ITEM 1 – BUSINESS
+Added: As used in this annual report on Form 10-K, references to the “Company,” “A.
+Added: Smith,” “AOS,” “we,” “us,” and “our” refer to A.
+Added: Smith and its consolidated subsidiaries.
+Added: The following discussion should be read in conjunction with our consolidated financial statements and notes thereto under “Item 8.
+Added: Financial Statements and Supplementary Data” in this annual report on Form 10-K.
Our company is comprised of two reporting segments:
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Our Rest of World segment is primarily comprised of China, Europe and India.
−Removed: Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks and water treatment products.
+Added: Both segments manufacture and market comprehensive lines of residential and commercial gas, heat pump and electric water heaters, boilers, tanks and water treatment products.
Both segments primarily manufacture and market in their respective regions of the world.
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We offer electric, natural gas and liquid propane tank-type models as well as tankless (gas and electric), heat pump and solar tank units.
+Added: In 2021, we further expanded our market presence and product offerings with our acquisition of Giant Factories, Inc., (Giant) a Canada-based manufacturer of residential and commercial water heaters.
Typical applications for our water heaters include residences, restaurants, hotels and motels, office buildings, laundries, car washes, schools and small businesses.
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(Aquasana) in 2016 we entered the water treatment market.
−Removed: We expanded our product offerings with the acquisitions of Hague Quality Water International (Hague) in 2017 and Water-Right, Inc.
−Removed: (Water-Right) in 2019.
+Added: We expanded our product offerings with the acquisitions of Hague Quality Water International (Hague) in 2017, Water-Right, Inc.
+Added: (Water-Right) in 2019 and Master Water Conditioning Corporation (Master Water) in 2021.
Our water treatment products range from point-of-entry water softeners, solutions for problem well water, and whole-home water filtration products to on-the-go filtration bottles and point-of-use carbon and reverse osmosis products.
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Our commercial boiler distribution channel is primarily comprised of manufacturer representative firms, the remainder of our Lochinvar branded products are distributed through wholesale channels.
−Removed: We sell our Aquasana branded products primarily directly to consumers through e-commerce as well as on-line retailers including Amazon and through other retail chains.
−Removed: Our water softener branded products and problem well water solutions, which include Hague, WaterBoss, Water-Right, WaterCare, and Evolve, are sold through water quality dealers.
+Added: We sell our A.
+Added: Smith branded water treatment products through Lowe's, Amazon, and our wholesale distribution channels.
+Added: Our Aquasana branded products are primarily sold directly to consumers through e-commerce as well as online retailers including Amazon and through other retail chains.
+Added: Our water softener branded products and problem well water solutions, which include Hague, Water-Right, and Master Water are sold through water quality dealers.
Our water softener products are also sold through home center retail chains.
−Removed: Smith branded water treatment products are sold through Lowe’s, Amazon, and our wholesale distribution channels.
Our energy-efficient product offerings continue to be a sales driver for our business.
−Removed: Our commercial water heaters and our condensing boilers continue to be an option for commercial customers looking for high-efficiency water and space heating with a short payback period through energy savings.
+Added: Our condensing commercial water heaters and boilers continue to be an option for commercial customers looking for high-efficiency water and space heating
+Added: with a short payback period through energy savings.
We offer residential heat pump, condensing tank-type and tankless water heaters in North America, as well as other higher efficiency water heating solutions to round out our energy-efficient product offerings.
+Added: In addition, during 2021 we launched a commercial heat pump water heater to align with greenhouse gas emission reduction trends across the country.
We sell our products in highly competitive markets.
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Our principal water treatment competitors in the U.S.
−Removed: are Culligan, Kinetico, Pentair and Ecowater as well as numerous regional assemblers.
+Added: are Culligan, Kinetico, Pentair, Franklin Electric and Ecowater as well as numerous regional assemblers.
REST OF WORLD
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The Chinese water heater market is predominantly comprised of electric wall-hung, gas tankless, combi-boiler, heat pump and solar water heaters.
−Removed: We believe we are one of the leading suppliers of water heaters to the residential market in China in dollar terms.
−Removed: We manufacture and market water treatment products, primarily residential reverse osmosis products.
−Removed: We also manufacture and market air purification products as well as design and market range hoods and cooktops in China.
−Removed: We sell our products in over 13,000 points of sale in China, approximately 6,400 are retail outlets in tier one and tier two cities of which over 2,000 exclusively sell our products.
+Added: We believe we are one of the leading suppliers of water heaters and reverse osmosis water treatment products to the residential market in China in dollar terms.
+Added: We manufacture and market residential water treatment products, primarily incorporating reverse osmosis technology, and commercial water treatment products.
