NOTES TO ANNUAL COMBINED FINANCIAL STATEMENTS
1.
BASIS OF PRESENTATION
On September 16, 2015, the Air Products and Chemicals, Inc. (“Air Products”) Board of Directors announced its intention to separate (the “Separation”) Air Products’ Materials Technologies business, into a newly formed company, Versum Materials, LLC. In September 2016, Versum Materials, LLC was converted from a limited liability company to a Delaware corporation, Versum Materials, Inc. On October 1, 2016, Air Products completed the Separation by distributing to its stockholders
one
share of common stock of Versum for every
two
shares of Air Product’s common stock in a distribution intended to be tax-free to Air Products stockholders (the “Distribution”). As a result of the Distribution, Versum is now an independent public company and its common stock is listed under the symbol “VSM” on the New York Stock Exchange.
The accompanying Annual Combined Financial Statements of Versum, a business of Air Products, have been prepared on a standalone basis and are derived from Air Products’ consolidated financial statements and accounting records where Electronic Materials is a division of Air Products. The Annual Combined Financial Statements were prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of Versum. All significant intercompany transactions and balances have been eliminated in the preparation of the accompanying Annual Combined Financial Statements. Transactions between Versum and Air Products are reflected in the annual combined balance sheets as “Air Products’ net investment” and in the annual combined statements of cash flows as a financing activity in “Net transfers (to) from Air Products.”
We are a global business that provides innovative solutions for specific customer applications within niche markets based upon expertise in specialty materials. Our business employs applications technology to provide solutions to the semiconductor industry through chemical synthesis, analytical technology, process engineering, and surface science. We are comprised of
two
primary operating segments, Materials and Delivery Systems and Services, under which we manage our operations and assess performance, and a Corporate segment.
Air Products provides us with centrally managed services and corporate functions. Accordingly, certain shared costs including but not limited to administrative expenses for information technology, general services, human resources, legal, accounting and other services, have been allocated to us and are reflected as expenses in the Annual Combined Financial Statements. Expenses have been allocated on the basis of direct usage when identifiable, with the remainder allocated on the basis of fixed costs, revenue, operating income or headcount. We consider the expense allocation methodology and results to be reasonable and consistently applied for all periods presented. However, these allocations may not be indicative of the actual expenses we would have incurred as an independent public company or of the costs we will incur in the future.
The annual combined balance sheets of Versum include Air Products’ assets and liabilities that are specifically identifiable or were otherwise transferred to us, including subsidiaries and affiliates in which Air Products has a controlling financial interest. Also included within our Annual Combined Financial Statements are the results of certain product lines which have historically been managed by us but were retained by Air Products after the Separation. These product lines represented approximately
1%
and
1%
of annual combined sales and operating income, respectively, for fiscal year
2016
. Air Products performs cash management and other treasury-related functions on a centralized basis for nearly all of its legal entities. Substantially all cash generated by our business is remitted to Air Products and therefore accounted for through Air Products’ net investment in the Annual Combined Financial Statements. Accordingly, Air Products has not allocated any centrally managed cash and cash items to us in the Annual Combined Financial Statements. Air Products’ debt and related interest expense have not been allocated to us for any of the periods presented since we are not the legal obligor of the debt, and Air Products’ borrowings were not directly attributable to us. There were no other financing arrangements between us and Air Products during the periods presented.
The annual combined balance sheets include cash and cash items and debt which are assets and liabilities of legal entities whose operations are specific to Versum.
2.
MAJOR ACCOUNTING POLICIES
Estimates and Assumptions
The preparation of the Annual Combined Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect amounts reported in the Annual Combined Financial Statements and accompanying notes, including allocations of costs during the reporting period. Management’s estimates are based on historical experience, facts and circumstances available at the time, and various other assumptions that are believed to be reasonable. Actual results could differ from those estimates.
Revenue Recognition
Revenue from product sales is recognized as risk and title to the product transfer to the customer (which generally occurs at the time shipment is made), the sales price is fixed or determinable, and collectability is reasonably assured. Sales returns and allowances are generally not a business practice in the industry.
We use both the completed contract and percentage-of-completion methods to record revenue from equipment sale contracts. The completed contract method is used in circumstances in which financial position and results of operations are not materially different from those resulting from use of the percentage-of-completion method, e.g., certain short-term contracts. We use the percentage-of-completion method when we can make reasonably dependable estimates of progress toward completion and performance is expected.
Under the percentage-of-completion method, revenue from the sale of major equipment is recognized primarily based on labor hours incurred to date compared with total estimated labor hours. Under the completed contract method, revenue and cost is recognized when the equipment is completed and transferred to the customer. Changes to estimated labor hours under the percentage-of-completion method or anticipated losses under either method, if any, are recognized in the period determined.
Revenue from on-site services are generally fixed monthly fee arrangements for which we recognize revenue as the services are performed.
Amounts billed for shipping and handling fees are classified as sales in the combined income statements.
Amounts billed for sales and use taxes, value-added taxes, and certain excise and other specific transactional taxes imposed on revenue-producing transactions are presented on a net basis and excluded from sales in the combined income statements. We record a liability until remitted to the respective taxing authority.
Cost of Sales
Cost of sales predominantly represents the cost of tangible products sold. These costs include labor, raw materials, depreciation, production supplies, and materials packaging costs. Costs incurred for shipping and handling are also included in cost of sales.
Depreciation
Depreciation is recorded using the straight-line method, which deducts equal amounts of the cost of each asset from earnings every year over its expected economic useful life. The principal lives for major classes of plant and equipment are summarized in
Note 8
, Plant and Equipment, Net.
Selling and Administrative
The principal components of selling and administrative expenses are compensation, advertising, and promotional costs.
Research and Development
Research and development costs are expensed as incurred. Research and development expenses include employee costs, materials, contract services, research agreements, and other external spending related to the discovery and development of new products, enhancement of existing products and regulatory approval of new and existing products.
Postemployment Benefits
We provide termination benefits to employees as part of ongoing benefit arrangements and record a liability for termination benefits when probable and estimable. These criteria are met when management, with the appropriate level of authority, approves and commits to its plan of action for termination; the plan identifies the employees to be terminated and their related benefits; and the plan is to be completed within one year. We typically do not provide one-time benefit arrangements of significance.
Fair Value Measurements
We are required to measure certain assets and liabilities at fair value, either upon initial measurement or for subsequent accounting or reporting. For example, fair value is used in the initial measurement of net assets acquired in a business combination; on a recurring basis in the measurement of derivative financial instruments; and on a nonrecurring basis when long-lived assets are written down to fair value when held for sale or determined to be impaired. Refer to
Note 13
, “
Fair Value
”, for information on the methods and assumptions used in our fair value measurements.
Financial Instruments
We address certain financial exposures through a controlled program of risk management that includes the use of derivative financial instruments. The hedging relationship between the underlying financial exposures and the related hedging instrument is documented on the date the derivative is entered into with the counterparty. We periodically use forward exchange contracts to hedge a highly anticipated foreign currency transaction such as the purchase of plant and equipment. Derivatives such as these that specifically hedge exposures for Versum are included in the Annual Combined Financial Statements. The fair values of these hedging instruments were not material for the periods presented.
We also enter into derivative contracts to hedge exposures at the corporate level, such as interest rate swaps to manage the interest rate mix of third party debt or forward exchange contracts to hedge intercompany loans denominated in a foreign currency. Because these activities represent activities that are managed at Air Products and are not specific to any of the Versum businesses, the impacts of these transactions were not included in the Annual Combined Financial Statements.
Foreign Currency
Since we do business in many foreign countries, fluctuations in currency exchange rates affect our financial position and results of operations.
In certain of our foreign operations, the local currency is considered the functional currency. These foreign subsidiaries translate their assets and liabilities into U.S. dollars at current exchange rates in effect at the end of the fiscal period. The gains or losses that result from this process are shown as translation adjustments in accumulated other comprehensive income (loss) in the Air Products’ invested equity section of the annual combined balance sheet. The revenue and expense accounts of these foreign subsidiaries are translated into U.S. dollars at the average exchange rates that prevail during the period. Therefore, the U.S. dollar value of these items on the income statement fluctuates from period to period, depending on the value of the dollar against foreign currencies. Some transactions are made in currencies different from an entity’s functional currency. Gains and losses from these foreign currency transactions are generally included in other income (expense), net on our combined income statements as they occur.
Litigation
Accruals for litigation are made when the information available indicates that it is probable that a liability has been incurred and the amount can be reasonably estimated. When only a range of possible loss can be established, the most probable
amount in the range is accrued. If no amount within this range is a better estimate than any other amount within the range, the minimum amount in the range is accrued. The accrual for a litigation loss contingency includes estimates of potential damages and other directly related costs expected to be incurred. Litigation liabilities and expenditures included in the Annual Combined Financial Statements were not material for the periods presented.
Share-Based Compensation
Our employees participated in Air Products’ share-based compensation plans, which include stock options, deferred stock units, and restricted stock. The Annual Combined Financial Statements include share-based compensation expense associated with our employees and Air Products’ costs that have been allocated to us based on awards and terms previously granted. The grant-date fair value of these awards is expensed over the vesting period during which employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement. The Black Scholes model was utilized to value stock option awards. The grant date fair value of the deferred stock units tied to a market condition is estimated using a Monte Carlo simulation model. For the years ended
September 30, 2016
,
2015
, and
2014
, share-based compensation expense of
$5.0 million
,
$4.7 million
, and
$4.6 million
, respectively, was included in the Annual Combined Financial Statements.
