What changed in this filing

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Item 1. Financial Statements

2021-10-29 compared with 2021-07-30 · 106 added, 73 removed, 506 unchanged (26% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

16 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net earnings $ 131.6 $ 105.4 $ 347.5 $ 224.9

Other comprehensive earnings (loss)

Other comprehensive (loss) earnings

Foreign currency translation adjustments ( 2.4 ) 15.7 1.1 1.4

8 unchanged sentences

(dollars in millions)

September 30,

Current Assets

42 unchanged sentences

(dollars in millions)

Six Months Ended

Nine Months Ended

September 30,

Operating Activities

9 unchanged sentences

Capital expenditures ( 45.3 ) ( 36.7 )

Acquisitions of businesses ( 9.0 ) —

Investments in marketable securities ( 160.1 ) ( 119.9 )

15 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

32 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021

September 30, 2021

Basis of Presentation

2 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full year.

Operating results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results expected for the full year.

It is suggested the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 12, 2021.

1 unchanged sentence

In December 2019, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 740, Income Taxes (issued under Accounting Standards Update (ASU) 2019-12, “Simplifying the Accounting for Income Taxes”).

This amendment removes certain exceptions to the general principles of ASC 740 and clarifies and amends existing guidance to improve consistent application.

This amendment removed certain exceptions to the general principles of ASC 740 and clarified and amended existing guidance to improve consistent application.

The Company adopted the amendment on January 1, 2021, and the adoption of ASU 2019-12 did not have an impact on its consolidated balance sheets, statements of earnings or statements of cash flows.

10 unchanged sentences

The Company’s payment terms for the majority of its customers are 30 to 90 days from shipment.

Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $ 92.9 million and $ 90.0 million at June 30, 2021 and December 31, 2020, respectively.

Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $ 100.4 million and $ 90.0 million at September 30, 2021 and December 31, 2020, respectively.

Customer deposit liabilities are short term in nature and deposits are recognized into revenue within one year of receipt.

2 unchanged sentences

In addition, the Company monitors other risk factors including forward-looking information when establishing adequate allowances for doubtful accounts, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables.

The Company’s allowance for doubtful accounts was $ 8.8 million at June 30, 2021 and $ 5.6 million at December 31, 2020.

The Company’s allowance for doubtful accounts was $ 10.1 million at September 30, 2021 and $ 5.6 million at December 31, 2020.

Rebates and incentives are based on pricing agreements and are tied to sales volume.

33 unchanged sentences

(dollars in millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

11 unchanged sentences

Severance and Restructuring Expenses

To align its business to current market conditions, during the three months ended June 30, 2020, the Company recognized $ 6.1 million of pre-tax severance and restructuring expenses, comprised of $ 5.2 million severance costs and $ 0.9 million of other restructuring expenses, as well as a corresponding $ 1.1 million tax benefit related to these expenses.

Of the $ 6.1 million expense recognized, $ 2.2 million was related to the North America segment and $ 3.9 million was related to the Rest of World segment.

To align its business to market conditions, during the three and nine months ended September 30, 2020, the Company recognized $ 1.6 million and $ 7.7 million of pre-tax severance and restructuring expenses, respectively.

Charges recognized during the three months ended September 30, 2020, were comprised of $ 1.6 million severance costs, as well as a corresponding $ 0.3 million tax benefit related to these expenses.

Charges recognized during the nine months ended September 30, 2020, were comprised of $ 6.8 million severance costs and $ 0.9 million of other restructuring expenses, as well as a corresponding $ 1.4 million tax benefit related to these expenses.

Of the $ 1.6 million expense recognized during the three months ended September 30, 2020, $ 0.5 million was related to the North America segment and $ 1.1 million was related to the Rest of World segment.

Of the $ 7.7 million expense recognized during the nine months ended September 30, 2020, $ 2.7 million was related to the North America segment and $ 5.0 million was related to the Rest of World segment.

The Company’s severance and restructuring actions were primarily completed in the nine months ended September 30, 2020.

The Company’s lease portfolio consists of operating leases for buildings and equipment, such as forklifts and copiers, primarily in the United States and China.

