NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Significant Accounting Policies
Business
IDEX is an applied solutions company specializing in fluid and metering technologies, health and science technologies, and fire, safety and other diversified products built to customers’ specifications. IDEX’s products are sold in niche markets to a wide range of industries throughout the world. The Company’s products include industrial pumps, compressors, flow meters, injectors and valves, and related controls for use in a wide variety of process applications; precision fluidics solutions, including pumps, valves, degassing equipment, corrective tubing, fittings, and complex manifolds, optical filters and specialty medical equipment and devices for use in life science applications; precision-engineered equipment for dispensing, metering and mixing paints; and engineered products for industrial and commercial markets, including fire and rescue, transportation equipment, oil & gas, electronics, and communications. These activities are grouped into
three
reportable segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.
Principles of Consolidation
The consolidated financial statements include the Company and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The principal areas of estimation reflected in the financial statements are revenue recognition, sales returns and allowances, allowance for doubtful accounts, inventory valuation, recoverability of long-lived assets, income taxes, product warranties, contingencies and litigation, insurance-related items, defined benefit retirement plans and purchase accounting related to acquisitions.
Revenue Recognition
The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collectability of the sales price is reasonably assured. For product sales, delivery does not occur until the products have been shipped and risk of loss has been transferred to the customer. Revenue from services is recognized when the services are provided or ratably over the contract term. Some arrangements with customers may include multiple deliverables, including the combination of products and services. In such cases, the Company has identified these as separate elements in accordance with Accounting Standards Codification (“ASC”) 605-25,
Revenue Recognition-Multiple-Element Arrangements
, and recognizes revenue consistent with the policy for each separate element based on the relative selling price method. Revenues from certain long-term contracts are recognized on the percentage-of-completion method. Percentage-of-completion is measured principally by the percentage of costs incurred to date for each contract to the estimated total costs for such contract at completion. Provisions for estimated losses on uncompleted long-term contracts are made in the period in which such losses are determined. Due to uncertainties inherent in the estimation process, it is reasonably possible that completion costs, including those arising from contract penalty provisions and final contract settlements, will be revised in the near-term. Such revisions to costs and income are recognized in the period in which the revisions are determined.
The Company records allowances for discounts, product returns and customer incentives at the time of sale as a reduction of revenue as such allowances can be reliably estimated based on historical experience and known trends. The Company also offers product warranties and accrues its estimated exposure for warranty claims at the time of sale based upon the length of the warranty period, warranty costs incurred and any other related information known to the Company.
Shipping and Handling Costs
Shipping and handling costs are included in Cost of sales and are recognized as a period expense during the period in which they are incurred.
Advertising Costs
Advertising costs of
$15.3 million
,
$16.1 million
and
$14.5 million
for
2016
,
2015
and
2014
, respectively, are expensed as incurred within Selling, general and administrative expenses.
Cash and Cash Equivalents
The Company considers all highly liquid instruments purchased with an original maturity of
90 days or less
to be cash and cash equivalents.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses as a result of customers’ inability to make required payments. Management evaluates the aging of the accounts receivable balances, the financial condition of its customers, historical trends and the time outstanding of specific balances to estimate the amount of accounts receivable that may not be collected in the future and records the appropriate provision.
Inventories
The Company states inventories at the lower of cost or market. Cost, which includes material, labor, and factory overhead, is determined on a FIFO basis. We make adjustments to reduce the cost of inventory to its net realizable value, if required, for estimated excess, obsolescence or impaired balances. Factors influencing these adjustments include changes in market demand, product life cycle and engineering changes.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, as measured by comparing their net book value to the projected undiscounted future cash flows generated by their use. A long-lived asset impairment exists when the carrying amount of the asset exceeds its fair value. The amount and
timing of impairment charges for these assets require the estimation of future cash flows to determine the fair value of the related assets. Impaired assets are recorded at their estimated fair value based on a discounted cash flow analysis. In
2016
,
2015
, and
2014
, the Company concluded that certain long-lived assets had a fair value that was less than the carrying value of the assets, resulting in
$0.2 million
,
$0.8 million
and
$2.5 million
, respectively, of long-lived asset impairment charges.
Goodwill and Indefinite-Lived Intangible Assets
In accordance with ASC 350,
Goodwill and Other Intangible Assets
, the Company reviews the carrying value of goodwill and indefinite-lived intangible assets annually on October 31, or if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company evaluates the recoverability of these assets based on the estimated fair value of each of the thirteen reporting units and the indefinite-lived intangible assets. See Note 4 for a further discussion on goodwill and intangible assets.
Borrowing Expenses
Expenses incurred in securing and issuing debt are capitalized and included as a reduction of Long-term borrowings. These amounts are amortized over the life of the related borrowing and the related amortization is included in Interest expense.
Earnings per Common Share
Earnings per common share (“EPS”) is computed by dividing net income by the weighted average number of shares of common stock (basic) plus common stock equivalents (diluted) outstanding during the year. Common stock equivalents consist of stock options, which have been included in the calculation of weighted average shares outstanding using the treasury stock method, restricted stock, performance share units, and shares issuable in connection with certain deferred compensation agreements (“DCUs”).
ASC 260,
Earnings per Share
, concludes that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders. If awards are considered participating securities, the Company is required to apply the two-class method of computing basic and diluted earnings per share. The Company has determined that its outstanding shares of restricted stock are participating securities. Accordingly, EPS was computed using the two-class method prescribed by ASC 260. Net income attributable to common shareholders for the purpose of calculating EPS was reduced by
$0.5 million
,
$0.8 million
and
$1.3 million
in
2016
,
2015
and
2014
, respectively.
Basic weighted average shares outstanding reconciles to diluted weighted average shares outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Basic weighted average common shares outstanding
|
75,803
|
|
|
77,126
|
|
|
79,715
|
|
Dilutive effect of stock options, restricted stock, performance share units and DCUs
|
955
|
|
|
846
|
|
|
1,013
|
|
Diluted weighted average common shares outstanding
|
76,758
|
|
|
77,972
|
|
|
80,728
|
|
Options to purchase approximately
0.9 million
,
0.9 million
and
0.5 million
shares of common stock in
2016
,
2015
and
2014
, respectively, were not included in the computation of diluted EPS because the effect of their inclusion would have been antidilutive.
Share-Based Compensation
The Company accounts for share-based payments in accordance with ASC 718,
Compensation-Stock Compensation
. Accordingly, the Company expenses the fair value of awards made under its share-based compensation plans. That cost is recognized in the consolidated financial statements over the requisite service period of the grants. See Note 13 for further discussion on share-based compensation.
Depreciation and Amortization
Property and equipment are stated at cost, with depreciation and amortization provided using the straight-line method over the following estimated useful lives:
|
|
|
Land improvements
|
8 to 12 years
|
Buildings and improvements
|
8 to 30 years
|
Machinery, equipment and other
|
3 to 12 years
|
Office and transportation equipment
|
3 to 10 years
|
Certain identifiable intangible assets are amortized over their estimated useful lives using the straight-line method. The estimated useful lives used in the computation of amortization of identifiable intangible assets are as follows:
|
|
|
Patents
|
5 to 17 years
|
Trade names
|
10 to 20 years
|
Customer relationships
|
6 to 20 years
|
Unpatented technology and other
|
6 to 20 years
|
Research and Development Expenditures
Costs associated with research and development are expensed in the period incurred and are included in Cost of sales. Research and development expenses, which include costs associated with developing new products and major improvements to existing products, were
$39.4 million
,
$33.6 million
and
$36.8 million
in
2016
,
2015
and
2014
, respectively.
Foreign Currency
The functional currency of substantially all operations outside the United States is the respective local currency. Accordingly, those foreign currency balance sheet accounts have been translated using the exchange rates in effect as of the balance sheet date. Income statement amounts have been translated using the average exchange rate for the year. The gains and losses resulting from changes in exchange rates from year to year have been reported in Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. The foreign currency transaction losses (gains) for the periods ending
December 31, 2016
,
2015
and
2014
were
$(6.2) million
,
$(0.1) million
, and
$0.9 million
, respectively, and are reported within Other (income) expense-net on the Consolidated Statements of Operations. Of the
$6.2 million
reported as foreign currency transaction gains for the period ending December 31, 2016,
$4.7 million
was due to intercompany loans established in conjunction with the SFC Koenig acquisition.
Income Taxes
Income tax expense includes United States, state, local and international income taxes. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the financial reporting and the tax basis of existing assets and liabilities and for loss carryforwards. The tax rate used to determine the deferred tax assets and liabilities is the enacted tax rate for the year and manner in which the differences are expected to reverse. Valuation allowances are recorded to reduce deferred tax assets to the amount that will more likely than not be realized.
Concentration of Credit Risk
The Company is not dependent on a single customer as its largest customer accounted for less than
2%
of net sales for all years presented.
Recently Adopted Accounting Standards
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09,
Improvements to Employee Share-Based Payment Accounting
, which simplifies several aspects of the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as classification in the statement of cash flows. The Company elected to early adopt this standard in the quarter ended March 31, 2016. The Company applied this standard prospectively and thus, prior periods have not been adjusted. The impact of the adoption resulted in the following:
|
|
•
|
The Company recorded a tax benefit of
$6.8 million
within Provision for income taxes for the year ended
December 31, 2016
, related to the excess tax benefit on stock options, restricted stock and performance share units. Prior to adoption this amount would have been recorded as a reduction of additional paid-in capital. The adoption of this standard could create volatility in the Company’s effective tax rate going forward.
|
|
|
•
|
The Company elected not to change our policy on accounting for forfeitures and continued to estimate the total number of awards for which the requisite service period will not be rendered.
|
|
|
•
|
The Company no longer reclassifies the excess tax benefit from operating activities to financing activities in the statement of cash flows.
|
|
|
•
|
The Company excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the year ended
December 31, 2016
. This increased our diluted weighted average common shares outstanding by
127 thousand
shares for the year ended
December 31, 2016
.
|
In April 2015, the FASB issued ASU 2015-03,
Interest-Imputation of Interest: Simplifying the Presentation of Debt Issuance Costs
, which simplifies the presentation of debt issuance costs. Under ASU 2015-03, an entity presents such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs is reported as interest expense. This standard is effective for fiscal years beginning after December 15, 2015. The Company elected to early adopt this guidance effective in the fourth quarter of fiscal year 2015.
In April 2014, the FASB issued ASU 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
, which includes amendments that change the requirements for reporting discontinued operations. Under the new guidance, only disposals representing a strategic shift in operations with a major effect on the organization’s operations and financial results should be presented as discontinued operations. Additionally, the ASU requires expanded disclosures about disposal transactions that do not meet the discontinued operations criteria. The Company adopted the standard effective January 1, 2015 and the adoption did not impact the consolidated financial position, results of operations or cash flows of the Company. The Company concluded that none of the divestitures that took place during the years ended December 31, 2016 and 2015 met the new criteria for reporting discontinued operations. The Company did include required disclosures of disposals of components of an entity in Note 2.
New Accounting Pronouncements
In January 2017, the FASB issued ASU 2017-04,
Simplifying the Test for Goodwill Impairment
, which eliminates Step 2 from the goodwill impairment test. Under this ASU, if the carrying amount of a reporting unit exceeds its fair value, an impairment loss will be recognized in an amount equal to the excess, limited to the total amount of goodwill allocated to the reporting unit. This ASU also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative
assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. In addition, companies will be required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The update is effective for annual and any interim impairment tests for periods beginning after December 15, 2019, and early adoption is permitted. The Company does not believe the guidance will have a material impact on our consolidated financial statements.
In October 2016, the FASB issued ASU 2016-16,
Intra-Entity Transfers of Assets Other Than Inventory
, which amends ASC 740,
Income Taxes
. This ASU requires that the income tax consequences of an intra-entity asset transfer other than inventory are recognized at the time of the transfer. An entity will continue to recognize the income tax consequences of an intercompany transfer of inventory when the inventory is sold to a third party. The update is effective for financial statements issued for fiscal years beginning after December 15, 2017, and early adoption is permitted. The ASU requires adoption on a modified-retrospective basis through a cumulative adjustment to retained earnings at the beginning of the period of adoption. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In August 2016, the FASB issued ASU 2016-15,
Classification of Certain Cash Receipts and Cash Payments
(a consensus of the FASB Emerging Issues Task Force). This ASU addresses the following eight specific cash flow issues: Debt prepayment or debt extinguishment costs; settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; contingent consideration payments made after a business combination; proceeds from the settlement of insurance claims; proceeds from the settlement of corporate-owned life insurance policies (including bank-owned life insurance policies); distributions received from equity method investees; beneficial interests in securitization transactions; and separately identifiable cash flows and application of the predominance principle. This standard is effective for fiscal years beginning after December 15, 2017. The Company does not believe the guidance will have a material impact on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The standard introduces a new lessee model that will require most leases to be recorded on the balance sheet and eliminates the required use of bright line tests in current U.S. GAAP for determining lease classification. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. This standard is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Companies are permitted to adopt the standard early and a modified retrospective application is required. The Company is currently evaluating the impact of adopting the new guidance on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers,
which will replace numerous requirements in U.S. GAAP, including industry-specific requirements, and provide companies with a new five-step model for recognizing revenue from contracts with customers. Under ASU 2014-09, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2017, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption. The FASB has also issued the following standards which clarify ASU 2014-09 and have the same effective date as the original standard: ASU 2016-08,
Revenue from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
; ASU 2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing
; ASU 2016-12
,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients
; and ASU 2016-20
, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.
In 2016, we established an implementation team and analyzed the impact of the standard by surveying business units and reviewing contracts to identify potential differences that may result from applying the requirements of the new standard. We have made significant progress on our contract reviews during 2016 and the first quarter of 2017. While we are continuing to assess all potential impacts of the new standard, we currently believe that the most significant potential change relates to contracts for the development, manufacture and sale of customized products in our Health & Science Technologies segment. Due to the complexity of certain contracts in our Health & Science Technologies segment, the actual revenue recognition treatment required under the standard will be dependent on contract-specific terms. However, under the new standard we expect revenue recognition
to remain substantially unchanged as the contract reviews support the recognition of revenue at a point in time, which is consistent with our current revenue recognition model. We also expect revenue related to the Fluid & Metering Technologies segment and the Fire & Safety/Diversified Products segment to remain substantially unchanged. The implementation team has reported these initial findings and progress of the project to the Audit Committee. The Company is still evaluating the impact of the new guidance on our consolidated financial statements and has not yet determined the method by which we will adopt the standard in 2018.