Income Taxes
Certain of our operations included in our Annual Combined Financial Statements are divisions of legal entities included in Air Products consolidated U.S. federal and state income tax returns, or tax returns of non-U.S. subsidiaries of Air Products. The provision for income taxes and related annual combined balance sheet accounts of such entities have been prepared and presented in the Annual Combined Financial Statements based on a stand-alone basis separate from Air Products. Differences between our separate return income tax provision and cash flows attributable to income taxes for operations that were divisions of legal entities have been recognized as capital contributions from, or dividends to, Air Products, within Air Products’ net investment. As a stand-alone entity, our deferred taxes and effective tax rate may differ from those in historical periods.
We account for income taxes under the liability method. Under this method, deferred tax assets and liabilities are recognized for the tax effects of temporary differences between the financial reporting and tax bases of assets and liabilities measured using enacted tax rates. The cumulative impact of a change in tax rates or regulations is included in income tax expense in the period that includes the enactment date.
A tax benefit for an uncertain tax position is recognized when it is more likely than not that the position will be sustained upon examination based on its technical merits. This position is measured as the largest amount of tax benefit that is greater than
50%
likely of being realized. Interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.
The majority of the accrued U.S. federal, state, and foreign income tax balances are treated as settled with Air Products as of the end of each year. Therefore, they are included in Air Products’ net investment in the Annual Combined Financial Statements.
Non-controlling Interests
We consolidate investments that we control but do not wholly own. The Annual Combined Financial Statements include all assets, liabilities, revenues, and expenses of our joint venture in Taiwan for which we have a
74%
ownership interest during the periods presented in the Annual Combined Financial Statements. The ownership interests held by third party non-controlling partners are presented as non-controlling interests in our annual combined balance sheets. Any net income or loss attributed to the non-controlling partners is presented as such in the combined income statements. The activity for non-controlling interests for the years ended
September 30, 2016
,
2015
and
2014
is presented in the annual combined statements of changes in Air Products’ invested equity and non-controlling interests.
Cash and Cash Items
Cash and cash items generally include cash, time deposits, and certificates of deposit acquired with an original maturity of
three
months or less for our foreign entities. Cash is managed centrally and most cash generated by our business was remitted to Air Products. Such centralized cash management transactions relating to our business are reflected through Air Products’ net investment. Accordingly, none of the centrally managed cash at the Air Products’ corporate level has been reflected in our Annual Combined Financial Statements.
Restricted Cash
Restricted cash consists of cash restricted for payment to Air Products subsequent to the Separation.
Trade Receivables, net
Trade receivables comprise amounts owed to us through our operating activities and are presented net of allowances for doubtful accounts. The allowances for doubtful accounts represent estimated uncollectible receivables associated with potential customer defaults on contractual obligations. A provision for customer defaults is made on a general formula basis when it is determined that the risk of some default is probable and estimable but cannot yet be associated with specific customers. The assessment of the likelihood of customer defaults is based on various factors, including the length of time the receivables are past due, historical experience, and existing economic conditions. The allowance also includes amounts for certain customers where a risk of default has been specifically identified, considering factors such as the financial condition of the customer and customer disputes over contractual terms and conditions. Allowance for doubtful accounts were
$0.8 million
and
$0.8 million
as of fiscal year end
September 30, 2016
and
2015
, respectively. Provisions to the allowance for doubtful accounts charged against income were not material in fiscal
2016
,
2015
, and
2014
.
Inventories
Inventories are stated at the lower of cost or market. We write down our inventories for estimated obsolescence or unmarketable inventory based upon assumptions about future demand and market conditions.
We utilize the last-in, first-out (“LIFO”) method for determining the cost of inventories in the United States. Inventories outside of the United States are accounted for on the first-in, first-out (“FIFO”) method, as the LIFO method is not generally permitted in the foreign jurisdictions we operate.
Equity Investments
The equity method of accounting is used when we exercise significant influence but do not have operating control, generally assumed to be
20%
to
50%
ownership. Under the equity method, original investments are recorded at cost and adjusted by our share of undistributed earnings or losses of these companies. Equity investments are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the investment may not be recoverable. The Annual Combined Financial Statements include our investment in and proportionate share of the income from our
20%
owned equity affiliate, Daido Air Products Electronics, Inc. During the first quarter of 2016, we sold our investment in this affiliate. Refer to
Note 6
, “
Sale of Equity Affiliate
”, for additional information.
Plant and Equipment
Plant and equipment is stated at cost less accumulated depreciation. Construction costs, labor, and applicable overhead related to installations are capitalized. Expenditures for additions and improvements that extend the lives or increase the capacity of plant assets are capitalized. The costs of maintenance and repairs of plant and equipment are charged to expense as incurred.
Fully depreciated assets are retained in the gross plant and equipment and accumulated depreciation accounts until they are removed from service. In the case of disposals, assets and related depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.
Impairment of Long-Lived Assets
Long-lived assets are grouped for impairment testing at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other assets and liabilities and are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset group may not be recoverable. We assess recoverability by comparing the carrying amount of the asset group to estimated undiscounted future cash flows expected to be generated by the asset group. If an asset group is considered impaired, the impairment loss to be recognized is measured as the amount by which the asset group’s carrying amount exceeds its fair value. Long-lived assets to be sold are reported at the lower of carrying amount or fair value less cost to sell.
Goodwill
Business combinations are accounted for using the acquisition method. The purchase price is allocated to the assets acquired and liabilities assumed based on their estimated fair market values. Any excess purchase price over the fair market value of the net assets acquired, including identified intangibles, is recorded as goodwill. Preliminary purchase price allocations are made at the date of acquisition and finalized when information needed to affirm underlying estimates is obtained, within a maximum allocation period of
one
year.
Goodwill is subject to impairment testing at least annually. In addition, goodwill is tested more frequently if a change in circumstances or the occurrence of events indicates that potential impairment exists.
Intangible Assets
Intangible assets with determinable lives primarily consist of customer relationships and purchased patents and technology. The cost of intangible assets with determinable lives is amortized on a straight-line basis over the estimated period of economic benefit. Amortizable lives are adjusted whenever there is a change in the estimated period of economic benefit.
No
residual value is estimated for intangible assets.
Retirement Benefits
Air Products sponsors defined benefit pension plans, defined contribution plans, and other post-employment benefit plans that are shared amongst its businesses. Participation of our employees in these plans is reflected in the Annual Combined Financial Statements as though Versum participates in a multiemployer plan with Air Products. A proportionate share of cost is reflected in these Annual Combined Financial Statements, primarily within selling and administrative expenses. Assets and liabilities of such plans are retained by Air Products.
Air Products’ Net Investment
Air Products’ net investment in our business is presented as “Air Products’ net investment” in lieu of stockholders’ equity, as a stand-alone legal and capital structure did not exist for the historical periods presented.
Earnings Per Share
Versum earnings per share for
2016
,
2015
and
2014
were calculated using the shares that were distributed to Air Products stockholders immediately following the Separation. For periods prior to the Separation it is assumed that there are no dilutive equity instruments as there were no equity awards in Versum outstanding prior to the Separation.
3.
NEW ACCOUNTING GUIDANCE
Accounting Guidance Implemented
Balance Sheet Classification of Deferred Taxes
In November 2015, the Financial Accounting Standards Board (“FASB”) issued guidance to simplify the presentation of deferred income taxes by requiring that all deferred tax liabilities and assets be classified as noncurrent on the annual
combined balance sheet. As of the first quarter of fiscal year 2016, we adopted this guidance on a retrospective basis. Accordingly, our annual combined balance sheets incorporates our adoption of this guidance.
Debt Issuance Costs
In April 2015, the FASB issued guidance requiring that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt instead of as a separate deferred asset. In August 2015, the FASB issued an update to incorporate the SEC Staff guidance which allows debt issuance costs associated with a line-of-credit arrangement to be presented as a deferred asset that is subsequently amortized over the term of the arrangement, regardless of whether there are any outstanding borrowings. This guidance is effective beginning in fiscal year 2017, with early adoption permitted, and must be applied retrospectively. We adopted this guidance in the fourth quarter of 2016. This guidance did not have a significant impact on our Annual Combined Financial Statements.
New Accounting Guidance to be Implemented
Revenue Recognition
In May 2014, the FASB issued guidance based on the principle that revenue is recognized in an amount expected to be collected and to which the entity expects to be entitled in exchange for the transfer of goods or services. In August 2015, the FASB deferred the effective date by one year, while providing the option to early adopt the standard on the original effective date. Accordingly, we will have the option to adopt the standard in either fiscal year 2018 or 2019. The guidance can be adopted either retrospectively or as a cumulative-effect adjustment as of the date of adoption. We are currently evaluating the adoption alternatives and impact that this update will have on our Annual Combined Financial Statements.
Going Concern
In August 2014, the FASB issued guidance regarding management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year of the issuance of the financial statements. If substantial doubt exists, additional disclosures would be required. This guidance will be effective beginning in the fourth quarter of fiscal year 2017, with early adoption permitted. This guidance is not expected to have a significant impact on our Annual Combined Financial Statements.
