What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2022-02-11 compared with 2021-02-12 · 140 added, 144 removed, 930 unchanged (23% of the section changed)

40 unchanged sentences

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 compared the estimated cost of replacement included in the product warranty liability with the current costs to manufacture a comparable product and assessed the impact of projected changes in significant product costs.

We also analyzed subsequent claims data to identify changes in failure trends and assessed the historical accuracy of the prior year liability.

52 unchanged sentences

Selling, general and administrative expenses 701.4 660.3 715.6

Severance, restructuring and impairment expenses 7.7 — 6.7

Severance and restructuring expenses — 7.7 —

Interest expense 4.3 7.3 11.0

12 unchanged sentences

Unrealized net gain on cash flow derivative instruments, less related income tax provision of $ — in 2021, $( 0.1 ) in 2020 and $( 0.3 ) in 2019

Change in pension liability less related income tax (provision) benefit of $( 2.8 ) in 2020, $( 1.0 ) in 2019 and $ 4.3 in 2018

Change in pension liability less related income tax benefit (provision) of $ 4.5 in 2021 $( 2.8 ) in 2020 and $( 1.0 ) in 2019

( 13.6 ) 8.6 2.9

14 unchanged sentences

Investing Activities

Acquisition of business — ( 107.0 ) —

Acquisitions of businesses ( 207.6 ) — ( 107.0 )

Investments in marketable securities ( 185.4 ) ( 157.4 ) ( 272.7 )

1 unchanged sentence

Capital expenditures ( 75.1 ) ( 56.8 ) ( 64.4 )

Cash Provided by (Used in) Investing Activities 11.8 33.9 ( 12.7 )

Cash (Used in) Provided by Investing Activities ( 349.9 ) 11.8 33.9

Financing Activities

Long-term debt (repaid) incurred ( 170.8 ) 62.6 ( 189.0 )

Long-term debt incurred (repaid) 83.5 ( 170.8 ) 62.6

Common stock repurchases ( 366.5 ) ( 56.7 ) ( 287.7 )

3 unchanged sentences

Cash Used in Financing Activities ( 421.0 ) ( 374.8 ) ( 375.8 )

Net increase (decrease) in cash and cash equivalents 199.1 114.3 ( 86.9 )

Net (decrease) increase in cash and cash equivalents ( 129.8 ) 199.1 114.3

Cash and cash equivalents-beginning of year 573.1 374.0 259.7

75 unchanged sentences

Inventory valuation.

Inventories are carried at lower of cost and net realizable value.

Inventories are carried at lower of cost or net realizable value.

Cost is determined on the last-in, first-out (LIFO) method for a majority of the Company’s domestic inventories, which comprised 64 percent and 67 percent of the Company’s total inventory at December 31, 2021 and 2020, respectively.

11 unchanged sentences

If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of assets.

Such analyses necessarily involve significant judgment.

Such analyses involves significant judgment.

Product warranties.

7 unchanged sentences

The allocation of the warranty liability between current and long-term is based on expected warranty claims to be paid in the next year as determined by historical product failure rates.

The increase in our reserve for product warranties in 2021 compared to the prior year was primarily due to increased steel prices and the acquisition of Giant Factories, Inc.

Refer to Note 3, "Acquisitions", for additional information regarding the acquisition of Giant.

The following table presents the Company’s product warranty liability activity in 2021 and 2020:

3 unchanged sentences

Claims settled ( 51.3 ) ( 48.1 )

Acquired obligations 12.2 —

Balance at end of year $ 184.4 $ 142.3

14 unchanged sentences

Assets and liabilities measured at fair value are based on the market approach which are prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Assets measured at fair value on a recurring basis are as follows (dollars in millions):

Assets (liabilities) measured at fair value on a recurring basis are as follows (dollars in millions):

Fair Value Measurement Using December 31, 2021 December 31, 2020

9 unchanged sentences

The majority of advertising costs are charged to operations as incurred and totaled $ 107.0 million, $ 97.0 million and $ 110.7 million during 2021, 2020 and 2019, respectively.

Included in total advertising costs are expenses associated with store displays for water heater, water treatment and air purification products in China that are amortized over 12 to 36 months which totaled $ 27.0 million, $ 28.5 million and $ 38.7 million during 2020, 2019 and 2018, respectively.