11 unchanged sentences

Supplemental balance sheet information related to leases is as follows:

(dollars in millions) June 30,

(dollars in millions) September 30,

2021 December 31, 2020

4 unchanged sentences

Operating lease assets $ 39.3 $ 41.6

Lease Term and Discount Rate June 30, 2021

Lease Term and Discount Rate September 30, 2021

Weighted-average remaining lease term 9.9 years

3 unchanged sentences

(dollars in millions) Three months ended

September 30,

Lease Expense Classification 2021 (1)

3 unchanged sentences

(2) 2020 includes short-term and variable lease expenses of $ 0.5 million and $ 0.3 million, respectively.

(dollars in millions) Six months ended

(dollars in millions) Nine Months Ended

September 30,

Lease Expense Classification 2021 (1)

4 unchanged sentences

Maturities of lease liabilities were as follows:

(dollars in millions) June 30,

(dollars in millions) September 30,

After 2025 21.3

3 unchanged sentences

The following table presents the components of the Company’s inventory balances:

(dollars in millions) June 30,

(dollars in millions) September 30,

2021 December 31, 2020

9 unchanged sentences

(dollars in millions) Three Months Ended

Balance at April 1, $ 141.6 $ 135.3

September 30,

Balance at July 1, $ 144.9 $ 136.0

Expense 18.5 12.4

Claims settled ( 11.9 ) ( 12.5 )

Balance at June 30, $ 144.9 $ 136.0

(dollars in millions) Six Months Ended

Balance at September 30, $ 151.5 $ 135.9

(dollars in millions) Nine Months Ended

September 30,

Balance at January 1, $ 142.3 $ 134.3

1 unchanged sentence

Claims settled ( 37.2 ) ( 36.6 )

Balance at June 30, $ 144.9 $ 136.0

Balance at September 30, $ 151.5 $ 135.9

Long-Term Debt

During the three months ended June 30, 2021, the Company renewed and amended its $ 500 million multi-year multi-currency revolving credit agreement with a new expiration date of April 1, 2026.

In the second quarter of 2021, the Company renewed and amended its $ 500 million multi-year multi-currency revolving credit agreement with a new expiration date of April 1, 2026.

The facility has an accordion provision that allows it to be increased up to $ 850 million if certain conditions (including lender approval) are satisfied.

1 unchanged sentence

At its option, the Company either maintains cash balances or pays fees for bank credit and services.

The Company did no t have borrowings on this facility as of June 30, 2021.

The Company did no t have borrowings on this facility as of September 30, 2021.

Earnings per Share of Common Stock

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

8 unchanged sentences

Smith Combined Executive Incentive Compensation Plan which was originally approved by stockholders in 2002.

The number of shares available for granting of options or share units at June 30, 2021 was 6,776,930 .

The number of shares available for granting of options or share units at September 30, 2021 was 6,782,565 .

Upon stock option exercise or share unit vesting, shares are issued from treasury stock.

Total stock based compensation expense recognized in the three months ended June 30, 2021 and 2020 was $ 1.5 million and $ 1.4 million, respectively.

Total stock based compensation expense recognized in the six months ended June 30, 2021 and 2020 was $ 8.9 million and $ 10.4 million, respectively.

Total stock based compensation expense recognized in the three months ended September 30, 2021 and 2020 was $ 1.4 million and $ 1.1 million, respectively.

Total stock based compensation expense recognized in the nine months ended September 30, 2021 and 2020 was $ 10.3 million and $ 11.5 million, respectively.

Stock Based Compensation (continued)

Stock Options

The stock options granted in the six months ended June 30, 2021 and 2020 have three year pro rata vesting from the date of grant.

The stock options granted in the nine months ended September 30, 2021 and 2020 have three year pro rata vesting from the date of grant.

Stock options are issued at exercise prices equal to the fair value of the Company’s Common Stock on the date of grant.

1 unchanged sentence

The Company’s stock options are expensed ratably over the three year vesting period;

however, included in stock option expense for the six months ended June 30, 2021 and 2020 was expense associated with the accelerated vesting of stock option awards for certain employees who either are retirement eligible or become retirement eligible during the vesting period.

Stock based compensation expense attributable to stock options in the three months ended June 30, 2021 and 2020 was $ 0.5 million and $ 0.7 million, respectively.

Stock based compensation expense attributable to stock options in the six months ended June 30, 2021 and 2020 was $ 4.1 million and $ 5.2 million, respectively.