Measurement of Inventory
In July 2015, the FASB issued guidance to simplify the measurement of inventory recorded using either the FIFO or average cost basis by changing the subsequent measurement guidance from lower of cost or market to the lower of cost or net realizable value. Inventory measured using LIFO is not impacted. The guidance is effective for us beginning in fiscal year 2018 and will be applied prospectively, with early adoption permitted. This guidance is not expected to have a significant impact on our Annual Combined Financial Statements.
Leases
In February 2016, the FASB issued guidance which requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, including operating leases, with a term in excess of 12 months. The guidance also expands the quantitative and qualitative disclosure requirements. The guidance is effective in fiscal year 2020, with early adoption permitted, and must be applied using a modified retrospective approach. We are currently evaluating the impact of adopting this new guidance on our Annual Combined Financial Statements. The Company is currently the lessee under various agreements for distribution equipment and vehicles that are currently accounted for as operating leases as discussed in
Note 12
, “
Leases
”. The new guidance requires the lessee to record operating leases on the balance sheet with a right-of-use asset and corresponding liability for future payment obligations.
Share-Based Compensation
In March 2016, the FASB issued an update to simplify the accounting for employee share-based payments, including the income tax impacts, the classification on the statement of cash flows, and forfeitures. The amendments are effective for
fiscal year 2018, with early adoption permitted. We continue to evaluate the impact of this guidance on our Annual Combined Financial Statements and the timing of adoption. Upon adoption, we currently anticipate a greater degree of volatility in the income tax provision and effective income tax rate as a result of the new guidance which requires excess tax benefits and deficiencies to be recognized in the income statement, rather than in additional paid-in capital on the balance sheet.
Cash Flow Statement Classification
In August 2016, the FASB issued guidance to reduce diversity in practice on how certain cash receipts and cash payments are classified in the statement of cash flows. The guidance is effective beginning fiscal year 2019, with early adoption permitted, and should be applied retrospectively. We are currently evaluating the impact of adopting this new guidance on our Annual Combined Financial Statements.
Cash Flow Statement: Restricted Cash
In November 2016, the FASB issued guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. Restricted cash and restricted cash equivalents should now be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of this ASU are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. Other than the revised statement of cash flows presentation of restricted cash, the adoption of this new guidance is not expected to have an impact on our Annual Combined Financial Statements.
4.
RELATED PARTY TRANSACTIONS
Air Products provides us with centrally managed services and corporate functions. Accordingly, certain shared costs including but not limited to administrative expenses for information technology, general services, human resources, legal, accounting and other services, have been allocated to us and are primarily reflected as expenses in the Corporate segment in the Annual Combined Financial Statements. Expenses have been allocated on the basis of direct usage when identifiable, with the remainder allocated on the basis of fixed costs, revenue, operating income, or headcount. We consider the expense allocation methodology and results to be reasonable and consistently applied for all periods presented.
Total costs allocated to us in the annual combined income statements are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(In millions)
|
|
|
|
|
|
Cost of sales
|
$
|
2.8
|
|
|
$
|
3.6
|
|
|
$
|
4.6
|
|
Selling and administrative
|
16.8
|
|
|
17.8
|
|
|
19.3
|
|
Research and development
|
1
|
|
|
1.4
|
|
|
1.9
|
|
Business restructuring and cost reduction actions
|
0.7
|
|
|
3.5
|
|
|
0.2
|
|
Total Allocated Costs
|
$
|
21.3
|
|
|
$
|
26.3
|
|
|
$
|
26.0
|
|
These allocated costs are reflected in “Air Products’ net investment” and in the annual combined statements of cash flows as a financing activity in “Net transfers (to) from Air Products.” It is impracticable to quantify the amount of expenses that Versum would have incurred on a stand-alone basis for the periods presented.
Air Products performs cash management and other treasury-related functions on a centralized basis for nearly all of its legal entities. Substantially all cash generated by our business is remitted to Air Products.
Certain of our employees participate in share-based compensation and retirement benefit plans that are sponsored and administered by Air Products or its affiliates. The costs of these plans associated with our employees are included in the Annual Combined Financial Statements, but excluded from the table of allocated costs above. Our annual combined balance sheets do not include the share-based compensation instrument.
Approximately
2%
of our combined sales during the years ended
September 30, 2015
and 2014 were to our equity affiliate,
Daido Air Products Electronics, Inc. Sales between entities were not material for the year ended
September 30, 2016
.
5.
BUSINESS SEPARATION, RESTRUCTURING AND COST REDUCTION ACTIONS
The charges we record for business restructuring and cost reduction actions have been excluded from segment operating income.
During fiscal year 2016, we recognized a net gain of
$0.7 million
. The 2016 net gain included a charge of
$2.5 million
for severance and other benefits related to the elimination of approximately
90
positions as part of cost reduction actions. In addition, we recognized a gain of
$3.2 million
on assets that were previously written down to a carrying value of
$17.9 million
. The gain included
$1.4 million
related to the sale of the onsite ammonia assets. The majority of these actions pertain to the Materials segment.
During fiscal year 2016, we also incurred costs of
$1.6 million
related to the Separation.
In fiscal year 2015, we recognized an expense of
$21.6 million
. Severance and other benefits totaled
$14.4 million
, including an allocation of expenses incurred by the parent, and related to the elimination of approximately
260
positions. Asset actions totaled
$7.2 million
and primarily related to the exit of a product line (onsite ammonia) in the Materials segment, which resulted in the write-down of assets to fair value based on internal estimates, and adjustments to expenses recorded for the 2013 plan actions. In the second quarter of 2016, we sold the onsite ammonia assets for
$17.1 million
which resulted in a before-tax gain of
$1.4 million
. The 2015 charges related to the segments as follows:
$12.3 million
in Materials,
$5.8 million
in Delivery Systems and Services, and
$3.5 million
in Corporate.
On September 18, 2014, Air Products announced plans to reorganize, including realignment of its businesses in new reporting segments and other organizational changes, effective as of October 1, 2014. As a result of this reorganization, we incurred severance and other charges.
During the fourth quarter of fiscal year 2014, we incurred severance and other charges of
$1.3 million
relating to the elimination of certain positions.
The following table summarizes the carrying amount of the accrual for the business realignment and reorganization at
September 30, 2016
:
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|
Severance and
Other Benefits
|
|
Asset
Actions/Other
|
|
Total
|
(In millions)
|
|
|
|
|
|
2014 Charge
|
$
|
1.3
|
|
|
$
|
—
|
|
|
$
|
1.3
|
|
Cash payments
(A)
|
(0.4
|
)
|
|
—
|
|
|
(0.4
|
)
|
September 30, 2014
|
$
|
0.9
|
|
|
$
|
—
|
|
|
$
|
0.9
|
|
2015 Charge
|
14.4
|
|
|
7.2
|
|
|
21.6
|
|
Cash payments
(A)
|
(11.2
|
)
|
|
—
|
|
|
(11.2
|
)
|
Non-cash expenses
|
—
|
|
|
(7.2
|
)
|
|
(7.2
|
)
|
September 30, 2015
|
$
|
4.1
|
|
|
$
|
—
|
|
|
$
|
4.1
|
|
2016 Charge
|
2.5
|
|
|
(3.2
|
)
|
|
(0.7
|
)
|
Cash (payments) receipts
(A)
|
(6.0
|
)
|
|
4.2
|
|
|
(1.8
|
)
|
Noncash expenses
|
—
|
|
|
(1.0
|
)
|
|
(1.0
|
)
|
September 30, 2016
|
$
|
0.6
|
|
|
$
|
—
|
|
|
$
|
0.6
|
|
|
|
(A)
|
Cash payments include an allocation of severance and other benefits of Air Products’ employees within its Corporate and other segment which were paid by Air Products.
|
6.
SALE OF EQUITY AFFILIATE
In December 2015, we sold our investment in our equity affiliate, Daido Air Products Electronics, Inc., for
$15.9 million
, which resulted in a before-tax gain of
$0.7 million
during 2016. The carrying value at the time of sale included a
$12.8 million
investment in net assets of and advances to equity affiliates and a
$2.4 million
foreign currency translation loss that had been deferred in accumulated other comprehensive loss. In addition, the income tax provision, before the valuation allowance, for 2016 included an expense of
$5.3 million
as a result of the sale. In 2015, we recorded
$1.0 million
of equity affiliates’ income related to this investment.
7.
INVENTORIES
The components of inventories are as follows:
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|
|
|
|
September 30,
|
|
2016
|
|
2015
|
(In millions)
|
|
|
|
Inventories at FIFO cost
|
|
|
|
Finished goods
|
$
|
94.0
|
|
|
$
|
98.5
|
|
Work in process
|
12.3
|
|
|
7.8
|
|
Raw materials, supplies and other
|
29.4
|
|
|
28.7
|
|
|
135.7
|
|
|
135.0
|
|
Less: Excess of FIFO cost over LIFO cost
|
(8.3
|
)
|
|
(11.0
|
)
|
Inventories
|
$
|
127.4
|
|
|
$
|
124.0
|
|
Inventories valued using the LIFO method comprised
32.0%
and
33.4%
of combined inventories before LIFO adjustment at
September 30, 2016
and
2015
, respectively. Liquidation of LIFO inventory layers in
2016
,
2015
, and
2014
did not materially affect the results of operations.
FIFO cost approximates replacement cost.
8.