2. Acquisitions and Divestitures
All of the Company’s acquisitions have been accounted for under ASC 805,
Business Combinations
. Accordingly, the accounts of the acquired companies, after adjustments to reflect fair values assigned to assets and liabilities, have been included in the Company’s consolidated financial statements from their respective dates of acquisition. The results of operations of the acquired companies have been included in the Company’s consolidated results since the date of each acquisition. Supplemental pro forma information has not been provided as the acquisitions did not have a material impact on the Company’s consolidated results of operations individually or in the aggregate.
2016 Acquisitions
On March 16, 2016, the Company acquired the stock of Akron Brass Holding Corporation (“Akron Brass”), a producer of a large array of engineered life–safety products for the safety and emergency response markets, which includes apparatus valves, monitors, nozzles, specialty lighting, electronic vehicle–control systems and firefighting hand tools. The business was acquired to complement and create synergies with our existing Hale, Class 1, and Godiva businesses. Headquartered in Wooster, Ohio, Akron Brass had annual revenues in its most recent fiscal year of approximately
$120 million
and operates in our Fire & Safety/Diversified Products segment. Akron Brass was acquired for cash consideration of
$221.4 million
. The purchase price was funded with borrowings under the Company’s revolving facilities. Goodwill and intangible assets recognized as part of the transaction were
$124.6 million
and
$90.4 million
, respectively. The goodwill is not deductible for tax purposes.
On July 1, 2016, the Company acquired the stock of AWG Fittings GmbH (“AWG Fittings”), a producer of engineered products for the safety and emergency response markets, including valves, monitors and nozzles. The business was acquired to complement and create synergies with our existing Hale, Class 1, Godiva and Akron Brass businesses. Headquartered in Ballendorf, Germany, AWG Fittings had annual revenues in its most recent fiscal year of approximately
$40 million
and operates in our Fire & Safety/Diversified Products segment. AWG Fittings was acquired for cash consideration of
$47.5 million
(
€42.8 million
). The purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of the transaction were
$22.0 million
and
$10.3 million
, respectively. The goodwill is not deductible for tax purposes.
On August 31, 2016, the Company acquired the stock of SFC Koenig AG (“SFC Koenig”), a producer of highly engineered expanders and check valves for critical applications across the transportation, hydraulic, aviation and medical markets. Headquartered in Dietikon, Switzerland, SFC Koenig had annual revenues in its most recent fiscal year of approximately
$63 million
and operates in our Health & Science Technologies segment. SFC Koenig was acquired for cash consideration of
$241.1 million
(
€215.9 million
). The purchase price was funded with cash on hand and borrowings under the Company’s revolving facilities. Goodwill and intangible assets recognized as part of the transaction were
$143.7 million
and
$117.0 million
, respectively. The goodwill is not deductible for tax purposes.
The Company made initial allocations of the purchase price for the Akron Brass, AWG Fittings and SFC Koenig acquisitions as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities. These nonrecurring fair value measurements are classified as Level 3 in the fair value hierarchy. As the Company obtains additional information about these assets and liabilities and learns more about the newly acquired businesses, we will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company is in the process of finalizing purchase price allocations for the Akron Brass, AWG Fittings and SFC Koenig acquisitions and will make appropriate adjustments to the purchase price allocations prior to the completion of the measurement period, as required.
The preliminary allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values at their respective acquisition dates, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Akron Brass
|
|
AWG Fittings
|
|
SFC Koenig
|
|
Total
|
(In thousands)
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
14,523
|
|
|
$
|
5,952
|
|
|
$
|
9,425
|
|
|
$
|
29,900
|
|
Inventory
|
|
29,157
|
|
|
11,766
|
|
|
21,247
|
|
|
62,170
|
|
Other assets, net of cash acquired
|
|
446
|
|
|
565
|
|
|
4,501
|
|
|
5,512
|
|
Property, plant and equipment
|
|
12,195
|
|
|
6,847
|
|
|
5,125
|
|
|
24,167
|
|
Goodwill
|
|
124,643
|
|
|
22,031
|
|
|
143,719
|
|
|
290,393
|
|
Intangible assets
|
|
90,400
|
|
|
10,279
|
|
|
116,998
|
|
|
217,677
|
|
Deferred income taxes
|
|
—
|
|
|
3,515
|
|
|
—
|
|
|
3,515
|
|
Total assets acquired
|
|
271,364
|
|
|
60,955
|
|
|
301,015
|
|
|
633,334
|
|
Current liabilities
|
|
(7,081
|
)
|
|
(5,017
|
)
|
|
(10,088
|
)
|
|
(22,186
|
)
|
Deferred income taxes
|
|
(36,439
|
)
|
|
—
|
|
|
(41,370
|
)
|
|
(77,809
|
)
|
Other noncurrent liabilities
|
|
(6,445
|
)
|
|
(8,444
|
)
|
|
(8,449
|
)
|
|
(23,338
|
)
|
Net assets acquired
|
|
$
|
221,399
|
|
|
$
|
47,494
|
|
|
$
|
241,108
|
|
|
$
|
510,001
|
|
Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisitions reflects the strategic fit, revenue and earnings growth potential of these businesses.
Of the
$217.7 million
of acquired intangible assets,
$28.8 million
was assigned to the Akron Brass trade name and is not subject to amortization. The acquired intangible assets and weighted average amortization periods are as follows:
|
|
|
|
|
|
|
(In thousands, except weighted average life)
|
Total
|
|
Weighted Average Life
|
Trade names
|
$
|
14,078
|
|
|
15
|
Customer relationships
|
134,519
|
|
|
13
|
Unpatented technology
|
40,280
|
|
|
13
|
Amortized intangible assets
|
188,877
|
|
|
|
Indefinite lived - Akron Brass trade name
|
28,800
|
|
|
|
Total acquired intangible assets
|
$
|
217,677
|
|
|
|
The Company incurred
$4.7 million
of acquisition-related transaction costs in 2016. These costs were recorded in Selling, general and administrative expenses and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. The Company also incurred
$14.7 million
of non-cash acquisition fair value inventory step-up charges associated with the completed 2016 acquisitions. These charges were recorded in Cost of sales.
2015 Acquisitions
On May 29, 2015, the Company acquired the stock of Novotema, SpA (“Novotema”), a leader in the design, manufacture and sale of specialty sealing solutions for use in the building products, gas control, transportation, industrial and water markets. The business was acquired to complement and create synergies with our existing Sealing Solutions platform. Located in Villongo, Italy, Novotema operates in our Health & Science Technologies segment. Novotema was acquired for cash consideration of
$61.1 million
(
€56 million
). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were
$34.3 million
and
$20.0 million
, respectively. The
$34.3 million
of goodwill is not deductible for tax purposes.
On June 10, 2015, the Company acquired the stock of Alfa Valvole, S.r.l (“Alfa Valvole”), a leader in the design, manufacture and sale of specialty valve products for use in the chemical, petro-chemical, energy and sanitary markets. The business was acquired to expand our valve capabilities. Located in Casorezzo, Italy, Alfa Valvole operates in our Fluid & Metering Technologies segment. Alfa Valvole was acquired for cash consideration of
$112.6 million
(
€99.8 million
). The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were
$69.6 million
and
$32.1 million
, respectively. The
$69.6 million
of goodwill is not deductible for tax purposes.
On July 1, 2015, the Company acquired the membership interests of CiDRA Precision Services, LLC (“CPS” or “CiDRA Precision Services”), a leader in the design, manufacture and sale of microfluidic components serving the life science, health and industrial markets. The business was acquired to provide a critical building block to our emerging microfluidic and nanofludics capabilities. Located in Wallingford, Connecticut, CPS operates in our Health & Science Technologies segment. CPS was acquired for an aggregate purchase price of
$24.2 million
, consisting of
$19.5 million
in cash and contingent consideration valued at
$4.7 million
as of the opening balance sheet date. The contingent consideration was based on the achievement of financial objectives during the 12-month period following the close. Based on potential outcomes, the undiscounted amount of all the future payments that the Company could have been required to make under the contingent consideration arrangement was between
$0
and
$5.5 million
. During the six months ended June 30, 2016, the Company re-evaluated the contingent consideration arrangement and fully reversed the
$4.7 million
liability based on CPS’s actual operating results from July 1, 2015 to June 30, 2016. The
$4.7 million
reversal was recognized as a benefit within Selling, general and administrative expenses, of which
$3.7 million
was recognized in March 2016 and the remaining
$1.0 million
was recognized in June 2016. The entire purchase price was funded with cash on hand. Goodwill and intangible assets recognized as part of this transaction were
$9.7 million
and
$12.3 million
, respectively. The
$9.7 million
of goodwill is deductible for tax purposes.
On December 1, 2015, the Company acquired the assets of a complementary product line within our Fluid & Metering Technologies segment. The purchase price and goodwill associated with this transaction were
$1.9 million
and
$0.7 million
, respectively.
The purchase prices for Novotema, Alfa Valvole and CPS have been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of the acquisitions.
The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values at their respective acquisition dates, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Novotema
|
|
Alfa Valvole
|
|
CPS
|
|
Other
|
|
Total
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
$
|
8,029
|
|
|
$
|
13,487
|
|
|
$
|
945
|
|
|
$
|
—
|
|
|
$
|
22,461
|
|
Inventory
|
2,886
|
|
|
11,036
|
|
|
442
|
|
|
1,102
|
|
|
15,466
|
|
Other assets, net of cash acquired
|
1,866
|
|
|
3,367
|
|
|
79
|
|
|
—
|
|
|
5,312
|
|
Property, plant and equipment
|
11,844
|
|
|
8,395
|
|
|
1,105
|
|
|
—
|
|
|
21,344
|
|
Goodwill
|
34,316
|
|
|
69,568
|
|
|
9,739
|
|
|
748
|
|
|
114,371
|
|
Intangible assets
|
20,011
|
|
|
32,058
|
|
|
12,290
|
|
|
—
|
|
|
64,359
|
|
Total assets acquired
|
78,952
|
|
|
137,911
|
|
|
24,600
|
|
|
1,850
|
|
|
243,313
|
|
Current liabilities
|
(7,760
|
)
|
|
(11,279
|
)
|
|
(420
|
)
|
|
—
|
|
|
(19,459
|
)
|
Deferred income taxes
|
(7,803
|
)
|
|
(12,622
|
)
|
|
—
|
|
|
—
|
|
|
(20,425
|
)
|
Other noncurrent liabilities
|
(2,291
|
)
|
|
(1,420
|
)
|
|
—
|
|
|
—
|
|
|
(3,711
|
)
|
Net assets acquired
|
$
|
61,098
|
|
|
$
|
112,590
|
|
|
$
|
24,180
|
|
|
$
|
1,850
|
|
|
$
|
199,718
|
|
Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisitions reflects the strategic fit, revenue and earnings growth potential of these businesses.
The acquired intangible assets and weighted average amortization periods are as follows:
|
|
|
|
|
|
|
(In thousands, except weighted average life)
|
Total
|
|
Weighted
Average
Life
|
Trade names
|
$
|
9,247
|
|
|
15
|
Customer relationships
|
44,401
|
|
|
12
|
Unpatented technology
|
10,711
|
|
|
8
|
Total acquired intangible assets
|
$
|
64,359
|
|
|
|
The Company incurred
$2.6 million
of acquisition-related transaction costs in 2015. These costs were recorded in Selling, general and administrative expense and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. The Company also incurred
$3.4 million
of non-cash acquisition fair value inventory charges in 2015. These charges were recorded in Cost of sales.
2014 Acquisitions
On April 28, 2014, the Company acquired the stock of Aegis Flow Technologies (“Aegis”), a producer of specialty chemical processing valves for use in the chemical, petro-chemical, chlor-alkali, and pulp/paper industries. Located in Geismar, Louisiana, Aegis operates in our Fluid & Metering Technologies segment. Aegis was acquired for cash consideration of approximately
$25 million
. The entire purchase price was funded with borrowings under the Company’s revolving facilities. Goodwill and intangible assets recognized as part of this transaction were
$7.7 million
and
$8.8 million
, respectively. The
$7.7 million
of goodwill is deductible for tax purposes.
The purchase price for Aegis has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of the acquisition.
The allocation of the acquisition costs to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:
|
|
|
|
|
(In thousands)
|
|
Accounts receivable
|
$
|
1,147
|
|
Inventory
|
6,230
|
|
Other current assets, net of cash acquired
|
232
|
|
Property, plant and equipment
|
2,988
|
|
Goodwill
|
7,711
|
|
Intangible assets
|
8,770
|
|
Total assets acquired
|
27,078
|
|
Total liabilities assumed
|
(1,633
|
)
|
Net assets acquired
|
$
|
25,445
|
|
Acquired intangible assets consist of trade names, customer relationships and unpatented technology. The goodwill recorded for the acquisition reflects the strategic fit, revenue and earnings growth potential of this business.
The acquired intangible assets and weighted average amortization periods are as follows:
|
|
|
|
|
|
|
(In thousands, except weighted average life)
|
Total
|
|
Weighted
Average
Life
|
Trade names
|
$
|
3,304
|
|
|
15
|
Customer relationships
|
4,393
|
|
|
14
|
Unpatented technology
|
1,073
|
|
|
8
|
Total acquired intangible assets
|
$
|
8,770
|
|
|
|
The Company incurred
$1.7 million
of acquisition-related transaction costs in 2014. These costs were recorded in Selling, general and administrative expense and were related to completed transactions, pending transactions and potential transactions, including transactions that ultimately were not completed. The Company incurred
$1.3 million
of non-cash acquisition fair value inventory charges in 2014. These charges were recorded in Cost of sales.
2016 Divestitures
The Company periodically reviews its operations for businesses which may no longer be aligned with its strategic objectives and focus on core business and customers. Any resulting gain or loss recognized due to divestitures is recorded within Loss (gain) on sale of businesses - net.
On July 29, 2016, the Company completed the sale of its Hydra-Stop product line for
$15.0 million
in cash, resulting in a pre-tax gain on the sale of
$5.8 million
. In addition, the Company can earn up to
$2 million
based on the achievement of financial objectives for net sales in 2016 and 2017. The Company recorded
$2.8 million
of income tax expense associated with this transaction during the year ended December 31, 2016. The results of Hydra-Stop were reported within the Fluid & Metering Technologies segment and generated
$7.5 million
of revenues in 2016 through the date of sale.
On September 9, 2016, the Company completed the sale of its Melles Griot KK (“CVI Japan”) subsidiary for
$17.5 million
in cash, resulting in a pre-tax loss on the sale of
$7.9 million
. The Company recorded
$3.4 million
of income tax benefit associated with this transaction during the year ended December 31, 2016. The results of CVI Japan were reported within the Health & Science Technologies segment and generated
$13.1 million
of revenues in 2016 through the date of sale.
On October 10, 2016, the Company completed the sale of its IETG and 40Seven subsidiaries for
$2.7 million
in cash, resulting in a pre-tax loss on the sale of
$4.2 million
. There was no income tax impact associated with this transaction. The results of IETG and 40Seven were reported within the Fluid & Metering Technologies segment and generated
$8.3 million
of revenues in 2016 through the date of sale.
On December 30, 2016, the Company completed the sale of its Korea Electro-Optics Co., Ltd. (“CVI Korea”) subsidiary for
$3.8 million
in cash, resulting in a pre-tax loss on the sale of
$16.0 million
. The Company recorded
$9.1 million
of income tax benefit associated with this transaction during the year ended December 31, 2016. The results of CVI Korea were reported within the Health & Science Technologies segment and generated
$11.7 million
of revenues in 2016 through the date of sale.
2015 Divestiture
On July 31, 2015, the Company completed the sale of its Ismatec product line for
$27.7 million
in cash, resulting in a pre-tax gain on the sale of
$18.1 million
. The Company recorded
$4.8 million
of income tax expense associated with this transaction during the year ended December 31, 2015. The results of Ismatec were reported in the Health & Science Technologies segment and generated
$5.3 million
of revenues in 2015 through the date of sale.
3. Balance Sheet Components
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2016
|
|
2015
|
|
(In thousands)
|
RECEIVABLES
|
|
|
|
Customers
|
$
|
275,250
|
|
|
$
|
262,304
|
|
Other
|
5,641
|
|
|
5,508
|
|
Total
|
280,891
|
|
|
267,812
|
|
Less allowance for doubtful accounts
|
8,078
|
|
|
7,812
|
|
Total receivables — net
|
$
|
272,813
|
|
|
$
|
260,000
|
|
INVENTORIES
|
|
|
|
Raw materials and components parts
|
$
|
154,278
|
|
|
$
|
141,671
|
|
Work in process
|
34,832
|
|
|
32,387
|
|
Finished goods
|
63,749
|
|
|
65,066
|
|
Total
|
$
|
252,859
|
|
|
$
|
239,124
|
|
PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
Land and improvements
|
$
|
33,883
|
|
|
$
|
34,343
|
|
Buildings and improvements
|
169,261
|
|
|
157,946
|
|
Machinery, equipment and other
|
328,779
|
|
|
331,146
|
|
Office and transportation equipment
|
98,355
|
|
|
97,250
|
|
Construction in progress
|
10,373
|
|
|
13,377
|
|
Total
|
640,651
|
|
|
634,062
|
|
Less accumulated depreciation and amortization
|
392,835
|
|
|
393,117
|
|
Total property, plant and equipment — net
|
$
|
247,816
|
|
|
$
|
240,945
|
|
ACCRUED EXPENSES
|
|
|
|
Payroll and related items
|
$
|
67,600
|
|
|
$
|
67,209
|
|
Management incentive compensation
|
16,339
|
|
|
12,599
|
|
Income taxes payable
|
8,808
|
|
|
3,836
|
|
Insurance
|
9,416
|
|
|
9,505
|
|
Warranty
|
5,628
|
|
|
7,936
|
|
Deferred revenue
|
12,607
|
|
|
9,885
|
|
Restructuring
|
3,893
|
|
|
6,636
|
|
Liability for uncertain tax positions
|
1,366
|
|
|
3,498
|
|
Accrued interest
|
1,663
|
|
|
1,230
|
|
Contingent consideration for acquisition
|
—
|
|
|
4,705
|
|
Other
|
25,532
|
|
|
26,633
|
|
Total accrued expenses
|
$
|
152,852
|
|
|
$
|
153,672
|
|
OTHER NONCURRENT LIABILITIES
|
|
|
|
Pension and retiree medical obligations
|
$
|
93,604
|
|
|
$
|
76,190
|
|
Liability for uncertain tax positions
|
2,623
|
|
|
4,252
|
|
Deferred revenue
|
2,442
|
|
|
3,763
|
|
Other
|
22,561
|
|
|
18,160
|
|
Total other noncurrent liabilities
|
$
|
121,230
|
|
|
$
|
102,365
|
|
The valuation and qualifying account activity for the years ended
December 31, 2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(1)
|
|
Beginning balance January 1
|
$
|
7,812
|
|
|
$
|
6,961
|
|
|
$
|
5,841
|
|
Charged to costs and expenses, net of recoveries
|
1,425
|
|
|
1,556
|
|
|
2,643
|
|
Utilization
|
(1,585
|
)
|
|
(1,009
|
)
|
|
(1,195
|
)
|
Currency translation and other
|
426
|
|
|
304
|
|
|
(328
|
)
|
Ending balance December 31
|
$
|
8,078
|
|
|
$
|
7,812
|
|
|
$
|
6,961
|
|
|
|
(1)
|
Includes provision for doubtful accounts, sales returns and sales discounts granted to customers.
|
4. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for
2016
and
2015
, by reportable business segment, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fluid &
Metering
Technologies
|
|
Health &
Science
Technologies
|
|
Fire & Safety/
Diversified
Products
|
|
Total
|
|
(In thousands)
|
Goodwill
|
$
|
544,870
|
|
|
$
|
713,285
|
|
|
$
|
263,753
|
|
|
$
|
1,521,908
|
|
Accumulated goodwill impairment losses
|
(20,721
|
)
|
|
(149,820
|
)
|
|
(30,090
|
)
|
|
(200,631
|
)
|
Balance at January 1, 2015
|
524,149
|
|
|
563,465
|
|
|
233,663
|
|
|
1,321,277
|
|
Foreign currency translation
|
(11,318
|
)
|
|
(6,155
|
)
|
|
(12,509
|
)
|
|
(29,982
|
)
|
Acquisitions
|
71,939
|
|
|
43,508
|
|
|
—
|
|
|
115,447
|
|
Disposition of businesses
|
—
|
|
|
(10,213
|
)
|
|
—
|
|
|
(10,213
|
)
|
Balance at December 31, 2015
|
584,770
|
|
|
590,605
|
|
|
221,154
|
|
|
1,396,529
|
|
Foreign currency translation
|
(5,951
|
)
|
|
(23,559
|
)
|
|
(7,972
|
)
|
|
(37,482
|
)
|
Acquisitions
|
—
|
|
|
143,719
|
|
|
146,674
|
|
|
290,393
|
|
Disposition of businesses
|
(3,759
|
)
|
|
(12,013
|
)
|
|
—
|
|
|
(15,772
|
)
|
Acquisition adjustments
|
(1,623
|
)
|
|
547
|
|
|
—
|
|
|
(1,076
|
)
|
Balance at December 31, 2016
|
$
|
573,437
|
|
|
$
|
699,299
|
|
|
$
|
359,856
|
|
|
$
|
1,632,592
|
|
ASC 350 requires that goodwill be tested for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value. Goodwill represents the purchase price in excess of the net amount assigned to assets acquired and liabilities assumed.
Goodwill and other acquired intangible assets with indefinite lives were tested for impairment as of October 31,
2016
, the Company’s annual impairment date. In assessing the fair value of the reporting units, the Company considers both the market approach and the income approach. Under the market approach, the fair value of the reporting unit is determined by the respective trailing twelve month EBITDA and the forward looking
2017
EBITDA (generally 50% each), based on multiples of comparable public companies. The market approach is dependent on a number of significant management assumptions including forecasted EBITDA and selected market multiples. Under the income approach, the fair value of the reporting unit is determined based on the present value of estimated future cash flows. The income approach is dependent on a number of significant management assumptions including estimates of operating results, capital expenditures, net working capital requirements, long-term growth rates and discount rates. Weighting was equally attributed to both the market and the income approaches (50% each) in arriving at the fair value of the reporting units.
In addition to performing our annual impairment test, we also performed interim impairment tests due to the divestitures in the third and fourth quarters of 2016 as well as the reorganization of certain reporting units. As a result of these impairment tests, the Company concluded that the reporting units had fair values in excess of their carrying values.
The following table provides the gross carrying value and accumulated amortization for each major class of intangible asset at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2016
|
|
|
|
At December 31, 2015
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Weighted
Average
Life
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Amortized intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
$
|
9,856
|
|
|
$
|
(6,635
|
)
|
|
$
|
3,221
|
|
|
11
|
|
$
|
10,202
|
|
|
$
|
(6,175
|
)
|
|
$
|
4,027
|
|
Trade names
|
113,428
|
|
|
(42,653
|
)
|
|
70,775
|
|
|
16
|
|
110,658
|
|
|
(38,696
|
)
|
|
71,962
|
|
Customer relationships
|
369,087
|
|
|
(161,065
|
)
|
|
208,022
|
|
|
12
|
|
257,071
|
|
|
(144,134
|
)
|
|
112,937
|
|
Non-compete agreements
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
794
|
|
|
(775
|
)
|
|
19
|
|
Unpatented technology
|
106,747
|
|
|
(44,516
|
)
|
|
62,231
|
|
|
12
|
|
78,562
|
|
|
(42,745
|
)
|
|
35,817
|
|
Other
|
6,527
|
|
|
(6,172
|
)
|
|
355
|
|
|
10
|
|
6,554
|
|
|
(5,579
|
)
|
|
975
|
|
Total amortized intangible assets
|
605,645
|
|
|
(261,041
|
)
|
|
344,604
|
|
|
|
|
463,841
|
|
|
(238,104
|
)
|
|
225,737
|
|
Indefinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Banjo trade name
|
62,100
|
|
|
—
|
|
|
62,100
|
|
|
|
|
62,100
|
|
|
—
|
|
|
62,100
|
|
Akron Brass trade name
|
28,800
|
|
|
—
|
|
|
28,800
|
|
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total intangible assets
|
$
|
696,545
|
|
|
$
|
(261,041
|
)
|
|
$
|
435,504
|
|
|
|
|
$
|
525,941
|
|
|
$
|
(238,104
|
)
|
|
$
|
287,837
|
|
The Banjo trade name is an indefinite-lived intangible asset which is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company uses the relief-from-royalty method, a form of the income approach, to determine the fair value of the Banjo trade name. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues, royalty rates and discount rates.
The Akron Brass trade name is an indefinite-lived intangible asset that was acquired as a result of the Akron Brass acquisition in March 2016 and is tested for impairment on an annual basis in accordance with ASC 350 or more frequently if events or changes in circumstances indicate that the asset might be impaired. The Company uses the relief-from-royalty method, a form of the income approach, to determine the fair value of the Akron Brass trade name. The relief-from-royalty method is dependent on a number of significant management assumptions, including estimates of revenues, royalty rates and discount rates.
In
2016
and
2015
, there were no events that occurred or circumstances that changed that would have required a review other than as of our annual test date. Based on the results of our measurement as of October 31,
2016
, the fair value of the Banjo trade name was more than
25%
in excess of the carrying value and the fair value of the Akron Brass trade name was near its carrying value as a result of the acquisition of this business in March 2016.
Amortization of intangible assets was
$49.0 million
,
$42.4 million
and
$43.2 million
in
2016
,
2015
and
2014
, respectively. Based on the intangible asset balances as of
December 31, 2016
, amortization expense is expected to approximate
$44.8 million
in
2017
,
$36.5 million
in
2018
,
$33.1 million
in
2019
,
$31.7 million
in
2020
and
$30.8 million
in
2021
.
5. Borrowings
Borrowings at
December 31, 2016
and
2015
consisted of the following:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In thousands)
|
Revolving Facility
|
$
|
169,579
|
|
|
$
|
195,000
|
|
4.5% Senior Notes, due December 2020
|
300,000
|
|
|
300,000
|
|
4.2% Senior Notes, due December 2021
|
350,000
|
|
|
350,000
|
|
3.2% Senior Notes, due June 2023
|
100,000
|
|
|
—
|
|
3.37% Senior Notes, due June 2025
|
100,000
|
|
|
—
|
|
Other borrowings
|
1,294
|
|
|
2,436
|
|
Total borrowings
|
1,020,873
|
|
|
847,436
|
|
Less current portion
|
1,046
|
|
|
1,087
|
|
Less deferred debt issuance costs
|
4,399
|
|
|
5,203
|
|
Less unaccreted debt discount
|
1,193
|
|
|
1,439
|
|
Total long-term borrowings
|
$
|
1,014,235
|
|
|
$
|
839,707
|
|
On June 13, 2016, the Company completed a private placement of
$100 million
aggregate principal amount of
3.20%
Senior Notes due June 13, 2023 and
$100 million
aggregate principal amount of
3.37%
Senior Notes due June 13, 2025 (collectively, the “Notes”) pursuant to a Note Purchase Agreement, dated June 13, 2016 (the “Purchase Agreement”). Each series of Notes bears interest at the stated amount per annum, which is payable semi-annually in arrears on each June 13
th
and December 13
th
. The Notes are unsecured obligations of the Company and rank pari passu in right of payment with all of the Company’s other unsecured, unsubordinated debt. The Company may at any time prepay all, or any portion of the Notes; provided that such portion is greater than
5%
of the aggregate principal amount of Notes then outstanding. In the event of a prepayment, the Company will pay an amount equal to par plus accrued interest plus a make-whole amount. In addition, the Company may repurchase the Notes by making an offer to all holders of the Notes, subject to certain conditions.
The Purchase Agreement contains certain covenants that restrict the Company’s ability to, among other things, transfer or sell assets, incur indebtedness, create liens, transact with affiliates and engage in certain mergers or consolidations or other change of control transactions. In addition, the Company must comply with a leverage ratio and interest coverage ratio, as further described below, and the Purchase Agreement also limits the outstanding principal amount of priority debt that may be incurred by the Company to
15%
of consolidated assets. The Purchase Agreement provides for customary events of default. In the case of an event of default arising from specified events of bankruptcy or insolvency, all of the outstanding Notes will become due and payable immediately without further action or notice. In the case of payment event of default, any holder of the Notes affected thereby may declare all the Notes held by it due and payable immediately. In the case of any other event of default, a majority of the holders of Notes may declare all of the Notes to be due and payable immediately.