+Added: We also design and market range hoods and cooktops in China.
+Added: We sell our products in approximately 13,000 points of sale in China, approximately 5,800 are retail outlets in tier one and tier two cities of which over 2,000 exclusively sell our products.
We also sell our products through e-commerce channels.
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RAW MATERIALS
−Removed: Raw materials for our manufacturing operations, primarily consisting of steel, are generally available in adequate quantities, however the current COVID-19 pandemic has periodically stressed the availability of certain raw materials.
−Removed: A portion of our customers are contractually obligated to accept price changes based on fluctuations in steel prices.
−Removed: There has been volatility in steel costs over the last several years, including an increase in steel costs in the second half of 2020.
+Added: Raw materials for our manufacturing operations, primarily consisting of steel, are generally available in adequate quantities, however, the global health pandemic and disruptions in the commercial transportation network have stressed the availability of certain raw materials.
+Added: There has been volatility in steel costs over the last several years, particularity in 2021 as the steel price index increased over 100 percent compared to the prior year.
+Added: A portion of our customers have contractual pricing tied to a steel index.
RESEARCH AND DEVELOPMENT
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We own and use in our businesses various trademarks, trade names, patents, trade secrets and licenses.
−Removed: We do not believe that our business as a whole is materially dependent upon any such trademark, trade name, patent, trade secret or license.
−Removed: However, our trade name is important with respect to our products, particularly in China, India and the U.S.
+Added: Although we believe our trademarks, trade names, patents, trade secrets, and licenses to constitute a valuable asset in the aggregate, we do not regard our business as being materially dependent on any single or group of related trademarks, trade names, patents, trade secrets, or licenses.
+Added: Our trade name is important with respect to our products, particularly in China, India, and the U.S.
HUMAN CAPITAL
We employed approximately 13,700 employees as of December 31, 2021, primarily non-union.
−Removed: We have a set of values for conducting our business and interacting with our employees as outlined in the A.
−Removed: Smith Corporation Guiding Principles.
−Removed: These principles help to shape how we hire, train and treat our employees.
−Removed: We believe that the critical elements of the effort to retain and develop talent are employee engagement, talent development, a focus on employee safety, and market competitive compensation.
+Added: The foundation of how we conduct business and interact with our employees is outlined in the A.
+Added: Smith Corporation Guiding Principles, which were refreshed in 2021, and our Statement of Values.
+Added: These principles and values help to shape how we hire, train and treat our employees, emphasizing teamwork and promoting diversity in seeking our objectives.
+Added: We believe that the critical elements of our effort to attract, retain and develop talent are employee engagement, talent development, a focus on employee safety, and market competitive compensation.
We conduct a Global Employee Engagement Survey on a biannual basis.
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Survey participation in 2020 was 96 percent, which we believe indicates our employees' willingness to share their perspectives and a commitment to continuous improvement.
−Removed: We provide all employees with a wide range of professional development experiences, both formal and informal.
−Removed: Some of the formal development programs that employees have access to include early-career leadership development programs, continuous improvement skill-building programs, and tuition reimbursement for degree programs or trade schools.
+Added: We will conduct the survey again in 2022.
+Added: We provide all employees with a wide range of professional development experiences, both formal and informal, to help them achieve their full potential.
+Added: Some of the formal development programs that employees have access to include early-career leadership development programs, front-line leadership development programs, continuous improvement skill-building programs, core process technology councils and tuition reimbursement for degree programs or trade schools.
+Added: Globally, all office and professional employees have a formal performance review and development plans with a focus on learning by doing.
It is expected that managers work closely with their employees to ensure performance feedback and development discussions take place on a regular basis.
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Smith facility that demonstrates the most improvement over one year in the area of workplace safety.
−Removed: Specific to the COVID-19 pandemic, we have undertaken numerous and meaningful steps to protect our employees, suppliers, and customers.
−Removed: See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Annual Report on Form 10-K for additional information.
We provide what we believe is a robust total compensation program designed to be market-competitive and internally equitable to attract, retain, motivate and reward a high-performance workforce.
Regular internal and external analysis is performed to ensure this market alignment.
−Removed: In addition to salaries, these programs, which vary by country, can include annual bonuses, stock-based compensation awards, retirement plans with employee matching opportunities, and other benefits.
+Added: In addition to salaries, these programs, which vary by country, can include annual performance-based bonuses, stock-based compensation awards, retirement plans with employee matching opportunities, health benefits, health savings and flexible spending accounts, paid time off, family leave, tuition assistance, among others.
Due to the short-cycle nature of our businesses, none of our operations sustain significant backlogs.
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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.