PLANT AND EQUIPMENT, NET
The major classes of plant and equipment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
Useful Life
in years
|
|
2016
|
|
2015
|
(In millions, except useful life)
|
|
|
|
Land
|
|
|
$
|
21.9
|
|
|
$
|
22.8
|
|
Buildings
|
30
|
|
147.1
|
|
|
150.6
|
|
Machinery and Equipment
|
|
|
|
|
|
Production facilities
|
10 to 15
|
|
433.6
|
|
|
464.6
|
|
Distribution and other
(A)
|
5 to 25
|
|
255.9
|
|
|
272.7
|
|
Total machinery and equipment
|
|
|
689.5
|
|
|
737.3
|
|
Construction in progress
|
|
|
26.2
|
|
|
9.3
|
|
Plant and equipment, at cost
|
|
|
884.7
|
|
|
920.0
|
|
Less: accumulated depreciation
|
|
|
588.2
|
|
|
618.9
|
|
Plant and equipment, net
|
|
|
$
|
296.5
|
|
|
$
|
301.1
|
|
|
|
(A)
|
The depreciable lives for various types of distribution equipment are
10
to
25
years for cylinders, depending on the nature and properties of the product, and generally
20
years for other distribution equipment such as tanks and trailers.
|
Depreciation expense was
$39.4 million
,
$48.1 million
, and
$48.3 million
in
2016
,
2015
, and
2014
, respectively.
In January 2016, we sold
two
onsite ammonia plants for
$17.1 million
, which resulted in a before-tax gain of
$1.4 million
during the second quarter of 2016. This gain is reflected in business separation, restructuring and cost reduction actions on our income statement. The income tax provision includes an expense of
$1.5 million
as a result of the sale.
9.
GOODWILL
Changes to the carrying amount of goodwill by segment are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Materials
|
|
Delivery
Systems and
Services
|
|
Total
|
(In millions)
|
|
|
|
|
|
Balance at September 30, 2014
|
$
|
166.0
|
|
|
$
|
18.2
|
|
|
$
|
184.2
|
|
Currency translation adjustment
|
(15.4
|
)
|
|
(1.8
|
)
|
|
(17.2
|
)
|
Balance at September 30, 2015
|
$
|
150.6
|
|
|
$
|
16.4
|
|
|
$
|
167.0
|
|
Currency translation adjustment
|
12.0
|
|
|
1.1
|
|
|
13.1
|
|
Balance at September 30, 2016
|
$
|
162.6
|
|
|
$
|
17.5
|
|
|
$
|
180.1
|
|
Goodwill is subject to impairment testing in the fourth quarter of each fiscal year and whenever events and changes in circumstances indicate that the carrying value of goodwill might not be recoverable.
We conducted impairment tests in the fourth quarter of
2016
and determined that there was
no
goodwill impairment. As of the fourth quarter of
2016
, the fair value of each reporting unit exceeded its carrying value.
10.
INTANGIBLE ASSETS
The table below provides details of acquired intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
September 30, 2015
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
(In millions)
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
80.4
|
|
|
$
|
(19.5
|
)
|
|
$
|
60.9
|
|
|
$
|
79.6
|
|
|
$
|
(15.5
|
)
|
|
$
|
64.1
|
|
Patents and technology
|
46.4
|
|
|
(34.2
|
)
|
|
12.2
|
|
|
46.4
|
|
|
(30.6
|
)
|
|
15.8
|
|
Other
|
3.2
|
|
|
(1.5
|
)
|
|
1.7
|
|
|
3.1
|
|
|
(1.4
|
)
|
|
1.7
|
|
Total Intangible Assets
|
$
|
130.0
|
|
|
$
|
(55.2
|
)
|
|
$
|
74.8
|
|
|
$
|
129.1
|
|
|
$
|
(47.5
|
)
|
|
$
|
81.6
|
|
The intangible assets primarily pertain to the Materials segment and have a remaining useful life of approximately
18
years for customer relationships and
6
years for patents and technology.
Amortization expense for intangible assets was
$7.5 million
,
$8.8 million
, and
$11.2 million
in
2016
,
2015
, and
2014
, respectively.
Projected annual amortization expense for intangible assets as of
September 30, 2016
is as follows:
|
|
|
|
|
2017
|
$
|
7.5
|
|
2018
|
6.5
|
|
2019
|
5.3
|
|
2020
|
5.2
|
|
2021
|
5.2
|
|
Thereafter
|
45.1
|
|
Total
|
$
|
74.8
|
|
11.
DEBT
Components of Debt
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
(In millions)
|
|
|
|
Term loan facility under Credit Agreement
|
$
|
575.0
|
|
|
$
|
—
|
|
Revolving facility under Credit Agreement
|
—
|
|
|
—
|
|
5.500% Senior Notes due 2024
|
425.0
|
|
|
—
|
|
Total debt
|
1,000.0
|
|
|
—
|
|
Less debt discount
|
2.8
|
|
|
—
|
|
Less deferred debt costs
|
11.1
|
|
|
—
|
|
Less current portion of long-term debt
|
5.8
|
|
|
—
|
|
Debt payable after one year
|
$
|
980.3
|
|
|
$
|
—
|
|
Credit Agreement
On
September 30, 2016
, Versum entered into a credit agreement (the “Credit Agreement”) providing for a senior secured first lien term loan B facility of
$575 million
(the “Term Facility”, and the loans “Term Loans”) and a senior secured first lien revolving credit facility of
$200 million
(the “Revolving Facility” and, together with the Term Facility, the “Senior Credit Facilities”). The Senior Credit Facilities are guaranteed by Versum’s material direct and indirect wholly-owned domestic restricted subsidiaries and secured by substantially all of the assets of Versum and its subsidiary guarantors.
Versum incurred
$1.5 million
in costs related to the set-up of the Revolving Facility and
$8.4 million
in costs associated with the Term Facility. On
September 30, 2016
, Versum borrowed
$575 million
under the Term Facility and incurred an original issue discount of
$2.8 million
associated with this borrowing. Versum distributed substantially all the proceeds to Air Products as consideration for the contribution of assets by Air Products in connection with the Separation.
Subject to certain terms and conditions, the Credit Agreement allows for incremental term loan facilities, incremental revolving credit facilities, or increases to the existing commitments under the Senior Credit Facilities in an aggregate amount of up to
$300 million
plus an unlimited additional amount if the first lien net leverage ratio, on a pro forma basis, is less than or equal to
2.00
:1.00.
Borrowings under the Term Facility bear interest at a rate of either
LIBOR
(adjusted for statutory reserve requirements), subject to a minimum floor of
0.75%
, plus a margin of
2.50%
or an alternate
base rate
, subject to a minimum floor of
1.75%
, plus a margin of
1.50%
(effective rate of
3.34%
as of
September 30, 2016
). The Term Facility matures on
September 30, 2023
, and will amortize in equal quarterly installments in aggregate annual amounts equal to
1.00%
of the original principal amount of the Term Facility, with the balance payable on
September 30, 2023
.
Borrowings under the Revolving Facility bear interest initially at a rate of either
LIBOR
(adjusted for statutory reserve requirements) plus a margin of
2.00%
or an alternate
base rate
plus a margin of
1.00%
, and after delivery of the financial statements for the first full fiscal quarter, subject to a
0.25%
margin reduction based on achieving a first lien net leverage ratio of
1.00
:1.00 for the prior four-quarter period. A commitment fee of
0.375%
initially, subject to a reduction to
0.25%
based on achieving a first lien net leverage ratio of
1.00
:1.00 for the prior four-quarter period after delivery of the financial statements for the first full fiscal quarter, on the unused portion of the Revolving Facility is payable quarterly in arrears. Letter of credit fees are payable on outstanding letters of credit under the Revolving Facility, and fronting fees equal to a percentage to be agreed with each issuing bank (not to exceed
0.125%
) are payable to the issuing banks. The Revolving Facility matures on
September 30, 2021
. A maximum first lien net leverage ratio covenant (total debt net of cash on hand to total adjusted EBITDA) of
3.25
:1.00 will apply if we draw upon the Revolving Facility. As of
September 30, 2016
, we had availability of
$200 million
under Revolving Facility.
Loans under the Term Facility are mandatorily repayable upon the occurrence of certain events, including, among others, (1) non-ordinary course asset sales or other dispositions of property (subject to customary exceptions and reinvestment rights set forth in the Credit Agreement) and (2) issuances of debt by Versum and its restricted subsidiaries (other than certain permitted debt described in the Credit Agreement). Further, the Credit Agreement provides that, commencing with Versum’s fiscal year ending on September 30, 2017, a percentage of excess cash flow ranging from
0%
to
50%
, depending on the first lien net leverage ratio, is required to be used to prepay the Term Facility. Versum may voluntarily prepay the Term Facility or reduce the unutilized commitment of the Revolving Facility at any time without premium or penalty other than a prepayment premium and customary breakage costs. If all or any portion of the Term Facility is repriced or refinanced prior to September 30, 2017, in a transaction where the primary purpose of which is to reduce the effective interest cost or weighted average yield of the Term Facility (other than in connection with a change of control or a transformational acquisition), Versum must pay
101.0%
of the amount of the loans repaid or refinanced.
The Credit Agreement contains negative covenants which place restrictions, subject to customary exceptions and baskets, on the incurrence of debt, the granting of liens, fundamental changes in Versum’s business, the making of investments, sales of assets, mergers and acquisitions, the making of restricted payments, transactions with affiliates, entering into restrictive agreements, making changes to Versum’s fiscal year, violating laws, and modifying Versum’s governing documents in a manner materially adverse to the lenders. Further, the Credit Agreement obligates Versum to undertake certain actions, including, among others, (1) delivering notices of default and notices of certain other events that would reasonably be expected to have a material adverse effect, (2) complying with laws, (3) paying taxes, (4) preserving Versum’s existence, (5) maintaining properties and insurance, and (6) delivering audited and unaudited financial statements at the times set forth in the Credit Agreement.
