Company Quick10K Filing
Quick10K
AO Smith
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$50.47 168 $8,470
10-Q 2019-06-30 Quarter: 2019-06-30
10-Q 2019-03-31 Quarter: 2019-03-31
10-K 2018-12-31 Annual: 2018-12-31
10-Q 2018-09-30 Quarter: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-K 2017-12-31 Annual: 2017-12-31
10-Q 2017-09-30 Quarter: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-K 2016-12-31 Annual: 2016-12-31
10-Q 2016-09-30 Quarter: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-K 2015-12-31 Annual: 2015-12-31
10-Q 2015-09-30 Quarter: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-K 2014-12-31 Annual: 2014-12-31
10-Q 2014-09-30 Quarter: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-K 2013-12-31 Annual: 2013-12-31
8-K 2019-07-30 Earnings, Exhibits
8-K 2019-06-03 Regulation FD
8-K 2019-06-03 Regulation FD, Exhibits
8-K 2019-04-30 Earnings, Exhibits
8-K 2019-04-09 Shareholder Vote
8-K 2019-04-08 Other Events, Exhibits
8-K 2019-01-29 Earnings, Exhibits
8-K 2019-01-21 Officers, Exhibits
8-K 2019-01-21 Officers, Exhibits
8-K 2019-01-11 Officers, Exhibits
8-K 2018-10-30 Earnings, Exhibits
8-K 2018-07-25 Earnings, Exhibits
8-K 2018-07-11 Officers, Exhibits
8-K 2018-04-25 Earnings, Exhibits
8-K 2018-04-09 Shareholder Vote
8-K 2018-01-30 Earnings, Exhibits
EQR Equity Residential 27,720
HAL Halliburton 22,680
INXN Interxion Holding 5,090
MMSI Merit Medical Systems 3,160
HLX Helix Energy Solutions Group 1,110
VHI Valhi 787
KLDO Kaleido Biosciences 434
FSFG First Savings Financial Group 131
KANP Kaanapali Land 0
ASFT Appsoft Technologies 0
AOS 2019-06-30
Part I - Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 6 - Exhibits
EX-10.1 d19237dex101.htm
EX-31.1 d19237dex311.htm
EX-31.2 d19237dex312.htm
EX-32.1 d19237dex321.htm
EX-32.2 d19237dex322.htm

AO Smith Earnings 2019-06-30

AOS 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q
SMITH A O CORP0.20.10.2false2019Q20000091142--12-31Includes Water-Right, Inc. acquired on April 8, 2019Includes short-term lease expenses of $0.5 million and $1.0 million for the three and six months ended June 30, 2019, respectively. Includes variable lease cost of $0.2 million and $1.0 million for the three and six months ended June 30, 2019, respectively.includes restructuring and impairment expenses of:$ — $ — $ 6.7 $ 6.7These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 11 - Pensions for additional details 0000091142 2019-01-01 2019-06-30 0000091142 2018-01-01 2018-06-30 0000091142 2018-04-01 2018-06-30 0000091142 2019-04-01 2019-06-30 0000091142 2019-06-30 0000091142 2018-12-31 0000091142 2019-01-01 2019-03-31 0000091142 2018-01-01 2018-03-31 0000091142 2017-12-31 0000091142 2018-06-30 0000091142 2019-03-31 0000091142 2018-03-31 0000091142 aos:CommodityFuturesContractsMember 2019-01-01 2019-06-30 0000091142 us-gaap:RestrictedStockMember 2019-01-01 2019-06-30 0000091142 us-gaap:ForeignExchangeContractMember 2019-01-01 2019-06-30 0000091142 us-gaap:CommodityContractMember 2019-01-01 2019-06-30 0000091142 aos:WaterRightIncMember 2019-01-01 2019-06-30 0000091142 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-06-30 0000091142 us-gaap:StockAppreciationRightsSARSMember 2019-01-01 2019-06-30 0000091142 us-gaap:CostOfSalesMember us-gaap:CommodityContractMember 2019-01-01 2019-06-30 0000091142 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the quarterly period ended
June 30, 2019
.
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the transition period from
                    
to
                    
Commission File Number
1-475
 
A. O. Smith Corporation
(Exact name of registrant as specified in its charter)
 
     
Delaware
 
39-0619790
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
11270 West Park Place, Milwaukee,
Wisconsin
 
53224-9508
(Address of principal executive office)
 
(Zip Code)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(414)
359-4000
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of Each Class
 
Trading
Symbol
 
Name of Each Exchange
on Which Registered
Common Stock (par value $1.00 per share)
 
AOS
 
New York Stock Exchange
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    
  Yes    
  No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     
  Yes    
  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.
                 