Changes in options, all of which relate to the Company’s Common Stock, were as follows for the six months ended June 30, 2021:

however, included in stock option expense for the nine months ended September 30, 2021 and 2020 was expense associated with the accelerated vesting of stock option awards for certain employees who either are retirement eligible or become retirement eligible during the vesting period.

Stock based compensation expense attributable to stock options in the three months ended September 30, 2021 and 2020 was $ 0.5 million and $ 0.5 million, respectively.

Stock based compensation expense attributable to stock options in the nine months ended September 30, 2021 and 2020 was $ 4.6 million and $ 5.7 million, respectively.

Changes in options, all of which relate to the Company’s Common Stock, were as follows for the nine months ended September 30, 2021:

Price Number of

5 unchanged sentences

Forfeited 48.44 ( 8,638 )

Outstanding at June 30, 2021 46.63 2,686,269 7 years $ 68.3

Exercisable at June 30, 2021 44.37 1,611,487 6 years $ 44.6

The weighted-average fair value per option at the date of grant during the six months ended June 30, 2021 and 2020 using the Black-Scholes option-pricing model was $ 14.03 and $ 8.15 , respectively.

Outstanding at September 30, 2021 46.69 2,658,415 8 years $ 38.5

Exercisable at September 30, 2021 44.47 1,593,759 6 years $ 26.7

The weighted-average fair value per option at the date of grant during the nine months ended September 30, 2021 and 2020 using the Black-Scholes option-pricing model was $ 14.03 and $ 8.17 , respectively.

Assumptions were as follows:

Six Months Ended June 30,

Nine Months Ended September 30,

Expected life (years) 5.8 5.7

10 unchanged sentences

Share units vest three years after the date of grant.

The Company granted 100,676 and 169,539 share units under the Plan in the six months ended June 30, 2021 and 2020, respectively.

The Company granted 104,223 and 172,426 share units under the Plan in the nine months ended September 30, 2021 and 2020, respectively.

The share units were valued at $ 6.4 million and $ 7.3 million at the date of issuance in 2021 and 2020, respectively, based on the price of the Company’s Common Stock at the date of grant.

The share units are recognized as compensation expense ratably over the three-year vesting period;

however, included in share unit expense in the three and six months ended June 30, 2021 and 2020 was expense associated with accelerated vesting of share unit awards for certain employees who either are retirement eligible or will become retirement eligible during the vesting period.

Stock based compensation expense attributable to share units of $ 1.0 million and $ 0.7 million was recognized in the three months ended June 30, 2021 and 2020, respectively.

Stock based compensation expense attributable to share units of $ 4.8 million and $ 5.2 million was recognized in the six months ended June 30, 2021 and 2020, respectively.

however, included in share unit expense in the three and nine months ended September 30, 2021 and 2020 was expense associated with accelerated vesting of share unit awards for certain employees who either are retirement eligible or will become retirement eligible during the vesting period.

Stock based compensation expense attributable to share units of $ 0.9 million and $ 0.6 million was recognized in the three months ended September 30, 2021 and 2020, respectively.

Stock based compensation expense attributable to share units of $ 5.7 million and $ 5.8 million was recognized in the nine months ended September 30, 2021

Stock Based Compensation (continued)

U.S.-based employees receive the cash value of the share price at the vesting date in lieu of shares.

and 2020, respectively.

Certain non-U.S.-based employees receive the cash value of the share price at the vesting date in lieu of shares.

Unvested cash-settled awards are remeasured at each reporting period.

A summary of share unit activity under the Plan is as follows for the six months ended June 30, 2021:

A summary of share unit activity under the Plan is as follows for the nine months ended September 30, 2021:

Number of Units Weighted-Average

4 unchanged sentences

Forfeited ( 6,175 ) 49.94

Issued and unvested at June 30, 2021 429,502 47.17

Issued and unvested at September 30, 2021 426,599 47.29

The following table presents the components of the Company’s net pension income:

(dollars in millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

18 unchanged sentences

(dollars in millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

29 unchanged sentences

The following table presents assets (liabilities) measured at fair value on a recurring basis (dollars in millions):

Fair Value Measurement Using June 30,

Fair Value Measurement Using September 30,

2021 December 31, 2020

2 unchanged sentences

Items measured at fair value were comprised of the Company’s marketable securities (Level 1) and derivative instruments (Level 2).

There were no changes in the Company’s valuation techniques used to measure fair values on a recurring basis during the six months ended June 30, 2021.