The Credit Agreement provides for customary events of default including nonpayment, misrepresentation, breach of covenants, cross-default and cross-acceleration, material judgments, ERISA events, invalidity of loan documents, change of control and bankruptcy or insolvency.
If we fail to stay in compliance with our covenants or experience an event of default, we could be forced to repay the outstanding borrowings under the Senior Credit Facility. Any such acceleration of such obligation in excess of
$100 million
would also result in a default under the indenture governing the Notes described below, which could lead to the note holders electing to declare the principal, premium, if any, and accrued and unpaid interest on the then outstanding notes immediately due and payable.
Senior Notes
On
September 30, 2016
, Versum issued
$425 million
of
5.5%
Senior Notes due
2024
. The Notes are unsecured senior obligations of Versum, guaranteed by each of Versum’s subsidiaries that is a guarantor under the Senior Credit Facilities. The Notes bear interest at a rate of
5.5%
per annum payable semiannually on March 15 and September 15 of each year, commencing on March 15, 2017. The Notes will mature on September 30,
2024
. Versum incurred
$1.25 million
in debt issuance costs associated with the Notes. Versum distributed the Notes in a non-cash transaction to Air Products as consideration for the contribution of assets by Air Products in connection with the Separation.
Versum may, at its option, redeem some or all of the Notes during such times and at such prices as described in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption.
The Indenture governing the Notes contains various affirmative and negative covenants. Subject to a number of exceptions and qualifications, the restrictive covenants limit our ability and the ability of our restricted subsidiaries to, among other things, incur or guarantee additional indebtedness, pay dividends or make distributions to stockholders and parent entities, repurchase and redeem capital stock, make investments and acquisitions, engage in transactions with affiliates, create liens, merge or consolidate with other companies, transfer or sell assets, including the capital stock of subsidiaries, and prepay, redeem or repurchase indebtedness subordinated to the Notes. In addition, if the Notes achieve an investment grade rating from at least two rating agencies and no default has occurred and is continuing under the Indenture, Versum will not be subject to certain of such covenants.
The Indenture provides for customary events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Notes to become or to be declared due and payable. Any such acceleration in excess of
$100
million
would also result in a default under the Credit Agreement, which may cause the lenders to declare the principal and accrued and unpaid interest on the then outstanding Senior Credit Facilities immediately due and payable.
Maturities
Maturities of long-term debt are as follows:
|
|
|
|
|
|
Total Debt
|
(In millions)
|
|
Payments due for the year ended September 30,
|
|
2017
|
$
|
5.8
|
|
2018
|
5.8
|
|
2019
|
5.8
|
|
2020
|
5.8
|
|
2021
|
5.8
|
|
Thereafter
|
971.0
|
|
Total
|
$
|
1,000.0
|
|
12.
LEASES
Lessee Accounting
Operating leases principally relate to real estate and also include distribution equipment and vehicles. Certain leases include escalation clauses, renewal, and purchase options. Rent expense is recognized on a straight-line basis over the minimum lease term. Rent expense under operating leases, including month-to-month agreements, was
$7.6 million
in
2016
,
$8.4 million
in
2015
, and
$9.1 million
in
2014
.
At
September 30, 2016
, minimum payments due under leases are as follows:
|
|
|
|
|
(In millions)
|
|
2017
|
$
|
6.3
|
|
2018
|
4.8
|
|
2019
|
3.9
|
|
2020
|
3.8
|
|
2021
|
3.6
|
|
Thereafter
|
2.4
|
|
Total
|
$
|
24.8
|
|
13.
FAIR VALUE
Fair value is defined as an exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels as follows:
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 - Inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the asset or liability.
Level 3 - Inputs that are unobservable for the asset or liability based on our own assumptions (about the assumptions market participants would use in pricing the asset or liability).
The methods and assumptions used to measure the fair value of financial instruments are as follows:
Long-term Debt
The fair value of our debt is based on estimates using standard pricing models that take into account the value of future cash flows as of the balance sheet date, discounted to a present value using discount factors that match both the time to maturity and currency of the underlying instruments. These standard valuation models utilize observable market data such as interest rate yield curves and currency spot rates. Therefore, the fair value of our debt is classified as a level 2 measurement. We generally perform the computation of the fair value of these instruments.
The carrying values and fair values of our debt are as follows:
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
Fair Value
|
|
Carrying Value
|
(In millions)
|
|
Senior Notes
|
$
|
427.4
|
|
|
$
|
425.0
|
|
Term Loan Facility
|
575.0
|
|
|
575.0
|
|
Total debt
|
$
|
1,002.4
|
|
|
$
|
1,000.0
|
|
The carrying amounts reported in the annual combined balance sheet for cash and cash items, trade receivables, payables and accrued liabilities, and accrued income taxes approximate fair value due to the short-term nature of these instruments. Accordingly, these items have been excluded from the above table.
14.
RETIREMENT BENEFITS
Air Products offers various long-term benefits to its employees. Where permitted by law, Air Products reserves the right to change, modify or discontinue the plans.
Air Products sponsors defined benefit pension plans and defined contribution plans that are shared amongst its businesses. Participation of our employees in these plans is reflected in the Annual Combined Financial Statements as though we participated in a multiemployer plan with Air Products. In connection with the Separation, a net benefit obligation of approximately
$24 million
will be transferred to us. These estimates are subject to change based on finalization of retirement benefit plan actions and the population of plan participants transferring to Versum.
Defined Benefit Pensions
The principal Air Products’ defined benefit pension plans are the U.S. salaried pension plan and the U.K. pension plan. These plans were closed to new participants in 2005 and 2011, respectively, and were replaced with defined contribution plans.
Air Products has both funded and unfunded noncontributory defined benefit pension plans covering eligible U.S. employees hired before 2005. The benefits under these plans are based primarily on years of service and compensation during active employment. Air Products’ funding policy is consistent with the funding requirements of federal laws and regulations.
Pension coverage for employees of certain of Air Products non-U.S. subsidiaries is provided, to the extent deemed appropriate, through separate plans. Obligations under such plans are funded by depositing funds with trustees, covered by insurance contracts, or remain unfunded.
Defined benefit pension costs of
$8 million
,
$12 million
and
$12 million
were included in the Annual Combined Financial Statements for the years ended
September 30, 2016
,
2015
, and
2014
, respectively, based on percent of salary for U.S. employees and active employee headcount in other jurisdictions. No contributions were made on our behalf in these periods.
Defined Contribution Plan
Air Products sponsors several defined contribution plans which cover substantially all U.S. employees and certain non-U.S. employees. The principal defined contribution plan is the U.S. Retirement Savings Plan (“RSP”). The RSP includes a non-leveraged employee stock ownership plan (“ESOP”). The balance of the RSP is a qualified defined contribution plan including a 401(k) elective deferral component. A substantial portion of U.S. employees are eligible and participate. Air Products makes a core contribution to the RSP for certain eligible employees who do not receive their primary retirement benefit from the defined benefit pension plans, with core contributions based on a percentage of pay that is dependent on years of service. Air Products also makes matching contributions as a percentage of employee contributions including an enhanced contribution for certain eligible employees that do not participate in the defined benefit pension plans.
Air Products contributed
$5.5 million
,
$4.5 million
and
$2.8 million
to the U.S. plan on behalf of our employees for the years ended
September 30, 2016
,
2015
, and
2014
, respectively. The allocations were based on specific identification of contributions to participants in the plan. Contributions to non-U.S. plans were not material.
15.
INCOME TAXES
For purposes of the Annual Combined Financial Statements, our income tax expense and deferred tax balances have been estimated as if we filed income tax returns on a stand-alone basis separate from Air Products.
The following table summarizes the income of U.S. and foreign operations before taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(In millions)
|
|
Income Before Taxes
|
|
|
|
|
|
United States
|
$
|
61.6
|
|
|
$
|
41.7
|
|
|
$
|
6.9
|
|
Foreign
|
217.1
|
|
|
181.2
|
|
|
155.7
|
|
Total
|
$
|
278.7
|
|
|
$
|
222.9
|
|
|
$
|
162.6
|
|
The following table shows the components of the provision for income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(In millions)
|
|
Current Tax Provision
|
|
|
|
|
|
Federal
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
State
|
0.6
|
|
|
0.5
|
|
|
0.5
|
|
Foreign
|
58.3
|
|
|
31.6
|
|
|
28.0
|
|
|
58.9
|
|
|
32.1
|
|
|
28.5
|
|
Deferred Tax Provision
|
|
|
|
|
|
Federal
|
1.3
|
|
|
1.4
|
|
|
0.9
|
|
State
|
0.1
|
|
|
0.1
|
|
|
0.2
|
|
Foreign
|
(1.5
|
)
|
|
(1.9
|
)
|
|
2.3
|
|
|
(0.1
|
)
|
|
(0.4
|
)
|
|
3.4
|
|
Income Tax Provision
|
$
|
58.8
|
|
|
$
|
31.7
|
|
|
$
|
31.9
|
|
A reconciliation of the differences between the United States federal statutory tax rate and the effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(Percent of income before taxes)
|
|
U.S. federal statutory tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
0.8
|
%
|
|
0.6
|
%
|
|
—
|
%
|
Foreign tax differentials
|
(8.4
|
)%
|
|
(12.5
|
)%
|
|
(13.8
|
)%
|
Foreign tax holiday
|
(2.6
|
)%
|
|
(4.3
|
)%
|
|
(3.0
|
)%
|
U.S. taxes on foreign earnings
|
1.7
|
%
|
|
(0.9
|
)%
|
|
(0.3
|
)%
|
Other credit and incentives
|
(0.3
|
)%
|
|
(0.3
|
)%
|
|
(0.1
|
)%
|
Domestic production activities
|
(0.3
|
)%
|
|
—
|
%
|
|
—
|
%
|
Valuation allowance
|
(6.9
|
)%
|
|
(2.8
|
)%
|
|
1.8
|
%
|
Other
|
2.1
|
%
|
|
(0.6
|
)%
|
|
—
|
%
|
Effective Tax Rate
|
21.1
|
%
|
|
14.2
|
%
|
|
19.6
|
%
|
We maintained a valuation allowance in 2014, 2015 and 2016 against U.S. deferred tax accounts resulting primarily from restructuring charges taken in prior periods, as we determined that it was more likely than not that U.S. deferred tax assets would not be realized. These deferred tax assets related primarily to net operating loss and tax credit carryforwards derived from the stand-alone basis calculation. The valuation allowance benefits in 2015 and 2016 shown in the table above relate to the utilization of federal net operating losses as a result of favorable operations.
Foreign tax differentials represent the differences between foreign earnings subject to foreign tax rates lower than the U.S. federal statutory tax rate of
35.0%
. Foreign earnings are subject to local country tax rates that are generally below the
35.0%
U.S. federal statutory rate. As a result, our effective non-U.S. tax rate is typically lower than the U.S. statutory rate. If foreign pre-tax earnings increase relative to U.S. pre-tax earnings, this rate difference could increase. The primary jurisdictions in which we earn pre-tax earnings subject to lower foreign taxes than the U.S. statutory rate include South Korea, China, Taiwan, and Singapore. As substantially all of our undistributed earnings are in countries with a statutory tax rate of
17%
or higher, we do not generate a disproportionate amount of taxable income in countries with very low tax rates. U.S. taxes on foreign earnings include the cost of foreign withholding taxes imposed on dividends paid to U.S. shareholders.
We have certain foreign subsidiaries that were granted
seven
-year tax holidays, the majority of which expire during the year ending September 30, 2017. The tax benefit of the holidays is reduced by
50%
in the last
two
years of the holiday period. The net benefit of the tax holidays was
$7.1 million
,
$9.6 million
, and
$4.9 million
in
2016
,
2015
and
2014
, respectively.
The majority of the accrued U.S. federal, state and foreign current income tax balances are treated as settled with Air Products as of the end of each year. Therefore, they are included in Air Products’ net investment in the Annual Combined Financial Statements. Income tax payments made directly by certain foreign subsidiaries, net of refunds, were
$9.6 million
in
2016
,
$14.3 million
in
2015
, and
$7.2 million
in
2014
.
The significant components of deferred tax assets and liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
(In millions)
|
|
|
|
Gross Deferred Tax Assets
|
|
|
|
Tax loss carryforwards
|
$
|
13.2
|
|
|
$
|
57.3
|
|
Tax credit carryforwards
|
64.2
|
|
|
49.6
|
|
Retirement benefits and compensation accruals
|
7.6
|
|
|
7.8
|
|
Reserves and accruals
|
8.4
|
|
|
7.7
|
|
Other
|
3.3
|
|
|
1.8
|
|
Valuation allowance
|
(55.6
|
)
|
|
(77.7
|
)
|
Deferred Tax Assets
|
41.1
|
|
|
46.5
|
|
Gross Deferred Tax Liabilities
|
|
|
|
Intangible assets
|
41.0
|
|
|
41.9
|
|
Plant and equipment
|
22.2
|
|
|
24.5
|
|
Unremitted earnings of foreign entities
|
2.3
|
|
|
4.3
|
|
Partnership investments
|
1.3
|
|
|
1.4
|
|
Other
|
6.3
|
|
|
6.7
|
|
Deferred Tax Liabilities
|
73.1
|
|
|
78.8
|
|
Net Deferred Income Tax Liability
|
$
|
32.0
|
|
|
$
|
32.1
|
|
Deferred tax assets and liabilities are included within the Annual Combined Financial Statements as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
2016
|
|
2015
|
(In millions)
|
|
Other noncurrent assets
|
$
|
10.7
|
|
|
$
|
7.8
|
|
Deferred tax liabilities
|
42.7
|
|
|
39.9
|
|
Net Deferred Income Tax Liability
|
$
|
32.0
|
|
|
$
|
32.1
|
|
The federal foreign tax credit carryforward available as of
September 30, 2016
was
$65.8 million
and expires between 2021 and 2026. Of the available
$65.8 million
of federal foreign tax carryforwards,
$4.8 million
relates to windfall benefits that will be recorded in additional paid in capital when realized. The federal research credit carryforward as of
September 30, 2016
was
$3.3 million
and expires between 2031 and 2036. The federal foreign tax credit carryforward of
$65.8 million
netted with the
$4.8 million
of windfall benefit and the federal research credit of
$3.3 million
equal the total tax credit carryforwards of
$64.2 million
in the table above. State loss carryforwards as of
September 30, 2016
were
$85.6 million
and expire between 2018 and 2034. Gross foreign loss carryforwards as of
September 30, 2016
were
$46.3 million
. Foreign loss carryforwards of
$26.8 million
have expiration periods between 2017 and 2024; the remaining have unlimited carryforward periods.
The federal and state tax carryforwards and credits resulting from the stand-alone basis calculation were utilized against Air Products’ income and are not available as future deductions on tax returns. As such they were not transferred as part of the Separation from Air Products. Due to provisions of local tax law, certain foreign carryforwards were not transferred as part of the Separation from Air Products.
The valuation allowance as of
September 30, 2016
is primarily related to the tax benefit of federal tax credit carryforwards and state and foreign loss carryforwards. The
$22.1 million
decrease in the valuation allowance was primarily due to the utilization of federal, state and foreign loss carryforwards against taxable income. As of
September 30, 2016
, we believed it would be more likely than not that future earnings and reversal of deferred tax liabilities would be sufficient to utilize the deferred tax asset reflected on the stand-alone financial statements, net of existing valuation allowance.
We record U.S. income and foreign withholding taxes on the undistributed earnings of our foreign subsidiaries and corporate joint ventures unless those earnings are indefinitely reinvested. These cumulative undistributed earnings that were considered to be indefinitely reinvested in foreign subsidiaries and corporate joint ventures is estimated to be
$683 million
as of
September 30, 2016
. An estimated
$155 million
in U.S. income and foreign withholding taxes would be due if these earnings were remitted as dividends after payment of all deferred taxes.
A reconciliation of the beginning and ending amount of the unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Unrecognized Tax Benefits
|
|
|
|
|
|
Balance at beginning of year
|
$
|
10.3
|
|
|
$
|
16.0
|
|
|
$
|
21.6
|
|
Additions for tax positions of the current year
|
1.9
|
|
|
1.6
|
|
|
2.0
|
|
Additions for tax positions of prior years
|
1.0
|
|
|
0.1
|
|
|
0.4
|
|
Reductions for tax positions of prior years
|
(0.1
|
)
|
|
(4.7
|
)
|
|
(2.8
|
)
|
Statute of limitations expiration
|
(0.2
|
)
|
|
(2.7
|
)
|
|
(5.2
|
)
|
Balance at End of Year
|
$
|
12.9
|
|
|
$
|
10.3
|
|
|
$
|
16.0
|
|
At
September 30, 2016
and
2015
, we had
$12.9 million
and
$10.3 million
of unrecognized tax benefits, excluding interest and penalties, of which
$12.6 million
and
$10.0 million
, respectively, would impact the tax rate, if recognized.
Interest and penalties related to unrecognized tax benefits are recorded as a component of income tax expense and were not material in
2016
,
2015
, and
2014
.
We are currently under examination in a number of tax jurisdictions, some of which may be resolved in the next twelve months. As a result, it is reasonably possible that a change in the unrecognized tax benefits may occur during the next twelve months. However, quantification of an estimated range cannot be made at this time.
We generally remain subject to examination in the following major tax jurisdictions for the years indicated below:
|
|
|
|
Open Tax Years
|
Major Tax Jurisdiction
|
|
United States
|
2011-2016
|
China
|
2006-2016
|
South Korea
|
2010-2016
|
Taiwan
|
2011-2016
|
16.
SUPPLEMENTAL INFORMATION
|
|
|
|
|
|
|
|
|
|
September 30,
|
(In millions)
|
2016
|
|
2015
|
Payables and Accrued Liabilities
|
|
Trade creditors
|
$
|
41.6
|
|
|
$
|
36.6
|
|
Customer advances
|
4.0
|
|
|
8.0
|
|
Accrued payroll and employee benefits
|
33.9
|
|
|
33.9
|
|
Other costs associated with business separation, restructuring and cost reduction actions
|
0.6
|
|
|
4.1
|
|
Other
|
5.7
|
|
|
5.3
|
|
|
$
|
85.8
|
|
|
$
|
87.9
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(In millions)
|
2016
|
|
2015
|
Other Noncurrent Liabilities
|
|
Employee benefits
|
$
|
3.7
|
|
|
$
|
2.4
|
|
Contingencies related to uncertain tax positions
|
12.9
|
|
|
10.3
|
|
Other
|
3.2
|
|
|
4.5
|
|
|
$
|
19.8
|
|
|
$
|
17.2
|
|
17.