Included in total advertising costs are expenses associated with store displays for water heater, water treatment products, range hood and cook tops in China that are amortized over 12 to 48 months which totaled $ 25.2 million, $ 27.0 million and $ 28.5 million during 2021, 2020 and 2019, respectively.

Organization and Significant Accounting Policies (continued)

Research and development.

3 unchanged sentences

Costs of estimated future expenditures are not discounted to their present value.

Organization and Significant Accounting Policies (continued)

Recoveries of environmental costs from other parties are recorded as assets when their receipt is considered probable.

18 unchanged sentences

Recent Accounting Pronouncements.

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.

The amendment requires adoption on January 1, 2021.

In November 2021, the Financial Accounting Standards Board (FASB) amended ASC 832, Government Assistance (issued under Accounting Standards Update (ASU) 2021-10, "Disclosures by Business Entities about Government Assistance").

This amendment requires disclosures that are expected to increase the transparency of transactions with a government accounted for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements.

This amendment requires adoption by the Company in 2022.

The Company does not expect that the adoption of ASU 2021-10 will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.

In January 2017, the FASB amended ASC 350, Intangibles – Goodwill and Other (issued under ASU 2017-4, “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 Company adopted the amendment on January 1, 2020 and the adoption did not have an 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.

The Company adopted ASU 2016-13 on January 1, 2020 and the adoption did not have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.

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

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.

Revenue Recognition

4 unchanged sentences

Each unit sold is considered an independent, unbundled performance obligation.

The Company’s sales arrangements do not include other

The Company’s sales arrangements do not include other performance obligations that are material in the context of the contract.

Revenue Recognition (continued)

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.

Sales and value added taxes are excluded from the measurement of the transaction price.

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

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Typical applications for the Company’s water treatment products include residences, restaurants, hotels and offices.

The Company sells water treatment products through its retail and wholesale distribution channels, similar

The Company sells water treatment products through its retail and wholesale distribution channels, similar to water heater products and related parts.

The Company’s water treatment products are also sold through independent water

Revenue Recognition (continued)

to water heater products and related parts.

The Company’s water treatment products are also sold through independent water quality dealers as well as directly to consumers including through internet sales channels.

quality dealers 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.

5 unchanged sentences

Water heaters and related parts (1)

$ 2,115.9 $ 1,753.9 $ 1,742.6

Boilers and related parts 212.1 187.2 199.5

8 unchanged sentences

Total Net Sales $ 3,538.9 $ 2,895.3 $ 2,992.7

(1) Includes the results of Giant from October 19, 2021, the date of acquisition.

(2) Includes the results of Water-Right, Inc.

and its affiliated entities (Water-Right) from April 8, 2019, the date of acquisition.

On April 8, 2019, the Company acquired 100 percent of the shares of Water-Right, a Wisconsin-based water treatment company.

With the addition of Water-Right, the Company grew its North America water treatment platform.

Water-Right is included in the Company’s North America segment.

2021 Acquisitions

On October 19, 2021, the Company acquired 100 percent of the shares and related assets of Giant, a Canada-based manufacturer of residential and commercial water heaters.

The addition of Giant increases the Company's North America market penetration, creating additional capacity and enhancing the Company's distribution capabilities.

Giant is included in the North America segment.

The Company paid an aggregate cash purchase price of $ 198.6 million net of cash acquired.

In addition, the Company established a $ 4.0 million escrow to satisfy any potential obligations of the former owners of Water-Right, should they arise.

During 2020, the Company released $ 3.9 million of the escrow to the previous owners of Water-Right.

The remaining balance of $ 0.1 million is scheduled to be disbursed in the second quarter of 2021.

In addition, the Company incurred acquisition costs of approximately $ 1.3 million.

Under the purchase agreement for the Giant acquisition, an escrow of approximately $ 8 million was set aside from the purchase price to satisfy any potential obligations of the former owners of Giant, should they arise.

The cash purchase price is preliminary and subject to customary adjustments.

The purchase price allocation remains preliminary and subject to final valuation adjustments that will be completed within the one year period following the acquisition date.

The following table summarizes the preliminary allocation of fair value of the assets acquired and liabilities assumed at the date of acquisition.

Of the $ 53.8 million of acquired identifiable intangible assets, $ 43.9 million has been assigned to trademarks that are not subject to amortization and $ 9.2 million has been assigned to customer relationships which are amortized over 22 years, and the remaining $ 0.7 million has been assigned to non-compete agreements which are amortized over five years .

