ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State of Incorporation) |
(I.R.S. Employer Identification No.) | |
(Address of Principal Executive Office) |
(Zip Code) |
Title of Each Class |
Shares of Stock Outstanding January 31, 2020 |
Name of Each Exchange Which Registered | ||
Class A Common Stock (par value $5.00 per share) |
Not listed | |||
(par value $1.00 per share) |
☒ |
Accelerated filer |
☐ | ||||
Non-accelerated filer |
☐ |
Smaller reporting company |
||||
Emerging growth company |
1. | Portions of the company’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the registrant’s fiscal year and, upon such filing, to be incorporated by reference in Part III). |
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Item 1A. |
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Item 1B. |
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Item 2. |
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Item 3. |
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Item 4. |
9 |
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Item 5. |
13 |
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Item 6. |
15 |
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Item 7. |
16 |
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Item 7A. |
23 |
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Item 8. |
24 |
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Item 9. |
57 |
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Item 9A. |
57 |
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Item 9B. |
57 |
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Item 10. |
59 |
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Item 11. |
59 |
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Item 12. |
59 |
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Item 13. |
60 |
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Item 14. |
60 |
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Item 15. |
61 |
• | The effects of a global economic downturn could have a material adverse effect on our business |
• | A portion of our business could be affected by further weakening of the Chinese economy |
• | Because we participate in markets that are highly competitive, our revenues and earnings could decline as we respond to competition |
• | Our business could be adversely impacted by changes in consumer purchasing behavior, consumer preferences and technological changes |
• | The occurrence or threat of extraordinary events, including natural disasters, political disruptions, terrorist attacks, public health issues, and acts of war, could significantly disrupt production, or impact consumer spending |
• | We sell our products and operate outside the U.S., and to a lesser extent, rely on imports and exports, which may present additional risks to our business |
• | A material loss, cancellation, reduction, or delay in purchases by one or more of our largest customers could harm our business |
• | A portion of our business could be adversely affected by a decline in North American new residential and commercial construction or a decline in replacement related volume |
• | Our international operations are subject to risks related to foreign currencies |
• | Changes in regulations or standards could adversely affect our business |
• | Our business may be adversely impacted by product defects |
• | Our operations could be adversely impacted by material price volatility and supplier concentration |
• | An inability to adequately maintain our information systems and their security, as well as to protect data and other confidential information, could adversely affect our business and reputation |
• | We are subject to U.S. and global laws and regulations covering our domestic and international operations that could adversely affect our business and results of operations |
• | Our results of operations may be negatively impacted by product liability lawsuits and claims |
• | Our success is dependent on developing and retaining highly qualified personnel |
• | Sales growth of our boilers could stall resulting in lower than expected revenues and earnings |
• | Potential acquisitions could use a significant portion of our capital and we may not successfully integrate future acquisitions or operate them profitably or achieve strategic objectives |
• | We have significant goodwill and indefinite-lived intangible assets and an impairment of our goodwill or indefinite-lived intangible assets could cause a decline in our net worth |
• | Our pension plans may require future pension contributions which could limit our flexibility in managing our company |
• | Certain members of the founding family of our company and trusts for their benefit have the ability to influence all matters requiring stockholder approval |
Name (Age) |
Positions Held |
Period Position Was Held | ||
Patricia K. Ackerman (59) |
Senior Vice President – Investor Relations, Treasurer and Corporate Responsibility and Sustainability |
2019 to Present | ||
Vice President – Investor Relations & Treasurer |
2008 to 2018 | |||
Vice President and Treasurer |
2006 to 2008 | |||
Assistant Treasurer |
1995 to 2006 | |||
Paul R. Dana (57) |
Senior Vice President – Global Operations |
2019 to Present | ||
Senior Vice President – Global Manufacturing |
2016 to 2018 | |||
Vice President – Global Manufacturing |
2015 | |||
President – APCOM, a division of State Industries, LLC, a subsidiary of the Company |
2011 to 2017 | |||
Vice President – Product Engineering |
2006 to 2010 | |||
Plant Manager – Productos de Agua, S. de R.L. de C.V. |
1998 to 2005 | |||
Anindadeb V. DasGupta (54) |
Senior Vice President |
2018 to Present | ||
President – A. O. Smith Holdings (Barbados) SRL |
2018 to Present | |||
Vice President, Global Head Strategic Marketing; Global Head e-commerce; Global GM Flex & Signage Business Lines – OSRAM GmbH, Munich and Hong Kong |
2014 to 2018 | |||
Wallace E. Goodwin (64) |
Senior Vice President |
2018 to Present | ||
President and General Manager – Lochinvar, LLC |
2018 to Present | |||
Senior Vice President and General Manager – Lochinvar, LLC |
2011 to 2017 | |||
President – APCOM, a division of State Industries, LLC |
1999 to 2011 | |||
Robert J. Heideman (53) |
Senior Vice President – Chief Technology Officer |
2013 to Present | ||
Senior Vice President – Engineering & Technology |
2011 to 2012 | |||
Senior Vice President – Corporate Technology |
2010 to 2011 | |||
Vice President – Corporate Technology |
2007 to 2010 | |||
Director – Materials |
2005 to 2007 | |||
Section Manager |
2002 to 2005 | |||
D. Samuel Karge (45) |
Senior Vice President |
2018 to Present | ||
President – North America Water Treatment |
2018 to Present | |||
Vice President, Sales and Marketing – Zurn Industries |
2016 to 2018 | |||
Vice President & Platform Leader – Pentair Residential Filtration |