Large accelerated filer
 
 
 
Accelerated Filer
 
                 
Non-accelerated filer
 
 
 
Smaller reporting company
 
                 
 
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Act.)    
  Yes    
  No
Class A Common Stock Outstanding as of July 31, 2019 - 26,052,985 shares
Common Stock Outstanding as of July 31, 2019 - 138,350,432 shares
         
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Index
 
A. O. Smith Corporation
             
 
 
Page
 
             
Part I.
 
FINANCIAL INFORMATION
   
 
             
     
3
 
             
     
3
 
             
     
4
 
             
     
5
 
             
     
6
 
             
     
7-23
 
             
Item 2.
     
24-30
 
             
Item 3.
     
31
 
             
Item 4.
     
31
 
             
Part II.
 
OTHER INFORMATION
   
 
             
Item 1.
     
32
 
             
Item 2.
     
32
 
             
Item 6.
     
33
 
         
   
34
 
         
   
34
 
 
 
  
2
  
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions, except for per share data)
(unaudited)
                                 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Net sales
  $
765.4
    $
833.3
    $
1,513.6
    $
1,621.3
 
Cost of products sold
   
456.7
     
492.3
     
912.1
     
958.8
 
                                 
Gross profit
   
308.7
     
341.0
     
601.5
     
662.5
 
Selling, general and administrative expenses
   
178.7
     
197.2
     
363.4
     
390.1
 
Restructuring and impairment expenses
   
  
     
  
     
     
6.7
 
Interest expense
   
3.4
     
2.3
     
5.4
     
4.6
 
Other income
   
(5.6
)    
(4.6
)    
(11.1
)    
(10.4
)
                                 
Earnings before provision for income taxes
   
132.2
     
146.1
     
243.8
     
271.5
 
Provision for income taxes
   
30.1
     
31.6
     
52.4
     
58.2
 
                                 
Net Earnings
  $
102.1
    $
114.5
    $
191.4
    $
213.3
 
                                 
Net Earnings Per Share of Common Stock
  $
0.61
    $
0.67
    $
1.14
    $
1.25
 
                                 
Diluted Net Earnings Per Share of Common Stock
  $
0.61
    $
0.66
    $
1.14
    $
1.23
 
                                 
Dividends Per Share of Common Stock
  $
0.22
    $
0.18
    $
0.44
    $
0.36
 
                                 
 
 
 
 
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(dollars in millions)
(unaudited)
                                 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Net earnings
  $
102.1
    $
114.5
    $
191.4
    $
213.3
 
Other comprehensive (loss) earnings
   
     
     
     
 
Foreign currency translation adjustments
   
(10.1
)    
(31.0
)    
5.8
     
(12.6
)
Unrealized net gains (losses) on cash flow derivative instruments, less related income tax (provision)
benefit of (
$
0.2)
and ($
0.1)
in 2019, $
0.3
and ($
0.2)
in 2018
   
0.7
     
(1.2
)    
0.6
     
0.8
 
Adjustment to pension liability, less related income tax benefit of $0.8 and $1.8 in 2019 and $1.0 and $2.2 in 2018
   
3.1
     
3.5
     
6.0
     
6.9
 
                                 
Comprehensive Earnings
  $
95.8
    $
85.8
    $
203.8
    $
208.4
 
                                 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements.
 
3
 
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
 
(unaudited)
June 30, 2019
   
December 31, 2018
 
Assets
   
     
 
Current Assets
   
     
 
Cash and cash equivalents
  $
281.6
    $
259.7
 
Marketable securities
   
296.2
     
385.3
 
Receivables
   
634.8
     
647.3
 
Inventories
   
323.1
     
304.7
 
Other current assets
   
60.9
     
41.5
 
                 
Total Current Assets
   
1,596.6
     
1,638.5
 
                 
Property, plant and equipment
   
1,138.3
     
1,096.8
 
Less accumulated depreciation
   
(584.4
)    
(556.8
)
                 
Net property, plant and equipment
   
553.9
     
540.0
 
Goodwill
   
547.9
     
513.0
 
Other intangibles
   
343.7
     
293.1
 
Operating lease assets
   
48.4
     
  
 
Other assets
   
85.1
     
86.9
 
                 
Total Assets
  $
3,175.6
    $
3,071.5
 
                 
                 
Liabilities
   
     
 
Current Liabilities
   
     
 
Trade payables
  $
488.4
    $
543.8
 
Accrued payroll and benefits
   
55.6
     
79.4
 
Accrued liabilities
   
137.0
     
120.4
 
Product warranties
   
42.8
     
41.7
 
Debt due within one year
   
6.8
     
—  
 
                 
Total Current Liabilities
   
730.6
     
785.3
 
                 
Long-term debt
   
351.8
     
221.4
 
Pension liabilities
   
37.0
     
49.4
 
Long-term operating lease liabilities
   
39.9
     
—  
 
Other liabilities
   
291.2
     
298.4
 
                 
Total Liabilities
   
1,450.5
     
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 164,524,229 and 164,517,431
   
164.5
     
164.5
 
Capital in excess of par value
   
506.7
     
496.7
 
Retained earnings
   
2,220.2
     
2,102.8
 
Accumulated other comprehensive loss
   
(338.4
)    
(350.8
)
Treasury stock at cost
   
(958.8
)    
(827.2
)
                 
Total Stockholders’ Equity
   
1,725.1
     
1,717.0
 
                 
Total Liabilities and Stockholders’ Equity
  $
3,175.6
    $
3,071.5
 
                 
See accompanying notes to unaudited condensed consolidated financial statements
 
4
 
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
                 
 
Six Months Ended 
June 30,
 
 
2019
   
2018
 
Operating Activities
   
     
 
Net earnings
  $
191.4
    $
213.3
 
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
   
     
 
Depreciation and amortization
   
38.4
     
35.4
 
Stock based compensation expense
   
10.8
     
7.9
 
Net changes in operating assets and liabilities:
   
     
 
Current assets and liabilities
   
(75.9
)    
(62.6
)
Noncurrent assets and liabilities
   
(21.0
)    
(20.8
)
                 
Cash Provided by Operating Activities
   
143.7
     
173.2
 
Investing Activities
   
     
 
Capital expenditures
   
(36.5
)    
(39.5
)
Acquisition
 
 
(107.0
)
 
 
—  
 
Investments in marketable securities
   
(202.3
)    
(248.5
)
Net proceeds from sale of marketable securities
   
293.8
     
322.1
 
                 
Cash (Used in) Provided by Investing Activities
   
(52.0
)    
34.1
 
Financing Activities
   
     
 
Long-term debt incurred (repaid)
   
137.3
     
(162.3
)
Common stock repurchases
   
(132.6
)    
(69.7
)
Net payments from stock option activity
   
(0.5
)    
(0.1
)
Dividends paid
   
(74.0
)    
(61.8
)
                 
Cash Used In Financing Activities
   
(69.8
)    
(293.9
)
                 
Net increase (decrease) in cash and cash equivalents
   
21.9
     
(86.6
)
Cash and cash equivalents - beginning of period
   
259.7
     
346.6
 
                 
Cash and Cash Equivalents - End of Period
  $
281.6
    $
260.0
 
                 
 
 
 
 
 
See accompanying notes to unaudited condensed consolidated financial statements
 
5
 
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in millions)
(unaudited)
                                 
 
Three Months Ended
June 30,
 
 
 
 Six Months Ended
June 30,
 
 
2019
   
2018
 
 
 
2019 
 
 
 
 2018
 
Class A Common Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at the beginning of period
 
$
131.0
 
 
$
131.0
 
 
$
131.0
 
 
$
131.2
 
Conversion of Class A Common Stock
 
 
(0.1
)
 
 
  
 
 
 
(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
 
$
503.5
 
 
$
491.6
 
 
$
496.7
 
 
$
486.5
 
Conversion of Class A Common Stock
 
 
0.1
 
 
 
