair Value
|
||||||||||||||||
Asset category:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Fixed income investments
|
$
|
3.3
|
|
|
$
|
9.7
|
|
|
$
|
—
|
|
|
$
|
13.0
|
|
|
$
|
1.1
|
|
|
$
|
13.5
|
|
|
$
|
—
|
|
|
$
|
14.6
|
|
Common stock funds
|
2.3
|
|
|
16.4
|
|
|
—
|
|
|
18.7
|
|
|
2.7
|
|
|
20.0
|
|
|
—
|
|
|
22.7
|
|
||||||||
Cash and equivalents
|
0.6
|
|
|
2.9
|
|
|
—
|
|
|
3.5
|
|
|
0.3
|
|
|
0.8
|
|
|
—
|
|
|
1.1
|
|
||||||||
Other
|
1.6
|
|
|
7.0
|
|
|
—
|
|
|
8.6
|
|
|
1.7
|
|
|
5.0
|
|
|
—
|
|
|
6.7
|
|
||||||||
Total
|
$
|
7.8
|
|
|
$
|
36.0
|
|
|
$
|
—
|
|
|
$
|
43.8
|
|
|
$
|
5.8
|
|
|
$
|
39.3
|
|
|
$
|
—
|
|
|
$
|
45.1
|
|
(in millions)
|
Non-U.S. Plans
|
||
2017
|
$
|
1.3
|
|
2018
|
1.3
|
|
|
2019
|
1.4
|
|
|
2020
|
1.5
|
|
|
2021
|
1.6
|
|
|
2022-2026
|
9.4
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
December 31, 2016
|
||
Accrued compensation and employee benefits
|
$
|
(0.2
|
)
|
Other liabilities
|
(1.6
|
)
|
|
Total Accumulated Other Comprehensive Loss, net of tax
|
0.2
|
|
|
Net amount recognized at December 31, 2016
|
$
|
(1.6
|
)
|
|
Year Ended
|
||||||||||
|
December 31, 2016
|
||||||||||
(in millions)
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
||||||
Foreign currency translation
|
$
|
0.8
|
|
|
$
|
—
|
|
|
$
|
0.8
|
|
Employee benefit plans
|
(5.0
|
)
|
|
(0.1
|
)
|
|
(5.1
|
)
|
|||
Changes in fair value of cash flow hedges
|
(2.2
|
)
|
|
0.6
|
|
|
(1.6
|
)
|
|||
Total other comprehensive loss
|
$
|
(6.4
|
)
|
|
$
|
0.5
|
|
|
$
|
(5.9
|
)
|
|
|
|
|
|
|
||||||
|
Year Ended
|
||||||||||
|
December 31, 2015
|
||||||||||
(in millions)
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
||||||
Foreign currency translation
|
$
|
(71.7
|
)
|
|
$
|
—
|
|
|
$
|
(71.7
|
)
|
Employee benefit plans
|
0.2
|
|
|
—
|
|
|
0.2
|
|
|||
Changes in fair value of cash flow hedges
|
(1.4
|
)
|
|
—
|
|
|
(1.4
|
)
|
|||
Total other comprehensive loss
|
$
|
(72.9
|
)
|
|
$
|
—
|
|
|
$
|
(72.9
|
)
|
|
|
|
|
|
|
||||||
|
Year Ended
|
||||||||||
|
December 31, 2014
|
||||||||||
(in millions)
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
||||||
Foreign currency translation
|
$
|
(78.6
|
)
|
|
$
|
—
|
|
|
$
|
(78.6
|
)
|
Employee benefit plans
|
(4.4
|
)
|
|
0.9
|
|
|
(3.5
|
)
|
|||
Changes in fair value of cash flow hedges
|
(0.3
|
)
|
|
0.1
|
|
|
(0.2
|
)
|
|||
Total other comprehensive loss
|
$
|
(83.3
|
)
|
|
$
|
1.0
|
|
|
$
|
(82.3
|
)
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions)
|
|
Cash flow hedges
|
|
Employee benefit plans
|
|
Cumulative foreign currency translation adjustments
|
|
Total
|
||||||||
Balance at December 31, 2014
|
|
$
|
(0.2
|
)
|
|
$
|
(11.7
|
)
|
|
$
|
(41.4
|
)
|
|
$
|
(53.3
|
)
|
Other comprehensive loss
|
|
(1.4
|
)
|
|
0.2
|
|
|
(71.7
|
)
|
|
(72.9
|
)
|
||||
Balance at December 31, 2015
|
|
(1.6
|
)
|
|
(11.5
|
)
|
|
(113.1
|
)
|
|
(126.2
|
)
|
||||
Other comprehensive loss
|
|
(1.6
|
)
|
|
(5.1
|
)
|
|
0.8
|
|
|
(5.9
|
)
|
||||
Balance at December 31, 2016
|
|
$
|
(3.2
|
)
|
|
$
|
(16.6
|
)
|
|
$
|
(112.3
|
)
|
|
$
|
(132.1
|
)
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Pension and post-retirement benefit plans:
|
|
|
|
|
|
||||||
Amortization or settlement of actuarial losses
|
$
|
0.5
|
|
|
$
|
0.8
|
|
|
$
|
1.4
|
|
Tax benefit
|
—
|
|
|
—
|
|
|
(0.4
|
)
|
|||
Net of tax
|
$
|
0.5
|
|
|
$
|
0.8
|
|
|
$
|
1.0
|
|
|
|
|
|
|
|
||||||
Cash flow hedges:
|
|
|
|
|
|
||||||
Net losses reclassified into earnings
|
$
|
1.0
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Tax benefit
|
(0.1
|
)
|
|
—
|
|
|
—
|
|
|||
Net of tax
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
—
|
|
•
|
MCE designs and manufactures innovative acoustic products, including microphones and audio processing technologies used in mobile handsets, wearables and other consumer electronic devices.