There were no changes in the Company’s valuation techniques used to measure fair values on a recurring basis during the nine months ended September 30, 2021.

Derivative Instruments

16 unchanged sentences

The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts that are designated as cash flow hedges:

(dollars in millions) June 30, 2021 December 31, 2020

(dollars in millions) September 30, 2021 December 31, 2020

Buy Sell Buy Sell

8 unchanged sentences

With NYMEX, the Company is required to make cash deposits on unrealized losses on steel derivative contracts.

The after-tax gains and losses on the contracts as of June 30, 2020 were recorded in accumulated other comprehensive loss and will be reclassified into cost of products sold in the period in which the underlying transaction is recorded in earnings.

The after-tax gains and losses on the contracts as of September 30, 2020 were recorded in accumulated other comprehensive loss and will be reclassified into cost of products sold in the period in which the underlying transaction is recorded in earnings.

The after-tax gains and losses on the contracts will be reclassified within one year.

7 unchanged sentences

These hedges are determined to be effective.

The Company recognized $( 0.1 ) million of after-tax losses associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive income in both the three and six months ended June 30, 2021.

The Company recognized $( 0.1 ) million and $ 0.7 million of after-tax (losses) gains associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive income in the three and six months ended June 30, 2020, respectively.

The Company recognized $ — and $( 0.1 ) million of after-tax losses associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive income in both the three and nine months ended September 30, 2021, respectively.

The Company recognized $( 0.8 ) million and $( 0.1 ) million of after-tax losses associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive income in the three and nine months ended September 30, 2020, respectively.

The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges is $ 25.0 million as of September 30, 2021.

The following tables present the impact of derivative contracts on the Company’s financial statements.

Fair value of derivatives designated as hedging instruments under ASC 815:

(dollars in millions) Balance Sheet Location June 30,

(dollars in millions) Balance Sheet Location September 30,

2021 December 31,

3 unchanged sentences

The effect of cash flow hedges on the condensed consolidated statement of earnings:

Three Months Ended June 30 (dollars in millions):

Three Months Ended September 30 (dollars in millions):

Derivatives in ASC 815 cash flow hedging relationships Amount of gain (loss) recognized in other

4 unchanged sentences

comprehensive loss

into earnings Amount of (loss) gain

into earnings Amount of gain (loss)

reclassified from

6 unchanged sentences

$ 0.6 $ 1.3 $ 0.2 $ 0.4

Six Months Ended June 30 (dollars in millions):

Nine Months Ended September 30 (dollars in millions):

Derivatives in ASC 815 cash flow hedging relationships Amount of (loss) gain

1 unchanged sentence

comprehensive

loss on derivatives Location of gain (loss)

loss on derivatives Location of (loss) gain

reclassified from

10 unchanged sentences

$ ( 1.9 ) $ 2.0 $ ( 0.9 ) $ 1.7

The Company’s effective income tax rate for the three and six months ended June 30, 2021 was 21.9 percent and 22.2 percent, respectively.

The Company’s effective income tax rate for the three and nine months ended September 30, 2021 was 20.9 percent and 21.7 percent, respectively.

The Company estimates that its annual effective income tax rate for the full year 2021 will be approximately 22.0 percent.

The effective income tax rate for the three and six months ended June 30, 2020 was 22.1 percent and 22.8 percent, respectively.

The change in the effective income tax rate for the six months ended June 30, 2021 compared to the effective income tax rate for the six months ended June 30, 2020 was primarily due to a change in geographical earnings mix.

As of June 30, 2021, the Company had $ 9.0 million of unrecognized tax benefits of which $ 0.5 million would affect its effective income tax rate if recognized.

The effective income tax rate for the three and nine months ended September 30, 2020 was 23.2 percent and 23.0 percent, respectively.

The change in the effective income tax rate for the three and nine months ended September 30, 2021 compared to the effective income tax rate for the three and nine months ended September 30, 2020 was primarily due to a change in geographical earnings mix as well as a favorable tax impact of $ 4.2 million related to amending a previously filed tax return.

As of September 30, 2021, the Company had $ 9.0 million of unrecognized tax benefits of which $ 0.5 million would affect its effective income tax rate if recognized.

The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.

The Company’s U.S.

federal income tax returns for 2017-2021 are subject to audit.

federal income tax returns for 2017-2021 are

Income Taxes (continued)

subject to audit.

