Cover Page
Cover Page - shares | 3 Months Ended | |
Mar. 31, 2020 | Apr. 30, 2020 | |
Document Information [Line Items] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Entity Registrant Name | SMITH A O CORP | |
Entity Small Business | false | |
Entity Central Index Key | 0000091142 | |
Entity Emerging Growth Company | false | |
Entity Interactive Data Current | Yes | |
Entity Current Reporting Status | Yes | |
Entity Shell Company | false | |
Document Quarterly Report | true | |
Document Transition Report | false | |
Document Fiscal Period Focus | Q1 | |
Current Fiscal Year End Date | --12-31 | |
Document Period End Date | Mar. 31, 2020 | |
Entity File Number | 1-475 | |
Entity Incorporation, State or Country Code | DE | |
Entity Tax Identification Number | 39-0619790 | |
Entity Address, Address Line One | 11270 West Park Place | |
Entity Address, State or Province | WI | |
Entity Address, Postal Zip Code | 53224-9508 | |
Entity Address, City or Town | Milwaukee | |
Security Exchange Name | NYSE | |
Trading Symbol | AOS | |
Title of 12(b) Security | Common Stock | |
Entity Filer Category | Large Accelerated Filer | |
City Area Code | 414 | |
Local Phone Number | 359-4000 | |
Document Fiscal Year Focus | 2020 | |
Common Class A | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 26,044,733 | |
Common Stock | ||
Document Information [Line Items] | ||
Entity Common Stock, Shares Outstanding | 135,095,634 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Net sales | $ 636.9 | $ 748.2 |
Cost of products sold | 397.4 | 455.4 |
Gross profit | 239.5 | 292.8 |
Selling, general and administrative expenses | 173.8 | 184.7 |
Interest expense | 2.2 | 2 |
Other income | (4.2) | (5.5) |
Earnings before provision for income taxes | 67.7 | 111.6 |
Provision for income taxes | 16 | 22.3 |
Net Earnings | $ 51.7 | $ 89.3 |
Net Earnings Per Share of Common Stock | $ 0.32 | $ 0.53 |
Diluted Net Earnings Per Share of Common Stock | 0.32 | 0.53 |
Dividends Per Share of Common Stock | $ 0.24 | $ 0.22 |
CONDENSED CONSOLIDATED STATEM_2
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Net earnings | $ 51.7 | $ 89.3 |
Other comprehensive (loss) earnings | ||
Foreign currency translation adjustments | (18) | 15.9 |
Unrealized net gains (losses) on cash flow derivative instruments, less related income tax provision of $(0.1) in 2020 and $ - in 2019 | 0.3 | (0.1) |
Adjustment to pension liability, less related income tax provision of $(1.2) in 2020 and $(1.0) in 2019 | 3.6 | 2.9 |
Comprehensive Earnings | $ 37.6 | $ 108 |
CONDENSED CONSOLIDATED STATEM_3
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (Parenthetical) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Unrealized net gains (losses) on cash flow derivative instruments, less related income tax provision | $ (0.1) | $ 0 |
Adjustment to pension liability, less related income tax provision | $ (1.2) | $ (1) |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Assets | ||
Cash and cash equivalents | $ 416.1 | $ 374 |
Marketable securities | 135.6 | 177.4 |
Receivables | 524 | 589.5 |
Inventories | 312.3 | 303 |
Other current assets | 54.5 | 56.5 |
Total Current Assets | 1,442.5 | 1,500.4 |
Property, plant and equipment | 1,159.5 | 1,156.9 |
Less accumulated depreciation | (622.2) | (611.5) |
Net property, plant and equipment | 537.3 | 545.4 |
Goodwill | 542.6 | 546 |
Other intangibles | 333.1 | 338.4 |
Operating lease assets | 44.9 | 46.9 |
Other assets | 82.6 | 80.9 |
Total Assets | 2,983 | 3,058 |
Liabilities | ||
Trade payables | 442 | 509.6 |
Accrued payroll and benefits | 47.7 | 64.6 |
Accrued liabilities | 159.7 | 143.7 |
Product warranties | 42.9 | 41.8 |
Debt due within one year | 6.8 | 6.8 |
Total Current Liabilities | 699.1 | 766.5 |
Long-term debt | 335.6 | 277.2 |
Pension liabilities | 20.8 | 27.8 |
Long-term operating lease liabilities | 37.3 | 38.7 |
Other liabilities | 273.9 | 281 |
Total Liabilities | 1,366.7 | 1,391.2 |
Stockholders' Equity | ||
Common Stock, value | 164.5 | 164.5 |
Capital in excess of par value | 516.1 | 509 |
Retained earnings | 2,336.1 | 2,323.4 |
Accumulated other comprehensive loss | (362.4) | (348.3) |
Treasury stock at cost | (1,168.9) | (1,112.7) |
Total Stockholders' Equity | 1,616.3 | 1,666.8 |
Total Liabilities and Stockholders' Equity | 2,983 | 3,058 |
Common Class A | ||
Stockholders' Equity | ||
Common Stock, value | 130.9 | 130.9 |
Total Stockholders' Equity | $ 130.9 | $ 130.9 |
CONDENSED CONSOLIDATED BALANC_2
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares | Mar. 31, 2020 | Dec. 31, 2019 |
Common Stock, Par or Stated Value Per Share | $ 1 | $ 1 |
Common Stock, Shares Authorized | 240,000,000 | 240,000,000 |
Common Stock, shares issued | 164,532,481 | 164,526,709 |
Common Class A | ||
Common Stock, Par or Stated Value Per Share | $ 5 | $ 5 |
Common Stock, Shares Authorized | 27,000,000 | 27,000,000 |
Common Stock, shares issued | 26,175,113 | 26,180,885 |
CONDENSED CONSOLIDATED STATEM_4
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Operating Activities | ||
Net earnings | $ 51.7 | $ 89.3 |
Adjustments to reconcile net earnings to cash provided by (used in) operating activities: | ||
Depreciation and amortization | 20.1 | 20.2 |
Stock based compensation expense | 9 | 8.7 |
Net changes in operating assets and liabilities: | ||
Current assets and liabilities | (15.1) | (86.3) |
Noncurrent assets and liabilities | (11.6) | (10.3) |
Cash Provided by Operating Activities | 54.1 | 21.6 |
Investing Activities | ||
Capital expenditures | (12.8) | (20.9) |
Investments in marketable securities | (38.8) | (48.5) |
Net proceeds from sale of marketable securities | 78 | 147.2 |
Cash Provided by Investing Activities | 26.4 | 77.8 |
Financing Activities | ||
Long-term debt incurred | 58.5 | 63 |
Common stock repurchases | (56.7) | (45.6) |
Net payments from stock option activity | (1.2) | (1.6) |
Dividends paid | (39) | (37.1) |
Cash Used In Financing Activities | (38.4) | (21.3) |
Net increase in cash and cash equivalents | 42.1 | 78.1 |
Cash and cash equivalents - beginning of period | 374 | 259.7 |
Cash and Cash Equivalents - End of Period | $ 416.1 | $ 337.8 |
CONDENSED CONSOLIDATED STATEM_5
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Millions | Total | Common Class A | Common Stock | Capital in Excess of Par Value | Retained Earnings | Accumulated Other Comprehensive Loss | Treasury Stock |
Balance at Dec. 31, 2018 | $ 131 | $ 164.5 | $ 496.7 | $ 2,102.8 | $ (827.2) | ||
Net earnings | $ 89.3 | 89.3 | |||||
Issuance of share units | (6.1) | ||||||
Cash dividends on stock | (37.1) | ||||||
Vesting of share units | (1.9) | 2 | |||||
Stock based compensation expense | 8.6 | ||||||
Exercises of stock options | 0.1 | (1.9) | |||||
Stock incentives and directors' compensation | 6.1 | ||||||
Shares repurchased | (45.6) | ||||||
Balance at Mar. 31, 2019 | 1,749.2 | 131 | 164.5 | 503.5 | 2,155 | $ (332.1) | (872.7) |
Balance at Dec. 31, 2019 | 1,666.8 | 130.9 | 164.5 | 509 | 2,323.4 | (1,112.7) | |
Net earnings | 51.7 | 51.7 | |||||
Issuance of share units | (6.5) | ||||||
Cash dividends on stock | (39) | ||||||
Vesting of share units | (1.6) | 1.6 | |||||
Stock based compensation expense | 8.8 | ||||||
Exercises of stock options | (0.1) | (1.1) | |||||
Stock incentives and directors' compensation | 6.5 | ||||||
Shares repurchased | (56.7) | ||||||
Balance at Mar. 31, 2020 | $ 1,616.3 | $ 130.9 | $ 164.5 | $ 516.1 | $ 2,336.1 | $ (362.4) | $ (1,168.9) |
Basis of Presentation
Basis of Presentation | 3 Months Ended |