COMMITMENTS AND CONTINGENCIES
Litigation
In the normal course of business, Versum is involved in various legal proceedings, including commercial, environmental, health, safety, and product liability matters. Although litigation with respect to these matters is routine and incidental to the conduct of our business, such litigation may result in large monetary awards for compensatory and punitive damages. Versum does not currently believe that there are any legal proceedings, individually or in the aggregate, that are reasonably possible to have a material impact on its financial condition, results of operations, or cash flows. Versum cannot predict the outcome of any litigation or the potential for future litigation.
Environmental and Regulatory Proceedings
From time to time, Versum is also involved in proceedings, investigations, and audits involving governmental authorities in connection with environmental, health, safety, competition, and tax matters. In addition, pursuant to the Separation Agreement, Versum is liable to Air Products for proceedings by the Environmental Protection Agency under the Comprehensive Environmental Response, Compensation, and Liability Act, the federal Superfund law (“CERCLA”); the Resource Conservation and Recovery Act (“RCRA”); and similar state and foreign environmental laws relating to current or former Electronic Materials business sites, and third-party waste disposal facilities used by the Electronic Materials business, that have been designated for investigation or remediation. Versum may be liable for any unknown environmental liabilities related to legacy businesses and sites formerly owned and operated by Air Products related to its former electronics businesses. Versum does not currently believe that there are any environmental or regulatory matters, individually or in the aggregate, that are reasonably possible to have a material impact on our financial condition, results of operations, or cash flows.
Unconditional Purchase Obligations
We have unconditional purchase obligations of approximately
$9.0 million
for plant and equipment purchases as well as R&D facility enhancements. Otherwise, there are no material obligations.
Any future charges related to the costs of litigation, environmental, or regulatory proceedings for fines, settlements or damages related to any such matters could have a material impact on our results of operations or cash flows in the period
incurred. While Versum cannot predict the outcome of any litigation, environmental, or regulatory matter or the potential for future litigation or regulatory action, we have evaluated all litigation, environmental and regulatory proceedings, claims and assessments in which Versum is involved, and do not believe that any of these matters, individually or in the aggregate, will result in losses that are materially in excess of amounts already recognized, if any.
18.
SEGMENT AND GEOGRAPHIC INFORMATION
We are comprised of
two
primary operating segments, Materials and Delivery Systems and Services, under which we manage our operations and assess performance, and a Corporate segment. Our segments are differentiated by the types of products sold.
Materials
The Materials operating segment is an integrated provider of specialty materials for the high-growth electronics industry, focusing on the integrated circuit and flat-panel display markets. This segment provides the global semiconductor industry with high purity process materials for deposition, metallization, chamber cleaning and etching, chemicals mechanical planarization slurries, organosilanes, organometallics and liquid dopants for thin film deposition, and formulated chemical products for post-etch cleaning primarily for the manufacture of silicon and compound semiconductors and thin film transistor liquid crystal displays. The majority of our sales to the semiconductor industry are to large scale multinational companies.
Delivery Systems and Services
The Delivery Systems and Services operating segment designs, manufactures, installs, operates, and maintains chemical and gas delivery and distribution systems for specialty gases and chemicals delivered directly to our customers’ manufacturing tools. In addition, the business provides turnkey installation services during facility construction and startup as well as onsite operating services.
Corporate
The Corporate segment includes certain administrative costs that have been allocated to us such as information technology, general services, human resources, legal, accounting, and other services, as well as foreign exchange gains and losses, and other income and expense that cannot be directly associated with operating segments. Corporate assets primarily include cash and deferred tax assets.
Customers
For the fiscal years ended
September 30, 2016
,
2015
, and
2014
,
three
customers accounted for
10%
or more of combined sales from both the Materials and Delivery Systems and Services segments. In
2016
, these customers accounted for
21%
,
13%
and
13%
of our combined sales. In
2015
, these customers accounted for
21%
,
13%
and
11%
of our combined sales. In
2014
, these customers accounted for
19%
,
14%
, and
11%
of our combined sales. No other customer accounted for more than
10%
of combined sales in any period.
Products
For the fiscal years ended
September 30, 2016
and
2015
, a Materials segment product accounted for 10% or more of combined sales from both the Materials and Delivery Systems and Services segments. For the fiscal years ended
September 30, 2016
and
2015
, this product accounted for
12%
and
11%
of our combined sales, respectively.
Accounting Policies
The accounting policies of the segments are the same as those described in
Note 2
, Major Accounting Policies. We evaluate the performance of segments based upon reported segment operating income. Intersegment sales are not material and are recorded at selling prices that approximate market prices.
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the year ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(In millions)
|
|
|
|
|
|
Sales
|
|
|
|
|
|
Materials
|
$
|
756.7
|
|
|
$
|
743.4
|
|
|
$
|
640.0
|
|
Delivery Systems and Services
|
213.4
|
|
|
265.9
|
|
|
302.5
|
|
Combined Total
|
$
|
970.1
|
|
|
$
|
1,009.3
|
|
|
$
|
942.5
|
|
Operating Income (Loss)
|
|
|
|
|
|
Materials
|
$
|
252.3
|
|
|
$
|
213.7
|
|
|
$
|
124.6
|
|
Delivery Systems and Services
|
50.8
|
|
|
49.1
|
|
|
57.6
|
|
Corporate
|
(23.3
|
)
|
|
(19.2
|
)
|
|
(19.7
|
)
|
Segment Total
|
$
|
279.8
|
|
|
$
|
243.6
|
|
|
$
|
162.5
|
|
Business separation, restructuring and cost reduction actions
|
(0.9
|
)
|
|
(21.6
|
)
|
|
(1.3
|
)
|
Combined Total
|
$
|
278.9
|
|
|
$
|
222.0
|
|
|
$
|
161.2
|
|
Depreciation and Amortization
|
|
|
|
|
|
Materials
|
$
|
44.4
|
|
|
$
|
48.1
|
|
|
$
|
52.7
|
|
Delivery Systems and Services
|
2.1
|
|
|
8.3
|
|
|
6.3
|
|
Corporate
|
0.4
|
|
|
0.5
|
|
|
0.5
|
|
Combined Total
|
$
|
46.9
|
|
|
$
|
56.9
|
|
|
$
|
59.5
|
|
Equity Affiliates’ Income
|
|
|
|
|
|
Materials
|
$
|
0.2
|
|
|
$
|
1.0
|
|
|
$
|
1.7
|
|
Combined Total
|
$
|
0.2
|
|
|
$
|
1.0
|
|
|
$
|
1.7
|
|
Total Assets
|
|
|
|
|
|
Materials
|
$
|
733.4
|
|
|
$
|
754.8
|
|
|
$
|
828.1
|
|
Delivery Systems and Services
|
104.0
|
|
|
92.7
|
|
|
137.0
|
|
Corporate
|
206.4
|
|
|
39.9
|
|
|
68.9
|
|
Combined Total
|
$
|
1,043.8
|
|
|
$
|
887.4
|
|
|
$
|
1,034.0
|
|
Investment in Net Assets of and Advances to Equity Affiliates
|
|
|
|
|
|
Materials
|
$
|
—
|
|
|
$
|
12.5
|
|
|
$
|
14.1
|
|
Combined Total
|
$
|
—
|
|
|
$
|
12.5
|
|
|
$
|
14.1
|
|
Expenditures for Long-Lived Assets
|
|
|
|
|
|
Materials
|
$
|
34.4
|
|
|
$
|
21.2
|
|
|
$
|
17.9
|
|
Delivery Systems and Services
|
0.7
|
|
|
0.8
|
|
|
6.0
|
|
Corporate
|
0.7
|
|
|
0.1
|
|
|
0.4
|
|
Combined Total
|
$
|
35.8
|
|
|
$
|
22.1
|
|
|
$
|
24.3
|
|
Sales by Product Group
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
2016
|
|
2015
|
|
2014
|
(In millions)
|
|
Process Materials
|
$
|
387.4
|
|
|
$
|
387.3
|
|
|
$
|
321.8
|
|
Advanced Materials
|
369.3
|
|
|
356.1
|
|
|
318.2
|
|
Equipment and Installations
|
150.8
|
|
|
208.3
|
|
|
244.1
|
|
Site Services
|
62.6
|
|
|
57.6
|
|
|
58.4
|
|
Total
|
$
|
970.1
|
|
|
$
|
1,009.3
|
|
|
$
|
942.5
|
|
Geographic Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Sales to External Customers
|
|
United States
|
$
|
349.4
|
|
|
$
|
361.3
|
|
|
$
|
330.3
|
|
Taiwan
|
230.8
|
|
|
236.3
|
|
|
228.0
|
|
South Korea
|
217.2
|
|
|
220.3
|
|
|
184.3
|
|
China
|
53.8
|
|
|
70.9
|
|
|
76.9
|
|
Europe
|
57.8
|
|
|
69.2
|
|
|
70.3
|
|
Asia, excluding China, Taiwan, and South Korea
|
61.1
|
|
|
51.3
|
|
|
52.7
|
|
Total
|
$
|
970.1
|
|
|
$
|
1,009.3
|
|
|
$
|
942.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(In millions)
|
2016
|
|
2015
|
|
2014
|
Long-Lived Assets
(A)
|
|
United States
|
$
|
138.3
|
|
|
$
|
139.9
|
|
|
$
|
153.9
|
|
South Korea
|
112.2
|
|
|
105.0
|
|
|
122.0
|
|
Taiwan
|
36.8
|
|
|
39.7
|
|
|
43.7
|
|
Asia, excluding Taiwan and South Korea
|
9.0
|
|
|
16.4
|
|
|
31.4
|
|
Europe
|
0.2
|
|
|
0.1
|
|
|
0.9
|
|
Total
|
$
|
296.5
|
|
|
$
|
301.1
|
|
|
$
|
351.9
|
|
|
|
(A)
|
Long-lived assets include plant and equipment, net.
|
Geographic information is based on country of origin. Included in United States revenues are export sales to third-party customers of
$75.8 million
in
2016
,
$54.2 million
in
2015
, and
$58.1 million
in
2014
.
19.
SUBSEQUENT EVENTS
On September 29, 2016, Versum entered into a Separation Agreement with Air Products, pursuant to which Air Products sold its Electronic Materials business to Versum and distributed to Air Products stockholders all of the issued and outstanding shares of common stock of Versum on the basis of one-half share of common stock of Versum for each share of Air Products common stock issued and outstanding in a distribution intended to be tax-free to Air Products stockholders. The Distribution, which was effective on October 1, 2016, was made to Air Products stockholders of record as of the close of business on September 21, 2016. As a result of the Distribution, Versum is now an independent public company and its common stock is listed under the symbol “VSM” on the New York Stock Exchange.
Our Relationship with Air Products
We operate separately as an independent public company. In connection with the Separation and Distribution, on September 29, 2016, Versum and its affiliates entered into various agreements with Air Products and its affiliates contemplated by the Separation Agreement, including the following agreements:
Transition Services Agreement.
Under the Transition Services Agreement, Air Products provides certain transition services to us and we provide certain transition services to Air Products. Each party provides these services for a limited time, generally for no longer than
12
to
24
months following the October 1, 2016 Distribution date, for specified fees, which are at cost for services provided by third parties and at cost plus approximately
5%
percent for services provided by either us or Air Products, as applicable.
Tax Matters Agreement.
The Tax Matters Agreement generally governs Air Products’ and Versum’s respective rights, responsibilities and obligations with respect to taxes (including taxes arising in the ordinary course of business and taxes, if any, incurred as a result of any failure of the contribution, the Distribution or certain related transactions to qualify as tax-free for U.S. federal income tax purposes), tax attributes, the preparation and filing of tax returns, the control of audits and other tax proceedings and other matters regarding taxes for any tax period ending on or before the Distribution date, as well as tax periods beginning after the Distribution date. In addition, the Tax Matters Agreement imposes certain restrictions on us and our subsidiaries (including restrictions on share issuances, business combinations, sales of assets and similar transactions) designed to preserve the tax-free status of the contribution, the Distribution and certain related transactions. The Tax Matters Agreement includes special rules that allocate tax liabilities in the event the contribution, the Distribution, or certain related transactions fail to qualify as tax-free for U.S. federal income tax purposes. In general, Versum is liable for taxes incurred by Air Products that may arise if Versum takes, or fails to take, as the case may be, certain actions that may result in the contribution, the Distribution or certain related transactions failing to qualify as tax-free for U.S. federal income tax purposes.
Employee Matters Agreement
. The Employee Matters Agreement governs the compensation and employee benefit obligations with respect to our current and former employees and those of Air Products. The Employee Matters Agreement allocates liabilities and responsibilities relating to employee compensation and benefits plans and programs and other related matters in connection with the Distribution including, without limitation, the treatment of outstanding Air Products’ equity awards, other outstanding incentive compensation awards, deferred compensation obligations and retirement and welfare benefit obligations.
In 2017, certain international pension plans were legally split. Currently, the funded status of these shared plans is not reflected on Versum’s annual combined balance sheet as the plans are accounted for as multiemployer plans. Upon legal separation of the plans in 2017 the funded status of Versum’s portion of these plans, which is a net pension liability estimated at approximately
$24 million
, will be reflected on the balance sheet in the first quarter of 2017.
Intellectual Property Agreements
. Certain of our subsidiaries entered into agreements with Air Products with respect to intellectual property. A two-way cross-license between Air Products and
one
of our affiliates requires
one
of our affiliates to exclusively license to Air Products certain patents for a defined field of use. Correspondingly, Air Products exclusively licensed certain patents to
one
of our affiliates for a defined field of use. Air Products also granted Versum or one of our affiliates a license under various Engineering Standards developed and owned by it as well as Safety, Health and Environmental Standards and Policies developed and owned by it, for a limited period of time in order to allow us to continue our operations and develop our own Standards and Policies.
20.
SUMMARY BY QUARTER (UNAUDITED)
These tables summarize the unaudited results of operations for each quarter of fiscal
2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
December 31, 2015
|
|
March 31, 2016
|
|
June 30, 2016
|
|
September 30, 2016
|
|
Total
|
(In millions)
|
|
Sales
|
$
|
245.5
|
|
|
$
|
233.5
|
|
|
$
|
242.7
|
|
|
$
|
248.4
|
|
|
$
|
970.1
|
|
Cost of sales
|
132.4
|
|
|
132.5
|
|
|
135.9
|
|
|
138.7
|
|
|
539.5
|
|
Selling and administrative
|
23.6
|
|
|
25.7
|
|
|
27.3
|
|
|
33.2
|
|
|
109.8
|
|
Research and development
|
10.9
|
|
|
10.2
|
|
|
11.3
|
|
|
11.5
|
|
|
43.9
|
|
Business separation, restructuring and cost reduction actions
|
(0.9
|
)
|
|
(1.8
|
)
|
|
1.1
|
|
|
2.5
|
|
|
0.9
|
|
Other income (expense), net
|
1.1
|
|
|
1.0
|
|
|
0.3
|
|
|
0.5
|
|
|
2.9
|
|
Operating Income
|
80.6
|
|
|
67.9
|
|
|
67.4
|
|
|
63.0
|
|
|
278.9
|
|
Equity affiliates’ income
|
0.2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
Interest expense
|
—
|
|
|
—
|
|
|
—
|
|
|
0.4
|
|
|
0.4
|
|
Income Before Taxes
|
80.8
|
|
|
67.9
|
|
|
67.4
|
|
|
62.6
|
|
|
278.7
|
|
Income tax provision
|
13.4
|
|
|
12.2
|
|
|
17.6
|
|
|
15.6
|
|
|
58.8
|
|
Net Income
|
67.4
|
|
|
55.7
|
|
|
49.8
|
|
|
47.0
|
|
|
219.9
|
|
Less: Net Income Attributable to Non-controlling Interests
|
2.2
|
|
|
1.9
|
|
|
2.0
|
|
|
1.8
|
|
|
7.9
|
|
Net Income Attributable to Versum
|
$
|
65.2
|
|
|
$
|
53.8
|
|
|
$
|
47.8
|
|
|
$
|
45.2
|
|
|
$
|
212.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
December 31, 2014
|
|
March 31, 2015
|
|
June 30, 2015
|
|
September 30, 2015
|
|
Total
|
(In millions)
|
|
Sales
|
$
|
255.1
|
|
|
$
|
258.8
|
|
|
$
|
263.0
|
|
|
$
|
232.4
|
|
|
$
|
1,009.3
|
|
Cost of sales
|
164.7
|
|
|
158.6
|
|
|
153.5
|
|
|
139.7
|
|
|
616.5
|
|
Selling and administrative
|
26.8
|
|
|
27.8
|
|
|
28.4
|
|
|
26.6
|
|
|
109.6
|
|
Research and development
|
9.1
|
|
|
10.0
|
|
|
9.9
|
|
|
11.7
|
|
|
40.7
|
|
Business separation, restructuring and cost reduction actions
|
4.2
|
|
|
1.7
|
|
|
8.6
|
|
|
7.1
|
|
|
21.6
|
|
Other income (expense), net
|
(0.7
|
)
|
|
0.7
|
|
|
0.5
|
|
|
0.6
|
|
|
1.1
|
|
Operating Income
|
49.6
|
|
|
61.4
|
|
|
63.1
|
|
|
47.9
|
|
|
222.0
|
|
Equity affiliates’ income
|
0.3
|
|
|
0.4
|
|
|
—
|
|
|
0.3
|
|
|
1.0
|
|
Interest expense
|
0.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.1
|
|
Income Before Taxes
|
49.8
|
|
|
61.8
|
|
|
63.1
|
|
|
48.2
|
|
|
222.9
|
|
Income tax provision
|
6.1
|
|
|
11.2
|
|
|
10.8
|
|
|
3.6
|
|
|
31.7
|
|
Net Income
|
43.7
|
|
|
50.6
|
|
|
52.3
|
|
|
44.6
|
|
|
191.2
|
|
Less: Net Income Attributable to Non-controlling Interests
|
1.8
|
|
|
1.8
|
|
|
2.1
|
|
|
1.4
|
|
|
7.1
|
|
Net Income Attributable to Versum
|
$
|
41.9
|
|
|
$
|
48.8
|
|
|
$
|
50.2
|
|
|
$
|
43.2
|
|
|
$
|
184.1
|
|