The excess of the acquisition purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill.

October 19, 2021 (dollars in millions)

Current assets, net of cash acquired $ 60.1

Property, plant and equipment 55.8

Intangible assets 53.8

Goodwill 77.6

Total assets acquired 247.3

Current liabilities ( 39.2 )

Long Term liabilities ( 9.5 )

Net assets acquired $ 198.6

Acquisitions (continued)

Revenues and pre-tax earnings associated with Giant included in the consolidated statement of earnings for the year ended December 31, 2021 totaled $ 22.9 million and $ 2.1 million, respectively, which included $ 3.4 million of operating earnings, less $ 1.3 million of acquisition-related costs incurred by the Company, resulting from the acquisition.

In addition, during 2021, the Company acquired two privately-held water treatment companies.

The Company paid aggregate cash purchase prices of $ 9.0 million, net of cash acquired.

The addition of the companies acquired expands the Company's water treatment platform and are included in the North America segment for reporting purposes.

2019 Acquisition

On April 8, 2019, the Company acquired 100 percent of the shares of Water-Right, a Wisconsin-based water treatment company for an aggregate cash purchase price of $ 107.0 million, net of cash acquired.

The addition of Water-Right, grew the Company's North America water treatment platform.

Water-Right is included in the Company’s North America segment.

The following table summarizes the allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition of Water-Right for purposes of allocating the purchase price.

10 unchanged sentences

Net assets acquired $ 107.0

As required under ASC 805 Business Combinations , Water-Right’s results of operations have been included in the Company’s consolidated financial statements from April 8, 2019, the date of acquisition.

As required under ASC 805 Business Combinations , results of operations have been included in the Company’s consolidated financial statements from the date of their acquisition.

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.

10 unchanged sentences

Cash flows associated with leases are materially consistent with the expense recorded in the condensed consolidated statement of earnings.

Leases (continued)

Supplemental balance sheet information related to leases is as follows:

14 unchanged sentences

Selling, general and administrative expenses 16.8 16.0

(1) Includes short-term lease expense of $ 1.8 million for the year ended December 31, 2020.

Includes variable lease cost of $ 1.6 million for the year ended December 31, 2020.

Includes short-term lease expense of $ 2.0 million for the year ended December 31, 2019.

Includes variable lease cost of $ 2.1 million for the year ended December 31, 2019.

Rent expense, including payments under operating leases was $ 24.0 million in 2018.

Leases (continued)

(1) Includes short-term lease expense of $ 2.5 million and variable lease cost of $ 2.3 million for the year ended December 31, 2021 and short-term lease expense of $ 1.8 million and variable lease cost of $ 1.6 million for the year ended December 31, 2020, respectively.

Maturities of lease liabilities were as follows:

4 unchanged sentences

Present value of operating lease liabilities $ 34.0

Severance, Restructuring and Impairment Expenses

To align its business to current market conditions, the Company recognized $ 7.7 million of pre-tax severance and restructuring expenses during the year ended December 31, 2020.

These expenses 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.

Of the $ 7.7 million expense recognized during the year ended December 31, 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 completed in 2020.

On March 21, 2018, the Company announced a move of manufacturing operations from its Renton, Washington facility to other U.S.

The Company recognized $ 6.7 million of restructuring and impairment expenses, comprised of $ 4.0 million of severance and compensation related costs, lease exit costs of $ 2.1 million and impairment charges related to long-lived assets totaling $ 0.6 million, as well as a corresponding $ 1.7 million tax benefit related to the charges.

As of December 31, 2019, the consolidation of the Renton facility to other U.S.

facilities was complete.

The following table presents an analysis of the Company’s restructuring reserve for the years ended December 31, 2020, 2019, and 2018:

(dollars in millions) Severance

Costs Restructuring Expenses Fixed Assets

Impairment Total

Balance at January 1, 2018 $ — $ — $ — $ —

Charges 4.0 2.1 0.6 6.7

Cash payments and disposals ( 3.8 ) ( 0.8 ) ( 0.6 ) ( 5.2 )

Balance at December 31, 2018 0.2 1.3 — 1.5

Cash payments and disposals ( 0.2 ) ( 0.8 ) — ( 1.0 )

Balance at December 31, 2019 — 0.5 — 0.5

Charges 6.8 0.9 — 7.7

Cash payments and disposals ( 5.1 ) ( 1.4 ) — ( 6.5 )

Balance at December 31, 2020 $ 1.7 $ — $ — $ 1.7

Severance and Restructuring Expenses

During the year ended December 31, 2020, to align its business to market conditions, the Company recognized $ 7.7 million of pre-tax severance and restructuring expenses.