2012 to 2016 |
Name (Age) |
Positions Held |
Period Position Was Held | ||
Daniel L. Kempken (47) |
Senior Vice President – Strategy and Corporate Development |
2019 to Present | ||
Vice President and Controller |
2011 to 2019 | |||
Charles T. Lauber (57) |
Executive Vice President and Chief Financial Officer |
2019 to Present | ||
Senior Vice President, Strategy and Corporate Development |
2013 to 2019 | |||
Senior Vice President – Chief Financial Officer – A. O. Smith Water Products Company |
2006 to 2012 | |||
Vice President – Global Finance – A. O. Smith Electrical Products Company |
2004 to 2006 | |||
Vice President and Controller – A. O. Smith Electrical Products Company |
2001 to 2004 | |||
Director of Audit and Tax |
1999 to 2001 | |||
Peter R. Martineau (65) |
Senior Vice President – Chief Information Officer |
2016 to Present | ||
Vice President – Business Transformation |
2013 to 2015 | |||
Vice President – Customer Satisfaction |
2010 to 2012 | |||
Mark A. Petrarca (56) |
Senior Vice President – Human Resources and Public Affairs |
2006 to Present | ||
Vice President – Human Resources and Public Affairs |
2005 to 2006 | |||
Vice President – Human Resources – A. O. Smith Water Products Company |
1999 to 2004 | |||
Ajita G. Rajendra (68) |
Executive Chairman |
2018 to Present | ||
Chairman and Chief Executive Officer |
2017 to 2018 | |||
Chairman, President and Chief Executive Officer |
2014 to 2017 | |||
President and Chief Executive Officer |
2013 to 2014 | |||
President and Chief Operating Officer |
2011 to 2012 | |||
Executive Vice President |
2006 to 2011 | |||
President – A. O. Smith Water Products Company |
2005 to 2011 | |||
Senior Vice President |
2005 to 2007 | |||
James F. Stern (57) |
Executive Vice President, General Counsel and Secretary |
2007 to Present | ||
Partner – Foley & Lardner LLP |
1997 to 2007 | |||
David R. Warren (56) |
Senior Vice President |
2017 to Present | ||
President and General Manager – North America Water Heater |
2017 to Present | |||
Vice President – International |
2008 to 2017 | |||
Managing Director – A.O. Smith Water Products Company B.V. |
2004 to 2008 | |||
Director, Reliance Sales |
2002 to 2004 | |||
Regional Sales Manager |
1999 to 2002 | |||
District Sales Manager |
1990 to 1996 | |||
Sales Coordinator |
1989 to 1990 |
Name (Age) |
Positions Held |
Period Position Was Held | ||
Kevin J. Wheeler (60) |
President and Chief Executive Officer |
2018 to Present | ||
President and Chief Operating Officer |
2017 to 2018 | |||
Senior Vice President |
2013 to 2017 | |||
President and General Manager – North America, India and Europe Water Heating |
2013 to 2017 | |||
Senior Vice President and General Manager – North America, India and Europe – A. O. Smith Water Products Company |
2011 to 2012 | |||
Senior Vice President and General Manager – U.S. Retail – A. O. Smith Water Products Company |
2007 to 2011 | |||
Vice President – International – A. O. Smith Water Products Company |
2004 to 2007 | |||
Managing Director – A. O. Smith Water Products Company B.V. |
1999 to 2004 |
(a) | Market Information |
(b) | Holders |
(c) | Dividends |
(d) | Stock Repurchases 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, as well as working capital requirements, general business conditions and other factors, including alternative investment opportunities. The stock repurchase authorization remains effective until terminated by our Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. In 2019, we repurchased 6,113,038 shares at an average price of $47.06 per share and at a total cost of $287.7 million. As of December 31, 2019, there were 2,962,215 shares remaining on the existing repurchase authorization. |
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 |
||||||||||||
October 1 – October 31, 2019 |
414,700 |
$ | 48.17 |
414,700 |
3,739,015 |
|||||||||||
November 1 – November 30, 2019 |
370,800 |
50.20 |
370,800 |
3,368,215 |
||||||||||||
December 1 – December 31, 2019 |
406,000 |
47.02 |
406,000 |
2,962,215 |
(e) | Performance Graph 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing. |
Base Period |
Indexed Returns |
|||||||||||||||||||||||
Company/Index |
12/31/14 |
12/31/15 |
12/31/16 |
12/31/17 |
12/31/18 |
12/31/19 |
||||||||||||||||||
A. O. Smith Corporation |
100.0 |
137.3 |
171.6 |
224.5 |
158.5 |
180.1 |
||||||||||||||||||
S&P 500 Index |
100.0 |
101.4 |
113.5 |
138.3 |
132.2 |
173.8 |
||||||||||||||||||
S&P 500 Select Industrial Index |
100.0 |
95.8 |
115.1 |
142.8 |
123.8 |
160.2 |
(dollars in millions, except per share amounts) |
||||||||||||||||||||
Years ended December 31, |
||||||||||||||||||||
2019 |
2018 |
2017 (1) |
2016 (2) |
2015 |
||||||||||||||||
Net sales |
$ | 2,992.7 |
$ | 3,187.9 |
$ | 2,996.7 |
$ | 2,685.9 |
$ | 2,536.5 |
||||||||||
Net earnings (1) |
$ | 370.0 |
$ | 444.2 |
$ | 296.5 |
$ | 326.5 |
$ | 282.9 |
||||||||||
Basic earnings per share of common stock (1,2) |
||||||||||||||||||||
Net earnings |
$ | 2.24 |
$ | 2.60 |
$ | 1.72 |
$ | 1.87 |
$ | 1.59 |
||||||||||
Diluted earnings per share of common stock (1,2) |
||||||||||||||||||||
Net earnings |
$ | 2.22 |
$ | 2.58 |
$ | 1.70 |
$ | 1.85 |
$ | 1.58 |
||||||||||
Cash dividends per common share (2) |
$ | 0.90 |
$ | 0.76 |
$ | 0.56 |
$ | 0.48 |
$ | 0.38 |
Years ended December 31, |
||||||||||||||||||||
2019 |
2018 |
2017 |
2016 |
2015 |
||||||||||||||||
Total assets |
$ | 3,058.0 |
$ | 3,071.5 |
$ | 3,197.4 |
$ | 2,891.0 |
$ | 2,629.2 |
||||||||||
Long-term debt(3) |
277.2 |
221.4 |
402.9 |
316.4 |
236.1 |
|||||||||||||||
Total stockholders’ equity |
1,666.8 |
1,717.0 |
1,644.9 |
1,511.4 |
1,442.3 |
(1) |
Due to the enactment of the U.S. Tax Cuts & Jobs Act in December 2017, we recorded a one-time charge of $81.8 million in 2017, our estimate of the costs primarily associated with the repatriation of undistributed foreign earnings. These charges reduced 2017 earnings per share by $0.47. |
(2) |
In September 2016, we declared a 100 percent stock dividend to holders of Common Stock and Class A Common Stock which is not included in cash dividends. Basic and diluted earnings per share are calculated using the weighted average shares outstanding which were restated for all periods presented to reflect the stock dividend. |
(3) |
Excludes the current portion of long-term debt. |
(dollars in millions) |
Payments due by period |
|||||||||||||||||||
Contractual Obligations |
Total |
Less Than 1 year |
1 - 2 Years |
3 - 5 Years |
More than 5 years |
|||||||||||||||
Long-term debt |
$ | 284.0 |
$ | 6.8 |
$ | 177.6 |
$ | 20.1 |
$ | 79.5 |
||||||||||
Fixed rate interest |
26.0 |
3.7 |
6.8 |
5.7 |
9.8 |
|||||||||||||||
Operating leases |
64.9 |
14.0 |
19.5 |
8.6 |
22.8 |
|||||||||||||||
Purchase obligations |
145.9 |
145.8 |
0.1 |
— |
— |
|||||||||||||||
Pension and post-retirement obligations |
49.3 |
9.8 |
2.2 |
2.0 |
35.3 |
|||||||||||||||
Total |
$ | 570.1 |
$ | 180.1 |
$ | 206.2 |
$ | 36.4 |
$ | 147.4 |
||||||||||
Years ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Net Earnings (GAAP) |
$ | 370.0 |
$ | 444.2 |
$ | 296.5 |
||||||
Restructuring and impairment expenses, before tax (1) |
— |
6.7 |
— |
|||||||||
Tax effect of restructuring and impairment expenses |
— |
(1.7 |
) | — |
||||||||
U.S. Tax Reform income tax expense (2) |
— |
— |
81.8 |
|||||||||
Adjusted Earnings |
$ | 370.0 |
$ | 449.2 |
$ | 378.3 |
||||||
Diluted EPS (GAAP) |
$ | 2.22 |
$ | 2.58 |
$ | 1.70 |
||||||
Restructuring and impairment expenses per diluted share (1) |
$ | — |
$ | 0.4 |
$ | — |
||||||
Tax effect of restructuring and impairment expenses per diluted share |
— |
(0.1 |
) | — |
||||||||
U.S. Tax Reform income tax expense (2) |
— |
— |
0.47 |
|||||||||
Adjusted EPS |
$ | 2.22 |
$ | 2.61 |
$ | 2.17 |
||||||
Years ended December 31, |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Segment Earnings (GAAP) |
||||||||||||
North America |
$ | 488.9 |
$ | 464.1 |
$ | 428.6 |
||||||
Rest of World |
40.2 |
149.3 |
149.3 |
|||||||||
Total Segment Earnings (GAAP) |
$ | 529.1 |
$ | 613.4 |
$ | 577.9 |
||||||
Adjustments |
||||||||||||
North America (1) |
$ | — |
$ | 6.7 |
$ | — |
||||||
Rest of World |
— |
— |
— |
|||||||||
Total Adjustments |
$ | — |
$ | 6.7 |
$ | — |
||||||
Adjusted Segment Earnings |
||||||||||||
North America |
$ | 488.9 |
$ | 470.8 |
$ | 428.6 |
||||||
Rest of World |
40.2 |
149.3 |
149.3 |
|||||||||
Total Adjusted Segment Earnings |
$ | 529.1 |
$ | 620.1 |
$ | 577.9 |
||||||
(1) |
We recognized $6.7 million of restructuring and impairment expenses in connection with the move of manufacturing operations from our Renton, Washington facility to other U.S. facilities. For additional information, see Note 5 of Notes to Consolidated Financial Statements. |
(2) |
Excluding the impact of one-time U.S. Tax Reform charges, our 2017 adjusted effective income tax rate was 27.4 percent as compared to our effective income tax rate of 43.1 percent in 2017. For additional information, see Note 15 of Notes to Consolidated Financial Statements. |
Product Warranty Liability Valuation | ||
Description of the Matter |
At December 31, 2019, the Company’s product warranty liability was $134.3 million. As discussed in Note 1 of the consolidated financial statements, the Company records a liability for the expected cost of warranty-related claims at the time of sale. The product warranty liability is estimated based upon warranty loss experience using actual historical failure rates and estimated cost of product replacement. Products generally carry warranties from one to ten years. The Company performs separate warranty calculations based on the product type and the warranty term and aggregates them. Auditing the product warranty liability was complex due to the judgmental nature of the warranty loss experience assumptions, including the estimated product failure rate and the estimated cost of product replacement. In particular, it is possible that future product failure rates may not be reflective of historical product failure rates, or that a product quality issue has not yet been identified as of the financial statement date. Additionally, the cost of product replacement could differ from estimates due to fluctuations in the replacement cost of the product. |
How We Addressed the Matter in our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s product warranty liability calculation. For example, we tested controls over management’s review of the product warranty liability calculation, including the significant assumptions and the data inputs to the calculation. To test the Company’s calculation of the product warranty liability, our audit procedures included, among others, evaluating the methodology used, and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We tested the validity and categorization of claims by product type and warranty period within the calculation and tested the completeness of the claims data against the Company’s claim log. We recalculated the historical failure rates using actual claims data. We compared the estimated cost of replacement included in the product warranty liability with the current costs to manufacture a comparable product. We also analyzed subsequent claims data to identify changes in failure trends and assessed the historical accuracy of the prior year liability. Further, we inquired of operational and quality control personnel regarding quality issues and trends. | |
Accounting for Acquisitions – Valuation of Water-Right, Inc. Intangible Assets | ||
Description of the Matter |
During 2019, the Company completed its acquisition of Water-Right, Inc. for consideration of $107.0 million, net of cash acquired, as discussed in Note 3 to the consolidated financial statements. The transaction was accounted for using the purchase method of accounting. Auditing the Company’s accounting for its acquisition of Water-Right, Inc. was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of identified intangible assets of $60.4 million, which principally consisted of customer relationships and trademarks. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The significant assumptions used to estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results (including revenue growth rates, attrition rates and royalty rates). These significant assumptions are forward looking and could be affected by future economic and market conditions. | |
How We Addressed the Matter in our Audit |
We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for acquisitions. For example, we tested controls over the estimation process supporting the measurement of customer relationships and trademark intangible assets, including management’s review of the significant assumptions used in the valuation models. To test the estimated fair value of the customer relationship and trademark intangible assets, our audit procedures included, among others, evaluating the Company’s valuation methodology, and testing the significant assumptions discussed above including the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the revenue growth rates to third-party industry projections for the water treatment and purification market and to the historical performance of the acquired business. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, we evaluated the discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable peers. We also compared the customer attrition rates to historical customer retention rates and the royalty rate to relevant comparable licensing agreements. |
December 31 (dollars in millions) |
||||||||
2019 |
2018 |
|||||||
Assets |
||||||||
Current Assets |
||||||||
Cash and cash equivalents |
$ | |
$ | |
||||
Marketable securities |
|
|
||||||
Receivables |
|
|
||||||
Inventories |
|
|
||||||
Other current assets |
|
|
||||||
Total Current Assets |
|
|
||||||
Net property, plant and equipment |
|
|
||||||
Goodwill |
|
|
||||||
Other intangibles |
|
|
||||||
Operating lease assets |
|
— |
||||||
Other assets |
|
|
||||||
Total Assets |
$ | |
$ | |
||||
Liabilities |
||||||||
Current Liabilities |
||||||||
Trade payables |
$ | |
$ | |
||||
Accrued payroll and benefits |
|
|
||||||
Accrued liabilities |
|
|
||||||
Product warranties |
|
|
||||||
Long-term debt due within one year |
|
— |
||||||
Total Current Liabilities |
|
|
||||||
Long-term debt |
|
|
||||||
Product warranties |
|
|
||||||
Pension liabilities |
|
|
||||||
Long-term operating lease liabilities |
|
— |
||||||
Other liabilities |
|
|
||||||
Total Liabilities |
|
|
||||||
Commitments and contingencies |
|
|
||||||
Stockholders’ Equity |
||||||||
Preferred Stock |
|
|
||||||
Class A Common Stock (shares issued |
|
|
||||||
Common Stock (shares issued |
|
|
||||||
Capital in excess of par value |
|
|
||||||
Retained earnings |
|
|
||||||
Accumulated other comprehensive loss |
( |
) | ( |
) | ||||
Treasury stock at cost |
( |
) | ( |
) | ||||
Total Stockholders’ Equity |
|
|
||||||
Total Liabilities and Stockholders’ Equity |
$ | |
$ | |
||||
Years ended December 31 (dollars in millions, except per share amounts) |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Net sales |
$ | |
$ | |
$ | |
||||||
Cost of products sold |
|
|
|
|||||||||
Gross profit |
|
|
|
|||||||||
Selling, general and administrative expenses |
|
|
|
|||||||||
Restructuring and impairment expenses |
|
|
|
|||||||||
Interest expense |
|
|
|
|||||||||
Other income - net |
( |
) | ( |
) | ( |
) | ||||||
Earnings before provision for income taxes |
|
|
|
|||||||||
Provision for income taxes |
|
|
|
|||||||||
Net Earnings |
$ | |
$ | |
$ | |
||||||
Net Earnings Per Share of Common Stock |
$ | |
$ | |
$ | |
||||||
Diluted Net Earnings Per Share of Common Stock |
$ | |
$ | |
$ | |
||||||
Years ended December 31 (dollars in millions) |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Net Earnings |
$ | |
$ | |
$ | |
||||||
Other comprehensive earnings (loss) |
||||||||||||
Foreign currency translation adjustments |
( |
) | ( |
) | |
|||||||
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax (provision) benefit of ($ |
|
|
( |
) | ||||||||
Change in pension liability less related income tax (provision) benefit of $( |
|
( |
) | |
||||||||
Comprehensive Earnings |
$ | |
$ | |
$ | |
||||||
Years ended December 31 (dollars in millions) |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Operating Activities |
||||||||||||
Net earnings |
$ | |
$ | |
$ | |
||||||
Adjustments to reconcile earnings to cash provided by (used in) operating activities: |
||||||||||||
Depreciation and amortization |
|
|
|
|||||||||
U.S. Tax Reform income tax expense |
— |
— |
|
|||||||||
Stock based compensation expense |
|
|
|
|||||||||
Net changes in operating assets and liabilities, net of acquisitions: |
||||||||||||
Current assets and liabilities |
|
( |
) | ( |
) | |||||||
Noncurrent assets and liabilities |
( |
) | ( |
) | ( |
) | ||||||
Cash Provided by Operating Activities |
|
|
|
|||||||||
Investing Activities |
||||||||||||
Acquisitions of businesses |
( |
) | — |
( |
) | |||||||
Investments in marketable securities |
( |
) | ( |
) | ( |
) | ||||||
Proceeds from sales of marketable securities |
|
|
|
|||||||||
Capital expenditures |
( |
) | ( |
) | ( |
) | ||||||
Cash Provided by (Used in) Investing Activities |
|
( |
) | ( |
) | |||||||
Financing Activities |
||||||||||||
Long-term debt incurred (repaid) |
|
( |
) | |
||||||||
Common stock repurchases |
( |
) | ( |
) | ( |
) | ||||||
Net (payments) proceeds from stock option activity |
( |
) | |
( |
) | |||||||
Payment of contingent consideration |
( |
) | ( |
) | ( |
) | ||||||
Dividends paid |
( |
) | ( |
) | ( |
) | ||||||
Cash Used in Financing Activities |
( |
) | ( |
) | ( |
) | ||||||
Net increase (decrease) in cash and cash equivalents |
|
( |
) | |
||||||||
Cash and cash equivalents-beginning of year |
|
|
|
|||||||||
Cash and Cash Equivalents-End of Year |
$ | |
$ | |
$ | |
||||||
Years ended December 31 (dollars in millions) |
||||||||||||
2019 |
2018 |
2017 |
||||||||||
Class A Common Stock |
||||||||||||
Balance at the beginning of the year |
$ | |
$ | |
$ | |
||||||
Conversion of Class A Common Stock |
( |
) | ( |
) | ( |
) | ||||||
Balance at the end of the year |
$ | |
$ | |
$ | |
||||||
Common Stock |
||||||||||||
Balance at the beginning of the year |
$ | |
$ | |
$ | |
||||||
Conversion of Class A Common Stock |
|
|
|
|||||||||
Balance at the end of the year |
$ | |
$ | |
$ | |
||||||
Capital in Excess of Par Value |
||||||||||||
Balance at the beginning of the year |
$ | |
$ | |
$ | |
||||||
Conversion of Class A Common Stock |
|
|
|
|||||||||
Issuance of share units |
( |
) | ( |
) | ( |
) | ||||||
Vesting of share units |
( |
) | ( |
) | ( |
) | ||||||
Stock based compensation expense |
|
|
|
|||||||||
Exercises of stock options |
|
|
|
|||||||||
Stock incentives |
|
|
|
|||||||||
Balance at the end of the year |
$ | |
$ | |
$ | |
||||||
Retained Earnings |
||||||||||||
Balance at the beginning of the year |
$ | |
$ | |
$ | |
||||||
Net earnings |
|
|
|
|||||||||
Cash dividends on stock |
( |
) | ( |
) | ( |
) | ||||||
Balance at the end of the year |
$ | |
$ | |
$ | |
||||||
Accumulated Other Comprehensive Loss |
||||||||||||
Balance at the beginning of the year |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Foreign currency translation adjustments |
( |
) | ( |
) | |
|||||||
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax (provision) benefit of ($ |
|
|
( |
) | ||||||||
Change in pension liability less related income tax benefit (provision) of $( |
|
( |
) | |
||||||||
Balance at the end of the year |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Treasury Stock |
||||||||||||
Balance at the beginning of the year |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Exercise of stock options, net of |
( |
) | ( |
) | ( |
) | ||||||
Stock incentives and directors’ compensation |
|
|
|
|||||||||
Shares repurchased |
( |
) | ( |
) | ( |
) | ||||||
Vesting of share units |
|
|
|
|||||||||
Balance at the end of the year |
$ | ( |
) | $ | ( |
) | $ | ( |
) | |||
Total Stockholders’ Equity |
$ | |
$ | |
$ | |
||||||
Years ended December 31 (dollars in millions) |
2019 |
2018 |
||||||
Balance at beginning of year |
$ | |
$ | |
||||
Expense |
|
|
||||||
Claims settled |
( |
) | ( |
) | ||||
Balance at end of year |
$ | |
$ | |
||||
Fair Value Measurement Using |
December 31, 2019 |
December 31, 2018 |
||||||
Quoted prices in active markets for identical assets (Level |
$ | |
$ | |
||||
Significant other observable inputs (Level 2) |
|
|
2019 |
2018 |
2017 |
||||||||||
Denominator for basic earnings per share - weighted-average shares outstanding |
|
|
|
|||||||||
Effect of dilutive stock options, restricted stock and share units |
|
|
|
|||||||||
Denominator for diluted earnings per share |
|
|
|
|||||||||
Years ending December 31 (dollars in millions) |
2019 |
2018 |
2017 |
|||||||||
North America |
||||||||||||
Water heaters and related parts |
$ | $ | $ | |||||||||
Boilers and related parts |
||||||||||||
Water treatment products (1) |
||||||||||||
Total North America |
||||||||||||
Rest of World |
||||||||||||
China |
$ | $ | $ | |||||||||
All other Rest of World |
||||||||||||
Total Rest of World |
||||||||||||
Inter-segment sales |
( |
) | ( |
) | ( |
) | ||||||
Total Net Sales |
$ | $ | $ | |||||||||
(1) |
Includes the results of Water-Right and Hague Quality Water International (Hague) from the date of acquisition of April 8, 2019 and September 5, 2017, respectively. |
April 8, 2019 (dollars in millions) |
||||
Current assets, net of cash acquired |
$ | |||
Property, plant and equipment |
||||
Intangible assets |
||||
Goodwill |
||||
Total assets acquired |
||||
Current liabilities |
( |
) | ||
Net assets acquired |
$ | |||
September 5, 2017 (dollars in millions) |
||||
Current assets, net of cash acquired |
$ | |||
Property, plant and equipment |
||||
Intangible assets |
||||
Goodwill |
||||
Total assets acquired |
||||
Current liabilities |
( |
) | ||
Long-term liabilities |
( |
) | ||
Total liabilities assumed |
( |
) | ||
Net assets acquired |
$ | |||
(dollars in millions) |
||||
December 31, 2019 |
||||
Liabilities |
||||
Short term: Accrued liabilities |
$ | |
||
Long term: Operating lease liabilities |
|
|||
Total operating lease liabilities |
$ | |
||
Less: Rent incentives and deferrals |
( |
) | ||
Assets |
||||
Operating lease assets |
$ | |
||
Lease Term and Discount Rate |
December 31, 2019 |
|||
Weighted-average remaining lease term |
|
|||
Weighted-average discount rate |
|
(dollars in millions) |
||||||
Lease Expense |
Classification |
Twelve months ended December 31, 2019 |
||||
Operating lease expense (1) |
Cost of products sold |
$ | |
|||
Selling, general and administrative expenses |
|
(1) |
Includes short-term lease expense of $ |
(dollars in millions) |
||||
December 31, 2019 |
||||
2020 |
$ | |
||
2021 |
|
|||
2022 |
|
|||
2023 |
|
|||
2024 |
|
|||
After 2024 |
|
|||
Total lease payments |
|
|||
Less: imputed interest |
( |
) | ||
Present value of operating lease liabilities |
$ | |
||
(dollars in millions) |
||||||||||||||||
Severance Costs |
Lease Exit Costs |
Fixed Assets Impairment |
Total |
|||||||||||||
Balance at January 1, 2018 |
$ | |
$ | |
$ | |
$ | |
||||||||
Restructuring expense recognized |
|
|
|
|
||||||||||||
Cash payments and disposals |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Balance at December 31, 2018 |
|
|
|
|
||||||||||||
Cash payments and disposals |
( |
) | ( |
) | |
( |
) | |||||||||
Balance at December 31, 2019 |
$ | |
$ | |
$ | |
$ | |
||||||||
Years ended December 31 (dollars in millions) |
2019 |
2018 |
2017 |
|||||||||
Net change in current assets and liabilities, net of acquisitions: |
||||||||||||
Receivables |
$ | |
$ | ( |
) | $ | ( |
) | ||||
Inventories |
|
( |
) | ( |
) | |||||||
Other current assets |
( |
) | |
( |
) | |||||||
Trade payables |
( |
) | |
( |
) | |||||||
Accrued liabilities, including payroll and benefits |
|
( |
) | |
||||||||
Income taxes |
( |
) | |
( |
) | |||||||
$ | |
$ | ( |
) | $ | ( |
) | |||||
December 31 (dollars in millions) |
2019 |
2018 |
||||||
Finished products |
$ | |
$ | |
||||
Work in process |
|
|
||||||
Raw materials |
|
|
||||||
Inventories, at FIFO cost |
|
|
||||||
LIFO reserve |
( |
) | ( |
) | ||||
$ | |
$ | |
|||||
December 31 (dollars in millions) |
2019 |
2018 |
||||||
Land |
$ | |
$ | |
||||
Buildings |
|
|
||||||
Equipment |
|
|
||||||
Software |
|
|
||||||
|
|
|||||||
Less accumulated depreciation and amortization |
|
|
||||||
$ | |
$ | |
|||||
(dollars in millions) |
North America |
Rest of World |
Total |
|||||||||
Balance at December 31, 2017 |
$ |
|
$ |
|
$ |
|
||||||
Currency translation adjustment |
( |
) | ( |
) | ( |
) | ||||||
Balance at December 31, 2018 |
|
|
|
|||||||||
Acquisition |
|
— |
|
|||||||||
Currency translation adjustment |
|
— |
|
|||||||||
Balance at December 31, 2019 |
$ | |
$ | |
$ | |
||||||
2019 |
2018 |
|||||||||||||||||||||||
December 31 (dollars in millions) |
Gross Carrying Amount |
Accumulated Amortization |
Net |
Gross Carrying Amount |
Accumulated Amortization |
Net |
||||||||||||||||||
Amortizable intangible assets: |
||||||||||||||||||||||||
Patents |
$ | |
$ | ( |
) | $ | |
$ | |
$ | ( |
) | $ | |
||||||||||
Customer lists |
|
( |
) | |
|
( |
) | |
||||||||||||||||
Total amortizable intangible assets |
|
( |
) | |
|
( |
) | |
||||||||||||||||
Indefinite-lived intangible assets: |
||||||||||||||||||||||||
Trade names |
|
— |
|
|
— |
|
||||||||||||||||||
Total intangible assets |
$ | |
$ | ( |
) | $ | |
$ | |
$ | ( |
) | $ | |
||||||||||
December 31 (dollars in millions) |
2019 |
2018 |
||||||
Bank credit lines, average year-end interest rates of |
$ | |
$ | |
||||
Revolving credit agreement borrowings, average year-end interest rates of |
|
|
||||||
Commercial paper, average year-end interest rates of |
|
|
||||||
Term notes with insurance companies, expiring year-end interest rates of |
|
|
||||||
|
|
|||||||
Less long-term debt due within one year |
|
— |
||||||
Long-term debt |
$ | |
$ | |
||||
Years ending December 31 (dollars in millions) |
Amount |
|||
2020 |
$ | |
||
2021 |
|
|||
2022 |
|
|||
2023 |
|
|||
2024 |
|
Years ended December 31, |
||||||||
2019 |
201 8 |
|||||||
Cumulative foreign currency translation |
||||||||
Balance at beginning of period |
$ | ( |
) | $ | ( |
) | ||
Other comprehensive gain (loss) before reclassifications |
( |
) | ( |
) | ||||
Balance at end of period |
( |
) | ( |
) | ||||
Unrealized net (loss) gain on cash flow derivatives |
||||||||
Balance at beginning of period |
( |
) | ( |
) | ||||
Other comprehensive (loss) gain before reclassifications |
( |
) | |
|||||
Realized losses (gains) on derivatives reclassified to cost of products sold (net of tax (benefit) provision of ($ (1) |
|
( |
) | |||||
Balance at end of period |
|
( |
) | |||||
Pension liability |
||||||||
Balance at beginning of period |
( |
) | ( |
) | ||||
Other comprehensive (loss) gain before reclassifications |
( |
) | ( |
) | ||||
Amounts reclassified from accumulated other comprehensive loss (1) |
|
|
||||||
Balance at end of period |
( |
) | ( |
) | ||||
Total accumulated other comprehensive loss, end of period |
$ |
( |
$ |
( |
||||
(1) |
Amounts reclassified from accumulated other comprehensive loss: |
Realized loss (gains) on derivatives reclassified to cost of products sold |
|
( |
) | |||||
Tax (benefit) provision |
( |
) |
|
|||||
Reclassification net of tax |
$ |
|
$ |
( |
) | |||
Amortization of pension items: |
||||||||
Actuarial losses |
$ |
|
(2) |
$ |
|
(2) | ||
Prior year service cost |
( |
) (2) |
( |
) (2) | ||||
|
|
|||||||
Tax benefit |
( |
) |
( |
) | ||||
Reclassification net of tax |
$ |
|
$ |
|
||||
(2) |
These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost. See Note 13 “Pensions and Other Post-retirement Benefits” for additional details. |
Years Ended December 31 |
2019 |
2018 |
2017 |
|||||||||||||||||||||
Number of Options |
Weighted Avg. Per Share Exercise Price |
Number of Options |
Weighted Avg. Per Share Exercise Price |
Number of Options |
Weighted Avg. Per Share Exercise Price |
|||||||||||||||||||
Number of shares under options: |
||||||||||||||||||||||||
Outstanding at beginning of year |
|
|
|
|
|
|
||||||||||||||||||
Granted |
|
|
|
|
|
|
||||||||||||||||||
Exercised (1) |
( |
) | |
( |
) | |
( |
) | |
|||||||||||||||
Forfeited |
( |
) | |
( |
) | |
( |
) | |
|||||||||||||||
Outstanding at end of year (2) |
|
|
|
|
|
|
||||||||||||||||||
Exercisable at end of year (3) |
|
|
|
|
|
|
||||||||||||||||||
(1) | The total intrinsic value of options exercised in 2019, 2018 and 2017 was $ |
(2) | The weighted average remaining contractual life of options outstanding was |
(3) | The weighted average remaining contractual life of options exercisable was |
Number of Options |
Weighted Avg. Per Share Exercise Price |
|||||||
Nonvested options at beginning of year |
|
|
||||||
Granted |
|
|
||||||
Vested |
( |
) | |
|||||
Forfeited |
( |
) | |
|||||
Nonvested options at end of year |
|
|
||||||
2019 |
2018 |
2017 |
||||||||||
Expected life (years) |
||||||||||||
Risk-free interest rate |
% | % | % | |||||||||
Dividend yield |
% | % | % | |||||||||
Expected volatility |
% | % | % |
Number of Units |
Weighted-Average Grant Date Value |
|||||||
Issued and unvested at January 1, 2019 |
$ | |||||||
Granted |
||||||||
Vested |
( |
) | ||||||
Forfeited |
( |
) | ||||||
Issued and unvested at December 31, 2019 |
||||||||
Pension Benefits |
Post-retirement Benefits |
|||||||||||||||
Years ended December 31 (dollars in millions) |
2019 |
2018 |
2019 |
2018 |
||||||||||||
Accumulated benefit obligation (ABO) at December 31 |
$ | $ | N/A |
N/A |
||||||||||||
Change in projected benefit obligations (PBO) |
||||||||||||||||
PBO at beginning of year |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Service cost |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Interest cost |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Participant contributions |
— |
— |
( |
) | ( |
) | ||||||||||
Actuarial (loss) gain including assumption changes |
( |
) | ( |
) | ||||||||||||
Benefits paid |
||||||||||||||||
PBO at end of year |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Change in fair value of plan assets |
||||||||||||||||
Plan assets at beginning of year |
$ | $ | $ | — |
$ | — |
||||||||||
Actual return on plan assets |
( |
) | — |
— |
||||||||||||
Contribution by the Company |
||||||||||||||||
Participant contributions |
— |
— |
||||||||||||||
Benefits paid |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Plan assets at end of year |
$ | $ | $ | — |
$ | — |
||||||||||
Funded status |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Amount recognized in the balance sheet |
||||||||||||||||
Current liabilities |
$ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
Non-current liabilities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Net pension liability at end of year |
$ | ( |
)* | $ | ( |
)* | $ | ( |
) | $ | ( |
) | ||||
Amounts recognized in accumulated other comprehensive loss before tax |
||||||||||||||||
Net actuarial loss (gain) |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
Prior service cost |
— |
( |
) | ( |
) | |||||||||||
Total recognized in accumulated other comprehensive loss |
$ | $ | $ | ( |
) | $ | ( |
) | ||||||||
* | In addition, the Company has a liability for a foreign pension plan of $ |
Pension Benefits |
Post-retirement Benefits |
|||||||||||||||||||||||
Years ended December 31 (dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||||||||
Net periodic benefit cost |
||||||||||||||||||||||||
Service cost |
$ | |
$ | |
$ | |
$ | |
$ | 0.1 |
$ | |
||||||||||||
Interest cost |
|
|
|
|
|
|
||||||||||||||||||
Expected return on plan assets |
( |
) | ( |
) | ( |
) | |
|
|
|||||||||||||||
Amortization of unrecognized: |
||||||||||||||||||||||||
Net actuarial loss (gain) |
|
|
|
|
|
( |
) | |||||||||||||||||
Prior service cost |
( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||||||
Defined-benefit plan income |
( |
) | ( |
) | ( |
) | $ | |
$ | |
$ | ( |
) | |||||||||||
Curtailment and other one-time charges |
|
|
|
|||||||||||||||||||||
Various U.S. defined contribution plans cost |
|
|
|
|||||||||||||||||||||
$ | |
$ | |
$ | |
|||||||||||||||||||
Other changes in plan assets and projected benefit obligation recognized in other comprehensive |
||||||||||||||||||||||||
Net actuarial loss (gain) |
$ | |
$ | |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
||||||||||
Amortization of net actuarial (loss) gain |
( |
) | ( |
) | ( |
) | |
|
|
|||||||||||||||
Amortization of prior service cost |
|
|
|
|
|
|
||||||||||||||||||
Total recognized in other comprehensive loss |
( |
) | |
( |
) | |
( |
) | |
|||||||||||||||
Total recognized in net periodic (benefit) cost and other comprehensive loss |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
$ | ( |
) | $ | |
|||||||||
Pension Benefits |
Post-retirement Benefits |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Discount rate |
|
% | |
% | |
% | |
% |
Pension Benefits |
Post-retirement Benefits |
|||||||||||||||||||||||
Years ended December 31 |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||||||||
Discount rate |
|
% | |
% | |
% | |
% | |
% | |
% | ||||||||||||
Expected long-term return on plan assets |
|
% | |
% | |
% | n/a |
n/a |
n/a |
|||||||||||||||
Rate of compensation increase |
|
% | |
% | |
% | |
% | |
% | |
% |
2019 |
2018 |
|||||||
Health care cost trend rate assumed for next year |
|
% | |
% | ||||
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) |
|
% | |
% | ||||
Year that the rate reaches the ultimate trend rate |
|
|
Asset Category |
2019 |
2018 |
||||||
Equity securities |
|
% | |
% | ||||
Debt securities |
|
|
||||||
Real estate |
|
|
||||||
Private equity |
|
|
||||||
|
% | |
% | |||||
December 31, 2019 |
||||||||||||||||
Asset Category |
Total |
Quoted Prices in Active Markets for Identical Contracts (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Non- observable Inputs (Level 3) |
||||||||||||
Short-term investments |
$ | |
$ | |
$ | |
$ | — |
||||||||
Equity securities |
||||||||||||||||
Common stocks |
|
|
— |
— |
||||||||||||
Commingled equity funds |
|
— |
|
— |
||||||||||||
Fixed income securities |
||||||||||||||||
U.S. treasury securities |
|
|
— |
— |
||||||||||||
Other fixed income securities |
|
— |
|
— |
||||||||||||
Commingled fixed income funds |
|
— |
|
— |
||||||||||||
Options |
( |
) | — |
( |
) | — |
||||||||||
Other types of investments |
||||||||||||||||
Mutual funds |
|
— |
|
— |
||||||||||||
Real estate funds |
|
— |
— |
|
||||||||||||
Private equity |
|
— |
— |
|
||||||||||||
Total fair value of plan asset investments |
$ | |
$ | |
$ | |
$ | |
||||||||
Non-investment plan assets |
|
|||||||||||||||
Total plan assets |
$ | |
||||||||||||||
December 31, 2018 |
||||||||||||||||
Asset Category |
Total |
Quoted Prices in Active Markets for Identical Contracts (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Non- observable Inputs (Level 3) |
||||||||||||
Short-term investments |
$ | |
$ | — |
$ | |
$ | — |
||||||||
Equity securities |
||||||||||||||||
Common stocks |
|
|
— |
— |
||||||||||||
Commingled equity funds |
|
— |
|
— |
||||||||||||
Fixed income securities |
||||||||||||||||
U.S. treasury securities |
|
|
— |
— |
||||||||||||
Other fixed income securities |
|
— |
|
— |
||||||||||||
Commingled fixed income funds |
|
— |
|
— |
||||||||||||
Other types of investments |
||||||||||||||||
Mutual funds |
|
— |
|
— |
||||||||||||
Real estate funds |
|
— |
— |
|
||||||||||||
Private equity |
|
— |
— |
|
||||||||||||
Total fair value of plan asset investments |
$ | |
$ | |
$ | |
$ | |
||||||||
Non-investment plan assets |
|
|||||||||||||||
Total plan assets |
$ | |
||||||||||||||
Real estate funds |
Private equity |
Total |
||||||||||
Balance at December 31, 2017 |
$ | |
$ | |
$ | |
||||||
Actual return (loss) on plan assets: |
||||||||||||
Relating to assets still held at the reporting date |
|
( |
) | |
||||||||
Relating to assets sold during the period |
— |
( |
) | ( |
) | |||||||
Purchases, sales and settlements |
— |
( |
) | ( |
) | |||||||
Balance at December 31, 2018 |
|
|
|
|||||||||
Actual return (loss) on plan assets: |
||||||||||||
Relating to assets still held at the reporting date |
|
— |
|
|||||||||
Relating to assets sold during the period |
— |
( |
) | ( |
) | |||||||
Purchases, sales and settlements |
— |
( |
) | ( |
) | |||||||
Balance at December 31, 2019 |
$ | |
$ | |
$ | |
||||||
Years ending December 31 (dollars in millions) |
Pension Benefits |
Post-retirement Benefits |
||||||
2020 |
$ | $ | ||||||
2021 |
||||||||
2022 |
||||||||
2023 |
||||||||
2024 |
||||||||
2025 – 2029 |
December 31 (dollars in millions) |
2019 |
2018 |
||||||||||||||
Buy |
Sell |
Buy |
Sell |
|||||||||||||
British pound |
$ | — |
$ | $ | — |
$ | ||||||||||
Canadian dollar |
— |
— |
— |
|||||||||||||
Euro |
— |
— |
||||||||||||||
Mexican peso |
— |
— |
||||||||||||||
Total |
$ | $ | $ | $ | ||||||||||||
Fair Value |
||||||||||
December 31 (dollars in millions) |
Balance Sheet Location |
2019 |
2018 |
|||||||
Foreign currency contracts |
Other current assets |
$ | $ | |||||||
Other non-current assets |
||||||||||
Accrued liabilities |
( |
) | ( |
) | ||||||
Commodities contracts |
Accrued liabilities |
( |
) | |||||||
Total derivatives designated as hedging instruments |
$ | $ | ||||||||
Derivatives in ASC 815 cash flow hedging relationships |
Amount of gain (loss) recognized in other comprehensive loss on derivative s |
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 |
$ | $ | Cost of products sold |
$ | ( |
) | $ | |||||||||||||
Commodities contracts |
( |
) | ( |
) | Cost of products sold |
( |
) | |||||||||||||
$ | ( |
) | $ | $ | ( |
) | $ | |||||||||||||
Years ended December 31 (dollars in millions) |
2019 |
2018 |
2017 |
|||||||||
Current: |
||||||||||||
Federal |
$ | $ | $ | |||||||||
State |
||||||||||||
International |
||||||||||||
Deferred: |
||||||||||||
Federal |
( |
) | ||||||||||
State |
||||||||||||
International |
( |
) | ( |
) | ( |
) | ||||||
$ | $ | $ | ||||||||||
Years ended December 31 |
2019 |
2018 |
2017 |
|||||||||
Provision at U.S. federal statutory rate |
% | % | % | |||||||||
State taxes, net of federal benefit |
||||||||||||
International income tax rate differential—China |
( |
) | ( |
) | ( |
) | ||||||
International income tax rate differential—other |
||||||||||||
U.S. manufacturing credit |
— |
— |
( |
) | ||||||||
Research tax credits |
( |
) | ( |
) | ( |
) | ||||||
Excess tax benefit on stock compensation |
( |
) | ( |
) | ( |
) | ||||||
Other |
( |
) | ( |
) | ||||||||
% | % | % | ||||||||||
U.S. Tax Cuts & Jobs Act (U.S. Tax Reform) |
— |
— |
||||||||||
% | % | % |
Years ended December 31 (dollars in millions) |
2019 |
2018 |
2017 |
|||||||||
U.S. |
$ | $ | $ | |||||||||
International |
||||||||||||
$ | $ | $ | ||||||||||
December 31 (dollars in millions) |
||||||||||||||||
2019 |
2018 |
|||||||||||||||
Assets |
Liabilities |
Assets |
Liabilities |
|||||||||||||
Employee benefits |
$ | $ | $ | $ | ||||||||||||
Product liability and warranties |
||||||||||||||||
Inventories |
||||||||||||||||
Accounts receivable |
||||||||||||||||
Property, plant and equipment |
||||||||||||||||
Intangibles |
||||||||||||||||
Environmental liabilities |
||||||||||||||||
Undistributed foreign earnings |
||||||||||||||||
Tax loss and credit carryovers |
||||||||||||||||
All other |
||||||||||||||||
Valuation allowance |
( |
) | ( |
) | ||||||||||||
$ | $ | $ | $ | |||||||||||||
Net liability |
$ | $ | ||||||||||||||
December 31 (dollars in millions) |
||||||||||||||||
Net Operating Losses and Tax Credits |
Valuation Allowances |
|||||||||||||||
2019 |
2018 |
2019 |
2018 |
|||||||||||||
Beginning balance |
$ | $ | $ | $ | ||||||||||||
Reductions |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Ending balance |
$ | $ | $ | $ | ||||||||||||
(Dollars in millions) |
2019 |
2018 |
||||||
Balance at January 1 |
$ | $ | ||||||
Additions for tax positions of prior years |
||||||||
Balance at December 31 |
$ | $ | ||||||
Net Sales |
Earnings |
|||||||||||||||||||||||
Years ended December 31 (dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||||||||
North America (1) |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Rest of World |
||||||||||||||||||||||||
Inter-segment |
( |
) | ( |
) | ( |
) | — |
— |
— |
|||||||||||||||
Total segments – sales, segment earnings |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
Corporate expenses |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Interest expense |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Earnings before income taxes |
||||||||||||||||||||||||
Provision for income taxes (2) |
( |
) | ( |
) | ( |
) | ||||||||||||||||||
Net earnings |
$ | $ | $ | |||||||||||||||||||||
(1) |
In 2018, the Company recognized $ |
(2) |
In 2017, the Company recorded a one-time charge of $ |
Total Assets (December 31) |
Depreciation and Amortization (Years Ended December 31) |
Capital Expenditures (Years Ended December 31) |
||||||||||||||||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
|||||||||||||||||||||||||||
North America |
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Rest of World |
||||||||||||||||||||||||||||||||||||
Corporate |
||||||||||||||||||||||||||||||||||||
Total |
$ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||
Long-lived Assets (December 31) |
Net Sales (Years Ended December 31) |
|||||||||||||||||||||||||
(dollars in millions) |
2019 |
2018 |
2017 |
2019 |
2018 |
2017 |
||||||||||||||||||||
United States |
$ | |
$ | |
$ | |
United States |
$ | |
$ | |
|
$ | |
||||||||||||
China |
|
|
|
China |
|
|
|
|||||||||||||||||||
Canada |
|
|
|
Canada |
|
|
|
|||||||||||||||||||
Other Foreign |
|
|
|
Other Foreign |
|
|
|
|||||||||||||||||||
Total |
$ | |
$ | |
$ | |
Total |
$ |
|
$ | |
$ | |
|||||||||||||
(dollars in millions, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||
1st Quarter |
2nd Quarter |
3rd Quarter |
4th Quarter |
|||||||||||||||||||||||||||||
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
2019 |
2018 |
|||||||||||||||||||||||||
Net sales |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
$ | |
||||||||||||||||
Gross profit |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Net earnings |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Basic earnings per share |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Diluted earnings per share |
|
|
|
|
|
|
|
|
||||||||||||||||||||||||
Common dividends declared |
|
|
|
|
|
|
|
|
/s/ Ernst & Young LLP |
Milwaukee, Wisconsin |
February 24, 2020 |
Plan Category |
Number of securities to be issued upon the exercise of outstanding options, warrants and rights |
Weighted-average exerciseprice of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in the first column) |
|||||||||
Equity compensation plans approved by security holders |
3,321,472 |
(1) |
$ | 37.64 |
(2) |
1,855,560 |
(3) | |||||
Equity compensation plans not approved by security holders |
— |
— |
— |
|||||||||
Total |
3,321,472 |
$ | 37.64 |
1,855,560 |
||||||||
(1) |
Consists of 2,728,350 shares subject to stock options, 313,763 shares subject to employee share units and 279,359 shares subject to director share units. |
(2) |
Represents the weighted average exercise price of outstanding options and does not take into account outstanding share units. |
(3) |
Represents securities remaining available for issuance under the A. O. Smith Combined Incentive Compensation Plan. If any awards lapse, expire, terminate or are cancelled without issuance of shares, or shares are forfeited under any award, then such shares will become available for issuance under the A. O. Smith Combined Incentive Compensation Plan, hereby increasing the number of securities remaining available. |
(a) | The following documents are filed as part of this Annual Report on Form 10-K: |
1. | Financial Statements of the Company |
Form 10-K Page Number |
||||
The following consolidated financial statements of A. O. Smith Corporation are included in Item 8: |
||||
26 |
||||
For each of the three years in the period ended December 31, 2019: |
||||
27 |
||||
27 |
||||
28 |
||||
29 |
||||
30 - 56 |
2. | Financial Statement Schedules |
3. | Exhibits - see the Index to Exhibits on pages 64—65 of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K are listed as Exhibits 10(a) through 10(m) in the Index to Exhibits. |
Exhibit Number |
Description | |||||
(3)(i) |
||||||
(3)(ii) |
||||||
(4) |
(a) |
|||||
(b) |
||||||
(c) |
||||||
(d) |
The corporation has instruments that define the rights of holders of long-term debt that are not being filed with this Registration Statement in reliance upon Item 601(b)(4)(iii) of Regulation S-K. The Registrant agrees to furnish to the SEC, upon request, copies of these instruments. | |||||
(10) |
Material Contracts | |||||
|
(a) |
|||||
(b) |
||||||
(c) |
||||||
(d) |
||||||
(e) |
||||||
(f) |
||||||
(g) |
||||||
(h) |
Exhibit Number |
Description | |||||
(i) |
||||||
(j) |
||||||
(k) |
||||||
(l) |
||||||
(m) |
||||||
(21) |
||||||
(23) |
||||||
(31.1) |
||||||
(31.2) |
||||||
(32.1) |
||||||
(32.2) |
||||||
(101) |
The following materials from A. O. Smith Corporation’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 are filed herewith, formatted in XBRL (Extensive Business Reporting Language): (i) the Consolidated Balance Sheets as of December 31, 2019 and 2018, (ii) the Consolidated Statement of Earnings for the three years ended December 31, 2019, (iii) the Consolidated Statement of Comprehensive Earnings for the three years ended December 31, 2019, (iv) the Consolidated Statement of Cash Flows for the three years ended December 31, 2019, (v) the Consolidated Statement of Stockholders’ Equity for the three years ended December 31, 2019 and (vi) the Notes to Consolidated Financial Statements. |
A. O. SMITH CORPORATION | ||||||
Date: February 24, 2020 |
By: |
/s/ Ajita G. Rajendra | ||||
Ajita G. Rajendra | ||||||
Executive Chairman of | ||||||
the Board of Directors |
Name and Title |
Signature | |
AJITA G. RAJENDRA |
/s/ Ajita G. Rajendra | |
Executive Chairman of the Board of Directors |
Ajita G. Rajendra | |
KEVIN J. WHEELER |
/s/ Kevin J. Wheeler | |
Director |
Kevin J. Wheeler | |
President and Chief Executive Officer |
||
CHARLES T. LAUBER |
/s/ Charles T. Lauber | |
Executive Vice President and Chief Financial Officer |
Charles T. Lauber | |
HELEN E. GURHOLT |
/s/ Helen E. Gurholt | |
Vice President and Controller |
Helen E. Gurholt | |
RONALD D. BROWN |
/s/ Ronald D. Brown | |
Director |
Ronald D. Brown | |
WILLIAM P. GREUBEL |
/s/ William P. Greubel | |
Director |
William P. Greubel | |
PAUL W. JONES |
/s/ Paul W. Jones | |
Director |
Paul W. Jones | |
DR. ILHAM KADRI |
/s/ Dr. Ilham Kadri | |
Director |
Dr. Ilham Kadri | |
BRUCE M. SMITH |
/s/ Bruce M. Smith | |
Director |
Bruce M. Smith | |
MARK D. SMITH |
/s/ Mark D. Smith | |
Director |
Mark D. Smith | |
IDELLE K. WOLF |
/s/ Idelle K. Wolf | |
Director |
Idelle K. Wolf | |
GENE C. WULF |
/s/ Gene C. Wulf | |
Director |
Gene C. Wulf |
Description |
Balance at Beginning of Year |
Charged to Costs and Expenses |
Acquisition of Businesses |
Deductions |
Balance at End of Year |
|||||||||||||||
2019: |
||||||||||||||||||||
Valuation allowance for trade and notes receivable |
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
|||||||||
Valuation allowance for deferred tax assets |
|
|
|
( |
) | |
||||||||||||||
2018: |
||||||||||||||||||||
Valuation allowance for trade and notes receivable |
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
|||||||||
Valuation allowance for deferred tax assets |
|
|
|
( |
) | |
||||||||||||||
2017: |
||||||||||||||||||||
Valuation allowance for trade and notes receivable |
$ | |
$ | |
$ | |
$ | ( |
) | $ | |
|||||||||
Valuation allowance for deferred tax assets |
|
|
|
|
|