☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2019.
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Milwaukee, WisconsinDelaware 39-0619790
and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation (§and post such files). Non-accelerated filer ☐ (Do not check if a smaller reporting company) 2017 — 26,113,8272019 - 26,052,953 shares2017 — 145,815,7002019 - 137,059,015 shares
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Part I. | ||||||
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Item 2. | 24- 30 | |||||
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Item 3. | 31 | |||||
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Item 4. | 31 | |||||
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Part II. | ||||||
Item 1. | 32 | |||||
Item 2. | 32 | |||||
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34 |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | $ | 749.9 | $ | 683.9 | $ | 2,228.1 | $ | 1,987.8 | ||||||||
Cost of products sold | 443.2 | 400.6 | 1,313.2 | 1,158.1 | ||||||||||||
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Gross profit | 306.7 | 283.3 | 914.9 | 829.7 | ||||||||||||
Selling, general and administrative expenses | 175.8 | 164.7 | 535.2 | 484.1 | ||||||||||||
Interest expense | 2.5 | 2.1 | 7.2 | 5.7 | ||||||||||||
Other income | (3.2 | ) | (1.9 | ) | (7.5 | ) | (6.2 | ) | ||||||||
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Earnings before provision for income taxes | 131.6 | 118.4 | 380.0 | 346.1 | ||||||||||||
Provision for income taxes | 37.9 | 35.2 | 106.2 | 102.3 | ||||||||||||
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Net Earnings | $ | 93.7 | $ | 83.2 | $ | 273.8 | $ | 243.8 | ||||||||
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Net Earnings Per Share of Common Stock | $ | 0.54 | $ | 0.48 | $ | 1.58 | $ | 1.39 | ||||||||
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Diluted Net Earnings Per Share of Common Stock | $ | 0.54 | $ | 0.47 | $ | 1.57 | $ | 1.38 | ||||||||
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Dividends Per Share of Common Stock | $ | 0.14 | $ | 0.12 | $ | 0.42 | $ | 0.36 | ||||||||
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A.O.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | $ | 728.2 | $ | 754.1 | $ | 2,241.8 | $ | 2,375.4 | ||||||||
Cost of products sold | 444.0 | 448.1 | 1,356.1 | 1,406.9 | ||||||||||||
Gross profit | 284.2 | 306.0 | 885.7 | 968.5 | ||||||||||||
Selling, general and administrative expenses | 172.3 | 177.6 | 535.7 | 567.7 | ||||||||||||
Restructuring and impairment expenses | — | — | — | 6.7 | ||||||||||||
Interest expense | 3.1 | 2.0 | 8.5 | 6.6 | ||||||||||||
Other income | (4.0 | ) | (5.1 | ) | (15.1 | ) | (15.5 | ) | ||||||||
Earnings before provision for income taxes | 112.8 | 131.5 | 356.6 | 403.0 | ||||||||||||
Provision for income taxes | 25.5 | 26.9 | 77.9 | 85.1 | ||||||||||||
Net Earnings | $ | 87.3 | $ | 104.6 | $ | 278.7 | $ | 317.9 | ||||||||
Net Earnings Per Share of Common Stock | $ | 0.53 | $ | 0.61 | $ | 1.68 | $ | 1.86 | ||||||||
Diluted Net Earnings Per Share of Common Stock | $ | 0.53 | $ | 0.61 | $ | 1.66 | $ | 1.84 | ||||||||
Dividends Per Share of Common Stock | $ | 0.22 | $ | 0.18 | $ | 0.66 | $ | 0.54 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net earnings | $ | 93.7 | $ | 83.2 | $ | 273.8 | $ | 243.8 | ||||||||
Other comprehensive earnings (loss) | ||||||||||||||||
Foreign currency translation adjustments | 17.3 | (3.5 | ) | 38.2 | (12.0 | ) | ||||||||||
Unrealized net losses on cash flow derivative instruments, less related income tax benefit of $1.0 and $0.7 in 2017, $0.2 and $1.1 in 2016 | (1.6 | ) | (0.2 | ) | (1.0 | ) | (1.7 | ) | ||||||||
Adjustment to pension liability, less related income tax provision of $(1.7) and $(2.3) in 2017 and $(1.6) and $(1.5) in 2016 | 2.6 | 2.4 | 3.6 | 2.3 | ||||||||||||
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Comprehensive Earnings | $ | 112.0 | $ | 81.9 | $ | 314.6 | $ | 232.4 | ||||||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net earnings | $ | 87.3 | $ | 104.6 | $ | 278.7 | $ | 317.9 | ||||||||
Other comprehensive (loss) earnings | ||||||||||||||||
Foreign currency translation adjustments | (21.9 | ) | (20.7 | ) | (16.1 | ) | (33.3 | ) | ||||||||
Unrealized net (losses) gains on cash flow derivative instruments, less related income tax benefit (provision) of $0.1 and ($0.1) in 2019, ($0.6) and ($0.9) in 2018 | (0.3 | ) | 1.3 | 0.3 | 2.1 | |||||||||||
Adjustment to pension liability, less related income tax benefit (provision) of $0.3 and ($1.6) in 2019 and ($1.7) and ($3.9) in 2018 | (1.0 | ) | 5.6 | 5.0 | 12.5 | |||||||||||
Comprehensive Earnings | $ | 64.1 | $ | 90.8 | $ | 267.9 | $ | 299.2 | ||||||||
(unaudited) September 30, 2019 | December 31, 2018 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 219.4 | $ | 259.7 | ||||
Marketable securities | 294.4 | 385.3 | ||||||
Receivables | 614.1 | 647.3 | ||||||
Inventories | 310.0 | 304.7 | ||||||
Other current assets | 66.5 | 41.5 | ||||||
Total Current Assets | 1,504.4 | 1,638.5 | ||||||
Property, plant and equipment | 1,137.5 | 1,096.8 | ||||||
Less accumulated depreciation | (593.9 | ) | (556.8 | ) | ||||
Net property, plant and equipment | 543.6 | 540.0 | ||||||
Goodwill | 547.4 | 513.0 | ||||||
Other intangibles | 339.5 | 293.1 | ||||||
Operating lease assets | 48.3 | — | ||||||
Other assets | 84.7 | 86.9 | ||||||
Total Assets | $ | 3,067.9 | $ | 3,071.5 | ||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Trade payables | $ | 483.1 | $ | 543.8 | ||||
Accrued payroll and benefits | 61.8 | 79.4 | ||||||
Accrued liabilities | 135.9 | 120.4 | ||||||
Product warranties | 42.8 | 41.7 | ||||||
Debt due within one year | 6.8 | — | ||||||
Total Current Liabilities | 730.4 | 785.3 | ||||||
Long-term debt | 312.4 | 221.4 | ||||||
Pension liabilities | 36.5 | 49.4 | ||||||
Long-term operating lease liabilities | 39.6 | — | ||||||
Other liabilities | 292.8 | 298.4 | ||||||
Total Liabilities | 1,411.7 | 1,354.5 | ||||||
Stockholders’ Equity | ||||||||
Class A Common Stock, $5 par value: authorized 27,000,000 shares; issued 26,183,365 and 26,190,163 | 130.9 | 131.0 | ||||||
Common Stock, $1 par value: authorized 240,000,000 shares; issued 164,524,227 and 164,517,431 | 164.5 | 164.5 | ||||||
Capital in excess of par value | 507.3 | 496.7 | ||||||
Retained earnings | 2,271.5 | 2,102.8 | ||||||
Accumulated other comprehensive loss | (361.6 | ) | (350.8 | ) | ||||
Treasury stock at cost | (1,056.4 | ) | (827.2 | ) | ||||
Total Stockholders’ Equity | 1,656.2 | 1,717.0 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 3,067.9 | $ | 3,071.5 | ||||
(unaudited) September 30, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 321.9 | $ | 330.4 | ||||
Marketable securities | 446.0 | 424.2 | ||||||
Receivables | 587.1 | 518.7 | ||||||
Inventories | 292.1 | 251.1 | ||||||
Other current assets | 51.0 | 37.6 | ||||||
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Total Current Assets | 1,698.1 | 1,562.0 | ||||||
Property, plant and equipment | 1,017.4 | 932.5 | ||||||
Less accumulated depreciation | (515.7 | ) | (470.6 | ) | ||||
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Net property, plant and equipment | 501.7 | 461.9 | ||||||
Goodwill | 516.3 | 491.5 | ||||||
Other intangibles | 312.3 | 308.3 | ||||||
Other assets | 76.2 | 67.3 | ||||||
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Total Assets | $ | 3,104.6 | $ | 2,891.0 | ||||
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Liabilities | ||||||||
Current Liabilities | ||||||||
Trade payables | $ | 500.1 | $ | 528.6 | ||||
Accrued payroll and benefits | 80.2 | 84.3 | ||||||
Accrued liabilities | 99.7 | 101.0 | ||||||
Product warranties | 44.2 | 44.5 | ||||||
Debt due within one year | 7.5 | 7.2 | ||||||
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Total Current Liabilities | 731.7 | 765.6 | ||||||
Long-term debt | 442.2 | 316.4 | ||||||
Pension liabilities | 66.0 | 109.0 | ||||||
Other liabilities | 198.8 | 184.7 | ||||||
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Total Liabilities | 1,438.7 | 1,375.7 | ||||||
Stockholders’ Equity | ||||||||
Class A Common Stock, $5 par value: authorized 27,000,000 shares; issued 26,246,059 and 26,313,351 | 131.2 | 131.6 | ||||||
Common Stock, $1 par value: authorized 240,000,000 shares; issued 164,461,533 and 164,394,241 | 164.5 | 164.4 | ||||||
Capital in excess of par value | 485.7 | 477.6 | ||||||
Retained earnings | 1,794.0 | 1,593.0 | ||||||
Accumulated other comprehensive loss | (322.4 | ) | (363.2 | ) | ||||
Treasury stock at cost | (587.1 | ) | (488.1 | ) | ||||
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Total Stockholders’ Equity | 1,665.9 | 1,515.3 | ||||||
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Total Liabilities and Stockholders’ Equity | $ | 3,104.6 | $ | 2,891.0 | ||||
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Nine Months Ended September 30, | ||||||||
2019 | 2018 | |||||||
Operating Activities | ||||||||
Net earnings | $ | 278.7 | $ | 317.9 | ||||
Adjustments to reconcile net earnings to cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 58.1 | 53.2 | ||||||
Stock based compensation expense | 12.3 | 9.7 | ||||||
Net changes in operating assets and liabilities: | ||||||||
Current assets and liabilities | (43.8 | ) | (70.9 | ) | ||||
Noncurrent assets and liabilities | (25.3 | ) | (20.7 | ) | ||||
Cash Provided by Operating Activities | 280.0 | 289.2 | ||||||
Investing Activities | ||||||||
Capital expenditures | (50.3 | ) | (58.5 | ) | ||||
Acquisition | (107.0 | ) | — | |||||
Investments in marketable securities | (237.3 | ) | (345.4 | ) | ||||
Net proceeds from sale of marketable securities | 318.8 | 418.3 | ||||||
Cash (Used in) Provided by Investing Activities | (75.8 | ) | 14.4 | |||||
Financing Activities | ||||||||
Long-term debt incurred (repaid) | 97.9 | (217.1 | ) | |||||
Common stock repurchases | (230.0 | ) | (106.0 | ) | ||||
Payment of contingent consideration | (1.0 | ) | (2.3 | ) | ||||
Net (payments) proceeds from stock option activity | (1.4 | ) | 0.7 | |||||
Dividends paid | (110.0 | ) | (92.5 | ) | ||||
Cash Used In Financing Activities | (244.5 | ) | (417.2 | ) | ||||
Net decrease in cash and cash equivalents | (40.3 | ) | (113.6 | ) | ||||
Cash and cash equivalents - beginning of period | 259.7 | 346.6 | ||||||
Cash and Cash Equivalents - End of Period | $ | 219.4 | $ | 233.0 | ||||
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Operating Activities | ||||||||
Net earnings | $ | 273.8 | $ | 243.8 | ||||
Adjustments to reconcile net earnings to cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 51.9 | 48.7 | ||||||
Stock based compensation expense | 8.5 | 8.1 | ||||||
Net changes in operating assets and liabilities: | ||||||||
Current assets and liabilities | (154.5 | ) | (23.5 | ) | ||||
Noncurrent assets and liabilities | (29.5 | ) | (13.5 | ) | ||||
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Cash Provided by Operating Activities | 150.2 | 263.6 | ||||||
Investing Activities | ||||||||
Capital expenditures | (66.4 | ) | (58.7 | ) | ||||
Acquisitions | (43.1 | ) | (90.5 | ) | ||||
Investments in marketable securities | (407.3 | ) | (415.5 | ) | ||||
Net proceeds from sale of marketable securities | 405.3 | 318.2 | ||||||
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Cash Used in Investing Activities | (111.5 | ) | (246.5 | ) | ||||
Financing Activities | ||||||||
Long-term debt incurred | 125.8 | 86.5 | ||||||
Common stock repurchases | (103.3 | ) | (100.2 | ) | ||||
Net proceeds from stock option activity | 3.1 | 5.5 | ||||||
Dividends paid | (72.8 | ) | (63.2 | ) | ||||
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Cash Used In Financing Activities | (47.2 | ) | (71.4 | ) | ||||
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Net decrease in cash and cash equivalents | (8.5 | ) | (54.3 | ) | ||||
Cash and cash equivalents—beginning of period | 330.4 | 323.6 | ||||||
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Cash and Cash Equivalents—End of Period | $ | 321.9 | $ | 269.3 | ||||
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Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Class A Common Stock | ||||||||||||||||
Balance at the beginning of period | $ | 130.9 | $ | 131.0 | $ | 131.0 | $ | 131.2 | ||||||||
Conversion of Class A Common Stock | — | — | (0.1 | ) | (0.2 | ) | ||||||||||
Balance at end of period | $ | 130.9 | $ | 131.0 | $ | 130.9 | $ | 131.0 | ||||||||
Common Stock | ||||||||||||||||
Balance at the beginning of period | $ | 164.5 | $ | 164.5 | $ | 164.5 | $ | 164.5 | ||||||||
Conversion of Class A Common Stock | — | — | — | — | ||||||||||||
Balance at end of period | $ | 164.5 | $ | 164.5 | $ | 164.5 | $ | 164.5 | ||||||||
Capital in Excess of Par Value | ||||||||||||||||
Balance at the beginning of period | $ | 506.7 | $ | 494.2 | $ | 496.7 | $ | 486.5 | ||||||||
Conversion of Class A Common Stock | — | — | 0.1 | 0.2 | ||||||||||||
Issuance of share units | — | (0.2 | ) | (6.2 | ) | (6.0 | ) | |||||||||
Vesting of share units | — | — | (2.0 | ) | (2.3 | ) | ||||||||||
Stock based compensation expense | 1.1 | 1.3 | 11.6 | 9.0 | ||||||||||||
Exercises of stock options | (0.5 | ) | 0.3 | 0.1 | 1.5 | |||||||||||
Stock incentives | — | 0.2 | 7.0 | 6.9 | ||||||||||||
Balance at end of period | $ | 507.3 | $ | 495.8 | $ | 507.3 | $ | 495.8 | ||||||||
Retained Earnings | ||||||||||||||||
Balance at the beginning of period | $ | 2,220.2 | $ | 1,940.1 | $ | 2,102.8 | $ | 1,788.7 | ||||||||
Net earnings | 87.3 | 104.6 | 278.7 | 317.9 | ||||||||||||
Cash dividends on stock | (36.0 | ) | (30.7 | ) | (110.0 | ) | (92.6 | ) | ||||||||
Balance at end of period | $ | 2,271.5 | $ | 2,014.0 | $ | 2,271.5 | $ | 2,014.0 | ||||||||
Accumulated Other Comprehensive Loss (see Note 17) | $ | (361.6 | ) | $ | (318.2 | ) | $ | (361.6 | ) | $ | (318.2 | ) | ||||
Treasury Stock | ||||||||||||||||
Balance at the beginning of period | $ | (958.8 | ) | $ | (695.1 | ) | $ | (827.2 | ) | $ | (626.5 | ) | ||||
Exercise of stock options | (0.2 | ) | 0.5 | (1.5 | ) | (0.9 | ) | |||||||||
Stock incentives and directors’ compensation | — | — | 0.2 | 0.1 | ||||||||||||
Shares repurchased | (97.4 | ) | (36.3 | ) | (230.0 | ) | (106.0 | ) | ||||||||
Vesting of share units | — | — | 2.1 | 2.4 | ||||||||||||
Balance at end of period | $ | (1,056.4 | ) | $ | (730.9 | ) | $ | (1,056.4 | ) | $ | (730.9 | ) | ||||
Total Stockholders’ Equity | $ | 1,656.2 | $ | 1,756.2 | $ | 1,656.2 | $ | 1,756.2 | ||||||||
which are an integral part of these statements.