These expenses were comprised of $ 6.8 million severance costs, as well as a corresponding $ 1.4 million tax benefit and were completed in 2020.

$ 2.7 million of the expense was related to the North America segment and $ 5.0 million was related to the Rest of World segment.

Statement of Cash Flows

9 unchanged sentences

$ 90.8 $ 130.4 $ 32.6

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

December 31 (dollars in millions) 2021 2020

5 unchanged sentences

$ 447.7 $ 300.1

The Company recognized after-tax LIFO income of $( 0.2 ) million, $( 0.7 ) million and $( 0.4 ) million in 2020, 2019 and 2018, respectively.

Property, Plant and Equipment

11 unchanged sentences

Balance at December 31, 2019 $ 486.9 $ 59.1 $ 546.0

Acquisition 31.0 — 31.0

Currency translation adjustment 0.8 — 0.8

1 unchanged sentence

Currency translation adjustment ( 1.3 ) ( 0.2 ) ( 1.5 )

Acquisitions 82.5 — 82.5

Balance at December 31, 2021 $ 568.9 $ 58.9 $ 627.8

20 unchanged sentences

Revolving credit agreement borrowings, average year-end interest rates of 1.1 % for 2021 and — % for 2020

Commercial paper, average year-end interest rates of — % for 2020 and 2.2 % for 2019

Term notes with insurance companies, expiring 2029-2034, average year-end interest rates of 3.1 % for 2021 and 3.3 % for 2020

1 unchanged sentence

Long-term debt $ 189.9 $ 106.4

In December 2016, the Company completed a $ 500 million multi-year multi-currency revolving credit agreement with a group of nine banks, which expires on December 15, 2021.

In 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 which allows it to be increased up to $ 850 million if certain conditions (including lender approval) are satisfied.

Borrowings under the Company’s bank credit lines and commercial paper borrowings are supported by the revolving credit agreement.

As a result of the long-term nature of this facility, the commercial paper and credit line borrowings are classified as long-term debt at December 31, 2019.

As of December 31, 2020 there were no commercial paper or credit line borrowings.

Borrowings under the Company’s bank credit lines and commercial paper borrowings are supported by the $ 500 million revolving credit agreement.

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

9 unchanged sentences

Smith Corporation Class A Common Stock and Common Stock amounted to $ 1.06 , $ 0.98 and $ 0.90 per share in 2021, 2020 and 2019, respectively.

In the second quarter of 2019, the Company's Board of Directors approved adding three million shares of Common Stock to an existing discretionary share repurchase authority.

In 2021, the Board of Directors approved adding seven million shares of Common Stock to an existing discretionary share repurchase authority.

Under the share repurchase program, the Common Stock may be purchased through a combination of Rule 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 the Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that the Company may then have in effect.

Due to the uncertainty surrounding the impact of the global COVID-19 pandemic, the Company suspended its share repurchases on March 18, 2020.

The stock repurchase authorization remains effective until terminated by the Company's 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 2021, the Company repurchased 5,087,467 shares at an average price of $ 72.03 per share and at a total cost of $ 366.5 million.

9 unchanged sentences

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

Other comprehensive gain (loss) before reclassifications 18.1 ( 1.3 )

Other comprehensive gain before reclassifications 3.4 18.1

Balance at end of period ( 44.7 ) ( 48.1 )

1 unchanged sentence

Balance at beginning of period 0.6 0.2

Other comprehensive gain (loss) before reclassifications 1.7 ( 0.3 )

Realized (gains) losses on derivatives reclassified to cost of products sold (net of tax provision (benefit) of $ 0.4 and $( 0.5 ) in 2020 and 2019, respectively) (1)

Other comprehensive (loss) gain before reclassifications ( 0.6 ) 1.7

Realized losses (gains) on derivatives reclassified to cost of products sold (net of tax (benefit) provision of $( 0.2 ) and $ 0.4 in 2021 and 2020, respectively) (1)

Balance at end of period 0.6 0.6

6 unchanged sentences

(1) Amounts reclassified from accumulated other comprehensive loss:

Realized (gains) loss on derivatives reclassified to cost of products sold $ ( 1.7 ) $ 1.7

Tax provision (benefit) 0.4 ( 0.5 )

Realized losses (gains) on derivatives reclassified to cost of products sold $ 0.8 $ ( 1.7 )

Tax (benefit) provision ( 0.2 ) 0.4

Reclassification net of tax $ 0.6 $ ( 1.3 )

8 unchanged sentences

The Company adopted the A.

Smith Combined Incentive Compensation Plan (the Plan) effective January 1, 2007.

The Plan was most recently reapproved by stockholders on April 15, 2020.

The Plan is a continuation of the A.

Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007.

The Incentive Plan was most recently reapproved by stockholders on April 15, 2020.

The Incentive Plan is a continuation of the A.

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

6 unchanged sentences

For active employees, all options granted in 2021, 2020 and 2019 expire ten years after the date of grant.

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

Included in stock option expense for 2020, 2019 and 2018 was $ 6.2 million, $ 6.4 million and $ 4.4 million, respectively.

Included in the stock option expense recognized in 2020, 2019 and 2018

The Company’s stock options are

Stock Based Compensation (continued)

is 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.

expensed ratably over the three year vesting period.

Included in stock option expense for 2021, 2020 and 2019 was $ 5.1 million, $ 6.2 million and $ 6.4 million, respectively.

Included in the stock option expense recognized in 2021, 2020 and 2019 is 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.

Changes in options, all of which relate to the Company’s Common Stock, were as follows:

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(1) The total intrinsic value of options exercised in 2021, 2020 and 2019 was $ 31.0 million, $ 21.3 million and $ 7.7 million, respectively.

(2) The weighted average remaining contractual life of options outstanding was 8 years at December 31, 2020, and 7 years at December 31, 2019, and December 31, 2018, respectively.

(2) The weighted average remaining contractual life of options outstanding was 8 years at December 31, 2021, and December 31, 2020, and 7 years at December 31, 2019, respectively.

The aggregate intrinsic value of options outstanding at December 31, 2021 was $ 85.9 million.

(3) The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2020, December 31, 2019 and December 31, 2018.

(3) The weighted average remaining contractual life of options exercisable was 7 years at December 31, 2021, and 6 years at December 31, 2020 and December 31, 2019.

The aggregate intrinsic value of options exercisable at December 31, 2021 was $ 47.8 million.

20 unchanged sentences

Restricted Stock and Share Units

Participants may also be awarded shares of restricted stock or share units under the Plan.

Participants may also be awarded shares of restricted stock or share units under the Incentive Plan.

Share units vest three years after the date of grant.

The Company granted 174,420 , 140,102 and 106,581 share units under the plan in 2020, 2019 and 2018, respectively.

The Company granted 104,312 , 174,420 and 140,102 share units under the Incentive Plan in 2021, 2020 and 2019, respectively.

The share units were valued at $ 6.4 million, $ 7.4 million and $ 6.9 million at the date of issuance in 2021, 2020 and 2019, respectively, based on the price of the Company’s Common Stock at the date of grant.

4 unchanged sentences

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

A summary of share unit activity under the plan is as follows:

A summary of share unit activity under the Incentive Plan is as follows:

Number of Units Weighted-Average

18 unchanged sentences

Certain hourly employees retiring after January 1, 1996, are subject to a maximum annual benefit and salaried employees hired after December 31, 1993, are not eligible for post-retirement medical benefits.

In 2021, the Company's Board of Directors approved the termination of the defined benefit pension plan (the Plan) with a termination date of December 31, 2021.

The Plan has filed for a determination letter from the IRS regarding the qualification of the plan termination.

The Plan represents over 95 percent of the Company's pension plan liability.

In 2022, the Company expects to annuitize the remaining pension liability.

The Plan settlement, which is expected to be completed in the fourth quarter of 2022, will accelerate the recognition of approximately $ 445 million of non-cash, pre-tax pension expenses.

Pension and Other Post-retirement Benefits (continued)

Obligations and Funded Status

Pension and Post-retirement Disclosure Information under ASC 715, Compensation – Retirement Benefits (ASC 715)

Pension and Post-retirement Disclosure Information

The following tables present the changes in benefit obligations, plan assets and funded status for domestic pension and post-retirement plans and the components of net periodic benefit costs.

25 unchanged sentences

Amounts recognized in accumulated other comprehensive loss before tax

Net actuarial loss (gain) $ 452.0 $ 463.1 $ 0.6 $ ( 0.2 )

Net actuarial loss $ 469.7 $ 452.0 $ — $ 0.6

Prior service cost 1.4 1.0 ( 2.8 ) ( 3.3 )

5 unchanged sentences

Years ended December 31 (dollars in millions) 2021 2020 2019 2021 2020 2019

Net periodic (benefit) cost

Net periodic cost (benefit)

Service cost $ 1.6 $ 1.5 $ 1.6 $ — $ — $ 0.1

14 unchanged sentences

Total recognized in other comprehensive loss 18.2 ( 10.7 ) ( 5.3 ) ( 0.1 ) ( 0.7 ) 1.6

Total recognized in net periodic (benefit) cost and other comprehensive loss $ ( 15.8 ) $ ( 11.5 ) $ 8.9 $ ( 1.6 ) $ 1.6 $ ( 0.2 )

The 2020 and 2019 after tax adjustments for additional minimum pension liability resulted in other comprehensive gain of $ 8.6 million and $ 2.9 million, respectively.

Total recognized in net periodic cost (benefit) and other comprehensive loss $ 6.2 $ ( 15.8 ) $ ( 11.5 ) $ ( 0.5 ) $ ( 1.6 ) $ 1.6

The 2021 and 2020 after tax adjustments for additional minimum pension liability resulted in other comprehensive (loss) gain of $( 13.6 ) million and $ 8.6 million, respectively.

Actuarial assumptions used to determine benefit obligations at December 31 are as follows:

8 unchanged sentences

Rate of compensation increase 4.00 % 4.00 % 4.00 % 4.00 % 4.00 % 4.00 %

Pension and Other Post-retirement Benefits (continued)

Assumed health care cost trend rates

3 unchanged sentences

Year that the rate reaches the ultimate trend rate 2029 2029

Pension and Other Post-retirement Benefits (continued)

The Company’s pension plan weighted asset allocations as of December 31 by asset category are as follows:

64 unchanged sentences

Balance at December 31, 2019 $ 82.3 $ 8.6 $ 90.9

Actual return (loss) on plan assets:

Actual (loss) return on plan assets:

Relating to assets still held at the reporting date ( 2.5 ) ( 2.2 ) ( 4.7 )

2 unchanged sentences

Balance at December 31, 2020 79.8 4.9 84.7

Actual (loss) return on plan assets:

Actual return (loss) on plan assets:

Relating to assets still held at the reporting date — 3.8 3.8

6 unchanged sentences

Bond investments include corporate and government issues, with short, mid, and long-term maturities, with a focus on investment-grade when purchased.

The Company’s target allocation to equity managers is between 30 to 60 percent with the remainder allocated primarily to bonds, real estate, private equity managers and cash.

In preparation for the Plan settlement, which is expected to be completed in the fourth quarter of 2022, the target allocation to bonds managers is between 60 to 95 percent with the remainder allocated primarily to equities, private equity managers and cash.

Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

2 unchanged sentences

There was no Company stock included in plan assets at December 31, 2021.

The Company was no t required to and did not make any contributions in 2020.

The Company was not required to and did no t make any contributions in 2021 to the Plan.

The Company is no t required to make a contribution in 2022.

Estimated Future Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Years ended December 31 (dollars in millions) Pension Benefits Post-retirement

As of December 31, 2021, the following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

Years ended December 31 (dollars in millions) Pension Benefits (1)

Post-retirement

2022 $ 201.6 $ 0.2

4 unchanged sentences

2027 – 2031 221.8 0.8

(1) These estimated Pension Benefit payments do not reflect the potential impact of the purchase of annuities as part of the Plan termination.

Derivative Instruments

10 unchanged sentences

Principal currencies for which the Company utilizes foreign currency forward contracts include the British pound, Canadian dollar, Euro and Mexican peso.

Derivative Instruments (continued)

Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying transaction is recorded in earnings.

2 unchanged sentences

These hedges have been determined to be effective.

Derivative Instruments (continued)

The majority of the amounts in accumulated other comprehensive loss for cash flow hedges are expected to be reclassified into earnings within one year .

31 unchanged sentences

Derivatives in ASC 815 cash flow

hedging relationships Amount of gain (loss)

hedging relationships Amount of (loss) gain

recognized in other

comprehensive loss on

derivatives Location of gain (loss)

derivatives Location of (loss) gain

reclassified from

1 unchanged sentence

comprehensive loss into

earnings Amount of gain

(loss) reclassified

earnings Amount of (loss) gain reclassified

from accumulated

5 unchanged sentences

$ ( 0.8 ) $ 2.3 $ ( 0.8 ) $ 1.7

Balance Sheet Hedges

Foreign Exchange Contracts

The Company periodically enters into foreign exchange contracts to mitigate the foreign currency volatility relative to certain intercompany loans.

These foreign exchange contracts did not qualify for hedge accounting in accordance with ASC 815, and as such were marked to market through earnings.

The fair value of the foreign exchange contracts was a liability balance of $ 0.8 million as of December 31, 2021 and recorded in Accrued liabilities within the consolidated balance sheet.

There were no foreign exchange contracts outstanding as of December 31, 2020.

The following table summarizes the contractual amounts of the Company's foreign exchange contracts that are designated as balance sheet hedges:

(dollars in millions) December 31, 2021

Canadian dollar $ — $ 125.6

The amounts recognized within the consolidated statements of earnings related to the Company's foreign exchange contracts are set forth below.

Years ended December 31 (dollars in millions)

Derivatives not designated as hedging instruments:

Location of gain within the consolidated statements of earnings

2021 2020 2019

Foreign exchange contracts Other income - net $ 0.9 $ — $ —

The components of the provision (benefit) for income taxes consisted of the following:

7 unchanged sentences

$ 138.5 $ 99.0 $ 102.1

Income Taxes (continued)

The provision for income taxes differs from the U.S.

10 unchanged sentences

22.1 % 22.3 % 21.6 %

Tax Reform was enacted on December 22, 2017 and significantly changed U.S.

corporate income tax laws.

Among other things, U.S.

Tax Reform reduced the U.S.

corporate income tax rate to 21 percent commencing on January 1, 2018, implemented a territorial tax system and levied a one-time mandatory tax on undistributed earnings of foreign subsidiaries of U.S.

The Company completed its accounting for the income tax effects of U.S.

Tax Reform as of December 31, 2018 and determined that there was no material adjustment necessary to the provisional amounts it recorded in 2017.

As allowed under ASU 2018-02 Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , the Company has elected not to reclassify the income tax effects of U.S.

Tax Reform from accumulated other comprehensive losses to retained earnings.

Income Taxes (continued)

Components of earnings before income taxes were as follows:

3 unchanged sentences

$ 625.6 $ 443.9 $ 472.1

Total income taxes paid by the Company amounted to $ 114.1 million, $ 116.6 million, and $ 116.4 million in 2020, 2019 and 2018, respectively.

As of December 31, 2020, the Company has $ 9.8 million accrued for its estimate of withholding taxes due upon repatriation of undistributed foreign earnings it considers to be not permanently reinvested.

The Company paid income taxes of $ 131.2 million, $ 114.1 million, and $ 116.6 million in 2021, 2020 and 2019, respectively.

As of December 31, 2021, the Company had $ 6.5 million accrued for its estimate of withholding taxes due upon repatriation of undistributed foreign earnings it considers to be not permanently reinvested.

As of December 31, 2021, $ 608.0 million of cash and cash equivalents and marketable securities were held by its foreign subsidiaries.

17 unchanged sentences

The Company considered historical operating results in determining the probability of the realization of the deferred tax assets.

Income Taxes (continued)

A reconciliation of the beginning and ending amounts of tax loss carryovers, credit carryovers and valuation allowances is as follows:

2 unchanged sentences

Beginning balance $ 20.3 $ 15.2 $ 13.0 $ 11.9

Increases / (Reductions) 5.1 ( 2.3 ) 1.1 ( 1.2 )

(Decreases) / increases ( 11.4 ) 5.1 ( 5.9 ) 1.1

Ending balance $ 8.9 $ 20.3 $ 7.1 $ 13.0

The Company has foreign net operating loss carryovers that expire in 2022 through 2028 and state and local net operating loss carryovers that expire between 2023 and 2025.

Income Taxes (continued)

A reconciliation of the beginning and ending amount of unrecognized benefits is as follows:

1 unchanged sentence

Balance at January 1 $ 9.0 $ 9.7

Additions / (Reductions) for tax positions of prior years ( 0.7 ) 1.4

Additions / (decreases) for tax positions of prior years 5.3 ( 0.7 )

Balance at December 31 $ 14.3 $ 9.0

24 unchanged sentences

The purchase obligations the Company considers firm as of December 31, 2021, is $ 306.1 million, most of which will be ordered in 2022.

Commitments and Contingencies (continued)

Inventory Repurchase Arrangements

28 unchanged sentences

Net earnings $ 487.1 $ 344.9 $ 370.0

(1) In 2020, the Company recognized $ 2.7 of severance and restructuring expenses in connection with the Company's alignment of the business to current market conditions.

For additional information, see Note 5 “Severance, Restructuring and Impairment Expenses.”

(2) In 2018, the Company recognized $ 6.7 of restructuring and impairment expenses in connection with the move of manufacturing operations from its Renton, Washington facility to other U.S.

For additional information, see Note 5 “Severance, Restructuring and Impairment Expenses.”

(3) In 2020, the Company recognized $ 5.0 of severance and restructuring expenses in connection with its alignment of its business to current market conditions.

For additional information, see Note 5 “Severance, Restructuring and Impairment Expenses.”

In 2020, sales to the North America segment’s two largest customers were $ 471.9 million and $ 349.9 million which represented 16 percent and 12 percent of the Company’s net sales, respectively.

In 2019, sales to the North America segment’s two largest customers were $ 421.1 million and $ 378.9 million which represented 14 percent and 13 percent of the Company’s net sales, respectively.

In 2018, sales to the North America segment’s two largest customers were $ 425.3 million and $ 355.6 million which represented 13 percent and 11 percent of the Company’s net sales, respectively.

(1) In 2020, the Company recognized $ 2.7 million of severance and restructuring expenses in connection with the alignment of its business to market conditions.

For additional information, see Note 5 “Severance and Restructuring Expenses.”

(2) In 2020, the Company recognized $ 5.0 million of severance and restructuring expenses in connection with the alignment of its business to market conditions.

For additional information, see Note 5 “Severance and Restructuring Expenses.”

In 2021, sales to the Company's North America segment’s two largest customers were $ 536.9 million and $ 401.5 million which represented 15 percent and 11 percent of the Company’s net sales, respectively.

In 2020, sales to the Company's North America segment’s two largest customers were $ 471.9 million and $ 349.9 million which represented 16 percent and 12 percent of the Company’s net sales, respectively.

In 2019, sales to the Company's North America segment’s two largest customers were $ 421.1 million and $ 378.9 million which represented 14 percent and 13 percent of the Company’s net sales, respectively.

Operations by Segment (continued)

Assets, depreciation and capital expenditures by segment

6 unchanged sentences

The majority of corporate assets consist of cash, cash equivalents, marketable securities and deferred income taxes.

Operations by Segment (continued)

Net sales and long-lived assets by geographic location

8 unchanged sentences

Total $ 729.2 $ 672.0 $ 673.2 Total $ 3,538.9 $ 2,895.3 $ 2,992.7

Quarterly Results of Operations (Unaudited)

(dollars in millions, except per share amounts)

1st Quarter 2nd Quarter 3rd Quarter 4th Quarter

2020 2019 2020 2019 2020 2019 2020 2019

Net sales $ 636.9 $ 748.2 $ 663.9 $ 765.4 $ 760.0 $ 728.2 $ 834.5 $ 750.9

Gross profit 239.5 292.8 247.5 308.7 297.1 284.2 324.1 295.0

Net earnings 51.7 89.3 67.8 102.1 105.4 87.3 120.0 91.3

Basic earnings per share 0.32 0.53 0.42 0.61 0.65 0.53 0.74 0.56

Diluted earnings per share 0.32 0.53 0.42 0.61 0.65 0.53 0.74 0.56

Common dividends declared 0.24 0.22 0.24 0.22 0.24 0.22 0.26 0.24

Net earnings per share are computed separately for each period, and therefore, the sum of such quarterly per share amounts may differ from the total for the year.

In 2020, the Company recorded $ 7.7 million of severance and restructuring expenses associated with the alignment of its business to current market conditions.

These charges reduced after-tax earnings by $ 6.3 million or $ 0.04 per share.

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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-K

Item 8. Financial Statements and Supplementary Data