Mar. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation | 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2020 are not necessarily indicative of the results expected for the full year. It is suggested the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 740, Income Taxes 2019-12, 2019-12 In January 2017, the FASB amended ASC 350, Intangibles – Goodwill 2017-04, 2017-04 In June 2016, the FASB issued ASC 326, Financial Instruments – Credit Losses 2016-13) 2016-13 |
Revenue Recognition
Revenue Recognition | 3 Months Ended |
Mar. 31, 2020 | |
Revenue Recognition Disclosure [Text Block] | 2. Revenue Recognition Substantially all of the Company’s sales are from contracts with customers for the purchase of its products. Contracts and customer purchase orders are used to determine the existence of a sales contract. Shipping documents are used to verify shipment. For substantially all of its products, the Company transfers control of products to the customer at the point in time when title and risk are passed to the customer, which generally occurs upon shipment of the product. Each unit sold is considered an independent, unbundled performance obligation. The Company’s sales arrangements do not include other performance obligations that are material in the context of the contract. The nature, timing and amount of revenue for a respective performance obligation are consistent Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $65.2 million and $49.6 million at March 31, 2020 and December 31, 2019, respectively. The Company assesses the collectability of customer receivables based on the creditworthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history. In determining the allowance for doubtful accounts, the Company also considers various factors including the aging of customer accounts and historical write-offs. In addition, the Company monitors other risk factors including forward-looking information when establishing adequate allowances for doubtful accounts, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables. The Company’s allowance for doubtful accounts was $7.5 million and $6.7 million at March 31, 2020 and December 31, 2019, respectively. Rebates and incentives are based on pricing agreements and are tied to sales volume. The amount of revenue is reduced for variable consideration related to customer rebates which are calculated using expected values and are based on program specific factors such as expected rebate percentages based on expected volumes. In situations where the customer has the right to return eligible products, the Company reduces revenue for its estimates of expected product returns, which are primarily based on an analysis of historical experience. Changes in such accruals may be required if actual sales volume differs from estimated sales volume or if future returns differ from historical experience. Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold and are activities performed to fulfill the promise to transfer products. Disaggregation of Net Sales The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. The Rest of World segment also manufactures and markets in-home As each segment manufactures and markets products in its respective region of the world, the Company has determined that geography is the primary factor in reporting its sales. The Company further disaggregates its North America segment sales by major product line as each of North America’s major product lines is sold through distinct distribution channels and these product lines may be impacted differently by certain economic factors. Within the Rest of World segment, particularly in China and India, the Company’s major customers purchase across the Company’s product lines, utilizing the same distribution channel regardless of product type. In addition, the impact of economic factors is unlikely to be differentiated by product line in the Rest of World segment. The North America segment major product lines are defined as the following: Water heaters Boilers Water treatment products point-of-entry on-the-go point-of-use dealers segment The following table disaggregates the Company’s net sales by segment. As described above, the Company’s North America segment sales are further disaggregated by major product line. In addition, the Company’s Rest of World segment sales are disaggregated by China and all other Rest of World. (dollars in millions) Three Months Ended March 31, 2020 2019 North America Water heaters and related parts $ 447.8 $ 455.7 Boilers and related parts 41.5 42.6 Water treatment products (1) 43.6 23.5 Total North America 532.9 521.8 Rest of World China $ 91.0 $ 213.0 All other Rest of World 19.2 19.1 Total Rest of World 110.2 232.1 Inter-segment sales (6.2 ) (5.7 ) Total Net Sales $ 636.9 $ 748.2 (1) |
Acquisitions
Acquisitions | 3 Months Ended |
Mar. 31, 2020 | |
Acquisitions | 3. Acquisitions On April 8, 2019, the Company acquired 100 percent of the shares of Water-Right, a Wisconsin-based water treatment company. With the addition of Water-Right, the Company grew its North America water treatment platform. Water-Right is included in the Company’s North America segment for reporting purposes. The Company paid an aggregate cash purchase price of $107.0 million, net of cash acquired. In addition, the Company established a $4.0 million escrow to satisfy any potential obligations of the former owners of Water-Right, should they arise. The following table summarizes the allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition of Water-Right for purposes of allocating the purchase price. Significant assumptions used to estimate the fair value of intangible assets acquired include discount rates and certain assumptions that form the basis of the forecasted results, including revenue growth rates, attrition rates and royalty rates. The $60.4 million of acquired identifiable intangible assets was comprised of the following: $40.2 million of customer relationships being amortized over 20 years, $19.0 million of trademarks not subject to amortization, and $1.2 million of non-compete April 8, 2019 (dollars in millions) Current assets, net of cash acquired $ 9.7 Property, plant and equipment 8.6 Intangible assets 60.4 Goodwill 31.0 Total assets acquired 109.7 Current liabilities (2.7 ) Net assets acquired $ 107.0 As required under ASC 805 Business Combinations, Water-Right’s results |
Leases
Leases | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Leases | 4. Leases The Company’s lease portfolio consists of operating leases for buildings Certain leases include one or more options to renew or terminate. Renewal terms can extend the lease term from one Supplemental balance sheet information related to leases was as follows: (dollars in millions) March 31, 2020 December 31, 2019 Liabilities Short term: Accrued liabilities $ 11.5 $ 12.0 Long term: Operating lease liabilities 37.3 38.7 Total operating lease liabilities $ 48.8 $ 50.7 Less: Rent incentives and deferrals (3.9 ) (3.8 ) Assets Operating lease assets $ 44.9 $ 46.9 Lease Term and Discount Rate March 31, 2020 Weighted-average remaining lease term 10 years Weighted-average discount rate 3.95 % The components of lease expense were as follows: (dollars in millions) Three months ended March 31, Lease Expense Classification 2020 (1) 2019 (2) Operating lease expense Cost of products sold $ 0.7 $ 0.7 Selling, general and administrative expenses 4.0 4.9 (1) 2020 includes short-term and variable lease expenses of $0.4 million and $0.4 million, respectively. (2) 2019 includes short-term and variable lease expenses of $0.4 million and $0.8 million, respectively. Maturities of lease liabilities were as follows: (dollars in millions) March 31, 2020 2020 $ 10.2 2021 10.7 2022 9.2 2023 4.9 2024 3.8 After 2024 22.7 Total lease payments 61.5 Less: imputed interest (12.7 ) Present value of operating lease liabilities $ 48.8 |
Inventories
Inventories | 3 Months Ended |
Mar. 31, 2020 | |
Inventories | 5. Inventories The following table presents the components of the Company’s inventory balances: (dollars in millions) March 31, 2020 December 31, 2019 Finished products $ 142.8 $ 136.8 Work in process 21.6 21.7 Raw materials 171.7 168.3 Inventories, at FIFO cost 336.1 326.8 LIFO reserve (23.8 ) (23.8 ) Net inventory $ 312.3 $ 303.0 |
Product Warranties
Product Warranties | 3 Months Ended |
Mar. 31, 2020 | |
Product Warranties Disclosures [Abstract] | |
Product Warranties | 6. Product Warranties The Company offers warranties on the sales of certain of its products with terms that are consistent with the market and records an accrual for the estimated future claims. The following table presents the Company’s warranty liability activity. (dollars in millions) Three Months Ended March 31, 2020 2019 Balance at January 1 $ 134.3 $ 139.4 Expense 13.5 9.4 Claims settled (12.5 ) (12.6 ) Balance at March 31 $ 135.3 $ 136.2 |
Long-Term Debt
Long-Term Debt | 3 Months Ended |
Mar. 31, 2020 | |
Debt Disclosure [Abstract] | |
Long-Term Debt | 7. Long-Term Debt The Company has a $500 million multi-year multi-currency revolving credit agreement with a group of nine banks, which expires on December 15, 2021. The facility has an accordion provision which allows it to be increased up to $700 million if certain conditions (including lender approval) are satisfied. Borrowings under bank credit lines and commercial paper borrowings are supported by the $500 million revolving credit agreement. As a result of the long-term nature of this facility, the Company’s commercial paper and credit line borrowings are classified as long-term debt at March 31, 2020. At its option, the Company either maintains cash balances or pays fees for bank credit and services. |
Earnings per Share of Common St
Earnings per Share of Common Stock | 3 Months Ended |
Mar. 31, 2020 | |
Earnings Per Share [Abstract] | |
Earnings per Share of Common Stock | 8. Earnings per Share of Common Stock The numerator for the calculation of basic and diluted earnings per share is net earnings. The following table sets forth the computation of basic and diluted weighted-average shares used in the earnings per share calculations: Three Months Ended March 31, 2020 2019 Denominator for basic earnings per share - weighted average shares 161,871,788 167,803,794 Effect of dilutive stock options and share units 1,025,817 1,292,348 Denominator for diluted earnings per share 162,897,605 169,096,142 |
Stock Based Compensation
Stock Based Compensation | 3 Months Ended |
Mar. 31, 2020 | |
Stock Based Compensation | 9. Stock Based Compensation The Company adopted the A. O. Smith Combined Incentive Compensation Plan (the “Plan”) effective January 1, 2007. The Plan was reapproved by stockholders on April 16, 2012. The Plan is a continuation of the A. O. Smith Combined Executive Incentive Compensation Plan which was originally approved by stockholders in 2002. The number of shares available for granting of options or share units at March 31, 2020 was 951,461. Upon stock option exercise or share unit vesting, shares are issued from treasury stock. Total stock based compensation expense recognized in the three months ended March 31, 2020 and 2019 was $9.0 million and $8.7 million, respectively. Stock Options The stock options granted in the three months ended March 31, 2020 and 2019 have three year pro rata vesting from the date of grant. Stock options are issued at exercise prices equal to the fair value of the Company’s Common Stock on the date of grant. For active employees, all options granted in 2020 and 2019 expire ten years after the date of grant. The Company’s stock options are expensed ratably over the three year vesting period; however, included in stock option expense for the three months ended March 31, 2020 and 2019 was expense associated with the accelerated vesting of stock option awards for certain employees who either are retirement eligible or become retirement eligible during the vesting period. Stock based compensation expense attributable to stock options in the three months ended March 31, 2020 and 2019 was $4.5 million and $4.3 million, respectively. Changes in options, all of which relate to the Company’s Common Stock, were as follows for the three months ended March 31, 2020: Weighted- Avg. Number Average Aggregate Outstanding at January 1, 2020 $ 37.64 2,728,350 Granted 42.39 784,300 Exercised 15.04 (25,147 ) Forfeited 48.95 (56,261 ) Outstanding at March 31, 2020 38.71 3,431,242 7 years $ 19.1 Exercisable at March 31, 2020 34.25 2,162,932 5 years $ 19.1 The weighted-average fair value per option at the date of grant during the three months ended March 31, 2020 and 2019 using the Black-Scholes option-pricing model was $8.15 and $10.83, respectively. Assumptions were as follows: Three Months Ended March 31, 2020 2019 Expected life (years) 5.7 5.6 Risk-free interest rate 1.6 % 2.7 % Dividend yield 2.1 % 1.6 % Expected volatility 23.6 % 22.8 % The expected lives of options for purposes of these models are based on historical exercise behavior. The risk-free interest rates for purposes of these models are based on the U.S. Treasury yield curve in effect on the date of grant for the respective expected lives of the option. The expected dividend yields for purposes of these models are based on the dividends paid in the preceding four quarters divided by the grant date market value of the Common Stock. The expected volatility for purposes of these models are based on the historical volatility of the Common Stock. Restricted Stock and Share Units Participants may also be awarded shares of restricted stock or share units under the Plan. Share units vest three years after the date of grant. The Company granted 169,407 and 136,647 share units under the plan in the three months ended March 31, 2020 and 2019, respectively. The share units were valued at $7.2 million and $6.8 million at the date of issuance in 2020 and 2019, respectively, based on the price of the Company’s Common Stock at the date of grant. The share units are recognized as compensation expense ratably over the three-year vesting period; however, included in share unit expense in the three months ended March 31, 2020 and 2019 was expense associated with accelerated vesting of share unit awards for certain employees who either are retirement eligible or will become retirement eligible during the vesting period. Stock based compensation expense attributable to share units of $4.5 million and $4.4 million was recognized in the three months ended March 31, 2020 and 2019, respectively. Certain non-U.S.-based A summary of share unit activity under the plan is as follows for the three months ended March 31, 2020: Number of Units Weighted-Average Grant Date Value Issued and unvested at January 1, 2020 366,102 $ 49.92 Granted 169,407 42.39 Vested (100,735 ) 49.21 Forfeited (7,557 ) 53.96 Issued and unvested at March 31, 2020 427,217 46.94 |
Pensions
Pensions | 3 Months Ended |
Mar. 31, 2020 | |
Pensions | 10. Pensions The following table presents the components of the Company’s net pension income. Three Months Ended March 31, 2020 2019 Service cost $ 0.4 $ 0.4 Interest cost 5.7 7.9 Expected return on plan assets (13.0 ) (14.3 ) Amortization of unrecognized loss 4.9 4.0 Amortization of prior service cost (0.1 ) (0.1 ) Defined benefit plan income $ (2.1 ) $ (2.1 ) The service cost component of net periodic benefit cost is presented within cost of products sold and selling, general and administrative expenses within the condensed consolidated statements of earnings while the other components of pension income are reflected in other income. The Company was not required to and did not make a contribution to its U.S. pension plan in 2019. The Company is not required to make a contribution in 2020. |
Segment Results
Segment Results | 3 Months Ended |
Mar. 31, 2020 | |
Segment Results | 11. Segment Results The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. The Rest of World segment also manufactures and markets in-home The following table presents the Company’s segment results: (dollars in millions) Three Months Ended March 31, 2020 2019 Net sales North America $ 532.9 $ 521.8 Rest of World 110.2 232.1 Inter-segment (6.2 ) (5.7 ) $ 636.9 $ 748.2 Segment earnings ( losses North America $ 127.1 $ 116.0 Rest of World (42.2 ) 12.3 84.9 128.3 Corporate expense (15.0 ) (14.7 ) Interest expense (2.2 ) (2.0 ) Earnings before income taxes 67.7 111.6 Provision for income taxes 16.0 22.3 Net earnings $ 51.7 $ 89.3 |
Fair Value Measurements
Fair Value Measurements | 3 Months Ended |
Mar. 31, 2020 | |
Fair Value Measurements | 12. Fair Value Measurements ASC 820, Fair Value Measurements The following table presents assets measured at fair value on a recurring basis. (dollars in millions) Fair Value Measurement Using March 31, 2020 December 31, 2019 Quoted prices in active markets for identical assets (Level 1) $ 135.6 $ 177.4 Significant other observable inputs (Level 2) 1.0 6.9 Items measured at fair value were comprised of the Company’s marketable securities (Level 1) and derivative instruments (Level 2). There were no changes in the Company’s valuation techniques used to measure fair values on a recurring basis during the three months ended March 31, 2020. |
Derivative Instruments
Derivative Instruments | 3 Months Ended |
Mar. 31, 2020 | |
Derivative Instruments | 13. Derivative Instruments The Company utilizes certain derivative instruments to enhance its ability to manage currency exposure as well as raw materials price risk. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes. The contracts are executed with major financial institutions with no credit loss anticipated for failure of the counterparties to perform. Cash Flow Hedges With the exception of its net investment hedges, the Company designates that all of its hedging instruments are cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), gains or losses on the derivative instrument are reported as a component of other comprehensive loss, net of tax, and are reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Foreign Currency Forward Contracts The Company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The Company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases, sales and certain intercompany transactions in the normal course of business. Principal currencies for which the Company utilizes foreign currency forward contracts include the British pound, Canadian dollar, Euro and Mexican peso. Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive loss to the consolidated statement of earnings. The assessment of effectiveness for forward contracts is based on changes in the forward rates. These hedges have been determined to be effective. (dollars in millions) March 31, 2020 December 31, 2019 Buy Sell Buy Sell British pound $ — $ 0.9 $ — $ 1.3 Canadian dollar — 59.8 — 49.7 Euro 27.1 — 36.0 — Mexican peso 23.4 — 18.6 — Total $ 50.5 $ 60.7 $ 54.6 $ 51.0 Commodity Futures Contracts In addition to entering into supply arrangements in the normal course of business, the Company also enters into futures contracts to fix the cost of certain raw material purchases, principally steel, with the objective of minimizing changes in cost due to market price fluctuations. The hedging strategy for achieving this objective is to purchase steel futures contracts on the New York Metals Exchange (NYMEX) and copper futures contracts on the open market of the London Metals Exchange (LME) or over the counter contracts based on the LME. With NYMEX, the Company is required to make cash deposits on unrealized losses on steel derivative contracts. The after-tax after-tax Net Investment Hedges The Company enters into certain foreign currency forward contracts to hedge the exposure to a portion of the Company’s net investments in certain non-U.S. non-U.S. after-tax non-U.S. The following tables present the impact of derivative contracts on the Company’s financial statements. Fair value of derivatives designated as hedging instruments under ASC 815: (dollars in millions) Balance Sheet Location March 31, 2020 December 31, 2019 Foreign currency contracts Other current assets $ 4.8 $ 8.4 Accrued liabilities (3.6 ) (1.5 ) Commodities contracts Accrued liabilities (0.2 ) — Total derivatives designated as hedging instruments $ 1.0 $ 6.9 The effect of cash flow hedges on the condensed consolidated statement of earnings: Three Months Ended March 31 (dollars in millions): Derivatives in ASC 815 cash flow hedging relationships Amount of gain (loss) Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings Amount of gain 2020 2019 2020 2019 Foreign currency contracts $ 1.4 $ 0.1 Cost of products sold $ 0.8 $ — Commodities contracts (0.2 ) (0.2 ) Cost of products sold — — $ 1.2 $ (0.1 ) $ 0.8 $ — |
Income Taxes
Income Taxes | 3 Months Ended |
Mar. 31, 2020 | |
Income Taxes | 14. Income Taxes The effective income tax rate for the three months ended March 31, 2020 was 23.6 percent compared to 20.0 percent for the three months ended March 31, 2019. The higher effective income tax rate for the three months ended March 31, 2020 compared to the effective income tax rate for the three months ended March 31, 2019 was primarily due to a change in geographic As of March 31, 2020, the Company had $9.7 million of unrecognized tax benefits of which $0.8 million would affect its effective income tax rate if recognized. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s U.S. federal income tax returns for 2016-2020 are subject to audit. The Company is subject to state and local income tax audits for tax years 2002-2020. The Company is subject to non-U.S. |
Changes in Accumulated Other Co
Changes in Accumulated Other Comprehensive Loss by Component | 3 Months Ended |
Mar. 31, 2020 | |
Changes in Accumulated Other Comprehensive Loss by Component | 15. Changes in Accumulated Other Comprehensive Loss by Component Changes to accumulated other comprehensive loss by component are as follows: (dollars in millions) Three Months Ended March 31, 2020 2019 Cumulative foreign currency translation Balance at beginning of period $ (66.2 ) $ (64.9 ) Other comprehensive ( loss (18.0 ) 15.9 Balance at end of period (84.2 ) (49.0 ) Unrealized net gain (loss) on cash flow derivatives Balance at beginning of period 0.2 (0.7 ) Other comprehensive loss before reclassifications 0.9 (0.1 ) Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ $ (0.6 ) — Balance at end of period 0.5 (0.8 ) Pension liability Balance at beginning of period (282.3 ) (285.2 ) Amounts reclassified from accumulated other comprehensive loss: (1) 3.6 2.9 Balance at end of period (278.7 ) (282.3 ) Accumulated other comprehensive loss, end of period $ (362.4 ) $ (332.1 ) (1) Amortization of pension items: Actuarial losses $ 4.9 (2) $ 4.0 (2) Prior year service cost (0.1 ) (2) (0.1 ) (2) 4.8 3.9 Income tax benefit (1.2 ) (1.0 ) Reclassification net of income tax benefit $ $ (2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 - Pensions for additional details 20 |
Commitments and Contingencies
Commitments and Contingencies | 3 Months Ended |
Mar. 31, 2020 | |
Commitments and Contingencies | 16. Commitments and Contingencies The Company maintains a commercial relationship with a supply-chain service provider (the Provider) in connection with the Company’s business in China. In this capacity, the Provider offers order-entry, warehousing and logistics support. The Provider also offers asset-backed financing to certain of the Company’s distributors in China to facilitate their working capital needs. To facilitate its financing support business, the Provider has collateralized lending facilities in place with multiple Chinese banks under which the Company has agreed to repurchase inventory if both requested by the banks and certain defined conditions are met, primarily related to the aging of the distributors’ notes. The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory repurchase under these arrangements. Potential losses under the repurchase arrangements represent the difference between the repurchase price and net proceeds from the resale of product plus costs incurred in the process, less related distributor rebates. Before considering any reduction of distributor rebate accruals of $9.1 million |
Basis of Presentation (Policies
Basis of Presentation (Policies) | 3 Months Ended |
Mar. 31, 2020 | |
Recent Accounting Pronouncements | Recent Accounting Pronouncements In December 2019, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 740, Income Taxes 2019-12, 2019-12 In January 2017, the FASB amended ASC 350, Intangibles – Goodwill 2017-04, 2017-04 In June 2016, the FASB issued ASC 326, Financial Instruments – Credit Losses 2016-13) 2016-13 |
Revenue Recognition (Tables)
Revenue Recognition (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Revenue Recognition [Abstract] | |
Segment Sales Disaggregated by Major Product Line | The following table disaggregates the Company’s net sales by segment. As described above, the Company’s North America segment sales are further disaggregated by major product line. In addition, the Company’s Rest of World segment sales are disaggregated by China and all other Rest of World. (dollars in millions) Three Months Ended March 31, 2020 2019 North America Water heaters and related parts $ 447.8 $ 455.7 Boilers and related parts 41.5 42.6 Water treatment products (1) 43.6 23.5 Total North America 532.9 521.8 Rest of World China $ 91.0 $ 213.0 All other Rest of World 19.2 19.1 Total Rest of World 110.2 232.1 Inter-segment sales (6.2 ) (5.7 ) Total Net Sales $ 636.9 $ 748.2 (1) |
Acquisitions (Tables)
Acquisitions (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Summary of Preliminary Allocation of Fair Value of Assets Acquired and Liabilities Assumed at Date of Acquisition | April 8, 2019 (dollars in millions) Current assets, net of cash acquired $ 9.7 Property, plant and equipment 8.6 Intangible assets 60.4 Goodwill 31.0 Total assets acquired 109.7 Current liabilities (2.7 ) Net assets acquired $ 107.0 |
Leases (Tables)
Leases (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Leases [Abstract] | |
Schedule of Leases Supplemental Balance Sheet | Supplemental balance sheet information related to leases was as follows: (dollars in millions) March 31, 2020 December 31, 2019 Liabilities Short term: Accrued liabilities $ 11.5 $ 12.0 Long term: Operating lease liabilities 37.3 38.7 Total operating lease liabilities $ 48.8 $ 50.7 Less: Rent incentives and deferrals (3.9 ) (3.8 ) Assets Operating lease assets $ 44.9 $ 46.9 Lease Term and Discount Rate March 31, 2020 Weighted-average remaining lease term 10 years Weighted-average discount rate 3.95 % |
Schedule of Components of Lease Expense | The components of lease expense were as follows: (dollars in millions) Three months ended March 31, Lease Expense Classification 2020 (1) 2019 (2) Operating lease expense Cost of products sold $ 0.7 $ 0.7 Selling, general and administrative expenses 4.0 4.9 (1) 2020 includes short-term and variable lease expenses of $0.4 million and $0.4 million, respectively. (2) 2019 includes short-term and variable lease expenses of $0.4 million and $0.8 million, respectively. |
Schedule of Maturities of Lease Liabilities | Maturities of lease liabilities were as follows: (dollars in millions) March 31, 2020 2020 $ 10.2 2021 10.7 2022 9.2 2023 4.9 2024 3.8 After 2024 22.7 Total lease payments 61.5 Less: imputed interest (12.7 ) Present value of operating lease liabilities $ 48.8 |
Inventories (Tables)
Inventories (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Inventories | The following table presents the components of the Company’s inventory balances: (dollars in millions) March 31, 2020 December 31, 2019 Finished products $ 142.8 $ 136.8 Work in process 21.6 21.7 Raw materials 171.7 168.3 Inventories, at FIFO cost 336.1 326.8 LIFO reserve (23.8 ) (23.8 ) Net inventory $ 312.3 $ 303.0 |
Product Warranties (Tables)
Product Warranties (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Product Warranty Liability Activity | The following table presents the Company’s warranty liability activity. (dollars in millions) Three Months Ended March 31, 2020 2019 Balance at January 1 $ 134.3 $ 139.4 Expense 13.5 9.4 Claims settled (12.5 ) (12.6 ) Balance at March 31 $ 135.3 $ 136.2 |
Earnings per Share of Common _2
Earnings per Share of Common Stock (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Computation of Basic and Diluted Weighted Average Shares Used in EPS Calculations | The following table sets forth the computation of basic and diluted weighted-average shares used in the earnings per share calculations: Three Months Ended March 31, 2020 2019 Denominator for basic earnings per share - weighted average shares 161,871,788 167,803,794 Effect of dilutive stock options and share units 1,025,817 1,292,348 Denominator for diluted earnings per share 162,897,605 169,096,142 |
Stock Based Compensation (Table
Stock Based Compensation (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Changes in Option Shares | Changes in options, all of which relate to the Company’s Common Stock, were as follows for the three months ended March 31, 2020: Weighted- Avg. Number Average Aggregate Outstanding at January 1, 2020 $ 37.64 2,728,350 Granted 42.39 784,300 Exercised 15.04 (25,147 ) Forfeited 48.95 (56,261 ) Outstanding at March 31, 2020 38.71 3,431,242 7 years $ 19.1 Exercisable at March 31, 2020 34.25 2,162,932 5 years $ 19.1 |
Schedule of Weighted Average Fair Value per Option at Date of Grant | The weighted-average fair value per option at the date of grant during the three months ended March 31, 2020 and 2019 using the Black-Scholes option-pricing model was $8.15 and $10.83, respectively. Assumptions were as follows: Three Months Ended March 31, 2020 2019 Expected life (years) 5.7 5.6 Risk-free interest rate 1.6 % 2.7 % Dividend yield 2.1 % 1.6 % Expected volatility 23.6 % 22.8 % |
Schedule of Share Unit Activity Under Plan | A summary of share unit activity under the plan is as follows for the three months ended March 31, 2020: Number of Units Weighted-Average Grant Date Value Issued and unvested at January 1, 2020 366,102 $ 49.92 Granted 169,407 42.39 Vested (100,735 ) 49.21 Forfeited (7,557 ) 53.96 Issued and unvested at March 31, 2020 427,217 46.94 |
Pensions (Tables)
Pensions (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Components of Net Pension Income | The following table presents the components of the Company’s net pension income. Three Months Ended March 31, 2020 2019 Service cost $ 0.4 $ 0.4 Interest cost 5.7 7.9 Expected return on plan assets (13.0 ) (14.3 ) Amortization of unrecognized loss 4.9 4.0 Amortization of prior service cost (0.1 ) (0.1 ) Defined benefit plan income $ (2.1 ) $ (2.1 ) |
Segment Results (Tables)
Segment Results (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Segment Earnings | The following table presents the Company’s segment results: (dollars in millions) Three Months Ended March 31, 2020 2019 Net sales North America $ 532.9 $ 521.8 Rest of World 110.2 232.1 Inter-segment (6.2 ) (5.7 ) $ 636.9 $ 748.2 Segment earnings ( losses North America $ 127.1 $ 116.0 Rest of World (42.2 ) 12.3 84.9 128.3 Corporate expense (15.0 ) (14.7 ) Interest expense (2.2 ) (2.0 ) Earnings before income taxes 67.7 111.6 Provision for income taxes 16.0 22.3 Net earnings $ 51.7 $ 89.3 |
Fair Value Measurements (Tables
Fair Value Measurements (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis | The following table presents assets measured at fair value on a recurring basis. (dollars in millions) Fair Value Measurement Using March 31, 2020 December 31, 2019 Quoted prices in active markets for identical assets (Level 1) $ 135.6 $ 177.4 Significant other observable inputs (Level 2) 1.0 6.9 |
Derivative Instruments (Tables)
Derivative Instruments (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Schedule of Summary by Currency of Foreign Currency Forward Contracts | The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts that are designated as cash flow hedges. (dollars in millions) March 31, 2020 December 31, 2019 Buy Sell Buy Sell British pound $ — $ 0.9 $ — $ 1.3 Canadian dollar — 59.8 — 49.7 Euro 27.1 — 36.0 — Mexican peso 23.4 — 18.6 — Total $ 50.5 $ 60.7 $ 54.6 $ 51.0 |
Schedule of Impact of Cash Flow Hedges on Company's Financial Statements | The following tables present the impact of derivative contracts on the Company’s financial statements. Fair value of derivatives designated as hedging instruments under ASC 815: (dollars in millions) Balance Sheet Location March 31, 2020 December 31, 2019 Foreign currency contracts Other current assets $ 4.8 $ 8.4 Accrued liabilities (3.6 ) (1.5 ) Commodities contracts Accrued liabilities (0.2 ) — Total derivatives designated as hedging instruments $ 1.0 $ 6.9 |
Schedule of Effect of Derivatives Instruments on Condensed Consolidated Statement of Earnings | The effect of cash flow hedges on the condensed consolidated statement of earnings: Three Months Ended March 31 (dollars in millions): Derivatives in ASC 815 cash flow hedging relationships Amount of gain (loss) Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings Amount of gain 2020 2019 2020 2019 Foreign currency contracts $ 1.4 $ 0.1 Cost of products sold $ 0.8 $ — Commodities contracts (0.2 ) (0.2 ) Cost of products sold — — $ 1.2 $ (0.1 ) $ 0.8 $ — |
Changes in Accumulated Other _2
Changes in Accumulated Other Comprehensive Loss by Component (Tables) | 3 Months Ended |
Mar. 31, 2020 | |
Changes to Accumulated Other Comprehensive Loss by Component | Changes to accumulated other comprehensive loss by component are as follows: (dollars in millions) Three Months Ended March 31, 2020 2019 Cumulative foreign currency translation Balance at beginning of period $ (66.2 ) $ (64.9 ) Other comprehensive ( loss (18.0 ) 15.9 Balance at end of period (84.2 ) (49.0 ) Unrealized net gain (loss) on cash flow derivatives Balance at beginning of period 0.2 (0.7 ) Other comprehensive loss before reclassifications 0.9 (0.1 ) Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ $ (0.6 ) — Balance at end of period 0.5 (0.8 ) Pension liability Balance at beginning of period (282.3 ) (285.2 ) Amounts reclassified from accumulated other comprehensive loss: (1) 3.6 2.9 Balance at end of period (278.7 ) (282.3 ) Accumulated other comprehensive loss, end of period $ (362.4 ) $ (332.1 ) (1) Amortization of pension items: Actuarial losses $ 4.9 (2) $ 4.0 (2) Prior year service cost (0.1 ) (2) (0.1 ) (2) 4.8 3.9 Income tax benefit (1.2 ) (1.0 ) Reclassification net of income tax benefit $ $ (2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 - Pensions for additional details |
Revenue Recognition - Additiona
Revenue Recognition - Additional Information (Detail) $ in Millions | 3 Months Ended | |
Mar. 31, 2020USD ($)DistributorSegment | Dec. 31, 2019USD ($) | |
Customer deposits liability | $ 65.2 | $ 49.6 |
Allowance for doubtful accounts | $ 7.5 | $ 6.7 |
Number of reporting segments | Segment | 2 | |
Water Heaters | North America | ||
Number of wholesale distributors | Distributor | 1,300 |
Segment Sales Disaggregated by
Segment Sales Disaggregated by Major Product Line (Detail) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Net sales | $ 636.9 | $ 748.2 | |
Inter-segment | |||
Net sales | (6.2) | (5.7) | |
Operating Segments [Member] | North America | |||
Net sales | 532.9 | 521.8 | |
Operating Segments [Member] | North America | Water Heaters And Related Parts [Member] | |||
Net sales | 447.8 | 455.7 | |
Operating Segments [Member] | North America | Boilers And Related Parts [Member] | |||
Net sales | 41.5 | 42.6 | |
Operating Segments [Member] | North America | Water Treatment Products [Member] | |||
Net sales | [1] | 43.6 | 23.5 |
Operating Segments [Member] | Rest of World [Member] | |||
Net sales | 110.2 | 232.1 | |
Operating Segments [Member] | Rest of World [Member] | China | |||
Net sales | 91 | 213 | |
Operating Segments [Member] | Rest of World [Member] | All Other Rest Of World [Member] | |||
Net sales | $ 19.2 | $ 19.1 | |
[1] | Includes the results of Water-Right, Inc. from April 8, 2019, the date of acquisition |
Acquisitions - Additional Infor
Acquisitions - Additional Information (Detail) - Water-Right, Inc - USD ($) $ in Millions | Apr. 08, 2019 | Mar. 31, 2020 |
Business Acquisition [Line Items] | ||
Percentage of ownership interest acquired | 100.00% | |
Aggregate cash purchase price, net of cash acquired | $ 107 | |
Acquired intangible assets | 60.4 | |
Effective Date Of Acquisition | Apr. 8, 2019 | |
Escrow Deposit [Member] | ||
Business Acquisition [Line Items] | ||
consideration to former owners | $ 4 | |
Trademarks [Member] | ||
Business Acquisition [Line Items] | ||
Acquired intangible assets, not subject to amortization | 19 | |
Noncompete agreements | ||
Business Acquisition [Line Items] | ||
Acquired intangible assets, subject to amortization | $ 1.2 | |
Acquired intangible assets, amortization period, in years | 7 years 6 months | |
Customer relationships | ||
Business Acquisition [Line Items] | ||
Acquired intangible assets, subject to amortization | $ 40.2 | |
Acquired intangible assets, amortization period, in years | 20 years |
Summary of Preliminary Allocati
Summary of Preliminary Allocation of Fair Value of Assets Acquired and Liabilities Assumed at Date of Acquisition (Detail) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 | Apr. 08, 2019 |
Business Acquisition [Line Items] | |||
Goodwill | $ 542.6 | $ 546 | |
Water-Right, Inc | |||
Business Acquisition [Line Items] | |||
Current assets, net of cash acquired | $ 9.7 | ||
Property, plant and equipment | 8.6 | ||
Intangible assets | 60.4 | ||
Goodwill | 31 | ||
Total assets acquired | 109.7 | ||
Current liabilities | (2.7) | ||
Net assets acquired | $ 107 |
Leases - Additional Information
Leases - Additional Information (Detail) | 3 Months Ended |
Mar. 31, 2020 | |
Operating lease termination option | options to terminate can be effective within one year |
Minimum [Member] | |
Operating lease term of extension | 1 year |
Maximum [Member] | |
Operating lease term of extension | 5 years |
Leases supplemental balance she
Leases supplemental balance sheet (Detail) - USD ($) $ in Millions | 3 Months Ended | 12 Months Ended |
Mar. 31, 2020 | Dec. 31, 2019 | |
Liabilities | ||
Short term: Accrued liabilities | $ 11.5 | $ 12 |
Long term: Operating lease liabilities | 37.3 | 38.7 |
Total Operating Lease Liabilities | 48.8 | 50.7 |
Less:Rent incentives and deferrals | (3.9) | (3.8) |
Assets | ||
Operating lease assets | $ 44.9 | $ 46.9 |
Lease Term and Discount Rate | ||
Weighted-average remaining lease term | 10 years | |
Weighted-average discount rate | 3.95% |
Components of lease expense (De
Components of lease expense (Detail) - USD ($) $ in Millions | 3 Months Ended | |||
Mar. 31, 2020 | Mar. 31, 2019 | |||
Short term lease expense | $ 0.4 | $ 0.4 | ||
Variable lease expenses | 0.4 | 0.8 | ||
Cost of products sold [Member] | ||||
Operating lease expense | 0.7 | [1] | 0.7 | [2] |
Selling, general and administrative expenses [Member] | ||||
Operating lease expense | $ 4 | [1] | $ 4.9 | [2] |
[1] | 2020 includes short-term and variable lease expenses of $0.4 million and $0.4 million, respectively. | |||
[2] | 2019 includes short-term and variable lease expenses of $0.4 million and $0.8 million, respectively. |
Maturities of lease liabilities
Maturities of lease liabilities (Detail) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Leases [Abstract] | ||
2020 | $ 10.2 | |
2021 | 10.7 | |
2022 | 9.2 | |
2023 | 4.9 | |
2024 | 3.8 | |
After 2024 | 22.7 | |
Total lease payments | 61.5 | |
Less: imputed interest | (12.7) | |
Present value of operating lease liabilities | $ 48.8 | $ 50.7 |
Schedule of Inventories (Detail
Schedule of Inventories (Detail) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Inventories | ||
Finished products | $ 142.8 | $ 136.8 |
Work in process | 21.6 | 21.7 |
Raw materials | 171.7 | 168.3 |
Inventories, at FIFO cost | 336.1 | 326.8 |
LIFO reserve | (23.8) | (23.8) |
Net inventory | $ 312.3 | $ 303 |
Company's Warranty Liability Ac
Company's Warranty Liability Activity (Detail) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Product Warranties Disclosures [Abstract] | ||
Balance at beginning of year | $ 134.3 | $ 139.4 |
Expense | 13.5 | 9.4 |
Claims settled | (12.5) | (12.6) |
Balance at end of year | $ 135.3 | $ 136.2 |
Long-Term Debt - Additional Inf
Long-Term Debt - Additional Information (Detail) $ in Millions | 3 Months Ended |
Mar. 31, 2020USD ($)Banks | |
Debt Disclosure [Abstract] | |
Multi-currency revolving credit agreement | $ 500 |
Number of banks involved in multi-year multi-currency revolving credit agreement | Banks | 9 |
Revolving credit facility, expiration date | Dec. 15, 2021 |
Multi-currency revolving credit agreement, maximum amount | $ 700 |
Schedule of Computation of Basi
Schedule of Computation of Basic and Diluted Weighted-Average Shares Used in Earnings per Share Calculations (Detail) - shares | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Earnings Per Share [Abstract] | ||
Denominator for basic earnings per share - weighted average shares | 161,871,788 | 167,803,794 |
Effect of dilutive stock options and share units | 1,025,817 | 1,292,348 |
Denominator for diluted earnings per share | 162,897,605 | 169,096,142 |
Stock Based Compensation - Addi
Stock Based Compensation - Additional Information (Detail) - USD ($) $ / shares in Units, $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Total stock based compensation cost recognized | $ 9 | $ 8.7 |
Stock option compensation expense recognized | $ 4.5 | $ 4.3 |
Weighted-average fair value per option at the date of grant | $ 8.15 | $ 10.83 |
Employee Stock Option | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Award vesting period | 3 years | 3 years |
Award expiration period | 10 years | 10 years |
Restricted Stock And Share Units | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Award vesting period | 3 years | 3 years |
Number of Units - Granted | 169,407 | 136,647 |
Value of share units at the date of issuance | $ 7.2 | $ 6.8 |
Share based compensation expense attributable to share units | $ 4.5 | $ 4.4 |
A.O. Smith Combined Compensation Plan | ||
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of shares available for granting of options, restricted stock or share units | 951,461 |
Changes in Option Awards All of
Changes in Option Awards All of Which Related to Common Stock (Detail) $ / shares in Units, $ in Millions | 3 Months Ended |
Mar. 31, 2020USD ($)$ / sharesshares | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
Weighted-Avg. Per Share Exercise Price, beginning period | $ / shares | $ 37.64 |
Weighted-Avg. Per Share Exercise Price - Granted | $ / shares | 42.39 |
Weighted-Avg. Per Share Exercise Price - Exercised | $ / shares | 15.04 |
Weighted-Avg. Per Share Exercise Price - Forfeited | $ / shares | 48.95 |
Weighted-Avg. Per Share Exercise Price, ending period | $ / shares | 38.71 |
Weighted-Average Per Share Exercise Price, Exercisable | $ / shares | $ 34.25 |
Number of Options Outstanding, Beginning Balance | shares | 2,728,350 |
Number of Options, Granted | shares | 784,300 |
Number of Options, Exercised | shares | (25,147) |
Number of Options, Forfeited | shares | (56,261) |
Number of Options Outstanding, Ending Balance | shares | 3,431,242 |
Number of Options, Exercisable at End of Period | shares | 2,162,932 |
Average remaining contractual life for outstanding options, in years | 7 years |
Average Remaining Contractual Life, Exercisable at End of Period, Years | 5 years |
Aggregate Intrinsic Value, Outstanding at End of Period | $ | $ 19.1 |
Aggregate Intrinsic Value, Exercisable at End of Period | $ | $ 19.1 |
Schedule of Weighted-Average Fa
Schedule of Weighted-Average Fair Value per Option at Date of Grant (Detail) | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Stock Based Compensation [Abstract] | ||
Expected life (years) | 5 years 8 months 12 days | 5 years 7 months 6 days |
Risk-free interest rate | 1.60% | 2.70% |
Dividend yield | 2.10% | 1.60% |
Expected volatility | 23.60% | 22.80% |
Summary of Share Unit Activity
Summary of Share Unit Activity Under Plan (Detail) - Restricted Stock And Share Units - $ / shares | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
Number of Units Issued and unvested, Beginning of Period | 366,102 | |
Number of Units - Granted | 169,407 | 136,647 |
Number of Units - Vested | (100,735) | |
Number of Units - Forfeited/cancelled | (7,557) | |
Number of Units Issued and unvested, End of Period | 427,217 | |
Weighted-Average Grant Date Value, Beginning of Period | $ 49.92 | |
Weighted-Average Grant Date Value - Granted | 42.39 | |
Weighted-Average Grant Date Value - Vested | 49.21 | |
Weighted-Average Grant Date Value - Forfeited/cancelled | 53.96 | |
Weighted-Average Grant Date Value, End of Period | $ 46.94 |
Components of Company's Net Pen
Components of Company's Net Pension Income (Detail) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Defined Benefit Plan [Abstract] | ||
Service cost | $ 0.4 | $ 0.4 |
Interest cost | 5.7 | 7.9 |
Expected return on plan assets | (13) | (14.3) |
Amortization of unrecognized loss | 4.9 | 4 |
Amortization of prior service cost | (0.1) | (0.1) |
Defined benefit plan income | $ (2.1) | $ (2.1) |
Schedule of Segment Earnings (D
Schedule of Segment Earnings (Detail) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Segment Reporting Information [Line Items] | ||
Net sales | $ 636.9 | $ 748.2 |
Segment earnings (losses) | 84.9 | 128.3 |
Other income (expense) | 4.2 | 5.5 |
Interest expense | (2.2) | (2) |
Earnings before provision for income taxes | 67.7 | 111.6 |
Provision for income taxes | 16 | 22.3 |
Net Earnings | 51.7 | 89.3 |
Inter-segment | ||
Segment Reporting Information [Line Items] | ||
Net sales | (6.2) | (5.7) |
Corporate | ||
Segment Reporting Information [Line Items] | ||
Other income (expense) | (15) | (14.7) |
North America | Operating Segments | ||
Segment Reporting Information [Line Items] | ||
Net sales | 532.9 | 521.8 |
Segment earnings (losses) | 127.1 | 116 |
Rest of World | Operating Segments | ||
Segment Reporting Information [Line Items] | ||
Net sales | 110.2 | 232.1 |
Segment earnings (losses) | $ (42.2) | $ 12.3 |
Schedule of Segment Earnings -
Schedule of Segment Earnings - Additional Information (Detail) | 3 Months Ended |
Mar. 31, 2020Segment | |
Segment Reporting Information [Line Items] | |
Number of reporting segments | 2 |
Assets and Liabilities Measured
Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Quoted Prices In Active Markets For Identical Assets (Level 1) | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Assets measured at fair value on recurring basis | $ 135.6 | $ 177.4 |
Significant other observable inputs (Level 2) [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Liabilities measured at fair value on recurring basis | $ 1 | $ 6.9 |
Schedule of Summary by Currency
Schedule of Summary by Currency of Foreign Currency Forward Contracts (Detail) - Foreign currency forward contracts - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Buy | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Contractual amounts of foreign currency forward contracts | $ 50.5 | $ 54.6 |
Buy | Euro | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Contractual amounts of foreign currency forward contracts | 27.1 | 36 |
Buy | Mexican peso | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Contractual amounts of foreign currency forward contracts | 23.4 | 18.6 |
Sell | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Contractual amounts of foreign currency forward contracts | 60.7 | 51 |
Sell | British pound | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Contractual amounts of foreign currency forward contracts | 0.9 | 1.3 |
Sell | Canadian dollar | ||
Derivative Instruments and Hedging Activities Disclosures [Line Items] | ||
Contractual amounts of foreign currency forward contracts | $ 59.8 | $ 49.7 |
Derivative Instruments - Additi
Derivative Instruments - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Trading Activity, Gains and Losses, Net [Line Items] | ||
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax | $ (18) | $ 15.9 |
Net Investment Hedging [Member] | Non-US [Member] | ||
Trading Activity, Gains and Losses, Net [Line Items] | ||
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Adjustment, Net of Tax | 0.8 | $ 1.3 |
Derivative, Notional Amount | $ 50 | |
Commodity Futures Contracts | ||
Trading Activity, Gains and Losses, Net [Line Items] | ||
Reclassification period for effective portion of contract, in years | 1 year |
Impact of Derivative Contracts
Impact of Derivative Contracts on Company's Financial Statements (Detail) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Derivatives, Fair Value [Line Items] | ||
Fair value of derivative instruments, total | $ 1 | $ 6.9 |
Designated as Hedging Instrument | Foreign Currency Contracts | Other Current Assets | ||
Derivatives, Fair Value [Line Items] | ||
Fair value of derivative instruments, assets | 4.8 | 8.4 |
Designated as Hedging Instrument | Foreign Currency Contracts | Accrued Liabilities | ||
Derivatives, Fair Value [Line Items] | ||
Fair value of derivative instruments, liabilities | (3.6) | $ (1.5) |
Designated as Hedging Instrument | Commodities Contracts | Accrued Liabilities | ||
Derivatives, Fair Value [Line Items] | ||
Fair value of derivative instruments, liabilities | $ (0.2) |
Schedule of Effect of Derivativ
Schedule of Effect of Derivatives Instruments on Consolidated Statement of Earnings (Detail) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Derivative [Line Items] | ||
Amount of gain (loss) recognized in other comprehensive loss on derivative | $ 1.2 | $ (0.1) |
Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings | 0.8 | |
Foreign Currency Contracts | ||
Derivative [Line Items] | ||
Amount of gain (loss) recognized in other comprehensive loss on derivative | 1.4 | 0.1 |
Foreign Currency Contracts | Cost Of Products Sold | ||
Derivative [Line Items] | ||
Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings | 0.8 | |
Commodities Contracts | ||
Derivative [Line Items] | ||
Amount of gain (loss) recognized in other comprehensive loss on derivative | $ (0.2) | $ (0.2) |
Income Taxes - Additional Infor
Income Taxes - Additional Information (Detail) - USD ($) $ in Millions | 3 Months Ended | |
Mar. 31, 2020 | Mar. 31, 2019 | |
Income Tax Contingency [Line Items] | ||
Effective tax rates | 23.60% | 20.00% |
Unrecognized tax benefits | $ 9.7 | |
Unrecognized tax benefits that would affect the effective tax rate, if recognized | $ 0.8 | |
State and local | Earliest Tax Year | ||
Income Tax Contingency [Line Items] | ||
Income tax examinations, years under examination | 2002 | |
State and local | Latest Tax Year | ||
Income Tax Contingency [Line Items] | ||
Income tax examinations, years under examination | 2020 | |
Non-U.S. | Earliest Tax Year | ||
Income Tax Contingency [Line Items] | ||
Income tax examinations, years under examination | 2014 | |
Non-U.S. | Latest Tax Year | ||
Income Tax Contingency [Line Items] | ||
Income tax examinations, years under examination | 2020 | |
U.S. federal | Earliest Tax Year | ||
Income Tax Contingency [Line Items] | ||
Income tax examinations, years under examination | 2016 | |
U.S. federal | Latest Tax Year | ||
Income Tax Contingency [Line Items] | ||
Income tax examinations, years under examination | 2020 |
Changes in Accumulated Other _3
Changes in Accumulated Other Comprehensive Loss by Component (Detail) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance | $ 1,666.8 | ||
Balance | 1,616.3 | $ 1,749.2 | |
Cumulative foreign currency translation | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance | (66.2) | (64.9) | |
Other comprehensive (loss) income before reclassifications | (18) | 15.9 | |
Balance | (84.2) | (49) | |
Unrealized net gain on cash flow derivatives | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance | 0.2 | (0.7) | |
Other comprehensive (loss) income before reclassifications | 0.9 | (0.1) | |
Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $0.2 and $- in 2020 and 2019, respectively) | (0.6) | ||
Balance | 0.5 | (0.8) | |
Pension liability | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance | (282.3) | (285.2) | |
Amounts reclassified from accumulated other comprehensive loss | [1] | 3.6 | 2.9 |
Balance | (278.7) | (282.3) | |
Accumulated Other Comprehensive Loss | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance | $ (362.4) | $ (332.1) | |
[1] | Amortization of pension items: |
Changes in Accumulated Other _4
Changes in Accumulated Other Comprehensive Loss by Component (Parenthetical) (Detail) - USD ($) $ in Millions | 3 Months Ended | ||
Mar. 31, 2020 | Mar. 31, 2019 | ||
Unrealized net gain on cash flow derivatives | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Realized gains on derivatives reclassified to cost of products sold, tax provision | $ 0.2 | $ 0 | |
Pension liability | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Reclassification, before income tax benefit | 4.8 | 3.9 | |
Income tax benefit | (1.2) | (1) | |
Reclassification net of income tax benefit | [1] | 3.6 | 2.9 |
Actuarial losses | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Reclassification, before income tax benefit | [2] | 4.9 | 4 |
Prior year service cost | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Reclassification, before income tax benefit | [2] | $ (0.1) | $ (0.1) |
[1] | Amortization of pension items: | ||
[2] | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 10 - Pensions for additional details |
Commitment and Contingencies -
Commitment and Contingencies - Additional Information (Detail) - USD ($) $ in Millions | Mar. 31, 2020 | Dec. 31, 2019 |
Commitments and Contingencies [Line Items] | ||
Distributor Rebate Accruals | $ 9.1 | $ 14.1 |
Repurchase Of Inventory [Member] | ||
Commitments and Contingencies [Line Items] | ||
Default In outstanding loans | $ 17 | $ 23.1 |