2019
1. | Basis of Presentation |
15, 2019.
In May 2017, the FASB amended ASC 718,Compensation – Stock Compensation(issued under ASU 2017-09, “Scope of Modification Accounting”). This amendment clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as a modification. Under this amendment, modification accounting must be used if three conditions are met: the fair value changes, the vesting conditions change, or the classification of the award changes due to the changes in terms or conditions. The amendment requires adoption on January 1, 2018 and permits early adoption. The Company does not expect that the adoption of ASU 2017-09 will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
In March 2017, the FASB amended ASC 715,Compensation – Retirement Benefits(issued under ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”). This amendment changes the way net periodic benefit cost associated with employer-sponsored defined benefit plans is presented in the statement of earnings. Under the amendment, the service cost component of net periodic benefit cost is included in the same lines in the statement of earnings as other employee compensation costs and the other components of net periodic benefit cost must be presented separately outside of income from operations. The amendment requires adoption on January 1, 2018. The Company does not expect the adoption of ASU 2017-07 to have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
In January 2017, the FASB amended ASC 350,Intangibles – Goodwill and Other (issued under ASU
In August 2016, the FASB amended ASC 230,Statement of Cash Flows (issued under ASU 2016-15, “Clarification of Certain Cash Receipts and Cash Payments”). This amendment clarifies reporting for contingent consideration payments made after a business combination depending on how soon after the acquisition the payments are made. The amendment requires adoption on January 1, 2018 and permits early adoption. The Company does not expect the adoption of ASU 2016-15 will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
In May 2014, the FASB issued ASC 606-10,Revenue from Contracts with Customers (issued under ASU 2014-09). ASC 2014-09 will replace Refer to Note 4, Leases, for additional information.
2. | Revenue Recognition |
(dollars in millions) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
North America | ||||||||||||||||
Water heaters and related parts | $ | 415.9 | $ | 405.2 | $ | 1,310.5 | $ | 1,318.1 | ||||||||
Boilers and related parts | 60.2 | 58.6 | 150.8 | 143.0 | ||||||||||||
Water treatment products (1) | 38.5 | 23.1 | 99.1 | 61.7 | ||||||||||||
Total North America | 514.6 | 486.9 | 1,560.4 | 1,522.8 | ||||||||||||
Rest of World | ||||||||||||||||
China | $ | 189.6 | $ | 246.2 | $ | 626.8 | $ | 806.4 | ||||||||
All other Rest of World | 30.7 | 27.9 | 74.7 | 69.6 | ||||||||||||
Total Rest of World | 220.3 | 274.1 | 701.5 | 876.0 | ||||||||||||
Inter-segment sales | (6.7 | ) | (6.9 | ) | (20.1 | ) | (23.4 | ) | ||||||||
Total Net Sales | $ | 728.2 | $ | 754.1 | $ | 2,241.8 | $ | 2,375.4 | ||||||||
(1) | Includes the results of Water-Right, Inc. from April 8, 2019, the date of acquisition |
3. | Acquisitions |
arise.
September 5, 2017 (dollars in millions) | ||||
Current assets, net of cash acquired | $ | 7.8 | ||
Property, plant and equipment | 6.9 | |||
Intangible assets | 12.8 | |||
Goodwill | 21.3 | |||
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Total assets acquired | 48.8 | |||
Current liabilities | (4.7 | ) | ||
Long-term liabilities | (1.0 | ) | ||
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Total liabilities assumed | (5.7 | ) | ||
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Net assets acquired | $ | 43.1 | ||
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April 8, 2019 (dollars in millions) | ||||
Current assets, net of cash acquired | $ | 9.7 | ||
Property, plant and equipment | 8.6 | |||
Intangible assets | 57.6 | |||
Goodwill | 33.7 | |||
Total assets acquired | 109.6 | |||
Current liabilities | (2.6 | ) | ||
Total liabilities assumed | (2.6 | ) | ||
Net assets acquired | $ | 107.0 | ||
On August 8, 2016,
The Company paidwould
(dollars in millions) | ||||
September 30, 2019 | ||||
Liabilities | ||||
Short term: Accrued liabilities | $ | 12.2 | ||
Long term: Operating lease liabilities | 39.6 | |||
Total operating lease liabilities | $ | 51.8 | ||
Less: Rent incentives and deferrals | (3.5 | ) | ||
Assets | ||||
Operating lease assets | $ | 48.3 | ||
Lease Term and Discount Rate | September 30, 2019 | |||
Weighted-average remaining lease term | 10 years | |||
Weighted-average discount rate | 4.00 | % |
(dollars in millions) | ||||||||||
Three months ended | Nine months ended | |||||||||
Lease Expense | Classification | September 30, 2019 | September 30, 2019 | |||||||
Operating lease expense (1) | Cost of products sold | $ | 0.7 | $ | 2.0 | |||||
Selling, general and administrative expenses | 4.3 | 13.3 |
(1) | Includes short-term lease expense of $0.4 million and $1.4 million for the three and nine months ended September 30, 2019, respectively. Includes variable lease cost of $0.4 million and $1.4 million for the three and nine months ended September 30, 2019, respectively. |
(dollars in millions) | ||||
September 30, 2019 | ||||
2019 | $ | 3.1 | ||
2020 | 13.4 | |||
2021 | 9.9 | |||
2022 | 8.5 | |||
2023 | 4.4 | |||
After 2023 | 26.2 | |||
Total lease payments | 65.5 | |||
Less: imputed interest | (13.7 | ) | ||
Present value of operating lease liabilities | $ | 51.8 | ||
5. | Restructuring and Impairment Expenses |
2018.
August 8, 2016 (dollars in millions) | ||||
Current assets, net of cash acquired | $ | 7.3 | ||
Property, plant and equipment | 2.7 | |||
Intangible assets | 30.0 | |||
Goodwill | 60.4 | |||
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Total assets acquired | 100.4 | |||
Current liabilities | (7.1 | ) | ||
Long-term liabilities | (8.2 | ) | ||
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Total liabilities assumed | (15.3 | ) | ||
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Net assets acquired | $ | 85.1 | ||
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The acquisition was accounted for using the purchase method of accounting, and accordingly, the results of operations have been included in the Company’s consolidated financial statements from August 8, 2016, the date of acquisition.
(dollars in millions) | ||||||||||||
Severance Costs | Lease Exit Costs | Total | ||||||||||
Balance at January 1, 2019 | $ | 0.2 | $ | 1.3 | $ | 1.5 | ||||||
Cash payments | — | (0.1 | ) | (0.1 | ) | |||||||
Balance at March 31, 2019 | 0.2 | 1.2 | 1.4 | |||||||||
Cash payments | — | (0.1 | ) | (0.1 | ) | |||||||
Balance at June 30, 2019 | $ | 0.2 | $ | 1.1 | $ | 1.3 | ||||||
Cash payments | (0.2 | ) | — | (0.2 | ) | |||||||
Balance at September 30, 2019 | $ | — | $ | 1.1 | $ | 1.1 | ||||||
Inventories |
(dollars in millions) | ||||||||
September 30, 2017 | December 31, 2016 | |||||||
Finished products | $ | 138.4 | $ | 114.1 | ||||
Work in process | 17.9 | 13.0 | ||||||
Raw materials | 154.5 | 142.4 | ||||||
|
|
|
| |||||
Inventories, at FIFO cost | 310.8 | 269.5 | ||||||
LIFO reserve | (18.7 | ) | (18.4 | ) | ||||
|
|
|
| |||||
Net inventory | $ | 292.1 | $ | 251.1 | ||||
|
|
|
|
(dollars in millions) | ||||||||
September 30, 2019 | December 31, 2018 | |||||||
Finished products | $ | 140.2 | $ | 137.6 | ||||
Work in process | 24.6 | 23.3 | ||||||
Raw materials | 175.7 | 174.4 | ||||||
Inventories, at FIFO cost | 340.5 | 335.3 | ||||||
LIFO reserve | (30.5 | ) | (30.6 | ) | ||||
Net inventory | $ | 310.0 | $ | 304.7 | ||||
Product Warranties |
(dollars in millions) | Three Months Ended September 30, | |||||||
2017 | 2016 | |||||||
Balance at July 1, | $ | 140.8 | $ | 141.5 | ||||
Expense | 8.1 | 10.4 | ||||||
Claims settled | (8.4 | ) | (8.9 | ) | ||||
|
|
|
| |||||
Balance at September 30, | $ | 140.5 | $ | 143.0 | ||||
|
|
|
|
(dollars in millions) | Nine Months Ended September 30, | |||||||
2017 | 2016 | |||||||
Balance at January 1, | $ | 140.9 | $ | 139.4 | ||||
Expense | 28.6 | 34.7 | ||||||
Claims settled | (29.0 | ) | (31.1 | ) | ||||
|
|
|
| |||||
Balance at September 30, | $ | 140.5 | $ | 143.0 | ||||
|
|
|
|
Three September 30, | ||||||||
(dollars in millions) | ||||||||
2019 | 2018 | |||||||
Balance at July 1, | $ | 134.0 | $ | 141.6 | ||||
Expense | 11.0 | 8.7 | ||||||
Claims settled | (11.6 | ) | (9.8 | ) | ||||
Balance at September 30, | $ | 133.4 | $ | 140.5 | ||||
Nine September 30, | ||||||||
(dollars in millions) | ||||||||
2019 | 2018 | |||||||
Balance at January 1, | $ | 139.4 | $ | 141.2 | ||||
Expense | 31.8 | 31.4 | ||||||
Claims settled | (37.8 | ) | (32.1 | ) | ||||
Balance at September 30, | $ | 133.4 | $ | 140.5 | ||||
Long-Term Debt |
On November 28, 2016, the Company issued an aggregate of $45 million in term notes in two tranches to two insurance companies. Principal payments commence in 2023 and 2028 and the notes mature in 2029 and 2034, respectively. The notes have interest rates of 2.87 percent and 3.10 percent, respectively. The proceeds received from the issuance of the notes were used to pay down borrowings under the Company’s revolving credit facility.
Earnings per Share of Common Stock |
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Denominator for basic earnings per share – weighted average shares | 172,446,529 | 174,409,789 | 172,936,255 | 175,019,605 | ||||||||||||
Effect of dilutive stock options and share units | 1,909,214 | 2,138,589 | 1,948,557 | 2,097,444 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Denominator for diluted earnings per share | 174,355,743 | 176,548,378 | 174,884,812 | 177,117,049 | ||||||||||||
|
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|
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|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Denominator for basic earnings per share - weighted average shares | 164,298,458 | 170,507,922 | 166,296,444 | 171,030,747 | ||||||||||||
Effect of dilutive stock options and share units | 1,244,787 | 1,576,694 | 1,265,777 | 1,687,050 | ||||||||||||
Denominator for diluted earnings per share | 165,543,245 | 172,084,616 | 167,562,221 | 172,717,797 | ||||||||||||
10. | Stock Based Compensation |
Weighted-Avg. Per Share Exercise Price | Number of Options | Average Remaining Contractual Life | Aggregate Intrinsic Value (dollars in millions) | |||||||||||||
Outstanding at January 1, 2017 | $ | 21.69 | 2,664,333 | |||||||||||||
Granted | 50.16 | 358,150 | ||||||||||||||
Exercised | 18.84 | (486,021 | ) | |||||||||||||
Terminated | 36.13 | (3,640 | ) | |||||||||||||
|
| |||||||||||||||
Outstanding at September 30, 2017 | 26.24 | 2,532,822 | 7 years | $ | 82.7 | |||||||||||
|
|
|
| |||||||||||||
Exercisable at September 30, 2017 | 19.34 | 1,653,841 | 6 years | $ | 65.4 | |||||||||||
|
|
|
|
2019:
Weighted- PerAvg. Share Exercise Price | Number of Options | Average Remaining Contractual Life | Aggregate Intrinsic Value (dollars in millions) | |||||||||||||
Outstanding at January 1, 2019 | $ | 33.05 | 2,432,689 | |||||||||||||
Granted | 49.49 | 557,045 | ||||||||||||||
Exercised | 15.97 | (177,306 | ) | |||||||||||||
Forfeited | 54.29 | (8,704 | ) | |||||||||||||
Outstanding at September 30, 2019 | 37.33 | 2,803,724 | 7 years | $ | 36.0 | |||||||||||
Exercisable at September 30, 2019 | 29.89 | 1,894,160 | 6 years | $ | 36.0 |
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Expected life (years) | 5.7 | 5.8 | ||||||
Risk-free interest rate | 2.4 | % | 1.7 | % | ||||
Dividend yield | 1.0 | % | 1.3 | % | ||||
Expected volatility | 26.5 | % | 27.7 | % |
Nine Months Ended | ||||||||
2019 | 2018 | |||||||
Expected life (years) | 5.5 | 5.7 | ||||||
Risk-free interest rate | 2.7 | % | 2.9 | % | ||||
Dividend yield | 1.6 | % | 1.0 | % | ||||
Expected volatility | 22.8 | % | 22.1 | % |
10. | Stock Based Compensation (continued) |
Certain
2018.