  
 
 
 
0.1
 
 
 
0.2
 
Issuance of share units
 
 
(0.1
)
 
 
(0.4
)
 
 
(6.2
)
 
 
(5.8
)
Vesting of share units
 
 
(0.1
)
 
 
—  
 
 
 
(2.0
 
 
(2.3
)
Stock based compensation expense
 
 
1.9
 
 
 
1.4
 
 
 
10.5
 
 
 
7.7
 
Exercises of stock options
 
 
0.5
 
 
 
0.3
 
 
 
0.6
 
 
 
1.2
 
Stock incentives
 
 
0.9
 
 
 
1.3
 
 
 
7.0
 
 
 
6.7
 
Balance at end of period
 
$
506.7
 
 
$
494.2
 
 
$
 506.7
 
 
$
 494.2
 
Retained Earnings
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at the beginning of period
 
$
2,155.0
 
 
$
1,856.5
 
 
$
2,102.8
 
 
$
1,788.7
 
Net earnings
 
 
102.1
 
 
 
114.5
 
 
 
191.4
 
 
 
213.3
 
Cash dividends on stock
 
 
(36.9
)
 
 
(30.9
)
 
 
(74.0
)
 
 
(61.9
)
Balance at end of period
 
$
2,220.2
 
 
$
1,940.1
 
 
$
2,220.2
 
 
$
1,940.1
 
Accumulated Other Comprehensive Loss (see Note 17)
 
$
(338.4
)
 
$
(304.4
)
 
$
 (338.4
 
$
 (304.4
)
Treasury Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at the beginning of period
 
$
(872.7
)
 
$
(659.5
)
 
$
(827.2
)
 
$
(626.5
Exercise of stock options
 
 
0.6
 
 
 
0.8
 
 
 
(1.3
)
 
 
(1.4
Stock incentives and directors’ compensation
 
 
0.2
 
 
 
—  
 
 
 
0.2
 
 
 
0.1
 
Shares repurchased
 
 
(87.0
)
 
 
(36.6
)
 
 
(132.6
)
 
 
(69.7
)
Vesting of share units
 
 
0.1
 
 
 
0.2
 
 
 
2.1
 
 
 
2.4
 
Balance at end of period
 
$
(958.8
)
 
$
(695.1
)
 
$
(958.8
)
 
$
(695.1
)
Total Stockholders’ Equity
 
$
1,725.1
 
 
$
1,730.3
 
 
$
 1,725.1
 
 
$
1,730.3
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes which are an integral part of these statements.
 
6
 
 
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2019
(unaudited)
1.
Basis of Presentation
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2019 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, 2018 filed with the SEC on February 15, 2019.
Recent Accounting Pronouncements
In January 2017, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 350,
Intangibles – Goodwill and Other
(issued under Accounting Standards Update (ASU)
2017-04,
“Simplifying the Test for Goodwill Impairment”). This amendment simplifies the test for goodwill impairment by only requiring an entity to perform an annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount that the carrying amount exceeds the reporting unit’s fair value. Any loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendment requires adoption on January 1, 2020. The Company does not expect that the adoption of ASU
2017-04
will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
In June 2016, the FASB issued ASC 326,
 Financial Instruments – Credit Losses
(issued under ASU
2016-13)
which modifies the measurement of expected credit losses on certain financial instruments. ASU
2016-13
requires adoption on January 1, 2020. The Company does not expect that the adoption of ASU
2016-13
will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.
In February 2016, the FASB amended ASC 842,
Leases
(issued under ASU
2016-02).
This amendment requires the recognition of lease assets and lease liabilities on the balance sheet for most leasing arrangements classified as operating leases. The Company applied the modified retrospective transition method and elected the transition option to use the effective date of January 1, 2019, as the date of the initial application. The Company elected the package of practical expedients as well as a separate practical expedient not to separate lease and
non-lease
components. The Company did not elect the hindsight practical expedient. The adoption of ASU 2016-02 did not have a material impact on the Company’s consolidated balance sheets, statements of earnings or statements of cash flows. Refer to Note 4, Leases, for additional information.
 