|
•
|
SC specializes in the design and manufacture of specialized electronic components used in medical and life science applications, as well as high-performance solutions and components used in communications infrastructure and a wide variety of other markets. SC’s transducer products are used principally in hearing aid applications within the commercial audiology markets, while its oscillator products predominantly serve the telecom infrastructure market and its capacitor products are used in applications including radio, radar, satellite, power supplies, transceivers and medical implants serving the defense, aerospace, telecommunication and life sciences markets.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
||||||
Revenue:
|
|
|
|
|
|
||||||
Mobile Consumer Electronics
|
$
|
439.8
|
|
|
$
|
421.7
|
|
|
$
|
457.8
|
|
Specialty Components
|
419.5
|
|
|
427.9
|
|
|
457.2
|
|
|||
Total consolidated revenue
|
$
|
859.3
|
|
|
$
|
849.6
|
|
|
$
|
915.0
|
|
|
|
|
|
|
|
||||||
Earnings from continuing operations before interest and income taxes:
|
|
|
|
|
|
||||||
Mobile Consumer Electronics
|
$
|
29.0
|
|
|
$
|
30.6
|
|
|
$
|
113.0
|
|
Specialty Components
|
74.2
|
|
|
61.0
|
|
|
69.5
|
|
|||
Total segments
|
103.2
|
|
|
91.6
|
|
|
182.5
|
|
|||
Corporate expense / other
|
52.0
|
|
|
56.3
|
|
|
43.4
|
|
|||
Interest expense, net
|
20.4
|
|
|
12.7
|
|
|
6.6
|
|
|||
Earnings from continuing operations before interest and income taxes
|
30.8
|
|
|
22.6
|
|
|
132.5
|
|
|||
Provision for income taxes
|
11.7
|
|
|
6.1
|
|
|
12.9
|
|
|||
Earnings from continuing operations
|
$
|
19.1
|
|
|
$
|
16.5
|
|
|
$
|
119.6
|
|
|
|
|
|
|
|
||||||
Depreciation and amortization:
|
|
|
|
|
|
||||||
Mobile Consumer Electronics
|
$
|
48.7
|
|
|
$
|
49.0
|
|
|
$
|
48.5
|
|
Specialty Components
|
21.0
|
|
|
25.1
|
|
|
24.8
|
|
|||
Corporate
|
3.3
|
|
|
2.7
|
|
|
2.1
|
|
|||
Total
|
$
|
73.0
|
|
|
$
|
76.8
|
|
|
$
|
75.4
|
|
|
|
|
|
|
|
||||||
Capital expenditures:
|
|
|
|
|
|
||||||
Mobile Consumer Electronics
|
$
|
23.7
|
|
|
$
|
22.9
|
|
|
$
|
39.9
|
|
Specialty Components
|
9.7
|
|
|
19.9
|
|
|
16.6
|
|
|||
Corporate
|
0.8
|
|
|
5.6
|
|
|
4.7
|
|
|||
Total
|
$
|
34.2
|
|
|
$
|
48.4
|
|
|
$
|
61.2
|
|
|
|
|
|
|
|
||||||
Research and development:
|
|
|
|
|
|
||||||
Mobile Consumer Electronics
|
$
|
72.5
|
|
|
$
|
64.6
|
|
|
$
|
36.2
|
|
Specialty Components
|
27.9
|
|
|
28.2
|
|
|
27.9
|
|
|||
Corporate
|
0.1
|
|
|
—
|
|
|
—
|
|
|||
Total
|
$
|
100.5
|
|
|
$
|
92.8
|
|
|
$
|
64.1
|
|
|
Total Assets
|
||||||
|
As of December 31,
|
||||||
(in millions)
|
2016
|
|
2015
|
||||
Mobile Consumer Electronics
|
$
|
976.4
|
|
|
$
|
1,059.0
|
|
Specialty Components
|
535.7
|
|
|
542.7
|
|
||
Corporate / eliminations
|
2.1
|
|
|
1.8
|
|
||
Discontinued operations
|
0.9
|
|
|
93.0
|
|
||
Total
|
$
|
1,515.1
|
|
|
$
|
1,696.5
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Revenue
|
|
Long-Lived Assets
|
||||||||||||||||
|
Years Ended December 31,
|
|
At December 31,
|
||||||||||||||||
(in millions)
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
||||||||||
Asia
|
$
|
626.1
|
|
|
$
|
602.1
|
|
|
$
|
671.8
|
|
|
$
|
130.6
|
|
|
$
|
150.4
|
|
United States
|
121.8
|
|
|
135.9
|
|
|
123.9
|
|
|
44.4
|
|
|
51.2
|
|
|||||
Europe
|
96.6
|
|
|
97.5
|
|
|
105.0
|
|
|
11.2
|
|
|
13.7
|
|
|||||
Other Americas
|
7.1
|
|
|
7.6
|
|
|
9.6
|
|
|
—
|
|
|
—
|
|
|||||
Other
|
7.7
|
|
|
6.5
|
|
|
4.7
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
859.3
|
|
|
$
|
849.6
|
|
|
$
|
915.0
|
|
|
$
|
186.2
|
|
|
$
|
215.3
|
|
•
|
Audio - Transducer products used in hearing health and premium headset applications will be moved from the SC segment to the new Audio segment which will also include the historical MCE segment.