On June 23, 2015, the Company entered into a credit agreement (the “Credit Agreement”) along with certain of its subsidiaries, as borrowers (the “Borrowers”), Bank of America, N.A., as administrative agent, swing line lender and an issuer of letters of credit, with other agents party thereto. The Credit Agreement replaces the Company’s existing
five
-year
$700 million
credit agreement, dated as of June 27, 2011, which was due to expire on June 27, 2016.
The Credit Agreement consists of a revolving credit facility (the “Revolving Facility”) in an aggregate principal amount of
$700 million
, with a final maturity date of
June 23, 2020
. The maturity date may be extended under certain conditions for an additional
one
-year term. Up to
$75 million
of the Revolving Facility is available for the issuance of letters of credit. Additionally, up to
$50 million
of the Revolving Facility is available to the Company for swing line loans, available on a same-day basis.
Proceeds of the Revolving Facility are available for use by the Borrowers for acquisitions, working capital and other general corporate purposes, including refinancing existing debt of the Company and its subsidiaries. The Company may request increases in the lending commitments under the Credit Agreement, but the aggregate lending commitments pursuant to such increases may not exceed
$350 million
. The Company has the right, subject to certain conditions set forth in the Credit Agreement, to designate
certain foreign subsidiaries of the Company as borrowers under the Credit Agreement. In connection with any such designation,
the Company is required to guarantee the obligations of any such subsidiaries.
Borrowings under the Credit Agreement bear interest at either an alternate base rate or an adjusted LIBOR rate plus, in each case, an applicable margin. Such applicable margin is based on the Company’s senior, unsecured, long-term debt rating and can range from
.005%
to
1.50%
. Based on the Company’s credit rating at
December 31, 2016
, the applicable margin was
1.10%
resulting in a weighted average interest rate of
1.50%
at
December 31, 2016
. Interest is payable (a) in the case of base rate loans, quarterly, and (b) in the case of LIBOR rate loans, on the maturity date of the borrowing, or quarterly from the effective date for borrowings exceeding three months.
The Credit Agreement requires payment to the lenders of a facility fee based upon (a) the amount of the lenders’ commitments under the credit facility from time to time and (b) the applicable corporate credit ratings of the Company. Voluntary prepayments of any loans and voluntary reductions of the unutilized portion of the commitments under the credit facility are permissible without penalty, subject to break funding payments and minimum notice and minimum reduction amount requirements.
The negative covenants include, among other things, limitations (each of which is subject to customary exceptions for financings of this type) on our ability to grant liens; enter into transactions resulting in fundamental changes (such as mergers or sales of all or substantially all of the assets of the Company); restrict subsidiary dividends or other subsidiary distributions; enter into transactions with the Company’s affiliates; and incur certain additional subsidiary debt.
The Credit Agreement also contains customary events of default (subject to grace periods, as appropriate) including among others: nonpayment of principal, interest or fees; breach of the representations or warranties in any material respect; breach of the financial, affirmative or negative covenants; payment default on, or acceleration of, other material indebtedness; bankruptcy or insolvency; material judgments entered against the Company or any of its subsidiaries; certain specified events under the Employee Retirement Income Security Act of 1974, as amended; certain changes in control of the Company; and the invalidity or unenforceability of the Credit Agreement or other documents associated with the Credit Agreement.
At
December 31, 2016
,
$169.6 million
was outstanding under the Revolving Facility, with
$9.2 million
of outstanding letters of credit, resulting in net available borrowing capacity under the Revolving Facility at
December 31, 2016
of approximately
$521.2 million
.
On December 9, 2011, the Company completed a public offering of
$350.0 million
4.2%
senior notes due
December 15, 2021
(“4.2% Senior Notes”). The net proceeds from the offering of
$346.2 million
, after deducting a
$0.9 million
issuance discount, a
$2.3 million
underwriting commission and
$0.6 million
offering expenses, were used to repay
$306.0 million
of outstanding bank indebtedness, with the balance used for general corporate purposes. The 4.2% Senior Notes bear interest at a rate of 4.2% per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the 4.2% Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the 4.2% Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and 4.2% Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the 4.2% Senior Notes also require the Company to make an offer to repurchase the 4.2% Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to
101%
of their principal amount plus accrued and unpaid interest, if any.
On December 6, 2010, the Company completed a public offering of
$300.0 million
4.5%
senior notes due
December 15, 2020
(“
4.5%
Senior Notes”). The net proceeds from the offering of
$295.7 million
, after deducting a
$1.6 million
issuance discount, a
$1.9 million
underwriting commission and
$0.8 million
offering expenses, were used to repay
$250.0 million
of outstanding bank indebtedness, with the balance used for general corporate purposes. The
4.5%
Senior Notes bear interest at a rate of
4.5%
per annum, which is payable semi-annually in arrears on each June 15th and December 15th. The Company may redeem all or a portion of the
4.5%
Senior Notes at any time prior to maturity at the redemption prices set forth in the Note Indenture governing the
4.5%
Senior Notes. The Company may issue additional debt from time to time pursuant to the Indenture. The Indenture and
4.5%
Senior Notes contain covenants that limit the Company’s ability to, among other things, incur certain liens securing indebtedness, engage in certain sale-leaseback transactions, and enter into certain consolidations, mergers, conveyances, transfers or leases of all or substantially all the Company’s assets. The terms of the
4.5%
Senior Notes also require the Company to make an offer to repurchase the
4.5%
Senior Notes upon a change of control triggering event (as defined in the Indenture) at a price equal to
101%
of their principal amount plus accrued and unpaid interest, if any.
Other borrowings of
$1.3 million
at
December 31, 2016
consisted primarily of debt at international locations maintained for working capital purposes. Interest is payable on the outstanding debt balances at rates ranging from
1.0%
to
2.8%
per annum.
There are two key financial covenants that the Company is required to maintain in connection with the Revolving Facility and the Notes, a minimum interest coverage ratio of
3.0
to
1
and a maximum leverage ratio of
3.50
to
1
, which is the ratio of the
Company’s consolidated total debt to its consolidated EBITDA. At
December 31, 2016
, the Company was in compliance with both of these financial covenants. There are no financial covenants relating to the
4.5%
Senior Notes or
4.2%
Senior Notes; however, both are subject to cross-default provisions.
Total borrowings at
December 31, 2016
have scheduled maturities as follows:
|
|
|
|
|
(In thousands)
|
|
2017
|
$
|
1,046
|
|
2018
|
239
|
|
2019
|
9
|
|
2020
|
469,579
|
|
2021
|
350,000
|
|
Thereafter
|
200,000
|
|
Total borrowings
|
$
|
1,020,873
|
|
6. Derivative Instruments
As of
December 31, 2016
and
2015
, the Company did not have any interest rate or foreign exchange contracts outstanding. The type of cash flow hedges the Company has entered into includes interest rate exchange agreements that effectively convert a portion of floating-rate debt to fixed-rate debt and are designed to reduce the impact of interest rate changes on future interest expense.
The effective portion of gains or losses on interest rate exchange agreements is reported in accumulated other comprehensive income (loss) in shareholders’ equity and reclassified into net income in the same period or periods in which the hedged transaction affects net income. The remaining gain or loss in excess of the cumulative change in the present value of future cash flows or the hedged item, if any, is recognized into net income during the period of change. See Note 14 for the amount of loss reclassified into income for interest rate contracts for the years ended
December 31, 2016
,
2015
and
2014
.
Fair values relating to derivative financial instruments reflect the estimated amounts that the Company would receive or pay to sell or buy the contracts based on quoted market prices of comparable contracts at each balance sheet date.
On April 15, 2010, the Company entered into a forward starting interest rate contract with a notional amount of
$300.0 million
with a settlement date in December 2010. This contract was entered into in anticipation of the issuance of the
4.5%
Senior Notes and was designed to lock in the market interest rate as of April 15, 2010. In December 2010, the Company settled and paid this interest rate contract for
$31.0 million
. The
$31.0 million
is being amortized into interest expense over the
10
year term of the
4.5%
Senior Notes, which results in an effective interest rate of
5.8%
.
On July 12, 2011, the Company entered into a forward starting interest rate contract with a notional amount of
$350.0 million
and a settlement date of
September 30, 2011
. This contract was entered into in anticipation of the issuance of the
4.2%
Senior Notes and was designed to lock in the market interest rate as of July 12, 2011. On September 29, 2011, the Company settled this interest rate contract for
$34.7 million
with a payment made on October 3, 2011. Simultaneously, the Company entered into a separate interest rate contract with a notional amount of
$350.0 million
and a settlement date of
February 28, 2012
. The contract was entered into in anticipation of the expected issuance of the
4.2%
Senior Notes and was designed to maintain the market rate as of July 12, 2011. In December 2011, the Company settled and paid the September interest rate contract for
$4.0 million
, resulting in a total settlement of
$38.7 million
. Of the
$38.7 million
,
$0.8 million
was recognized as other expense in 2011 and the balance of
$37.9 million
is being amortized into interest expense over the
10
year term of the
4.2%
Senior Notes, which results in an effective interest rate of
5.3%
.
The amount of expense reclassified into interest expense for interest rate contracts for the years ended
December 31, 2016
,
2015
and
2014
is
$6.9 million
,
$7.0 million
and
$7.2 million
, respectively.
Approximately
$6.7 million
of the pre-tax amount included in accumulated other comprehensive loss in shareholders’ equity at
December 31, 2016
will be recognized to net income over the next 12 months as the underlying hedged transactions are realized.
7. Fair Value Measurements
ASC 820, “
Fair Value Measurements and Disclosures,
” defines fair value, provides guidance for measuring fair value and requires certain disclosures. This standard discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The standard utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
|
|
•
|
Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
|
|
|
•
|
Level 2: Inputs, other than quoted prices that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
|
|
|
•
|
Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
|
The following table summarizes the basis used to measure the Company’s financial assets (liabilities) at fair value on a recurring basis in the balance sheets at
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements
|
|
Balance at December 31, 2016
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Available for sale securities
|
$
|
5,369
|
|
|
$
|
5,369
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurements
|
|
Balance at December 31, 2015
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
(In thousands)
|
Money market investments
|
$
|
21,931
|
|
|
$
|
21,931
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Available for sale securities
|
4,794
|
|
|
4,794
|
|
|
—
|
|
|
—
|
|
Contingent consideration
|
(4,705
|
)
|
|
—
|
|
|
—
|
|
|
(4,705
|
)
|
There were no transfers of assets or liabilities between Level 1 and Level 2 in
2016
or
2015
.
In determining the fair value of the contingent consideration potentially due on the acquisition of CPS, the Company used probability weighted estimates of EBITDA during the earn-out period. The
$4.7 million
represented management’s best estimate of the liability as of the opening balance sheet date and December 31, 2015, based on a range of outcomes of CPS’s 12 month operating results, from July 1, 2015 to June 30, 2016. During the six months ended June 30, 2016, the Company re-evaluated the contingent consideration arrangement and fully reversed the
$4.7 million
liability based on CPS’s actual operating results from July 1, 2015 to June 30, 2016. The
$4.7 million
reversal was recognized as a benefit within Selling, general and administrative expenses.
The carrying value of our cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximates their fair values because of the short term nature of these instruments. At
December 31, 2016
, the fair value of the outstanding indebtedness under our Revolving Facility,
3.2%
Senior Notes,
3.37%
Senior Notes,
4.5%
Senior Notes and
4.2%
Senior Notes, based on quoted market prices and current market rates for debt with similar credit risk and maturity, was approximately
$1,029.9 million
compared to the carrying value of
$1,018.4 million
. This fair value measurement is classified as Level 2 within the fair value hierarchy since it is determined based upon significant inputs observable in the market, including interest rates on recent financing transactions to entities with a credit rating similar to ours.
8. Commitments and Contingencies
The Company leases certain office facilities, warehouses and data processing equipment under operating leases. Rental expense totaled
$18.6 million
,
$18.9 million
and
$19.2 million
in
2016
,
2015
and
2014
, respectively.
The aggregate future minimum lease payments for operating and capital leases as of
December 31, 2016
were as follows:
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Capital
|
|
(In thousands)
|
2017
|
$
|
16,923
|
|
|
$
|
1,055
|
|
2018
|
14,238
|
|
|
243
|
|
2019
|
9,521
|
|
|
9
|
|
2020
|
7,668
|
|
|
—
|
|
2021
|
5,701
|
|
|
—
|
|
2022 and thereafter
|
19,106
|
|
|
—
|
|
|
$
|
73,157
|
|
|
$
|
1,307
|
|
Warranty costs are provided for at the time of sale. The warranty provision is based on historical costs and adjusted for specific known claims. A rollforward of the warranty reserve is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Beginning balance January 1
|
$
|
7,936
|
|
|
$
|
7,196
|
|
|
$
|
4,888
|
|
Provision for warranties
|
1,828
|
|
|
4,788
|
|
|
6,220
|
|
Claim settlements
|
(3,539
|
)
|
|
(3,864
|
)
|
|
(3,823
|
)
|
Other adjustments, including acquisitions, divestitures and currency translation
|
(597
|
)
|
|
(184
|
)
|
|
(89
|
)
|
Ending balance December 31
|
$
|
5,628
|
|
|
$
|
7,936
|
|
|
$
|
7,196
|
|
The Company is party to various legal proceedings arising in the ordinary course of business, none of which are expected to have a material effect on its business, financial condition, results of operations or cash flow.
9. Common and Preferred Stock
On
December 1, 2015
the Company’s Board of Directors approved an increase in the authorized level for repurchases of common stock by
$300.0 million
. Repurchases under the program will be funded with future cash flow generation or borrowings available under the Revolving Facility. During
2016
, the Company purchased a total of
0.7 million
shares at a cost of
$55.0 million
, compared to
2.8 million
shares purchased at a cost of
$210.5 million
in
2015
, of which
$2.3
million was settled in January
2016
. As of
December 31, 2016
, there was
$580 million
of repurchase authorization remaining.
At
December 31, 2016
and
2015
, the Company had
150 million
shares of authorized common stock, with a par value of
$.01
per share, and
five million
shares of authorized preferred stock, with a par value of
$.01
per share.