7
 
 
2.
Revenue Recognition
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Substantially all of the Company’s sales are from contracts with customers for the purchase of its products. Contracts and customer purchase orders are used to determine the existence of a sales contract. Shipping documents are used to verify shipment. For substantially all of its products, the Company transfers control of products to the customer at the point in time when title and risk are passed to the customer, which generally occurs upon shipment of the product. Each unit sold is considered an independent, unbundled performance obligation. The Company’s sales arrangements do not include other performance obligations that are material in the context of the contract.
The nature, timing and amount of revenue for a respective performance obligation are consistent for each customer. The Company measures the sales transaction price based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Sales and value added taxes are excluded from the measurement of transaction price. 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 $29.0 million and $47.0 million at June 30, 2019 and December 31, 2018, respectively. The Company assesses collectability of customer receivables based on the creditworthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history. The Company’s allowance for doubtful accounts was $6.4 million at both June 30, 2019 and December 31, 2018.
Rebates and incentives are based on pricing agreements and are tied to sales volume. The amount of revenue is reduced for variable consideration related to customer rebates which are calculated using expected values and is based on program specific factors such as expected rebate percentages based on expected volumes. In situations where the customer has the right to return eligible products, the Company reduces revenue for its estimates of expected product returns, which are primarily based on an analysis of historical experience. Changes in such accruals may be required if actual sales volume differs from estimated sales volume or if future returns differ from historical experience. Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold and are activities performed to fulfill the promise to transfer products.
Disaggregation of Net Sales
The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. The Rest of World segment also manufactures and markets
in-home
air purification products in China.
As each segment manufactures and markets products in its respective region of the world, the Company has determined that geography is the primary factor in reporting its sales. The Company further disaggregates its North America segment sales by major product line as each of North America’s major product lines is sold through distinct distribution channels and these product lines may be impacted differently by certain economic factors. Within the Rest of World segment, particularly in China and India, the Company’s major customers purchase across the Company’s product lines, utilizing the same distribution channel regardless of product type. In addition, the impact of economic factors is unlikely to be differentiated by product line in the Rest of World segment.
 
8
  
2.
Revenue Recognition (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The North America segment major product lines are defined as the following:
Water heaters
The Company’s water heaters are open water heating systems that heat potable water. Typical applications for water heaters include residences, restaurants, hotels and motels, office buildings, laundries, car washes and small businesses. The Company sells residential and commercial water heater products and related parts through its wholesale distribution channel, which includes more than 1,300 independent wholesale plumbing distributors. The Company also sells residential water heaters and related parts through retail and maintenance, repair and operations (MRO) channels. A significant portion of the Company’s water heater sales in the North America segment is derived from the replacement of existing products.
Boilers
The Company’s boilers are closed loop water heating systems used primarily for space heating or hydronic heating. The Company’s boilers are primarily used in applications in commercial settings for hospitals, schools, hotels and other large commercial buildings while residential boilers are used in homes, apartments and condominiums. The Company’s boiler distribution channel is comprised primarily of manufacturer representative firms with the remainder of our boilers distributed through wholesale channels. The Company’s boiler sales in the North America segment are derived from a combination of replacement of existing products and new construction.
Water treatment
products
The Company’s water treatment products range from point-of-entry water softeners and whole-home water filtration products to on-the-go filtration bottles and point-of-use carbon and reverse osmosis products, as well as solutions for problem well water. Typical applications for the Company’s water treatment products include residences, restaurants, hotels and offices. The Company sells water treatment products through its wholesale and retail distribution channels, similar to water heater products and related parts. The Company’s water treatment products are also sold through independent water quality distributors as well as directly to consumers including through internet sales channels. A portion of the Company’s sales of water treatment products in the North America segment is comprised of replacement filters.
The following table disaggregates the Company’s net sales by segment. As described above, the Company’s North America segment sales are further disaggregated by major product line. In addition, the Company’s Rest of World segment sales are disaggregated by China and all other Rest of World.
 
9
 
2.
Revenue Recognition (continued)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                 
(dollars in millions)
 
   
   
   
 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
North America
   
     
     
     
 
Water heaters and related parts
  $
438.9
    $
466.1
    $
894.6
    $
912.9
 
Boilers and related parts
   
48.0
     
47.5
     
90.6
     
84.4
 
Water treatment products
(1)
   
37.1