|
•
|
Precision Devices - Oscillator and capacitor products formerly in the SC segment will be included in the Precision Devices segment.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
Years Ended December 31,
|
||||||||||
(in millions except share and per share amounts)
|
2016
(1)
|
|
2015
(1)(2)
|
|
2014
(1)(2)
|
||||||
Earnings from continuing operations
|
$
|
19.1
|
|
|
$
|
16.5
|
|
|
$
|
119.6
|
|
Loss from discontinued operations, net
|
$
|
(61.4
|
)
|
|
$
|
(250.3
|
)
|
|
$
|
(206.6
|
)
|
Net loss
|
$
|
(42.3
|
)
|
|
$
|
(233.8
|
)
|
|
$
|
(87.0
|
)
|
|
|
|
|
|
|
||||||
Basic earnings (loss) per common share:
|
|
|
|
|
|
||||||
Earnings from continuing operations
|
$
|
0.22
|
|
|
$
|
0.19
|
|
|
$
|
1.41
|
|
Loss from discontinued operations, net
|
$
|
(0.70
|
)
|
|
$
|
(2.88
|
)
|
|
$
|
(2.43
|
)
|
Net loss
|
$
|
(0.48
|
)
|
|
$
|
(2.69
|
)
|
|
$
|
(1.02
|
)
|
|
|
|
|
|
|
||||||
Weighted average shares outstanding
|
88,667,098
|
|
|
86,802,828
|
|
|
85,046,042
|
|
|||
|
|
|
|
|
|
||||||
Diluted earnings (loss) per common share:
|
|
|
|
|
|
||||||
Earnings from continuing operations
|
$
|
0.21
|
|
|
$
|
0.19
|
|
|
$
|
1.40
|
|
Loss from discontinued operations, net
|
$
|
(0.68
|
)
|
|
$
|
(2.88
|
)
|
|
$
|
(2.42
|
)
|
Net loss
|
$
|
(0.47
|
)
|
|
$
|
(2.69
|
)
|
|
$
|
(1.02
|
)
|
|
|
|
|
|
|
||||||
Diluted weighted-average shares outstanding
|
89,182,967
|
|
|
86,992,254
|
|
|
85,292,959
|
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
(in millions except per share amounts)
|
|
Continuing Operations
|
|
Net Earnings (Loss)
|
|||||||||||||||||||||||||||
Quarter
|
Revenues
|
|
Gross Profit
|
|
Earnings (Loss)
|
|
Per Share - Basic
(1)
|
|
Per Share - Diluted
(1)
|
|
Earnings (Loss)
|
|
Per Share - Basic
(1)
|
|
Per Share - Diluted
(1)
|
||||||||||||||||
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
First
|
$
|
185.3
|
|
|
$
|
66.8
|
|
|
$
|
(12.5
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(29.4
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.33
|
)
|
Second
|
190.3
|
|
|
72.9
|
|
|
(6.8
|
)
|
|
(0.08
|
)
|
|
(0.08
|
)
|
|
(24.6
|
)
|
|
(0.28
|
)
|
|
(0.28
|
)
|
||||||||
Third
|
243.1
|
|
|
94.9
|
|
|
20.9
|
|
|
0.24
|
|
|
0.24
|
|
|
(7.6
|
)
|
|
(0.08
|
)
|
|
(0.08
|
)
|
||||||||
Fourth
|
240.6
|
|
|
94.0
|
|
|
17.5
|
|
|
0.20
|
|
|
0.19
|
|
|
19.3
|
|
|
0.21
|
|
|
0.22
|
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
First
|
$
|
186.6
|
|
|
$
|
62.5
|
|
|
$
|
5.0
|
|
|
$
|
0.06
|
|
|
$
|
0.06
|
|
|
$
|
(15.8
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
(0.19
|
)
|
Second
|
192.8
|
|
|
71.4
|
|
|
13.3
|
|
|
0.16
|
|
|
0.16
|
|
|
(16.1
|
)
|
|
(0.19
|
)
|
|
(0.19
|
)
|
||||||||
Third
|
246.7
|
|
|
97.3
|
|
|
4.8
|
|
|
0.05
|
|
|
0.05
|
|
|
(14.9
|
)
|
|
(0.17
|
)
|
|
(0.17
|
)
|
||||||||
Fourth
|
223.5
|
|
|
81.1
|
|
|
(6.6
|
)
|
|
(0.07
|
)
|
|
(0.07
|
)
|
|
(187.0
|
)
|
|
(2.11
|
)
|
|
(2.11
|
)
|
Allowance for Doubtful Accounts
(in millions)
|
|
Balance at
Beginning
of Year
|
|
Charged to Cost and
Expense (1) |
|
Accounts
Written Off
|
|
Balance at
End of Year
|
|||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|||||
Allowance for Doubtful Accounts
|
|
$
|
1.8
|
|
|
—
|
|
|
(0.1
|
)
|
|
1.7
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|||||
Allowance for Doubtful Accounts
|
|
$
|
0.8
|
|
|
1.1
|
|
|
(0.1
|
)
|
|
1.8
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|||||
Allowance for Doubtful Accounts
|
|
$
|
1.7
|
|
|
(0.8
|
)
|
|
(0.1
|
)
|
|
0.8
|
|
(1)
Net of recoveries on previously reserved or written-off balances.
|
|
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|||||
Deferred Tax Valuation Allowance
(in millions)
|
|
Balance at
Beginning
of Year
|
|
Additions
|
|
Reductions
|
|
Balance at
End of Year
|
|||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
|||||
Deferred Tax Valuation Allowance
|
|
$
|
127.4
|
|
|
33.9
|
|
|
—
|
|
|
161.3
|
|
Year Ended December 31, 2015
|
|
|
|
|
|
|
|
|
|||||
Deferred Tax Valuation Allowance
|
|
$
|
48.9
|
|
|
78.5
|
|
|
—
|
|
|
127.4
|
|
Year Ended December 31, 2014
|
|
|
|
|
|
|
|
|
|||||
Deferred Tax Valuation Allowance
|
|
$
|
71.5
|
|
|
48.9
|
|
|
(71.5
|
)
|
|
48.9
|
|
|
(a)
|
|
(b)
|
|
(c)
|
||||
Plan Category
|
Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights
(1)
|
|
Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights
|
|
Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a))
(2)
|
||||
Equity compensation plans approved by stockholders
|
1,452,256
|
|
|
$
|
13.29
|
|
|
8,597,022
|
|
Equity compensation plans not approved by stockholders
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
1,452,256
|
|
|
$
|
13.29
|
|
|
8,597,022
|
|
(1)
|
Column (a) consists of shares issuable pursuant to outstanding restricted stock unit, SSAR and stock option awards under the Company’s
2016
Equity and Cash Incentive Plan and 2014 Equity and Cash Incentive Plan. Restricted stock units are not reflected in the weighted-average exercise price in column (b).
|
(2)
|
Column (c) consists of shares available for future issuance under the
2016
Equity and Cash Incentive Plan. The
2016
Equity and Cash Incentive Plan provides for stock options and SSAR grants, restricted stock awards, restricted stock unit awards, unrestricted stock awards, performance share awards, cash performance awards, and deferred stock units. Shares subject to stock options and SSARs will reduce the shares available for awards under the
2016
Equity and Cash Incentive Plan by one share for every one share granted. Performance share awards, restricted stock, unrestricted stock, restricted stock units that are settled in shares of common stock, and deferred stock units will reduce the shares available for awards under the
2016
Equity and Cash Incentive Plan by 1.75 shares for every one share awarded. Cash performance awards do not count against the pool of available shares. The number of shares earned when an award is exercised, vests or is paid out will count against the pool of available shares, including shares withheld to pay taxes or an option’s exercise price. Shares subject to an award under the
2016
Equity and Cash Incentive Plan and the 2014 Equity and Cash Incentive Plan that are canceled, terminated or forfeited or that expire will be available for reissuance under the
2016
Equity and Cash Incentive Plan.
|
a)
|
The following documents are filed as part of this report:
|
(1)
|
Financial Statements:
|
•
|
The financial statements are set forth under “Item 8. Financial Statements and Supplementary Data” of this Form 10-K.
|
(2)
|
Financial Statement Schedules:
|
•
|
The following financial statement schedule is set forth under “Item 8. Financial Statements and Supplementary Data” of this Form 10-K. All other schedules have been omitted because they are not required, are not applicable or the required information is included in the financial statements or the notes thereto.
|
•
|
Schedule II – Valuation and Qualifying Accounts
|
(3)
|
Exhibits
|
•
|
The exhibits listed in the accompanying Exhibit Index are filed or incorporated by reference as part of this Form 10-K. The exhibits will be filed with the SEC but will not be included in the printed version of the Annual Report to Stockholders.
|
|
|
KNOWLES CORPORATION
|
|
|
|
|
|
/s/ JEFFREY S. NIEW
|
|
|
Jeffrey S. Niew
|
|
|
President and Chief Executive Officer
|
Date:
|
February 21, 2017
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ JEFFREY S. NIEW
|
|
Chief Executive Officer, President and Director
(Principal Executive Officer) |
|
February 21, 2017
|
Jeffrey S. Niew
|
|
|
|
|
/s/ JOHN S. ANDERSON
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial Officer) |
|
February 21, 2017
|
John S. Anderson
|
|
|
|
|
/s/ BRYAN E. MITTELMAN
|
|
Vice President, Controller
(Principal Accounting Officer)
|
|
February 21, 2017
|
Bryan E. Mittelman
|
|
|
|
|
/s/ JEAN-PIERRE M. ERGAS
|
|
Chairman, Board of Directors
|
|
February 21, 2017
|
Jean-Pierre M. Ergas
|
|
|
|
|
/s/ KEITH L. BARNES
|
|
Director
|
|
February 21, 2017
|
Keith L. Barnes
|
|
|
|
|
/s/ HERMANN EUL
|
|
Director
|
|
February 21, 2017
|
Hermann Eul
|
|
|
|
|
/s/ DIDIER HIRSCH
|
|
Director
|
|
February 21, 2017
|
Didier Hirsch
|
|
|
|
|
/s/ RONALD JANKOV
|
|
Director
|
|
February 21, 2017
|
Ronald Jankov
|
|
|
|
|
/s/ RICHARD K. LOCHRIDGE
|
|
Director
|
|
February 21, 2017
|
Richard K. Lochridge
|
|
|
|
|
/s/ DONALD MACLEOD
|
|
Director
|
|
February 21, 2017
|
Donald Macleod
|
|
|
|
|
Exhibit Number
|
|
Description
|
2.1
|
|
Separation and Distribution Agreement dated February 28, 2014 by and between Dover Corporation and Knowles Corporation, filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
2.2
|
|
Agreement and Plan of Merger, dated as of April 29, 2015, by and among Knowles Corporation, Orange Subsidiary, Inc. and Audience, Inc., filed as Exhibit 2.1 to Registrant's Current Report on Form 8-K dated April 29, 2015 and incorporated herein by reference thereto.
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Knowles Corporation, filed as Exhibit 3.1 to Registrant's Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
3.2
|
|
Amended and Restated By-laws of Knowles Corporation, filed as Exhibit 3.2 to Registrant's Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
3.3
|
|
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Knowles Corporation, incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016.
|
3.4
|
|
Amendment No. 1 to Amended and Restated By-Laws of Knowles Corporation, incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016.
|
4.1
|
|
Indenture between Knowles Corporation and U.S. Bank National Association, as trustee, dated May 4, 2016 filed as Exhibit 4.1 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein.
|
4.2
|
|
Form of 3.25% Convertible Senior Note due 2021 (included in Exhibit 4.1) filed as Exhibit 4.2 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein.
|
10.1
|
|
Transition Services Agreement dated February 28, 2014 by and between Dover Corporation and Knowles Corporation, filed as Exhibit 10.3 to Registrant's Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.2
|
|
Tax Matters Agreement dated February 28, 2014 by and between Dover Corporation and Knowles Corporation, filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.3
|
|
Employee Matters Agreement dated February 28, 2014 by and between Dover Corporation and Knowles Corporation, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.4†
|
|
Senior Executive Change-in-Control Severance Plan, filed as Exhibit 10.8 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.5†
|
|
2014 Equity and Cash Incentive Plan, filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.5.1†
|
|
Form of Restricted Stock Unit Award Agreement, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated March 7, 2014 and incorporated herein by reference thereto
|
10.5.2†
|
|
Form of Award Grant Letter for Restricted Stock, filed as Exhibit 10.9 to Registrant’s Registration Statement on Form 10 (File No. 001-36102) and incorporated herein by reference thereto
|
10.5.3†
|
|
Form of Award Grant Letter for Stock Settled Appreciation Rights, filed as Exhibit 10.10 to Registrant’s Registration Statement on Form 10 (File No. 001-36102) and incorporated herein by reference thereto
|
10.5.4†
|
|
Form of Stock Option Award Agreement, filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated March 7, 2014 and incorporated herein by reference thereto
|
10.5.5†
|
|
Form of Replacement SSAR Award Agreement, filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K dated March 7, 2014 and incorporated herein by reference thereto
|
10.5.6†
|
|
Form of Replacement Restricted Stock Unit Award Agreement, filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K dated March 7, 2014 and incorporated herein by reference thereto
|
10.5.7†
|
|
Nonemployee Director Deferral Program, filed as Exhibit 10.5.7 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2013 (File No. 001-36102) and incorporated herein by reference thereto
|
10.6†
|
|
Executive Deferred Compensation Plan, filed as Exhibit 10.6 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.7†
|
|
Executive Severance Plan, filed as Exhibit 10.7 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.8†
|
|
Executive Officer Annual Incentive Plan, filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K dated February 28, 2014 and incorporated herein by reference thereto
|
10.9†
|
|
Bonus Agreement between David Wightman and Dover Communication Technologies, dated March 21, 2013, filed as Exhibit 10.13 to Registrant’s Registration Statement on Form 10 (File No. 001-36102) and incorporated herein by reference thereto
|
10.10†
|
|
Executive Severance Agreement between David Wightman and Dover Corporation, dated as of February 21, 2000, filed as Exhibit 10.14 to Registrant’s Registration Statement on Form 10 (File No. 001-36102) and incorporated herein by reference thereto
|
10.11†
|
|
Relocation Agreements for Dave Wightman, filed as Exhibit 10.15 to Registrant’s Registration Statement on Form 10 (File No. 001-36102) and incorporated herein by reference thereto
|
10.12
|
|
Amended and Restated Credit Agreement, dated December 31, 2014, among Knowles Corporation, Knowles Luxembourg International S.à r.l. and certain other subsidiaries of Knowles Corporation, as borrowers, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated January 6, 2015 and incorporated herein by reference thereto
|
10.13
|
|
First Amendment, dated as of April 17, 2015, to Amended and Restated Credit Agreement by and among Knowles Corporation and Knowles Luxembourg International S.à r.l., as borrowers, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K dated April 29, 2015 and incorporated herein by reference thereto
|
10.14
|
|
Second Amendment, dated as of November 19, 2015 to Amended and Restated Credit Agreement by and among Knowles Corporation and Knowles Luxembourg International S.à r.l., as borrowers, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.14 to Registrant's Annual Report on Form 10-K dated February 19, 2016 and incorporated herein by reference thereto
|
10.15
|
|
Third Amendment, dated as of February 9, 2016, to Amended and Restated Credit Agreement by and among Knowles Corporation and Knowles Luxembourg International S.à r.l., as borrowers, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated February11, 2016 and incorporated herein by reference thereto
|
10.16
|
|
First Amendment, dated as of May 4, 2015, to the Knowles Corporation Senior Executive Change in Control Severance Plan filed as Exhibit 10.16 to Registrant's Current Report on Form 8-K dated May 4, 2015 and incorporated herein by reference thereto
|
10.17
|
|
First Amendment, dated as of May 4, 2015, to the Knowles Corporation 2014 Equity and Cash Incentive Plan filed as Exhibit 10.17 to Registrant's Current Report on Form 10-K dated February 19, 2016 and incorporated herein by reference thereto
|
10.18
|
|
Fourth Amendment, dated as of April 27, 2016, to Amended and Restated Credit Agreement by and among Knowles Corporation, as borrower, the lenders named therein and JPMorgan Chase Bank, N.A., as administrative agent, filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K dated April 27, 2016 and incorporated herein by reference thereto
|
10.19
|
|
Purchase Agreement between Knowles Corporation and J.P. Morgan Securities LLC, as representative of the initial purchasers named therein, dated April 28, 2016 filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.20
|
|
Convertible Note Hedge Confirmation between Knowles Corporation and HSBC Bank USA, National Association, dated April 28, 2016 filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.21
|
|
Warrant Confirmation between Knowles Corporation and HSBC Bank USA, National Association, dated April 28, 2016 filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.22
|
|
Convertible Note Hedge Confirmation between Knowles Corporation and JPMorgan Chase Bank, National Association, London Branch, dated April 28, 2016 filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.23
|
|
Warrant Confirmation between Knowles Corporation and JPMorgan Chase Bank, National Association, London Branch, dated April 28, 2016 filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.24
|
|
Convertible Note Hedge Confirmation between Knowles Corporation and Wells Fargo Bank, National Association, dated April 28, 2016 filed as Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.25
|
|
Warrant Confirmation between Knowles Corporation and Wells Fargo Bank, National Association, dated April 28, 2016 filed as Exhibit 10.7 to Registrant’s Current Report on Form 8-K filed with the Commission on May 4, 2016 and incorporated by reference herein
|
10.26
|
|
Convertible Note Hedge Confirmation between Knowles Corporation and HSBC Bank USA, National Association, dated May 11, 2016 filed as Exhibit 10.1 to Registrant’s Current Report on Form 8-K filed with the Commission on May 13, 2016 and incorporated by reference herein
|
10.27
|
|
Warrant Confirmation between Knowles Corporation and HSBC Bank USA, National Association, dated May 11, 2016 filed as Exhibit 10.2 to Registrant’s Current Report on Form 8-K filed with the Commission on May 13, 2016 and incorporated by reference herein
|
10.28
|
|
Convertible Note Hedge Confirmation between Knowles Corporation and JPMorgan Chase Bank, National Association, London Branch, dated May 11, 2016 filed as Exhibit 10.3 to Registrant’s Current Report on Form 8-K filed with the Commission on May 13, 2016 and incorporated by reference herein
|
10.29
|
|
Warrant Confirmation between Knowles Corporation and JPMorgan Chase Bank, National Association, London Branch, dated May 11, 2016 filed as Exhibit 10.4 to Registrant’s Current Report on Form 8-K filed with the Commission on May 13, 2016 and incorporated by reference herein
|
10.30
|
|
Convertible Note Hedge Confirmation between Knowles Corporation and Wells Fargo Bank, National Association, dated May 11, 2016 filed as Exhibit 10.5 to Registrant’s Current Report on Form 8-K filed with the Commission on May 13, 2016 and incorporated by reference herein
|
10.31
|
|
Warrant Confirmation between Knowles Corporation and Wells Fargo Bank, National Association, dated May 11, 2016 filed as Exhibit 10.6 to Registrant’s Current Report on Form 8-K filed with the Commission on May 13, 2016 and incorporated by reference herein
|
10.32
|
|
Knowles Corporation 2016 Equity and Cash Incentive Plan, incorporated by reference to Appendix B to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on March 15, 2016
|
10.33
|
|
Form of Restricted Stock Unit Award Agreement dated May 2, 2016, filed as Exhibit 10.15 to Registrant's Quarterly Report on Form 10-Q dated August 9, 2016 and incorporated herein by reference thereto
|
10.34
|
|
Form of Stock Option Award Agreement dated May 2, 2016, filed as Exhibit 10.16 to Registrant's Quarterly report on Form 10-Q dated August 9, 2016 and incorporated herein by reference thereto.
|
10.35
|
|
Addendum to Stock Option Agreement and Restricted Stock Award Agreement for Non-U.S
|
10.36
|
|
Amendment Number Two to the Knowles Corporation 2014 Equity and Cash Incentive Plan, dated November 18, 2016, filed herewith
|
10.37
|
|
Amendment Number One to the Knowles Corporation 2016 Equity and Cash Incentive Plan, dated November 18, 2016, filed herewith
|
10.38
|
|
Form of Restricted Stock Unit Award Agreement, dated November 17, 2016, filed herewith
|
10.39
|
|
Form of Stock Option Award Agreement, dated November 17, 2016, filed herewith
|
21.1
|
|
Subsidiaries of Knowles Corporation
|
23.1
|
|
Consent of PricewaterhouseCoopers LLP
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31.1
|
|
Certificate of Chief Executive Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
|
|
Certificate of Chief Financial Officer Required Under Section 302 of the Sarbanes-Oxley Act of 2002
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32.1
|
|
Joint Certificate of the Chief Executive Officer and Chief Financial Officer Required Under Section 906 of the Sarbanes-Oxley Act of 2002
|
101
|
|
The following materials from the Knowles Corporation Annual Report on Form 10-K for the year ended December 31, 2016 formatted in eXtensible Business Reporting Language (XBRL): (i) Consolidated Statements of Earnings, (ii) Consolidated Statements of Comprehensive Earnings, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Equity, (v) Consolidated Statements of Cash Flows and (vi) Notes to the Consolidated Financial Statements
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|
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|
†
|
|
Indicates the exhibit is a management contract or compensatory plan or arrangement
|
by
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|
|
|
|
Name:
|
|
Title:
|
by
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|
Name:
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Title:
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1.
|
Article 1.
a
. of the Plan is hereby amended in its entirety to read as follows:
|
a.
|
Eligible Executives
. Those executives who are eligible to participate in the Plan and to receive Severance Payments thereunder are (i) the Chief Executive Officer and the Chief Financial Officer of Knowles, Business Unit Presidents, those executives who report directly to the Chief Executive Officer of Knowles, and those Vice Presidents of Knowles who are designated as eligible by the Chief Executive Officer of Knowles from time to time;
provided
,
however
, that such executives (A) are employed in the United States or are a U.S.-based employee temporarily assigned to the non-U.S. payroll of a Subsidiary on an expatriate assignment, and (B) remain in such a position on the date of a “Change of Control” (as defined in Article 14) (such executives who meet the above eligibility requirements, the “Eligible Executives”).
|
1.
|
Paragraph 11 of the Plan is hereby amended in its entirety to read as follows:
|
2.
|
Paragraph 37(a) of the Plan is hereby amended in its entirety to read as follows:
|
3.
|
All references to “Change in Control” throughout the Plan are hereby amended to read “Change of Control”.
|
4.
|
The Plan is hereby amended by deleting the definition of “Directors’ Shares” in Section 2 of the Plan and inserting the following definition in its place, and further by deleting each reference in the Plan to “Directors’ Shares” and inserting a reference to “Directors’ Awards” in its place:
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5.
|
Paragraph 5(a) of the Plan is hereby amended by deleting the reference to “Directors’ Shares” in the first sentence thereof.
|
6.
|
Paragraph 14 of the Plan is hereby amended by deleting the first sentence thereof, and by inserting the following sentence in its place:
|
7.
|
Paragraph 34 of the Plan is hereby amended to read as follows:
|
8.
|
Paragraph 35 of the Plan is hereby amended by deleting the first sentence thereof, and inserting the following sentence in its place:
|
9.
|
Paragraph 36 of the Plan is hereby amended by deleting the last three sentences thereof.
|
1.
|
Restricted Stock Units are a bookkeeping entry on the books of Knowles Corporation. No shares of common stock, par value $0.01 per share (“Common Stock”), shall be issued to you in respect of the Restricted Stock Unit award until the restrictions have lapsed and applicable vesting conditions have been satisfied. Except as provided for in Appendix A attached hereto, in the event that your employment shall terminate prior to your vesting in the Restricted Stock Units, the Restricted Stock Units shall be forfeited. Within 30 days following the end of the Restriction Period set forth on the Award Statement, Knowles Corporation shall issue shares of Common Stock in your name equal to the number of Restricted Stock Units that have vested during the Restriction Period, less applicable tax withholding.
|
2.
|
You shall vest in the Restricted Stock Unit Award, and all restrictions thereon shall lapse, per the dates on your Award Statement. You must be an active employee of Knowles Corporation or an eligible affiliate at the end of the Restriction Period and satisfy all applicable vesting conditions in order for your Restricted Stock Units to vest, with certain exceptions as provided in the Appendix A attached hereto and subject to Section 6.17 of the Plan.
|
3.
|
During the Restriction Period, you shall not have any rights of a stockholder (including voting rights) or the right to receive any dividends declared or other distributions paid with respect to the Restricted Stock Units.
|
4.
|
As a condition precedent to the issuance or transfer of any shares of Common Stock upon the vesting of the Restricted Stock Units, you shall, upon request by Knowles Corporation, pay to Knowles Corporation such amount as Knowles Corporation may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the issuance or transfer of such shares of Common Stock. If you fail to advance the Required Tax Payments after request by Knowles Corporation, Knowles Corporation will, deduct any Required Tax Payments from any amount then or thereafter payable by Knowles Corporation to you. You must elect how you intend to satisfy your obligation to advance the Required Tax Payments. Your options to satisfy your tax obligation are as follows: (1) delivery of a cash payment to Knowles Corporation, (2) delivery to Knowles Corporation (either actual delivery or by attestation procedures established by Knowles Corporation) of previously owned whole shares of Common Stock having an aggregate Fair Market Value, determined as of the date on which such withholding obligation arises (the “Tax Date”), equal to the Required Tax Payments, (3) authorizing Knowles Corporation to withhold whole shares of Common Stock which would otherwise be issued or transferred to you having an aggregate Fair Market Value, determined as of the Tax Date, equal to the Required Tax Payments or (4) any combination of (1), (2) and (3). Shares of Common Stock to be delivered to Knowles Corporation or withheld may not have a Fair Market Value in excess of the minimum amount of the Required Tax Payments (or, to the extent consistent with applicable accounting requirements and IRS withholding rules, such higher withholding rate selected by you). Any fraction of a share of Common Stock which would be required to satisfy any such obligation shall be disregarded and the remaining amount due shall be paid in cash by you.
|
5.
|
As a condition of receiving your Restricted Stock Unit award, you agree to be bound by the terms and conditions of the Knowles Corporation Insider Trading and Confidentiality Policy, Anti-hedging and Anti-pledging Policy, and any Clawback Policy to be adopted by Knowles Corporation, as such policies may be modified from time to time. The Anti-hedging and Anti-pledging Policy prohibits hedging or pledging
any
Knowles equity securities held by you or certain designees, whether such Knowles securities are, or have been, acquired under the Plan, another compensation plan sponsored by Knowles Corporation, or otherwise. Please review the Anti-hedging and Anti-pledging Policy to make sure that you are in compliance. You may obtain a copy of the current version of the Anti-hedging, Anti-pledging policy to be adopted by Knowles Corporation, on the Merrill Lynch stock plan administration website.
|
6.
|
For Non-US Employees and employees who transfer employment outside of the United States during the term of the Restricted Stock Units, your Restricted Stock Unit award is subject to the conditions of the attached Addendum for Non-US Employees.
|
7.
|
Your award is not transferable by you other than by will or the laws of descent and distribution and in accordance with the applicable terms and conditions of the Plan.
|
8.
|
Knowles Corporation reserves the right to amend, modify, or terminate the Plan at any time in its discretion without notice.
|
9.
|
You must accept this award by logging onto the Merrill Lynch stock plan administration website. Acceptance of this Award shall also constitute an acknowledgement and acceptance of the provisions included in the Plan, Addendum (if applicable) and Appendix A (including, without limitation, the non-compete provisions set forth therein).
|
1.
|
Your Stock Option is subject to earlier termination as provided in the Appendix A attached hereto, for example, upon termination of employment prior to the expiration date.
|
2.
|
It is your responsibility to keep track of your Stock Option grants and to ensure that you exercise your Stock Options before they expire. Knowles Corporation is not responsible for reminding or notifying you that your Stock Option is nearing its expiration date.
|
3.
|
You shall vest in the Stock Option, and the Stock Option shall become exercisable, per the dates on your Award Statement. You must be an active employee of Knowles Corporation or an eligible affiliate on a vesting date in order for your Stock Options to vest, with certain exceptions as provided in Appendix A.
|
4.
|
Subject to applicable law in your country of residence, you may exercise your options using any of the methods set forth in Section 2.1(c) of the Plan, including cashless exercise procedures whereby Merrill Lynch will advance the cash needed to exercise the Stock Option and you instruct Merrill Lynch to sell all or a portion of the shares acquired upon exercise of the Stock Option, and Merrill Lynch will pay you the proceeds of the sale, less the exercise price, taxes, commissions. You must first establish an account with Merrill Lynch to use the cashless exercise procedure.
|
5.
|
As a condition precedent to the issuance of Common Stock following the exercise of the Stock Option, you shall, upon request by the Knowles Corporation, pay to Knowles Corporation in addition to the purchase price of the shares, such amount as Knowles Corporation may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to such exercise of the Stock Option. If you fail to advance the Required Tax Payments after request by Knowles Corporation, Knowles Corporation will deduct any Required Tax Payments from any amount then or thereafter payable by Knowles Corporation to you. You must elect how you intend to satisfy your obligation to advance the Required Tax Payments. Your options to satisfy your obligation are as follows: (i) delivery of a cash payment to Knowles Corporation; (ii) delivery to Knowles Corporation (either actual delivery or by attestation procedures established by Knowles Corporation) of previously owned whole shares of Common Stock having an aggregate Fair Market Value, determined as of the date on which such withholding obligation arises (the “Tax Date”), equal to the Required Tax Payments; (iii) authorizing Knowles Corporation to withhold whole shares of Common Stock which would
|
6.
|
As a condition of receiving your Stock Option award, you agree to be bound by the terms and conditions of the Knowles Corporation Anti-hedging and Anti-pledging Policy and by any Clawback Policy to be adopted by Knowles Corporation, as such policies may be in effect from time to time. The Anti-hedging and Anti-pledging Policy prohibits hedging or pledging any Knowles equity securities held by you or certain designees, whether such Knowles Corporation securities are, or have been, acquired under the Plan, another compensation plan sponsored by Knowles, or otherwise. Please review the Anti-hedging and Anti-pledging Policy to make sure that you are in compliance. You may obtain a copy of the current version of the Anti-hedging and Anti-pledging Policy, and any Clawback Policy to be adopted by Knowles Corporation, on the Merrill Lynch stock plan administration website.
|
7.
|
For non-US employees and employees who transfer employment outside of the United States during the term of the Stock Option, your Stock Option award is subject to the terms and conditions of the attached Addendum for non-US employees.
|
8.
|
Your Stock Option is not transferrable by you other than by will or the laws of descent and distribution, and in accordance with the applicable terms and conditions of the Plan.
|
9.
|
Your Stock Option is not intended to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
|
10.
|
Knowles reserves the right to amend, modify, or terminate the Plan at any time in its discretion without notice.
|
Company Name
|
|
Where Incorporated
|
Domestic
|
|
|
Knowles Capital Formation, Inc.
|
|
Delaware
|
Knowles Capital Holdings, Inc.
|
|
Delaware
|
Knowles Cazenovia Inc.
|
|
Delaware
|
Knowles Corporation
|
|
Delaware
|
Knowles Electronics Holdings, Inc.
|
|
Delaware
|
Knowles Electronics Sales Corp.
|
|
Delaware
|
Knowles Electronics, LLC
|
|
Delaware
|
Knowles Finance Corporation
|
|
Delaware
|
Knowles Intermediate Holding, Inc.
|
|
Delaware
|
Novacap, LLC
|
|
Delaware
|
Sensor Platforms, Inc.
|
|
Delaware
|
Vectron International, Inc.
|
|
Delaware
|
|
|
|
Foreign
|
|
|
Audience China Ltd. Co.
|
|
China
|
Audience China Ltd. Co. - Beijing Branch
|
|
Beijing
|
Audience China Ltd. Co. - Shenzhen Brnach
|
|
Shenzhen
|
Audience Communications Systems India Private Limited
|
|
India
|
Audience International, Inc.
|
|
Cayman Islands
|
Audience Singapore Pte. Ltd.
|
|
Singapore
|
C0975210B.C. Ltd.
|
|
Ontario
|
KEP (Philippines) Reality Corporation ("LandCo")
|
|
Philippines
|
Knowles (UK) Limited
|
|
United Kingdom
|
Knowles Acoustic & Electronic Technology (Suzhou) Co., Ltd.
|
|
China
|
Knowles Electronics (Malaysia) Sdn. Bhd.
|
|
Malaysia
|
Knowles Electronics (Philippines) Corporation
|
|
Philippines
|
Knowles Electronics (Suzhou) Co. Ltd. Shanghai Branch
|
|
China
|
Knowles Electronics (Suzhou) Co. Ltd. Suzhou Kunshan Branch
|
|
China
|
Knowles Electronics (Suzhou) Co. Ltd. Suzhou Xiangcheng Branch
|
|
China
|
Knowles Electronics (Suzhou) Co., Ltd.
|
|
China
|
Knowles Electronics (Suzhou) Co., Ltd. Shenzhen Branch
|
|
China
|
Knowles Electronics (Weifang), Inc.
|
|
China
|
Knowles Electronics Asia Pte. Ltd.
|
|
Singapore
|
Knowles Electronics Austria GmbH
|
|
Austria
|
Knowles Electronics Denmark ApS
|
|
Denmark
|
Knowles Electronics Japan, K.K.
|
|
Japan
|
Knowles Electronics Singapore Pte Ltd
|
|
Singapore
|
Knowles Electronics Taiwan, Ltd.
|
|
Taiwan
|
Knowles Europe
|
|
United Kingdom
|
Knowles GmbH
|
|
Switzerland
|
Knowles Holdings Austria GmbH
|
|
Austria
|
Knowles IPC (M) Sdn. Bhd.
|
|
Malaysia
|
Knowles Korea Yuhan Hoesa
|
|
South Korea
|
Knowles Luxembourg Finance S.a.r.l.
|
|
Luxembourg
|
Knowles Luxembourg International Sarl
|
|
Luxembourg
|
Knowles Luxembourg S.a.r.l.
|
|
Luxembourg
|
Knowles Luxembourg Services, S.a.r.l.
|
|
Luxembourg
|
Revod (Philippines) Holdings Corporation
|
|
Philippines
|
Simek GmbH
|
|
Germany
|
Vectron International - Singapore
|
|
Singapore
|
Vectron International GmbH
|
|
Germany
|
1.
|
I have reviewed this Annual Report on Form 10-K of Knowles Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
/s/ JEFFREY S. NIEW
|
|
|
Name: Jeffrey S. Niew
|
|
|
Title: President and Chief Executive Officer
|
|
|
(Principal Executive Officer)
|
1.
|
I have reviewed this Annual Report on Form 10-K of Knowles Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
|
|
/s/ JOHN S. ANDERSON
|
|
|
Name: John S. Anderson
|
|
|
Title: Senior Vice President & Chief Financial Officer
|
|
|
(Principal Financial Officer)
|
|
/s/ JEFFREY S. NIEW
|
|
Name: Jeffrey S. Niew
|
|
Title: President and Chief Executive Officer
|
|
(Principal Executive Officer)
|
|
Date: February 21, 2017
|
|
|
|
/s/ JOHN S. ANDERSON
|
|
Name: John S. Anderson
|
|
Title: Senior Vice President & Chief Financial Officer
|
|
(Principal Financial Officer)
|
|
Date: February 21, 2017
|