No
preferred stock was issued as of
December 31, 2016
and
2015
.
10. Income Taxes
Pretax income for
2016
,
2015
and
2014
was taxed in the following jurisdictions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
U.S.
|
$
|
265,260
|
|
|
$
|
285,399
|
|
|
$
|
275,334
|
|
Foreign
|
103,252
|
|
|
106,946
|
|
|
117,106
|
|
Total
|
$
|
368,512
|
|
|
$
|
392,345
|
|
|
$
|
392,440
|
|
The provision (benefit) for income taxes for
2016
,
2015
and
2014
, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Current
|
|
|
|
|
|
U.S.
|
$
|
67,668
|
|
|
$
|
73,059
|
|
|
$
|
77,454
|
|
State and local
|
4,503
|
|
|
6,188
|
|
|
7,133
|
|
Foreign
|
42,540
|
|
|
30,630
|
|
|
37,060
|
|
Total current
|
114,711
|
|
|
109,877
|
|
|
121,647
|
|
Deferred
|
|
|
|
|
|
U.S.
|
(6,249
|
)
|
|
7,125
|
|
|
(3,176
|
)
|
State and local
|
(331
|
)
|
|
(1,017
|
)
|
|
(1,708
|
)
|
Foreign
|
(10,728
|
)
|
|
(6,447
|
)
|
|
(3,709
|
)
|
Total deferred
|
(17,308
|
)
|
|
(339
|
)
|
|
(8,593
|
)
|
Total provision for income taxes
|
$
|
97,403
|
|
|
$
|
109,538
|
|
|
$
|
113,054
|
|
Deferred tax assets (liabilities) at
December 31, 2016
and
2015
were:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In thousands)
|
Employee and retiree benefit plans
|
$
|
42,950
|
|
|
$
|
37,393
|
|
Capital loss carryforwards
|
18,668
|
|
|
—
|
|
Depreciation and amortization
|
(238,321
|
)
|
|
(185,321
|
)
|
Inventories
|
11,519
|
|
|
12,615
|
|
Allowances and accruals
|
9,338
|
|
|
12,528
|
|
Interest rate exchange agreement
|
10,442
|
|
|
12,948
|
|
Other
|
(90
|
)
|
|
2,800
|
|
Total gross deferred tax (liabilities)
|
(145,494
|
)
|
|
(107,037
|
)
|
Capital loss valuation allowance
|
(18,668
|
)
|
|
—
|
|
Total deferred tax (liabilities), net of valuation allowances
|
$
|
(164,162
|
)
|
|
$
|
(107,037
|
)
|
The deferred tax assets and liabilities recognized in the Company’s Consolidated Balance Sheets as of
December 31, 2016
and
2015
were:
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
(In thousands)
|
Noncurrent deferred tax asset — Other noncurrent assets
|
$
|
2,265
|
|
|
$
|
3,446
|
|
Noncurrent deferred tax liabilities — Deferred income taxes
|
(166,427
|
)
|
|
(110,483
|
)
|
Net deferred tax liabilities
|
$
|
(164,162
|
)
|
|
$
|
(107,037
|
)
|
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate to pretax income. The computed amount and the differences for
2016
,
2015
and
2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Pretax income
|
$
|
368,512
|
|
|
$
|
392,345
|
|
|
$
|
392,440
|
|
Provision for income taxes
|
|
|
|
|
|
Computed amount at statutory rate of 35%
|
$
|
128,979
|
|
|
$
|
137,321
|
|
|
$
|
137,354
|
|
State and local income tax (net of federal tax benefit)
|
4,070
|
|
|
5,033
|
|
|
4,875
|
|
Taxes on non-U.S. earnings-net of foreign tax credits
|
(6,666
|
)
|
|
(11,663
|
)
|
|
(9,378
|
)
|
Effect of flow-through entities
|
(8,735
|
)
|
|
(8,358
|
)
|
|
(9,018
|
)
|
U.S. business tax credits
|
(1,665
|
)
|
|
(1,273
|
)
|
|
(1,680
|
)
|
Domestic activities production deduction
|
(9,043
|
)
|
|
(6,521
|
)
|
|
(7,489
|
)
|
Deferred tax effect of foreign tax rate change
|
—
|
|
|
(2,636
|
)
|
|
—
|
|
Capital loss on divestitures
|
(23,444
|
)
|
|
—
|
|
|
—
|
|
Valuation allowance
|
17,973
|
|
|
—
|
|
|
—
|
|
Share-based payments
|
(6,520
|
)
|
|
—
|
|
|
—
|
|
Other
|
2,454
|
|
|
(2,365
|
)
|
|
(1,610
|
)
|
Total provision for income taxes
|
$
|
97,403
|
|
|
$
|
109,538
|
|
|
$
|
113,054
|
|
The Company has
$670 million
and
$715 million
of undistributed earnings of non-U.S. subsidiaries as of December 31,
2016
and
2015
, respectively. No deferred U.S. income taxes have been provided on these earnings as they are considered to be reinvested for an indefinite period of time or will be repatriated when it is tax effective to do so. If these amounts were distributed to the U.S., in the form of dividends or otherwise, the Company would be subject to additional U.S. income taxes, which could be material. Determination of the amount of unrecognized deferred income tax liabilities on these earnings is not practicable because of the complexities with the hypothetical calculation, and the amount of liability, if any, is dependent on circumstances if and when remittance occurs. During the years ended December 31,
2016
,
2015
and
2014
, the Company repatriated
$28.8 million
,
$14.3 million
and
$6.5 million
of foreign earnings, respectively, resulting in
$2.7 million
of incremental tax expense,
$0.3 million
of incremental income tax expense and
$0.2 million
of incremental tax benefit, respectively. These repatriations represent distribution
s
of current year earnings and distributions from liquidating subsidiaries and do not impact our representation that the undistributed earnings are permanently invested.
A reconciliation of the beginning and ending amount of unrecognized tax benefits for
2016
,
2015
and
2014
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Beginning balance January 1
|
$
|
7,228
|
|
|
$
|
3,619
|
|
|
$
|
5,124
|
|
Gross increase due to non-U.S. acquisitions
|
—
|
|
|
3,772
|
|
|
—
|
|
Gross increases for tax positions of prior years
|
201
|
|
|
1,256
|
|
|
834
|
|
Gross decreases for tax positions of prior years
|
(93
|
)
|
|
—
|
|
|
(51
|
)
|
Settlements
|
(2,014
|
)
|
|
(667
|
)
|
|
(2,057
|
)
|
Lapse of statute of limitations
|
(1,547
|
)
|
|
(752
|
)
|
|
(231
|
)
|
Ending balance December 31
|
$
|
3,775
|
|
|
$
|
7,228
|
|
|
$
|
3,619
|
|
We recognize interest and penalties related to uncertain tax positions in income tax expense. As of
December 31, 2016
,
2015
and
2014
, we had approximately
$0.1 million
,
$0.2 million
and
$0.7 million
, respectively, of accrued interest related to uncertain tax positions. As of
December 31, 2016
,
2015
and
2014
, we had approximately
$0.1 million
,
$0.3 million
and
$0.3 million
, respectively, of accrued penalties related to uncertain tax positions.
The total amount of unrecognized tax benefits that would affect our effective tax rate if recognized is
$1.8 million
,
$3.0 million
and
$2.9 million
as of
December 31, 2016
,
2015
and
2014
, respectively. The tax years 2010-2015 remain open to examination by major taxing jurisdictions. Due to the potential for resolution of federal, state and foreign examinations, and the expiration of various statutes of limitation, it is reasonably possible that the Company’s gross unrecognized tax benefits balance may change within the next 12 months by a range of
zero
to
$1.4 million
.
The Company had net operating loss and credit carry forwards related to prior acquisitions for U.S. federal purposes at
December 31, 2016
and
2015
of
$3.5
million and
$4.8 million
, respectively. The federal net operating loss carry forwards are available for use against the Company’s consolidated federal taxable income and expire between 2021 and 2028. For non-U.S. purposes, the Company had net operating loss carry forwards at
December 31, 2016
and
2015
of
$25.6
million and
$0.7 million
, respectively, the majority of which relates to acquisitions. The entire balance of the non-U.S. net operating losses is available to be carried forward. At
December 31, 2016
and
2015
, the Company had U.S. state net operating loss and credit carry forwards of approximately
$33.1 million
and
$27.0 million
, respectively. If unutilized, the U.S. state net operating loss will expire between 2019 and 2036. At
December 31, 2016
and
2015
, the Company recorded a valuation allowance against the deferred tax asset attributable to the U.S. state net operating loss of
$1.3 million
and
$1.0 million
, respectively.
The Company had a capital loss carryover for U.S. federal purposes at
December 31, 2016
of approximately
$70.1 million
. U.S. capital loss carryovers can be carried back three years and forward five years, thus, if unutilized, the federal capital loss carryover will expire in 2021. At
December 31, 2016
, the Company recorded a valuation allowance against the deferred tax asset attributable to the federal capital loss carryover of
$18.7 million
. At
December 31, 2016
, the Company had U.S. state capital loss carryovers of approximately
$70.1 million
. If unutilized, the U.S. state capital loss carryovers will expire between 2021 and 2031. At
December 31, 2016
, the Company recorded a valuation allowance against the deferred tax assets attributable to the state capital loss carryovers of
$0.7 million
. At
December 31, 2016
and
2015
, the Company had a foreign capital loss carry forward of approximately
$0.7 million
and
$0.9 million
, respectively. The foreign capital loss can be carried forward indefinitely. At both
December 31, 2016
and
2015
, the Company has a full valuation allowance against the deferred tax asset attributable to the foreign capital loss.
11. Business Segments and Geographic Information
IDEX has
three
reportable business segments: Fluid & Metering Technologies, Health & Science Technologies and Fire & Safety/Diversified Products.
The Fluid & Metering Technologies segment designs, produces and distributes positive displacement pumps, flow meters, injectors, and other fluid-handling pump modules and systems and provides flow monitoring and other services for the food, chemical, general industrial, water & wastewater, agriculture and energy industries. The Health & Science Technologies segment designs, produces and distributes a wide range of precision fluidics, rotary lobe pumps, centrifugal and positive displacement pumps, roll compaction and drying systems used in beverage, food processing, pharmaceutical and cosmetics, pneumatic components and sealing solutions, including very high precision, low-flow rate pumping solutions required in analytical instrumentation, clinical diagnostics and drug discovery, high performance molded and extruded, biocompatible medical devices and implantables, air compressors used in medical, dental and industrial applications, optical components and coatings for applications in the fields of scientific research, defense, biotechnology, aerospace, telecommunications and electronics manufacturing, laboratory and commercial equipment used in the production of micro and nano scale materials, precision photonic solutions used in life sciences, research and defense markets, and precision gear and peristaltic pump technologies that meet exacting original equipment manufacturer specifications. The Fire & Safety/Diversified Products segment produces firefighting pumps, valves and controls, rescue tools, lifting bags and other components and systems for the fire and rescue industry, engineered stainless steel banding and clamping devices used in a variety of industrial and commercial applications, and precision equipment for dispensing, metering and mixing colorants and paints used in a variety of retail and commercial businesses around the world.
Information on the Company’s business segments is presented below based on the nature of products and services offered. The Company evaluates performance based on several factors, of which sales and operating income are the primary financial measures. Intersegment sales are accounted for at fair value as if the sales were to third parties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
NET SALES
|
|
|
|
|
|
Fluid & Metering Technologies
|
|
|
|
|
|
External customers
|
$
|
848,708
|
|
|
$
|
859,945
|
|
|
$
|
898,530
|
|
Intersegment sales
|
393
|
|
|
847
|
|
|
1,058
|
|
Total segment sales
|
849,101
|
|
|
860,792
|
|
|
899,588
|
|
Health & Science Technologies
|
|
|
|
|
|
External customers
|
744,380
|
|
|
737,011
|
|
|
747,186
|
|
Intersegment sales
|
429
|
|
|
1,985
|
|
|
4,835
|
|
Total segment sales
|
744,809
|
|
|
738,996
|
|
|
752,021
|
|
Fire & Safety/Diversified Products
|
|
|
|
|
|
External customers
|
519,955
|
|
|
423,712
|
|
|
502,051
|
|
Intersegment sales
|
54
|
|
|
203
|
|
|
698
|
|
Total segment sales
|
520,009
|
|
|
423,915
|
|
|
502,749
|
|
Intersegment eliminations
|
(876
|
)
|
|
(3,035
|
)
|
|
(6,591
|
)
|
Total net sales
|
$
|
2,113,043
|
|
|
$
|
2,020,668
|
|
|
$
|
2,147,767
|
|
OPERATING INCOME (LOSS)
(1)
|
|
|
|
|
|
Fluid & Metering Technologies
|
$
|
214,242
|
|
|
$
|
204,506
|
|
|
$
|
216,886
|
|
Health & Science Technologies
|
153,722
|
|
|
157,948
|
|
|
152,999
|
|
Fire & Safety/Diversified Products
|
121,888
|
|
|
115,745
|
|
|
130,494
|
|
Corporate office
(2)
|
(84,051
|
)
|
|
(46,461
|
)
|
|
(69,155
|
)
|
Total operating income
|
405,801
|
|
|
431,738
|
|
|
431,224
|
|
Interest expense
|
45,616
|
|
|
41,636
|
|
|
41,895
|
|
Other (income) expense - net
|
(8,327
|
)
|
|
(2,243
|
)
|
|
(3,111
|
)
|
Income before taxes
|
$
|
368,512
|
|
|
$
|
392,345
|
|
|
$
|
392,440
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
ASSETS
|
|
|
|
|
|
Fluid & Metering Technologies
|
$
|
1,065,670
|
|
|
$
|
1,125,266
|
|
|
$
|
1,026,238
|
|
Health & Science Technologies
|
1,266,036
|
|
|
1,108,302
|
|
|
1,101,155
|
|
Fire & Safety/Diversified Products
|
705,735
|
|
|
448,867
|
|
|
510,841
|
|
Corporate office
(3)
|
117,503
|
|
|
123,008
|
|
|
265,229
|
|
Total assets
|
$
|
3,154,944
|
|
|
$
|
2,805,443
|
|
|
$
|
2,903,463
|
|
DEPRECIATION AND AMORTIZATION
(4)
|
|
|
|
|
|
Fluid & Metering Technologies
|
$
|
28,458
|
|
|
$
|
27,662
|
|
|
$
|
26,453
|
|
Health & Science Technologies
|
45,298
|
|
|
42,827
|
|
|
42,478
|
|
Fire & Safety/Diversified Products
|
11,956
|
|
|
6,051
|
|
|
6,583
|
|
Corporate office and other
|
1,180
|
|
|
1,580
|
|
|
1,393
|
|
Total depreciation and amortization
|
$
|
86,892
|
|
|
$
|
78,120
|
|
|
$
|
76,907
|
|
CAPITAL EXPENDITURES
|
|
|
|
|
|
Fluid & Metering Technologies
|
$
|
16,389
|
|
|
$
|
22,846
|
|
|
$
|
18,215
|
|
Health & Science Technologies
|
15,665
|
|
|
13,104
|
|
|
19,161
|
|
Fire & Safety/Diversified Products
|
5,945
|
|
|
5,804
|
|
|
6,761
|
|
Corporate office and other
|
243
|
|
|
2,022
|
|
|
3,860
|
|
Total capital expenditures
|
$
|
38,242
|
|
|
$
|
43,776
|
|
|
$
|
47,997
|
|
|
|
(1)
|
Segment operating income (loss) excludes net unallocated corporate operating expenses.
|
|
|
(2)
|
2016 includes a
$22.3 million
loss on the sale of businesses - net and 2015 includes an
$18.1 million
gain on the sale of a business.
|
|
|
(3)
|
2014 balance has been reclassified to conform to the current presentation for ASU 2015-03.
|
|
|
(4)
|
Excludes amortization of debt issuance expenses.
|
Information about the Company’s operations in different geographical regions for the years ended
December 31, 2016
,
2015
and
2014
is shown below. Net sales were attributed to geographic areas based on location of the customer and no country outside the U.S. was greater than 10% of total revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
NET SALES
|
|
|
|
|
|
U.S.
|
$
|
1,067,333
|
|
|
$
|
1,015,277
|
|
|
$
|
1,068,758
|
|
North America, excluding U.S.
|
84,836
|
|
|
85,852
|
|
|
95,917
|
|
Europe
|
517,179
|
|
|
490,435
|
|
|
527,975
|
|
Asia
|
340,624
|
|
|
325,507
|
|
|
337,668
|
|
Other
|
103,071
|
|
|
103,597
|
|
|
117,449
|
|
Total net sales
|
$
|
2,113,043
|
|
|
$
|
2,020,668
|
|
|
$
|
2,147,767
|
|
LONG-LIVED ASSETS — PROPERTY, PLANT AND EQUIPMENT
|
|
|
|
|
|
U.S.
|
$
|
152,504
|
|
|
$
|
144,508
|
|
|
$
|
139,702
|
|
North America, excluding U.S.
|
1,533
|
|
|
643
|
|
|
814
|
|
Europe
|
71,681
|
|
|
69,082
|
|
|
54,088
|
|
Asia
|
21,793
|
|
|
26,498
|
|
|
24,912
|
|
Other
|
305
|
|
|
214
|
|
|
27
|
|
Total long-lived assets — net
|
$
|
247,816
|
|
|
$
|
240,945
|
|
|
$
|
219,543
|
|
12. Restructuring
During the fourth quarter of 2016, the third and fourth quarters of 2015 and the fourth quarter of 2014, the Company recorded restructuring costs as a part of restructuring initiatives that support the implementation of key strategic efforts designed to facilitate long-term, sustainable growth through cost reduction actions, primarily consisting of employee reductions and facility rationalization. The costs incurred related to these initiatives were included in Restructuring expenses in the Consolidated Statements of Operations while the related accruals were included in Accrued expenses in the Consolidated Balance Sheets. Severance costs primarily consisted of severance benefits through payroll continuation, COBRA subsidies, outplacement services, conditional separation costs and employer tax liabilities, while exit costs primarily consisted of asset disposals or impairments and lease exit costs.
2016 Initiative
During 2016 the Company recorded pre-tax restructuring expenses totaling
$3.7 million
related to the 2016 restructuring initiative. These expenses consisted of employee severance related to employee reductions across various functional areas. The 2016 restructuring initiative included severance benefits for
129
employees. Severance payments are expected to be substantially paid by the end of 2017 using cash from operations. The Company expects an additional
$2
to
$3 million
of pre-tax restructuring expenses in the first quarter of 2017 related to the 2016 initiative.
Pre-tax restructuring expenses, comprised solely of severance costs, by segment for 2016 are as follows:
|
|
|
|
|
|
Total Restructuring Costs
|
|
(In thousands)
|
Fluid & Metering Technologies
|
$
|
932
|
|
Health & Science Technologies
|
1,117
|
|
Fire & Safety/Diversified Products
|
1,425
|
|
Corporate/Other
|
200
|
|
Total restructuring costs
|
$
|
3,674
|
|
2015 Initiative
During 2015 the Company recorded pre-tax restructuring expenses totaling
$11.2 million
related to the 2015 restructuring initiative. These expenses consisted of employee severance related to employee reductions across various functional areas. The 2015 restructuring initiative included severance benefits for
208
employees. Severance payments are expected to be paid by March 31, 2017 using cash from operations.
Pre-tax restructuring expenses, comprised solely of severance costs, by segment for 2015 are as follows:
|
|
|
|
|
|
Total Restructuring Costs
|
|
(In thousands)
|
Fluid & Metering Technologies
|
$
|
7,090
|
|
Health & Science Technologies
|
3,408
|
|
Fire & Safety/Diversified Products
|
576
|
|
Corporate/Other
|
165
|
|
Total restructuring costs
|
$
|
11,239
|
|
2014 Initiative
During 2014 the Company recorded pre-tax restructuring expenses in the fourth quarter totaling
$13.7 million
related to the 2014 restructuring initiative. These expenses consisted of employee severance related to employee reductions across various functional areas as well as exit costs and asset impairments. The 2014 restructuring initiative included severance benefits for
217
employees. Severance payments were fully paid by the end of 2015 using cash from operations.
Pre-tax restructuring expenses by segment for 2014 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance Costs
|
|
Exit Costs and Asset Impairments
|
|
Total
|
|
(In thousands)
|
Fluid & Metering Technologies
|
$
|
6,413
|
|
|
$
|
—
|
|
|
$
|
6,413
|
|
Health & Science Technologies
|
3,520
|
|
|
1,392
|
|
|
4,912
|
|
Fire & Safety/Diversified Products
|
908
|
|
|
126
|
|
|
1,034
|
|
Corporate/Other
|
1,313
|
|
|
—
|
|
|
1,313
|
|
Total restructuring costs
|
$
|
12,154
|
|
|
$
|
1,518
|
|
|
$
|
13,672
|
|
Restructuring accruals of
$3.9 million
and
$6.6 million
at December 31,
2016
and
2015
, respectively, are reflected in Accrued expenses in our Consolidated Balance Sheets as follows:
|
|
|
|
|
|
Restructuring
Initiatives
|
|
(In thousands)
|
Balance at January 1, 2015
|
$
|
6,056
|
|
Restructuring expenses
|
11,239
|
|
Payments, utilization and other
|
(10,659
|
)
|
Balance at December 31, 2015
|
6,636
|
|
Restructuring expenses
|
3,674
|
|
Payments, utilization and other
|
(6,417
|
)
|
Balance at December 31, 2016
|
$
|
3,893
|
|
13. Share-Based Compensation
The Company maintains
two
share-based compensation plans for executives, non-employee directors and certain key employees that authorize the granting of stock options, restricted stock, performance share units, and other types of awards consistent with the purpose of the plans. The number of shares authorized for issuance under the Company’s plans as of
December 31, 2016
totaled
15.6 million
, of which
5.4 million
shares were available for future issuance. The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award.
Stock Options
Stock options granted under IDEX plans are generally non-qualified and are granted
with an exercise price equal to the market price of the Company’s stock at the date of grant. The majority of the options issued to employees become exercisable in four equal installments, beginning one year from the date of grant, and generally expire
10 years
from the date of grant. Stock options granted to non-employee directors cliff vest after
one year
.
Weighted average option fair values and assumptions for the period are as follows:
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average fair value of grants
|
$18.56
|
|
$20.32
|
|
$19.52
|
Dividend yield
|
1.69%
|
|
1.45%
|
|
1.27%
|
Volatility
|
29.70%
|
|
29.90%
|
|
30.36%
|
Risk-free interest rate
|
0.53% - 2.49%
|
|
0.24% - 2.82%
|
|
0.12% - 4.65%
|
Expected life (in years)
|
5.91
|
|
5.93
|
|
5.89
|
The assumptions are as follows:
|
|
•
|
The Company estimated volatility using its historical share price performance over the contractual term of the option.
|
|
|
•
|
The Company uses historical data to estimate the expected life of the option. The expected life assumption for the years ended
December 31, 2016
,
2015
and
2014
is an output of the Binomial lattice option-pricing model, which incorporates vesting provisions, rate of voluntary exercise and rate of post-vesting termination over the contractual life of the option to define expected employee behavior.
|
|
|
•
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option. For the years ended
December 31, 2016
,
2015
and
2014
, we present the range of risk-free one-year forward rates, derived from the U.S. treasury yield curve, utilized in the Binomial lattice option-pricing model.
|
|
|
•
|
The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.
|
A summary of the Company’s stock option activity as of
December 31, 2016
, and changes during the year ended
December 31, 2016
is presented as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock Options
|
Shares
|
|
Weighted
Average
Price
|
|
Weighted-Average
Remaining
Contractual Term
|
|
Aggregate
Intrinsic
Value
|
Outstanding at January 1, 2016
|
2,266,433
|
|
|
$
|
54.05
|
|
|
6.58
|
|
$
|
51,918,028
|
|
Granted
|
570,250
|
|
|
75.35
|
|
|
|
|
|
Exercised
|
(675,525
|
)
|
|
44.44
|
|
|
|
|
|
Forfeited/Expired
|
(173,212
|
)
|
|
72.30
|
|
|
|
|
|
Outstanding at December 31, 2016
|
1,987,946
|
|
|
$
|
61.83
|
|
|
6.84
|
|
$
|
56,144,876
|
|
Vested and expected to vest at December 31, 2016
|
1,884,401
|
|
|
$
|
61.06
|
|
|
6.74
|
|
$
|
54,671,036
|
|
Exercisable at December 31, 2016
|
945,265
|
|
|
$
|
48.53
|
|
|
5.17
|
|
$
|
39,252,480
|
|
The intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of the Company’s common stock as of the end of the period and the grant price. The total intrinsic value of options exercised in
2016
,
2015
and
2014
was
$26.5 million
,
$16.9 million
and
$20.0 million
, respectively. In
2016
,
2015
and
2014
, cash received from options exercised was
$30.2 million
,
$19.2 million
and
$17.2 million
, respectively, while the actual tax benefit realized for the tax deductions from stock options exercised totaled
$9.6 million
,
$6.1 million
and
$7.3 million
, respectively.
Total compensation cost for stock options is recorded in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cost of goods sold
|
$
|
427
|
|
|
$
|
543
|
|
|
$
|
581
|
|
Selling, general and administrative expenses
|
6,561
|
|
|
6,488
|
|
|
6,245
|
|
Total expense before income taxes
|
6,988
|
|
|
7,031
|
|
|
6,826
|
|
Income tax benefit
|
(2,213
|
)
|
|
(2,208
|
)
|
|
(2,194
|
)
|
Total expense after income taxes
|
$
|
4,775
|
|
|
$
|
4,823
|
|
|
$
|
4,632
|
|
As of
December 31, 2016
there was
$10.8 million
of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of
1.4 years
.
Restricted Stock
Restricted stock awards generally cliff vest after three years for employees and non-employee directors. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the
grant. A summary of the Company’s restricted stock activity as of December 31,
2016
, and changes during the year ending December 31,
2016
is as follows:
|
|
|
|
|
|
|
|
Restricted Stock
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Unvested at January 1, 2016
|
272,755
|
|
|
$
|
65.90
|
|
Granted
|
76,970
|
|
|
78.86
|
|
Vested
|
(105,382
|
)
|
|
51.90
|
|
Forfeited
|
(26,445
|
)
|
|
74.61
|
|
Unvested at December 31, 2016
|
217,898
|
|
|
$
|
76.19
|
|
Total compensation cost for restricted stock is recorded in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cost of goods sold
|
$
|
390
|
|
|
$
|
341
|
|
|
$
|
369
|
|
Selling, general and administrative expenses
|
4,401
|
|
|
5,213
|
|
|
6,182
|
|
Total expense before income taxes
|
4,791
|
|
|
5,554
|
|
|
6,551
|
|
Income tax benefit
|
(1,410
|
)
|
|
(1,604
|
)
|
|
(1,630
|
)
|
Total expense after income taxes
|
$
|
3,381
|
|
|
$
|
3,950
|
|
|
$
|
4,921
|
|
As of
December 31, 2016
there was
$5.3 million
of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of
1.1 years
.
Cash-Settled Restricted Stock
The Company also maintains a cash-settled share based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after
three years
. Dividend equivalents are paid on certain cash-settled restricted stock awards. A summary of the Company’s unvested cash-settled restricted stock activity as of December 31,
2016
, and changes during the year ending December 31,
2016
is as follows:
|
|
|
|
|
|
|
|
Cash-Settled Restricted Stock
|
Shares
|
|
Weighted-Average
Fair Value
|
Unvested at January 1, 2016
|
110,860
|
|
|
$
|
76.61
|
|
Granted
|
41,060
|
|
|
90.06
|
|
Vested
|
(36,660
|
)
|
|
72.91
|
|
Forfeited
|
(11,470
|
)
|
|
90.06
|
|
Unvested at December 31, 2016
|
103,790
|
|
|
$
|
90.06
|
|
Total compensation cost for cash-settled restricted stock is recorded in the Consolidated Statements of Operations as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cost of goods sold
|
$
|
764
|
|
|
$
|
753
|
|
|
$
|
1,384
|
|
Selling, general and administrative expenses
|
2,224
|
|
|
1,765
|
|
|
2,735
|
|
Total expense before income taxes
|
2,988
|
|
|
2,518
|
|
|
4,119
|
|
Income tax benefit
|
(419
|
)
|
|
(355
|
)
|
|
(603
|
)
|
Total expense after income taxes
|
$
|
2,569
|
|
|
$
|
2,163
|
|
|
$
|
3,516
|
|
At December 31,
2016
and
2015
, the Company has
$3.0 million
and
$3.2 million
, respectively, included in Accrued expenses in the Consolidated Balance Sheets and
$2.4 million
and
$1.8 million
, respectively, included in Other non-current liabilities.
Performance Share Units
Beginning in 2013 the Company granted performance share units to selected key employees that may be earned based on IDEX total shareholder return over the three-year period following the date of grant. Performance share units are expected to be made annually and are paid out at the end of a
three
-year period based on the Company’s performance. Performance is measured by determining the percentile rank of the total shareholder return of IDEX common stock in relation to the total shareholder return of the S&P Midcap 400 Industrial Group (for awards granted prior to 2016) or the Russell Midcap Index (for awards granted in 2016) for the three-year period following the date of grant. The payment of awards following the three-year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from
0
percent to
250
percent of the initial grant. A target payout of
100
percent is earned if total shareholder return is equal to the 50
th
percentile of the peer group. Performance share units earn dividend equivalents for the award period, which will be paid to participants with the award payout at the end of the period based on the actual number of performance share units that are earned. Payments made at the end of the award period will be in the form of stock for performance share units and will be in cash for dividend equivalents. The Company’s performance share awards are considered performance condition awards and the grant date fair value of the awards, based on a Monte Carlo simulation model, is expensed ratably over the three-year term of the awards. The Company granted approximately
0.1 million
of performance share units in each of
2016
,
2015
and
2014
.
Weighted average performance share unit fair values and assumptions for the period specified are as follows:
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
Weighted average fair value of grants
|
$111.42
|
|
$95.07
|
|
$94.55
|
Dividend yield
|
—%
|
|
—%
|
|
—%
|
Volatility
|
17.99%
|
|
19.14%
|
|
26.41%
|
Risk-free interest rate
|
0.89%
|
|
1.01%
|
|
0.65%
|
Expected life (in years)
|
2.86
|
|
2.86
|
|
2.88
|
The assumptions are as follows:
|
|
•
|
The Company estimated volatility using its historical share price performance over the remaining performance period as of the grant date.
|
|
|
•
|
The Company uses a Monte Carlo simulation model that uses an expected life commensurate with the performance period. As a result, the expected life of the performance share units was assumed to be the period from the grant date to the end of the performance period.
|
|
|
•
|
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with a term commensurate with the remaining performance period.
|
|
|
•
|
Total Shareholder Return is determined assuming that dividends are reinvested in the issuing entity over the performance period, which is mathematically equivalent to utilizing a
0%
dividend yield.
|
A summary of the Company’s performance share unit activity as of
December 31, 2016
, and changes during the year ending
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
Performance Share Units
|
Shares
|
|
Weighted-Average
Grant Date Fair
Value
|
Unvested at January 1, 2016
|
146,275
|
|
|
$
|
94.80
|
|
Granted
|
85,130
|
|
|
111.42
|
|
Vested
|
(63,325
|
)
|
|
94.55
|
|
Forfeited
|
(31,025
|
)
|
|
99.52
|
|
Unvested at December 31, 2016
|
137,055
|
|
|
$
|
104.18
|
|
Awards that vested in
2016
will result in
89,288
shares being issued in
2017
.
Total compensation cost for performance share units is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Cost of goods sold
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Selling, general and administrative expenses
|
5,559
|
|
|
4,946
|
|
|
3,220
|
|
Total expense before income taxes
|
5,559
|
|
|
4,946
|
|
|
3,220
|
|
Income tax benefit
|
(1,859
|
)
|
|
(1,670
|
)
|
|
(1,081
|
)
|
Total expense after income taxes
|
$
|
3,700
|
|
|
$
|
3,276
|
|
|
$
|
2,139
|
|
As of
December 31, 2016
there was
$6.3 million
of total unrecognized compensation cost related to performance shares that is expected to be recognized over a weighted-average period of
1.0 year
.
14. Other Comprehensive Income (Loss)
The components of Other comprehensive income (loss) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2016
|
|
For the Year Ended December 31, 2015
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
(In thousands)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
$
|
(76,822
|
)
|
|
$
|
—
|
|
|
$
|
(76,822
|
)
|
|
$
|
(63,441
|
)
|
|
$
|
—
|
|
|
$
|
(63,441
|
)
|
Reclassification of foreign currency translation to earnings upon sale of business
|
14,257
|
|
|
—
|
|
|
14,257
|
|
|
(4,725
|
)
|
|
—
|
|
|
(4,725
|
)
|
Foreign currency translation adjustments
|
(62,565
|
)
|
|
—
|
|
|
(62,565
|
)
|
|
(68,166
|
)
|
|
—
|
|
|
(68,166
|
)
|
Pension and other postretirement adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) arising during the year
|
(1,927
|
)
|
|
789
|
|
|
(1,138
|
)
|
|
8,318
|
|
|
(2,411
|
)
|
|
5,907
|
|
Amortization/recognition of settlement loss
|
7,083
|
|
|
(2,896
|
)
|
|
4,187
|
|
|
4,939
|
|
|
(1,431
|
)
|
|
3,508
|
|
Pension and other postretirement adjustments
|
5,156
|
|
|
(2,107
|
)
|
|
3,049
|
|
|
13,257
|
|
|
(3,842
|
)
|
|
9,415
|
|
Reclassification adjustments for derivatives
|
6,851
|
|
|
(2,490
|
)
|
|
4,361
|
|
|
7,030
|
|
|
(2,499
|
)
|
|
4,531
|
|
Total other comprehensive income (loss)
|
$
|
(50,558
|
)
|
|
$
|
(4,597
|
)
|
|
$
|
(55,155
|
)
|
|
$
|
(47,879
|
)
|
|
$
|
(6,341
|
)
|
|
$
|
(54,220
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2014
|
|
|
|
|
|
|
|
Pre-tax
|
|
Tax
|
|
Net of tax
|
|
|
|
|
|
|
|
(In thousands)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative translation adjustment
|
|
|
|
|
|
|
$
|
(77,024
|
)
|
|
$
|
—
|
|
|
$
|
(77,024
|
)
|
Pension and other postretirement adjustments
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) arising during the year
|
|
|
|
|
|
|
(26,424
|
)
|
|
7,767
|
|
|
(18,657
|
)
|
Amortization/recognition of settlement loss
|
|
|
|
|
|
|
3,113
|
|
|
(915
|
)
|
|
2,198
|
|
Pension and other postretirement adjustments, net
|
|
|
|
|
|
|
(23,311
|
)
|
|
6,852
|
|
|
(16,459
|
)
|
Reclassification adjustments for derivatives
|
|
|
|
|
|
|
7,223
|
|
|
(2,713
|
)
|
|
4,510
|
|
Total other comprehensive income (loss)
|
|
|
|
|
|
|
$
|
(93,112
|
)
|
|
$
|
4,139
|
|
|
$
|
(88,973
|
)
|
Amounts reclassified from accumulated other comprehensive income (loss) to net income are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
|
2016
|
|
2015
|
|
2014
|
|
Income Statement Caption
|
Foreign currency translation:
|
|
|
|
|
|
|
|
|
Reclassification upon sale of business
|
|
$
|
14,257
|
|
|
$
|
(4,725
|
)
|
|
$
|
—
|
|
|
Loss (gain) on sale of businesses - net
|
Total before tax
|
|
14,257
|
|
|
(4,725
|
)
|
|
—
|
|
|
|
Provision for income taxes
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
Total net of tax
|
|
$
|
14,257
|
|
|
$
|
(4,725
|
)
|
|
$
|
—
|
|
|
|
Pension and other postretirement plans:
|
|
|
|
|
|
|
|
|
Amortization of service cost
|
|
$
|
7,083
|
|
|
$
|
4,939
|
|
|
$
|
3,113
|
|
|
Selling, general and administrative expense
|
Total before tax
|
|
7,083
|
|
|
4,939
|
|
|
3,113
|
|
|
|
Provision for income taxes
|
|
(2,896
|
)
|
|
(1,431
|
)
|
|
(915
|
)
|
|
|
Total net of tax
|
|
$
|
4,187
|
|
|
$
|
3,508
|
|
|
$
|
2,198
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
Reclassification adjustments
|
|
$
|
6,851
|
|
|
$
|
7,030
|
|
|
$
|
7,223
|
|
|
Interest expense
|
Total before tax
|
|
6,851
|
|
|
7,030
|
|
|
7,223
|
|
|
|
Provision for income taxes
|
|
(2,490
|
)
|
|
(2,499
|
)
|
|
(2,713
|
)
|
|
|
Total net of tax
|
|
$
|
4,361
|
|
|
$
|
4,531
|
|
|
$
|
4,510
|
|
|
|
15. Retirement Benefits
The Company sponsors several qualified and nonqualified pension plans and other postretirement plans for its employees. The Company uses a measurement date of December 31 for its defined benefit pension plans and post retirement medical plans. The Company employs the measurement date provisions of ASC 715,
Compensation-Retirement Benefits
, which require the measurement date of plan assets and liabilities to coincide with the sponsor’s year end.
During 2016, the Company offered a voluntary lump-sum pension payment opportunity to certain terminated vested U.S. pension plan participants. Total lump-sum payments of
$11.0 million
were made for those participants electing to receive lump sums using pension plan assets. The Company recognized pretax settlement losses of
$3.5 million
in the fourth quarter of 2016 for those plans where the settlement payment exceeded the sum of the plans' service and interest costs.
The following table provides a reconciliation of the changes in the benefit obligations and fair value of plan assets over the two-year period ended
December 31, 2016
, and a statement of the funded status at December 31 for both years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
|
|
|
|
(In thousands)
|
CHANGE IN BENEFIT OBLIGATION
|
Obligation at January 1
|
$
|
98,476
|
|
|
$
|
58,063
|
|
|
$
|
102,312
|
|
|
$
|
69,488
|
|
|
$
|
20,400
|
|
|
$
|
22,855
|
|
Service cost
|
1,016
|
|
|
1,627
|
|
|
1,279
|
|
|
1,506
|
|
|
601
|
|
|
673
|
|
Interest cost
|
3,043
|
|
|
1,429
|
|
|
3,770
|
|
|
1,734
|
|
|
811
|
|
|
833
|
|
Plan amendments
|
—
|
|
|
—
|
|
|
113
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Benefits paid
|
(3,140
|
)
|
|
(2,023
|
)
|
|
(3,985
|
)
|
|
(2,448
|
)
|
|
(718
|
)
|
|
(622
|
)
|
Actuarial loss (gain)
|
1,987
|
|
|
6,844
|
|
|
(5,013
|
)
|
|
(6,909
|
)
|
|
(1,990
|
)
|
|
(2,966
|
)
|
Currency translation
|
—
|
|
|
(6,988
|
)
|
|
—
|
|
|
(5,308
|
)
|
|
52
|
|
|
(373
|
)
|
Settlements
|
(11,126
|
)
|
|
(819
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition/Divestiture
|
—
|
|
|
29,491
|
|
|
—
|
|
|
—
|
|
|
5,480
|
|
|
—
|
|
Other
|
—
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Obligation at December 31
|
$
|
90,256
|
|
|
$
|
87,764
|
|
|
$
|
98,476
|
|
|
$
|
58,063
|
|
|
$
|
24,636
|
|
|
$
|
20,400
|
|
CHANGE IN PLAN ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at January 1
|
$
|
77,575
|
|
|
$
|
20,645
|
|
|
$
|
79,687
|
|
|
$
|
22,152
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets
|
6,740
|
|
|
2,470
|
|
|
(2,587
|
)
|
|
205
|
|
|
—
|
|
|
—
|
|
Employer contributions
|
3,639
|
|
|
1,974
|
|
|
4,460
|
|
|
1,837
|
|
|
718
|
|
|
622
|
|
Benefits paid
|
(3,140
|
)
|
|
(2,023
|
)
|
|
(3,985
|
)
|
|
(2,448
|
)
|
|
(718
|
)
|
|
(622
|
)
|
Currency translation
|
—
|
|
|
(4,108
|
)
|
|
—
|
|
|
(1,101
|
)
|
|
—
|
|
|
—
|
|
Settlements
|
(11,126
|
)
|
|
(819
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Acquisition/Divestiture
|
—
|
|
|
14,307
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
140
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at December 31
|
$
|
73,688
|
|
|
$
|
32,586
|
|
|
$
|
77,575
|
|
|
$
|
20,645
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status at December 31
|
$
|
(16,568
|
)
|
|
$
|
(55,178
|
)
|
|
$
|
(20,901
|
)
|
|
$
|
(37,418
|
)
|
|
$
|
(24,636
|
)
|
|
$
|
(20,400
|
)
|
COMPONENTS ON THE CONSOLIDATED BALANCE SHEETS
|
Current liabilities
|
$
|
(729
|
)
|
|
$
|
(1,005
|
)
|
|
$
|
(743
|
)
|
|
$
|
(875
|
)
|
|
$
|
(1,044
|
)
|
|
$
|
(911
|
)
|
Other noncurrent liabilities
|
(15,839
|
)
|
|
(54,173
|
)
|
|
(20,158
|
)
|
|
(36,543
|
)
|
|
(23,592
|
)
|
|
(19,489
|
)
|
Net liability at December 31
|
$
|
(16,568
|
)
|
|
$
|
(55,178
|
)
|
|
$
|
(20,901
|
)
|
|
$
|
(37,418
|
)
|
|
$
|
(24,636
|
)
|
|
$
|
(20,400
|
)
|
The accumulated benefit obligation (“ABO”) for all defined benefit pension plans was
$176.7 million
and
$150.4 million
at
December 31, 2016
and
2015
, respectively.
The weighted average assumptions used in the measurement of the Company’s benefit obligation at
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S.
Plans
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Discount rate
|
3.91
|
%
|
|
4.12
|
%
|
|
1.76
|
%
|
|
2.99
|
%
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
2.29
|
%
|
|
2.98
|
%
|
The pretax amounts recognized in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets as of
December 31, 2016
and
2015
were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S
|
|
|
|
|
|
(In thousands)
|
Prior service cost (credit)
|
$
|
110
|
|
|
$
|
(77
|
)
|
|
$
|
135
|
|
|
$
|
(38
|
)
|
|
$
|
(849
|
)
|
|
$
|
(1,215
|
)
|
Net loss
|
27,860
|
|
|
(17,643
|
)
|
|
33,461
|
|
|
15,330
|
|
|
(3,852
|
)
|
|
(2,197
|
)
|
Total
|
$
|
27,970
|
|
|
$
|
(17,720
|
)
|
|
$
|
33,596
|
|
|
$
|
15,292
|
|
|
$
|
(4,701
|
)
|
|
$
|
(3,412
|
)
|
The amounts in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet as of
December 31, 2016
, that are expected to be recognized as components of net periodic benefit cost during
2017
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Pension
Benefit Plans
|
|
Non-U.S.
Pension Benefit
Plans
|
|
Other
Benefit Plans
|
|
Total
|
|
(In thousands)
|
Prior service cost (credit)
|
$
|
24
|
|
|
$
|
9
|
|
|
$
|
(366
|
)
|
|
$
|
(333
|
)
|
Net loss
|
2,542
|
|
|
1,493
|
|
|
(427
|
)
|
|
3,608
|
|
Total
|
$
|
2,566
|
|
|
$
|
1,502
|
|
|
$
|
(793
|
)
|
|
$
|
3,275
|
|
The components of, and the weighted average assumptions used to determine, the net periodic benefit cost for the plans in
2016
,
2015
and
2014
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
U.S.
|
|
Non-U.S.
|
|
(In thousands)
|
Service cost
|
$
|
1,016
|
|
|
$
|
1,627
|
|
|
$
|
1,279
|
|
|
$
|
1,506
|
|
|
$
|
1,162
|
|
|
$
|
1,331
|
|
Interest cost
|
3,043
|
|
|
1,429
|
|
|
3,770
|
|
|
1,734
|
|
|
4,037
|
|
|
2,345
|
|
Expected return on plan assets
|
(4,777
|
)
|
|
(993
|
)
|
|
(4,910
|
)
|
|
(1,114
|
)
|
|
(5,430
|
)
|
|
(1,297
|
)
|
Settlement loss recognized
|
3,339
|
|
|
215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net amortization
|
3,226
|
|
|
1,008
|
|
|
3,422
|
|
|
1,931
|
|
|
2,187
|
|
|
1,400
|
|
Net periodic benefit cost
|
$
|
5,847
|
|
|
$
|
3,286
|
|
|
$
|
3,561
|
|
|
$
|
4,057
|
|
|
$
|
1,956
|
|
|
$
|
3,779
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits
|
|
2016
|
|
2015
|
|
2014
|
|
(In thousands)
|
Service cost
|
$
|
601
|
|
|
$
|
673
|
|
|
$
|
714
|
|
Interest cost
|
811
|
|
|
833
|
|
|
932
|
|
Net amortization
|
(705
|
)
|
|
(414
|
)
|
|
(474
|
)
|
Net periodic benefit cost
|
$
|
707
|
|
|
$
|
1,092
|
|
|
$
|
1,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2016
|
|
2015
|
|
2014
|
|
2016
|
|
2015
|
|
2014
|
Discount rate
|
4.12
|
%
|
|
3.78
|
%
|
|
4.61
|
%
|
|
2.99
|
%
|
|
2.66
|
%
|
|
4.03
|
%
|
Expected return on plan assets
|
6.50
|
%
|
|
6.50
|
%
|
|
7.00
|
%
|
|
4.58
|
%
|
|
5.19
|
%
|
|
5.83
|
%
|
Rate of compensation increase
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
2.98
|
%
|
|
3.00
|
%
|
|
3.14
|
%
|
The pretax change recognized in Accumulated other comprehensive income (loss) on the Consolidated Balance Sheet in
2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Other
Benefits
|
|
U.S.
|
|
Non-U.S.
|
|
|
|
(In thousands)
|
Net gain (loss) in current year
|
$
|
(23
|
)
|
|
$
|
(5,367
|
)
|
|
$
|
1,990
|
|
Prior service cost
|
—
|
|
|
—
|
|
|
—
|
|
Amortization of prior service cost (credit)
|
24
|
|
|
(15
|
)
|
|
(366
|
)
|
Amortization of net loss (gain)
|
6,541
|
|
|
1,239
|
|
|
(340
|
)
|
Exchange rate effect on amounts in OCI
|
—
|
|
|
1,468
|
|
|
5
|
|
Total
|
$
|
6,542
|
|
|
$
|
(2,675
|
)
|
|
$
|
1,289
|
|
The discount rates for our plans are derived by matching the plan’s cash flows to a yield curve that provides the equivalent yields on zero-coupon bonds for each maturity. The discount rate selected is the rate that produces the same present value of cash flows.
In selecting the expected rate of return on plan assets, the Company considers the historical returns and expected returns on plan assets. The expected returns are evaluated using asset return class, variance and correlation assumptions based on the plan’s target asset allocation and current market conditions.
Prior service costs are amortized on a straight-line basis over the average remaining service period of active participants. Gains and losses in excess of
10%
of the greater of the benefit obligation or the market value of assets are amortized over the average remaining service period of active participants.
Costs of defined contribution plans were
$10.1 million
,
$10.3 million
and
$9.1 million
for
2016
,
2015
and
2014
, respectively.
The Company, through its subsidiaries, participates in certain multi-employer pension plans covering approximately
381
participants under U.S. collective bargaining agreements. None of these plans are considered individually significant to the Company as contributions to these plans totaled
$1.3 million
,
$1.0 million
, and
$1.0 million
for
2016
,
2015
and
2014
, respectively.
For measurement purposes, a
6.58%
weighted average annual rate of increase in the per capita cost of covered health care benefits was assumed for
2016
. The rate was assumed to decrease gradually each year to a rate of
4.50%
for
2037
, and remain at that level thereafter. Assumed health care cost trend rates have an effect on the amounts reported for the health care plans. A
1%
increase in the assumed health care cost trend rates would increase the service and interest cost components of the net periodic benefit cost by
$0.2 million
and the health care component of the accumulated postretirement benefit obligation by
$2.1 million
. A
1%
decrease in the assumed health care cost trend rate would decrease the service and interest cost components of the net periodic benefit cost by
$0.1 million
and the health care component of the accumulated postretirement benefit obligation by
$1.8 million
.
Plan Assets
The Company’s pension plan weighted average asset allocations at
December 31, 2016
and
2015
, by asset category, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Equity securities
|
44
|
%
|
|
49
|
%
|
|
24
|
%
|
|
36
|
%
|
Fixed income securities
|
43
|
%
|
|
49
|
%
|
|
26
|
%
|
|
44
|
%
|
Cash/Commingled Funds/Other
(1)
|
13
|
%
|
|
2
|
%
|
|
50
|
%
|
|
20
|
%
|
Total
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
|
100
|
%
|
The basis used to measure the defined benefit plans’ assets at fair value at
December 31, 2016
and
2015
is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurement
|
|
Outstanding
Balances
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2016
|
(In thousands)
|
Equity
|
|
|
|
|
|
|
|
U.S. Large Cap
|
$
|
15,345
|
|
|
$
|
15,345
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Small / Mid Cap
|
8,920
|
|
|
7,111
|
|
|
1,809
|
|
|
—
|
|
International
|
16,282
|
|
|
10,647
|
|
|
5,635
|
|
|
—
|
|
Fixed Income
|
|
|
|
|
|
|
|
U.S. Intermediate
|
10,014
|
|
|
9,943
|
|
|
71
|
|
|
—
|
|
U.S. Short Duration
|
10,160
|
|
|
10,160
|
|
|
—
|
|
|
—
|
|
U.S. High Yield
|
9,343
|
|
|
7,924
|
|
|
1,419
|
|
|
—
|
|
International
|
10,310
|
|
|
3,627
|
|
|
6,683
|
|
|
—
|
|
Other Commingled Funds
(1)
|
14,180
|
|
|
—
|
|
|
—
|
|
|
14,180
|
|
Cash and Equivalents
|
10,382
|
|
|
9,660
|
|
|
722
|
|
|
—
|
|
Other
|
1,338
|
|
|
—
|
|
|
1,338
|
|
|
—
|
|
|
$
|
106,274
|
|
|
$
|
74,417
|
|
|
$
|
17,677
|
|
|
$
|
14,180
|
|
|
|
|
|
|
|
|
|
(1) Other commingled funds represent pooled institutional investments in non-U.S. plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basis of Fair Value Measurement
|
|
Outstanding
Balances
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
As of December 31, 2015
|
(In thousands)
|
Equity
|
|
|
|
|
|
|
|
U.S. Large Cap
|
$
|
23,465
|
|
|
$
|
23,465
|
|
|
$
|
—
|
|
|
$
|
—
|
|
U.S. Small / Mid Cap
|
10,184
|
|
|
7,482
|
|
|
2,702
|
|
|
—
|
|
International
|
11,986
|
|
|
7,786
|
|
|
4,200
|
|
|
—
|
|
Fixed Income
|
|
|
|
|
|
|
|
U.S. Intermediate
|
15,000
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
U.S. Short Duration
|
8,935
|
|
|
8,935
|
|
|
—
|
|
|
—
|
|
U.S. High Yield
|
7,758
|
|
|
6,922
|
|
|
836
|
|
|
—
|
|
International
|
15,249
|
|
|
7,241
|
|
|
8,008
|
|
|
—
|
|
Cash and Equivalents
|
1,829
|
|
|
1,829
|
|
|
—
|
|
|
—
|
|
Other
|
3,836
|
|
|
—
|
|
|
3,836
|
|
|
—
|
|
|
$
|
98,242
|
|
|
$
|
78,660
|
|
|
$
|
19,582
|
|
|
$
|
—
|
|
Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (“NAV”) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors.
Investment Policies and Strategies
The investment objective of the plan, consistent with prudent standards for preservation of capital and maintenance of liquidity, is to earn the highest possible total rate of return consistent with the plan’s tolerance for risk. The general asset allocation guidelines for plan assets are that “equities” will constitute from
40%
to
60%
of the market value of total fund assets with a target of
44%
, and “fixed income” obligations, including cash, will constitute from
40%
to
60%
with a target of
56%
. The term “equities” includes common stock, convertible bonds and convertible stock. The term “fixed income” includes preferred stock and/or contractual payments with a specific maturity date. The Company strives to maintain asset allocations within the designated ranges by conducting periodic reviews of fund allocations and plan liquidity needs, and rebalancing the portfolio accordingly. Diversification of assets is employed to ensure that adverse performance of one security or security class does not have an undue detrimental impact on the portfolio as a whole. Diversification is interpreted to include diversification by type, characteristic and number of investments, as well as by investment style of designated investment fund managers. No restrictions are placed on the selection of individual investments by the investment fund managers. The total fund performance and the performance of the investment fund managers is reviewed on a regular basis, using appointed professional independent advisors. As of December 31,
2016
and
2015
, there were no shares of the Company’s stock held in plan assets.
Cash Flows
The Company expects to contribute approximately
$5.8 million
to its defined benefit plans and
$0.1 million
to its other postretirement benefit plans in
2017
. The Company also expects to contribute approximately
$10.0 million
to its defined contribution plan and
$8.4 million
to its 401(k) savings plan in
2017
.
Estimated Future Benefit Payments
The future estimated benefit payments for the next five years and the five years thereafter are as follows:
2017
—
$14.4 million
;
2018
—
$10.6 million
;
2019
—
$10.3 million
;
2020
—
$10.8 million
;
2021
—
$10.6 million
; 2022 to 2026 —
$52.1 million
.
16. Quarterly Results of Operations (Unaudited)
The unaudited quarterly results of operations for the years ended
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 Quarters
|
|
2015 Quarters
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
(In thousands, except per share amounts)
|
Net sales
|
$
|
502,572
|
|
|
$
|
549,696
|
|
|
$
|
530,356
|
|
|
$
|
530,419
|
|
|
$
|
502,198
|
|
|
$
|
514,881
|
|
|
$
|
503,791
|
|
|
$
|
499,798
|
|
Gross profit
|
223,335
|
|
|
244,058
|
|
|
230,889
|
|
|
232,485
|
|
|
226,041
|
|
|
231,615
|
|
|
223,260
|
|
|
223,399
|
|
Operating income
|
102,557
|
|
|
112,976
|
|
|
108,857
|
|
|
81,411
|
|
|
101,757
|
|
|
109,909
|
|
|
121,813
|
|
|
98,259
|
|
Net income
|
68,130
|
|
|
75,759
|
|
|
69,873
|
|
|
57,347
|
|
|
65,954
|
|
|
69,585
|
|
|
79,505
|
|
|
67,763
|
|
Basic EPS
|
$
|
0.90
|
|
|
$
|
1.00
|
|
|
$
|
0.92
|
|
|
$
|
0.75
|
|
|
$
|
0.84
|
|
|
$
|
0.89
|
|
|
$
|
1.03
|
|
|
$
|
0.89
|
|
Diluted EPS
|
$
|
0.89
|
|
|
$
|
0.99
|
|
|
$
|
0.91
|
|
|
$
|
0.75
|
|
|
$
|
0.84
|
|
|
$
|
0.89
|
|
|
$
|
1.02
|
|
|
$
|
0.88
|
|
Basic weighted average shares outstanding
|
75,749
|
|
|
75,690
|
|
|
75,819
|
|
|
75,955
|
|
|
77,996
|
|
|
77,466
|
|
|
76,831
|
|
|
76,211
|
|
Diluted weighted average shares outstanding
|
76,699
|
|
|
76,674
|
|
|
76,880
|
|
|
76,806
|
|
|
78,856
|
|
|
78,297
|
|
|
77,646
|
|
|
77,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Quarterly data includes acquisition of Novotema (June 2015), Alfa Valvole (June 2015), CiDRA Precision Services (July 2015), Akron Brass (March 2016), AWG Fittings (July 2016) and SFC Koenig (September 2016) from the date of acquisition. Quarterly data also includes the results of Ismatec (July 2015), Hydra-Stop (July 2016), CVI Japan (September 2016), IETG (October 2016) and CVI Korea (December 2016) through the date of disposition.
|
17. Subsequent Events
On January 31, 2017 the Company entered into
four
forward contracts with a combined notional value of
€180 million
and a settlement date of March 31, 2017. These contracts were executed to minimize the earnings impact due to foreign currency fluctuations between the Swiss Franc and the Euro associated with certain intercompany loans that were established in conjunction with the SFC Koenig acquisition.