Unvested cash-settled awards are remeasured at each reporting period.
Number of Units | Weighted-Average Grant Date Value | |||||||
Issued and unvested at January 1, 2017 | 544,055 | $ | 27.35 | |||||
Granted | 107,755 | 50.16 | ||||||
Vested | (213,863 | ) | 23.25 | |||||
Forfeited | (3,465 | ) | 33.58 | |||||
|
| |||||||
Issued and unvested at September 30, 2017 | 434,482 | 34.23 | ||||||
|
|
Number of Units | Weighted-Average Grant Date Value | |||||||
Issued and unvested at January 1, 2019 | 379,601 | $ | 42.93 | |||||
Granted | 139,892 | 49.52 | ||||||
Vested | (147,642 | ) | 31.35 | |||||
Forfeited | (4,509 | ) | 55.57 | |||||
Issued and unvested at September 30, 2019 | 367,342 | 50.05 | ||||||
11. | Pensions |
(dollars in millions) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Service cost | $ | 0.5 | $ | 0.4 | $ | 1.4 | $ | 1.3 | ||||||||
Interest cost | 7.6 | 7.7 | 22.5 | 23.0 | ||||||||||||
Expected return on plan assets | (14.8 | ) | (13.9 | ) | (43.5 | ) | (41.5 | ) | ||||||||
Amortization of unrecognized loss | 4.6 | 4.4 | 13.4 | 13.2 | ||||||||||||
Amortization of prior service cost | (0.1 | ) | (0.3 | ) | (0.3 | ) | (0.8 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Defined benefit plan income | $ | (2.2 | ) | $ | (1.7 | ) | $ | (6.5 | ) | $ | (4.8 | ) | ||||
|
|
|
|
|
|
|
|
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Service cost | $ | 0.4 | $ | 0.5 | $ | 1.3 | $ | 1.5 | ||||||||
Interest cost | 8.0 | 7.2 | 23.7 | 21.7 | ||||||||||||
Expected return on plan assets | (14.3 | ) | (14.5 | ) | (43.1 | ) | (43.6 | ) | ||||||||
Amortization of unrecognized loss | 4.4 | 4.9 | 12.4 | 14.2 | ||||||||||||
Amortization of prior service cost | (0.2 | ) | (0.2 | ) | (0.4 | ) | (0.4 | ) | ||||||||
Defined benefit plan income | $ | (1.7 | ) | $ | (2.1 | ) | $ | (6.1 | ) | $ | (6.6 | ) | ||||
2019.
Segment Results |
(dollars in millions) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2017 | 2016 | 2017 | 2016 | |||||||||||||
Net sales | ||||||||||||||||
North America | $ | 486.0 | $ | 450.8 | $ | 1,444.0 | $ | 1,307.5 | ||||||||
Rest of World | 270.1 | 240.3 | 802.4 | 697.6 | ||||||||||||
Inter-segment sales | (6.2 | ) | (7.2 | ) | (18.3 | ) | (17.3 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 749.9 | $ | 683.9 | $ | 2,228.1 | $ | 1,987.8 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Segment earnings | ||||||||||||||||
North America | $ | 110.3 | $ | 100.5 | $ | 323.7 | $ | 296.5 | ||||||||
Rest of World | 33.8 | 31.1 | 98.8 | 90.9 | ||||||||||||
Inter-segment earnings elimination | (0.1 | ) | — | (0.3 | ) | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
144.0 | 131.6 | 422.2 | 387.4 | |||||||||||||
Corporate expense | 9.9 | 11.1 | 35.0 | 35.6 | ||||||||||||
Interest expense | 2.5 | 2.1 | 7.2 | 5.7 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Earnings before income taxes | 131.6 | 118.4 | 380.0 | 346.1 | ||||||||||||
Provision for income taxes | 37.9 | 35.2 | 106.2 | 102.3 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net earnings | $ | 93.7 | $ | 83.2 | $ | 273.8 | $ | 243.8 | ||||||||
|
|
|
|
|
|
|
|
(dollars in millions) | ||||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net sales | ||||||||||||||||
North America | $ | 514.6 | $ | 486.9 | $ | 1,560.4 | $ | 1,522.8 | ||||||||
Rest of World | 220.3 | 274.1 | 701.5 | 876.0 | ||||||||||||
Inter-segment | (6.7 | ) | (6.9 | ) | (20.1 | ) | (23.4 | ) | ||||||||
$ | 728.2 | $ | 754.1 | $ | 2,241.8 | $ | 2,375.4 | |||||||||
Segment earnings | ||||||||||||||||
North America (1) | $ | 121.6 | $ | 105.6 | $ | 360.5 | $ | 336.5 | ||||||||
Rest of World | 4.1 | 39.1 | 38.8 | 109.8 | ||||||||||||
Inter-segment | — | — | (0.1 | ) | — | |||||||||||
125.7 | 144.7 | 399.2 | 446.3 | |||||||||||||
Corporate expense | (9.8 | ) | (11.2 | ) | (34.1 | ) | (36.7 | ) | ||||||||
Interest expense | (3.1 | ) | (2.0 | ) | (8.5 | ) | (6.6 | ) | ||||||||
Earnings before income taxes | 112.8 | 131.5 | 356.6 | 403.0 | ||||||||||||
Provision for income taxes | 25.5 | 26.9 | 77.9 | 85.1 | ||||||||||||
Net earnings | $ | 87.3 | $ | 104.6 | $ | 278.7 | $ | 317.9 | ||||||||
(1) includes restructuring and impairment expenses of: | $ | — | $ | — | $ | — | $ | 6.7 |
Fair Value Measurements |
Assets and liabilities measured at fair value are based on the market approach which are prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
(dollars in millions) | ||||||||
Fair Value Measurement Using | September 30, 2017 | December 31, 2016 | ||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 444.4 | $ | 424.5 |
(dollars in millions) | ||||||||
Fair Value Measurement Using | September 30, 2019 | December 31, 2018 | ||||||
Quoted prices in active markets for identical assets (Level 1) | $ | 294.4 | $ | 385.3 | ||||
Significant other observable inputs (Level 2) | 8.4 | 7.5 |
Derivative Instruments |
ASC 815, Derivatives and Hedging, as amended, requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of the hedging relationships. The accounting for changes in the fair value of a derivative instrument depends on whether it has been designated and qualifies as a part of a hedging relationship and, further, on the type of hedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, the Company must designate the hedging instrument, based upon the exposure hedged, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation.
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), the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive loss, net of tax, and is 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. The amount by which the cumulative change in the value of the hedge more than offsets the cumulative change in the value of the hedged item (i.e., the ineffective portion) is recorded in earnings, net of tax, in the period the ineffectiveness occurs.
14. | Derivative Instruments (continued) |
The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts.
(dollars in millions) | ||||||||||||||||
September 30, | ||||||||||||||||
2017 | 2016 | |||||||||||||||
Buy | Sell | Buy | Sell | |||||||||||||
British pound | $ | — | $ | 1.5 | $ | — | $ | 0.2 | ||||||||
Canadian dollar | — | 67.4 | — | 77.2 | ||||||||||||
Euro | 27.9 | 0.5 | 6.7 | 0.5 | ||||||||||||
Mexican peso | 19.3 | — | 13.8 | — | ||||||||||||
|
|
|
|
|
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| |||||||||
Total | $ | 47.2 | $ | 69.4 | $ | 20.5 | $ | 77.9 | ||||||||
|
|
|
|
|
|
|
|
Commodity Futures Contracts
In addition to enteringcontracts that are designated as cash flow hedges.
(dollars in millions) | ||||||||||||||||
September 30, 2019 | December 31, 2018 | |||||||||||||||
Buy | Sell | Buy | Sell | |||||||||||||
British pound | $ | — | $ | 0.3 | $ | — | $ | 1.0 | ||||||||
Canadian dollar | — | 39.4 | — | — | ||||||||||||
Euro | 44.7 | — | 32.0 | — | ||||||||||||
Mexican peso | 23.0 | — | 27.8 | — | ||||||||||||
Total | $ | 67.7 | $ | 39.7 | $ | 59.8 | $ | 1.0 | ||||||||
With NYMEX, the Company is required to make cash deposits on unrealized losses on steel derivative contracts.
The after-taxdesignated and qualify as net investment hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the effective portionCompany’s net investments in its
14. | Derivative Instruments (continued) |
(dollars in millions) | ||||||||||
Balance Sheet Location | September 30, 2017 | December 31, 2016 | ||||||||
Foreign currency contracts | Other current assets | $ | 0.6 | $ | 1.9 | |||||
Accrued liabilities | (2.0 | ) | (2.0 | ) | ||||||
Commodities contracts | Other current assets | 0.1 | 0.8 | |||||||
Accrued liabilities | — | (0.3 | ) | |||||||
|
|
|
| |||||||
Total derivatives designated as hedging instruments | $ | (1.3 | ) | $ | 0.4 | |||||
|
|
|
|
(dollars in millions) | ||||||||||||
Balance | September 30, 2019 | December 31, 2018 | ||||||||||
Foreign currency contracts | Other | $ | 10.3 | $ | 3.9 | |||||||
Other non-current assets | — | 5.1 | ||||||||||
Accrued liabilities | (1.9 | ) | (0.6 | ) | ||||||||
Commodities contracts | Accrued liabilities | — | (0.9 | ) | ||||||||
Total derivatives designated as hedging instruments | $ | 8.4 | $ | 7.5 | ||||||||
earnings:
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in OCI on derivative (effective portion) | Location of gain (loss) reclassified from accumulated OCI into earnings (effective portion) | Amount of gain (loss) reclassified from accumulated OCI into earnings (effective portion) | Location of gain (loss) recognized in earnings on derivative (ineffective portion) | Amount of gain (loss) recognized in earnings on a derivative (ineffective portion) | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||
Foreign currency contracts | $ | (2.5 | ) | $ | 0.8 | | Cost of products sold | | $ | (0.3 | ) | $ | (0.3 | ) | N/A | $ | — | $ | — | |||||||||||||
Commodities contracts | — | (1.1 | ) | | Cost of products sold | | 0.3 | 0.7 | | Cost of products sold | | — | — | |||||||||||||||||||
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|
|
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|
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|
| |||||||||||||||||||||
$ | (2.5 | ) | $ | (0.3 | ) | $ | — | $ | 0.4 | $ | — | $ | — | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in other comprehensive on derivative | Location of gain (loss) reclassified from accumulated other comprehensive loss into | Amount of gain (loss) reclassified from accumulated other comprehensive into earnings | |||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Foreign currency contracts | $ | (1.1 | ) | $ | 1.9 | Cost of products sold | $ | (0.1 | ) | $ | — | |||||||||
Commodities contracts | — | — | Cost of products sold | (0.6 | ) | — | ||||||||||||||
$ | (1.1 | ) | $ | 1.9 | $ | (0.7 | ) | $ | — | |||||||||||
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in OCI on derivative (effective portion) | Location of gain (loss) reclassified from accumulated OCI into earnings (effective portion) | Amount of gain (loss) reclassified from accumulated OCI into earnings (effective portion) | Location of gain (loss) recognized in earnings on derivative (ineffective portion) | Amount of gain (loss) recognized in earnings on a derivative (ineffective portion) | |||||||||||||||||||||||||||
2017 | 2016 | 2017 | 2016 | 2017 | 2016 | |||||||||||||||||||||||||||
Foreign currency contracts | $ | (1.0 | ) | $ | (4.1 | ) | | Cost of products sold | | $ | 0.3 | $ | (1.1 | ) | N/A | $ | — | $ | — | |||||||||||||
Commodities contracts | 0.1 | 0.7 | | Cost of products sold | | 0.4 | 0.7 | | Cost of products sold | | — | — | ||||||||||||||||||||
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| |||||||||||||||||||||
$ | (0.9 | ) | $ | (3.4 | ) | $ | 0.7 | $ | (0.4 | ) | $ | — | $ | — | ||||||||||||||||||
|
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|
|
|
|
|
|
|
|
Derivatives in ASC 815 cash flow hedging relationships | Amount of gain (loss) recognized in other comprehensive on derivative | Location of gain (loss) reclassified from accumulated other comprehensive loss into earnings | Amount of gain (loss) reclassified from accumulated other comprehensive loss into earnings | |||||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||||||
Foreign currency contracts | $ | (0.6 | ) | $ | 3.3 | Cost of products sold | $ | (0.1 | ) | $ | 0.1 | |||||||||
Commodities contracts | (0.5 | ) | — | Cost of products sold | (1.4 | ) | 0.3 | |||||||||||||
$ | (1.1 | ) | $ | 3.3 | $ | (1.5 | ) | $ | 0.4 | |||||||||||
15. | Income Taxes |
2013-2019.
Commitments and Contingencies |
17. | Changes in Accumulated Other Comprehensive Loss by Component |
(dollars in millions) | ||||||||
Three Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (58.3 | ) | $ | (47.9 | ) | ||
Other comprehensive gain (loss) before reclassifications | 17.3 | (3.5 | ) | |||||
|
|
|
| |||||
Balance at end of period | (41.0 | ) | (51.4 | ) | ||||
|
|
|
| |||||
Unrealized net gain (loss) on cash flow derivatives | ||||||||
Balance at beginning of period | 0.8 | (0.3 | ) | |||||
Other comprehensive loss before reclassifications | (1.6 | ) | — | |||||
Realized gains on derivatives reclassified to cost of products sold (net of tax provision of $0.2 in 2016, respectively) | — | (0.2 | ) | |||||
|
|
|
| |||||
Balance at end of period | (0.8 | ) | (0.5 | ) | ||||
|
|
|
| |||||
Pension liability | ||||||||
Balance at beginning of period | (283.2 | ) | (275.3 | ) | ||||
Other comprehensive loss before reclassifications | (0.1 | ) | (0.1 | ) | ||||
Amounts reclassified from accumulated other comprehensive loss:(1) | 2.7 | 2.5 | ||||||
|
|
|
| |||||
Balance at end of period | (280.6 | ) | (272.9 | ) | ||||
|
|
|
| |||||
Accumulated other comprehensive loss, end of period | $ | (322.4 | ) | $ | (324.8 | ) | ||
|
|
|
| |||||
(1) Amortization of pension items: | ||||||||
Actuarial losses | $ | 4.6 | (2) | $ | 4.4 | (2) | ||
Prior year service cost | (0.1 | )(2) | (0.3 | )(2) | ||||
|
|
|
| |||||
4.5 | 4.1 | |||||||
Income tax benefit | (1.8 | ) | (1.6 | ) | ||||
|
|
|
| |||||
Reclassification net of income tax benefit | $ | 2.7 | $ | 2.5 | ||||
|
|
|
| |||||
(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 8—Pensions for additional details |
|
(dollars in millions) | ||||||||
Three September 30, | ||||||||
2019 | 2018 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (59.1 | ) | $ | (39.1 | ) | ||
Other comprehensive (loss) income before reclassifications | (21.9 | ) | (20.7 | ) | ||||
Balance at end of period | (81.0 | ) | (59.8 | ) | ||||
Unrealized net gain on cash flow derivatives | ||||||||
Balance at beginning of period | (0.1 | ) | (0.1 | ) | ||||
Other comprehensive (loss) gain before reclassifications | (0.8 | ) | 1.3 | |||||
Realized losses (gains) on derivatives reclassified to cost of products sold (net of income tax (benefit) provision of ($0.2) and $ - in 2019 and 2018, respectively) | 0.5 | — | ||||||
Balance at end of period | (0.4 | ) | 1.2 | |||||
Pension liability | ||||||||
Balance at beginning of period | (279.2 | ) | (265.2 | ) | ||||
Other comprehensive (loss) gain before reclassifications | (4.1 | ) | 2.0 | |||||
Amounts reclassified from accumulated other comprehensive loss: (1) | 3.1 | 3.6 | ||||||
Balance at end of period | (280.2 | ) | (259.6 | ) | ||||
Accumulated other comprehensive loss, end of period | $ | (361.6 | ) | $ | (318.2 | ) | ||
(1) Amortization of pension items: | ||||||||
Actuarial losses | $ | 4.4 | (2) | $ | 4.9 | (2) | ||
Prior year service cost | (0.2 | ) (2) | (0.2 | ) (2) | ||||
4.2 | 4.7 | |||||||
Income tax benefit | (1.1 | ) | (1.1 | ) | ||||
Reclassification net of income tax benefit | $ | 3.1 | $ | 3.6 | ||||
These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 11 - Pensions for additional details |
17. | Changes in Accumulated Other Comprehensive Loss by Component (continued) |
(dollars in millions) | ||||||||
Nine Months Ended September 30, | ||||||||
2017 | 2016 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (79.2 | ) | $ | (39.4 | ) | ||
Other comprehensive gain (loss) before reclassifications | 38.2 | (12.0 | ) | |||||
|
|
|
| |||||
Balance at end of period | (41.0 | ) | (51.4 | ) | ||||
|
|
|
| |||||
Unrealized net gain on cash flow derivatives | ||||||||
Balance at beginning of period | 0.2 | 1.2 | ||||||
Other comprehensive loss before reclassifications | (0.6 | ) | (1.9 | ) | ||||
Realized (gains) losses on derivatives reclassified to cost of products sold (net of tax provision (benefit) of $0.3 and $(0.2) in 2017 and 2016, respectively) | (0.4 | ) | 0.2 | |||||
|
|
|
| |||||
Balance at end of period | (0.8 | ) | (0.5 | ) | ||||
|
|
|
| |||||
Pension liability | ||||||||
Balance at beginning of period | (284.2 | ) | (275.2 | ) | ||||
Other comprehensive gain before reclassifications | (4.3 | ) | (5.3 | ) | ||||
Amounts reclassified from accumulated other comprehensive loss:(1) | 7.9 | 7.6 | ||||||
|
|
|
| |||||
Balance at end of period | (280.6 | ) | (272.9 | ) | ||||
|
|
|
| |||||
Accumulated other comprehensive loss, end of period | $ | (322.4 | ) | $ | (324.8 | ) | ||
|
|
|
| |||||
(1) Amortization of pension items: | ||||||||
Actuarial losses | $ | 13.4 | (2) | $ | 13.2 | (2) | ||
Prior year service cost | (0.3 | )(2) | (0.8 | )(2) | ||||
|
|
|
| |||||
13.1 | 12.4 | |||||||
Income tax benefit | (5.2 | ) | (4.8 | ) | ||||
|
|
|
| |||||
Reclassification net of income tax benefit | $ | 7.9 | $ | 7.6 | ||||
(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 8—Pensions for additional details |
|
(dollars in millions) | ||||||||
Nine September 30, | ||||||||
2019 | 2018 | |||||||
Cumulative foreign currency translation | ||||||||
Balance at beginning of period | $ | (64.9 | ) | $ | (26.5 | ) | ||
Other comprehensive income (loss) before reclassifications | (16.1 | ) | (33.3 | ) | ||||
Balance at end of period | (81.0 | ) | (59.8 | ) | ||||
Unrealized net gain on cash flow derivatives | ||||||||
Balance at beginning of period | (0.7 | ) | (0.9 | ) | ||||
Other comprehensive (loss) gain before reclassifications | (0.8 | ) | 2.4 | |||||
Realized losses (gains) on derivatives reclassified to cost of products sold (net of income tax (benefit) provision of ($0.4) and $0.1 in 2019 and | 1.1 | (0.3 | ) | |||||
Balance at end of period | (0.4 | ) | 1.2 | |||||
Pension liability | ||||||||
Balance at beginning of period | (285.2 | ) | (272.1 | ) | ||||
Other comprehensive (loss) gain before reclassifications | (4.1 | ) | 2.0 | |||||
Amounts reclassified from accumulated other comprehensive loss: (1) | 9.1 | 10.5 | ||||||
Balance at end of period | (280.2 | ) | (259.6 | ) | ||||
Accumulated other comprehensive loss, end of period | $ | (361.6 | ) | $ | (318.2 | ) | ||
(1) Amortization of pension items: | ||||||||
Actuarial losses | $ | 12.4 | (2) | $ | 14.2 | (2) | ||
Prior year service cost | $ | (0.4 | ) (2) | (0.4 | ) (2) | |||
12.0 | 13.8 | |||||||
Income tax benefit | (2.9 | ) | (3.3 | ) | ||||
Reclassification net of income tax benefit | $ | 9.1 | $ | 10.5 | ||||
(2) | These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 11 - Pensions for additional details |
of sales to Lowe’s and volume growth.
2019 from approximately $34 million in 2018.
U.S. dollar terms and approximately 3.5 percent in local currency terms in 2019.
2018
2019, respectively.
the accompanying financial statements.
fund the acquisition of Water-Right.
All other components of our pension income are reflected in other income.
North America
Sales in our North America segment were $486.0 millionweak consumer demand and inventory build in the third quarter of 2017 or $35.2 million higher than sales of $450.8 million in the third quarter of 2016. Sales for the first nine months of 2017 were $1,444.0 million or $136.5 million higher than sales of $1,307.5 million in the same period last year. The increased sales in the third quarter and the first nine months of 2017 were primarily due to higher volumes of residential water heaters and boilers as well as pricing actions related to higher steel costs and inflationary pressure on other input costs. Additionally, saleschannel that occurred in the first nine monthshalf of 2017 benefitted from higher volumes2018. In addition, the weaker Chinese currency compared to the U.S. dollar, unfavorably impacted the translation of commercial water heaters. Sales of Lochinvar-branded products grew 17 percentsales by approximately $6 million and ten percent$35 million in the third quarter and first nine months of 2017, respectively,2019, respectively. The China sales declines were partially offset by higher sales in India, which grew approximately nine percent in both U.S. dollar and local currency terms in the third quarter of 2019 compared to the same periodsperiod last year. North America water treatment sales added $7.5 millionyear and $30.8 million of incremental sales to15 percent in U.S. dollar terms and 19 percent in local currency terms in the third quarter and first nine months of 2017, respectively.
North America2019 compared to the same period in 2018.
Rest of World
Sales in our Rest of World segment were $270.1 million in the third quarter of 2017 or $29.8 million higher than sales of $240.3 million in the third quarter of 2016. Sales in the first nine months of 2017 were $802.4 million or $104.8 million higher than sales of $697.6 million in the first nine months of 2016. China sales grew approximately 13 percent and 20 percent in local currency terms in the third quarter and first nine months of 2017, respectively, compared to same periods in the prior year, primarily due to higher sales of consumer products, particularly water treatment and air purification products. Sales in China in both periods of 2017 also benefitted from pricing actions announced earlier this year due to higher steel and other costs. China sales of A.O. Smith branded water treatment products grew 31 percent and China sales of air purification products doubled in the first nine months of 2017, compared to the same period last year.
Rest of World segment earnings were $33.8 million in the third quarter of 2017 or approximately nine percent higher than segment earnings of $31.1 million in the third quarter of 2016. Segment earnings in the first nine months of 2017 of $98.8 million were approximately nine percent higher than segment earnings of $90.9 million in the first nine months of 2016. China currency translation negatively impacted segment earnings by approximately $3.6 million in the first nine months of 2017. The higher segment earnings in the third quarter and first nine months of 2017 were primarily due to higher China sales, which included pricing actions, partially offset by higher steel prices and installation costs and increased SG&A expenses in China. SG&A expenses were higher in the third quarter and first nine months of 2017 primarily due to higher selling and advertising expenses in China to support brand building and the expansion of water treatment and air purification retail outlets in tier 2 and tier 3 cities. Additionally, the third quarter of 2017 was impacted by higher water treatment product development engineering costs. Segment margin of 12.5 percent in the third quarter of 2017 was lower than the segment margin of 12.9 percent in the same period last year. Segment margin of 12.3 percent in the first nine months of 2017 was lower than the segment margin of 13.0 percent in the same period last year. Segment margins in both the third quarter and first nine months of 20172019 were lower than the same periods in the priorlast year primarily due to the factors mentioned above. We expect our full year 2017 segment margin to be similar to 2016 segment margin of 13.4approximately 4.25 percent.
$400 million, compared with $448.9 million in 2018.
In December 2016, we completed
2019.
In November 2016, we issued an aggregate of $45 million of fixed rate term notes in two tranches to two insurance companies. Principal payments commence in 2023 and 2028 and the notes mature in 2029 and 2034, respectively. The notes carry interest rates of 2.87 percent and 3.10 percent, respectively. We used proceeds from the issuance of the notes to pay down borrowings under our revolving credit facility.
the end of last year.
In 2016,June 2019, our Board of Directors approved adding 3,000,0005 million shares and 3 million shares, respectively, of common stock to an existing discretionary share repurchase authority. Under the share repurchase program, our common stock may be purchased through a combination of a Rule
the open market.
2019.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 | 2019 | 2018 | |||||||||||||
Net Earnings (GAAP) | $ | 87.3 | $ | 104.6 | $ | 278.7 | $ | 317.9 | ||||||||
Restructuring and impairment expenses, before tax | — | — | — | 6.7 | ||||||||||||
Tax effect of restructuring and impairment expenses | — | — | — | (1.7 | ) | |||||||||||
Adjusted Earnings | $ | 87.3 | $ | 104.6 | $ | 278.7 | $ | 322.9 | ||||||||
Diluted EPS (GAAP) | $ | 0.53 | $ | 0.61 | $ | 1.66 | $ | 1.84 | ||||||||
Restructuring and impairment expenses per diluted share | — | — | — | 0.04 | ||||||||||||
Tax effect of restructuring and impairment expenses per diluted share | — | — | — | (0.01 | ) | |||||||||||
Adjusted EPS | $ | 0.53 | $ | 0.61 | $ | 1.66 | $ | 1.87 | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2019 | 2018 (2) | 2019 | 2018 | |||||||||||||
Segment Earnings (GAAP) | ||||||||||||||||
North America | $ | 121.6 | $ | 105.6 | $ | 360.5 | $ | 336.5 | ||||||||
Rest of World | 4.1 | 39.1 | 38.8 | 109.8 | ||||||||||||
Inter-segment earnings elimination | — | — | (0.1 | ) | — | |||||||||||
Total Segment Earnings (GAAP) | $ | 125.7 | $ | 144.7 | $ | 399.2 | $ | 446.3 | ||||||||
Adjustments | ||||||||||||||||
North America (1) | $ | — | $ | — | $ | — | $ | 6.7 | ||||||||
Rest of World | — | — | — | — | ||||||||||||
Inter-segment earnings elimination | — | — | — | — | ||||||||||||
Total Adjustments | $ | — | $ | — | $ | — | $ | 6.7 | ||||||||
Adjusted Segment Earnings | ||||||||||||||||
North America | $ | 121.6 | $ | 105.6 | $ | 360.5 | $ | 343.2 | ||||||||
Rest of World | 4.1 | 39.1 | 38.8 | 109.8 | ||||||||||||
Inter-segment earnings elimination | — | — | (0.1 | ) | — | |||||||||||
Total Adjusted Segment Earnings | $ | 125.7 | $ | 144.7 | $ | 399.2 | $ | 453.0 | ||||||||
(1) | The Company recognized $6.7 million of restructuring and impairment expenses in connection with the move of manufacturing operations from its Renton, Washington facility to other U.S. facilities. For additional information, see Note 5 of the notes to the financial statements. |
(2) | On October 29, 2019, the Company filed a Form 8-K with the Securities and Exchange Commission, with a news release attached as Exhibit 99.1, announcing its results for the quarter ended September 30, 2019 which included the table above. The Company later identified that balances presented in the table for the Three Months Ended September 30, 2018 incorrectly presented the results for Three Months Ended June 30, 2018. The presentation above has been adjusted to reflect the correct amounts and therefore does not agree to the news release. |
2019 Guidance | 2018 | |||||||
Diluted EPS (GAAP) | $ | 2.25 - 2.28 | $ | 2.58 | ||||
Restructuring and impairment expenses per diluted share, net of tax | — | 0.03 | ||||||
Adjusted EPS | $ | 2.25 - 2.28 | $ | 2.61 | ||||
information technology or data security breaches; changes in governmentalgovernment regulations or regulatory requirements; and adverse developments in general economic, political and business conditions in key regions of the world. Forward-looking statements included in this filing are made only as of the date of this filing, and we arethe company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company,company, or persons acting on ourits behalf, are qualified entirely by these cautionary statements.
ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs | ||||||||||||
July 1 – July 31, 2017 | 200,000 | $ | 56.74 | 200,000 | 3,427,553 | |||||||||||
August 1 – August 31, 2017 | 252,500 | 54.13 | 252,500 | 3,175,053 | ||||||||||||
September 1 – September 30, 2017 | 211,000 | 57.31 | 211,000 | 2,964,053 |
None.
ISSUER PURCHASES OF EQUITY SECURITIES | ||||||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that may yet be Purchased Under the Plans or Programs | ||||||||||||
July 1 – July 31, 2019 | 1,166,600 | $ | 45.16 | 1,166,600 | 5,114,653 | |||||||||||
August 1 – August 31, 2019 | 489,500 | 45.25 | 489,500 | 4,625,153 | ||||||||||||
September 1 – September 30, 2019 | 471,438 | 47.73 | 471,438 | 4,153,715 |
|
| |||
Exhibit Number | Description | |||
31.1 | ||||
31.2 | ||||
32.1 | ||||
32.2 | ||||
101 | The following materials from A. O. Smith Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, | |||
104 | Cover Page Interactive Data File (embedded within the Inline XBRL document) |
A. O. SMITH CORPORATION | ||||||
November 6, 2019 | /s/ | |||||
Helen E. Gurholt | ||||||
Vice President and Controller | ||||||
/s/ | ||||||
Charles T. Lauber | ||||||
Executive Vice President and | ||||||
Chief Financial Officer |
30