The Company is subject to state and local income tax audits for tax years 2002-2021.

8 unchanged sentences

Potential losses under the repurchase arrangements represent the difference between the repurchase price and net proceeds from the resale of product plus costs incurred in the process, less related distributor rebates.

Before considering any reduction of distributor rebate accruals of $ 6.5 million and $ 5.4 million as of June 30, 2021 and December 31, 2020, respectively, and from the resale of the related inventory, the gross amount the Company would be obligated to repurchase, which would be contingent on the default of all of the outstanding loans, was approximately $ 10.3 million as of June 30, 2021 and $ 6.5 million as of December 31, 2020.

The Company’s reserves for estimated losses under repurchase arrangements were immaterial as of June 30, 2021 and December 31, 2020.

Before considering any reduction of distributor rebate accruals of $ 4.0 million and $ 5.4 million as of September 30, 2021 and December 31, 2020, respectively, and from the resale of the related inventory, the gross amount the Company would be obligated to repurchase, which would be contingent on the default of all of the outstanding loans, was approximately $ 7.7 million as of September 30, 2021 and $ 6.5 million as of December 31, 2020.

The Company’s reserves for estimated losses under repurchase arrangements were immaterial as of September 30, 2021 and December 31, 2020.

Changes in Accumulated Other Comprehensive Loss by Component

1 unchanged sentence

(dollars in millions) Three Months Ended

September 30,

Cumulative foreign currency translation

Balance at beginning of period $ ( 44.6 ) $ ( 80.5 )

Other comprehensive income before reclassifications 4.9 3.7

Other comprehensive (loss) income before reclassifications ( 2.4 ) 15.7

Balance at end of period ( 47.0 ) ( 64.8 )

1 unchanged sentence

Balance at beginning of period ( 0.5 ) ( 0.3 )

Other comprehensive gain (loss) before reclassifications 0.3 ( 0.4 )

Realized losses (gains) on derivatives reclassified to cost of products sold (net of income tax (benefit) provision of $( 0.2 ) and $ 0.1 in 2021 and 2020, respectively)

Other comprehensive gain before reclassifications 0.5 1.0

Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ 0.1 and $ 0.1 in 2021 and 2020, respectively)

( 0.1 ) ( 0.3 )

Balance at end of period ( 0.1 ) 0.4

1 unchanged sentence

Balance at beginning of period ( 266.1 ) ( 275.0 )

Other comprehensive (loss) before reclassifications — ( 0.9 )

Amounts reclassified from accumulated other comprehensive loss:

10 unchanged sentences

Changes to accumulated other comprehensive loss by component are as follows:

(dollars in millions) Six Months Ended

(dollars in millions) Nine Months Ended

September 30,

Cumulative foreign currency translation

Balance at beginning of period $ ( 48.1 ) $ ( 66.2 )

Other comprehensive income (loss) before reclassifications 3.5 ( 14.3 )

Other comprehensive income before reclassifications 1.1 1.4

Balance at end of period ( 47.0 ) ( 64.8 )

1 unchanged sentence

Balance at beginning of period 0.6 0.2

Other comprehensive gain before reclassifications ( 1.9 ) 0.5

Realized losses (gains) on derivatives reclassified to cost of products sold (net of income tax provision (benefit) of $( 0.3 ) and $ 0.3 in 2021 and 2020, respectively)

Other comprehensive (loss) gain before reclassifications ( 1.4 ) 1.5

Realized losses (gains) on derivatives reclassified to cost of products sold (net of income tax (benefit) provision of $( 0.2 ) and $ 0.4 in 2021 and 2020, respectively)

Balance at end of period ( 0.1 ) 0.4

1 unchanged sentence

Balance at beginning of period ( 273.7 ) ( 282.3 )

Other comprehensive (loss) before reclassifications — ( 0.9 )

Amounts reclassified from accumulated other comprehensive loss:

8 unchanged sentences

See Note 10 - Pensions for additional details.

Subsequent Event

On October 19, 2021, the Company acquired Giant Factories, Inc.

(Giant), a Canada-based manufacturer of residential and commercial water heaters.

The purchase price was approximately $ 192.0 million, subject to customary adjustments.

Giant manufactures water heaters at two facilities in Montreal, Canada and sells water heating products under the Giant brand across Canada.

Giant had trailing twelve-month annual sales of approximately $ 105 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements