What changed in this filing

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Item 1. Financial Statements

2022-05-02 compared with 2021-10-29 · 120 added, 195 removed, 417 unchanged (43% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net sales $ 977.7 $ 769.0

2 unchanged sentences

Selling, general and administrative expenses 179.8 166.5

Severance and restructuring expenses — 1.6 — 7.7

Interest expense 1.5 1.0

Other income ( 4.7 ) ( 2.8 ) ( 13.6 ) ( 11.0 )

Other expense (income), net 3.7 ( 5.0 )

Earnings before provision for income taxes 156.6 126.1

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Net earnings $ 119.8 $ 97.7

Other comprehensive (loss) earnings

Other comprehensive earnings (loss)

Foreign currency translation adjustments 0.6 ( 1.4 )

Unrealized net gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $( 0.1 ) and $ 0.2 in 2021, $( 0.3 ) and $( 0.1 ) in 2020

0.4 0.7 ( 0.7 ) 0.2

Adjustment to pension liability, less related income tax provision of ($ 1.2 ) and $( 3.8 ) in 2021, ($ 0.9 ) and $( 3.3 ) in 2020

Unrealized losses on cash flow derivative instruments, less related income tax benefit of $ 0.2 in 2022, $ 0.7 and in 2021

( 0.6 ) ( 2.0 )

Adjustment to pension liability, less related income tax provision of ($ 1.2 ) in 2022 and ($ 1.3 ) in 2021

Comprehensive Earnings $ 123.6 $ 98.1

3 unchanged sentences

(dollars in millions)

September 30,

Current Assets

42 unchanged sentences

(dollars in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities

9 unchanged sentences

Capital expenditures ( 12.9 ) ( 17.1 )

Acquisitions of businesses ( 9.0 ) —

Investments in marketable securities ( 16.9 ) ( 24.4 )

Net proceeds from sale of marketable securities 31.9 54.0

Cash (Used in) Provided by Investing Activities ( 135.3 ) 12.4

Cash Provided by Investing Activities 2.1 12.5

Financing Activities

Long-term debt repaid ( 6.8 ) ( 170.1 )

Long-term debt incurred (repaid) 98.7 ( 6.8 )

Common stock repurchases ( 107.9 ) ( 67.0 )

Net proceeds from stock option activity 15.7 4.4

Net (payments) proceeds from stock option activity ( 2.7 ) 4.5

Dividends paid ( 44.2 ) ( 42.2 )

8 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Class A Common Stock

23 unchanged sentences

Exercise of stock options ( 2.9 ) 1.9

Stock incentives and directors’ compensation 0.1 — 0.3 0.4

Shares repurchased ( 107.9 ) ( 67.0 )

5 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2021

March 31, 2022

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

Operating results for the three months ended March 31, 2022 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, 2021 filed with the SEC on February 11, 2022.

Recent Accounting Pronouncement

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 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.

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.

The Company adopted the amendment on January 1, 2022, and the adoption of ASU 2021-10 is not expected to materially impact its annual disclosures, consolidated balance sheets, statements of earnings or statements of cash flows.

Revenue Recognition

9 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 $ 100.4 million and $ 90.0 million at September 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 $ 118.2 million and $ 155.2 million at March 31, 2022 and December 31, 2021, respectively.

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

1 unchanged sentence

In determining the allowance for doubtful accounts, the Company also considers various factors including the aging of customer accounts and historical write-offs.

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 $ 10.1 million at September 30, 2021 and $ 5.6 million at December 31, 2020.

In addition, the Company monitors other risk factors including forward-looking information when establishing adequate allowances for credit losses, 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 $ 10.1 million at March 31, 2022 and $ 9.5 million at December 31, 2021.

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

33 unchanged sentences

(dollars in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

North America

9 unchanged sentences

Total Net Sales $ 977.7 $ 769.0

Severance and Restructuring Expenses

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.

On October 19, 2021, the Company acquired 100 percent of the shares and related assets of Giant Factories, Inc.

(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 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

As required under ASC 805 Business Combinations , Giant's results of operations have been included in the Company’s consolidated financial statements from October 19, 2021, the date of 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:

(dollars in millions) September 30,

(dollars in millions) March 31,

2022 December 31, 2021

4 unchanged sentences

Operating lease assets $ 33.9 $ 32.5

Lease Term and Discount Rate September 30, 2021

Lease Term and Discount Rate March 31, 2022

Weighted-average remaining lease term 6.7 years

Weighted-average discount rate 2.82 %

Leases (continued)

The components of lease expense were as follows:

(dollars in millions) Three months ended

September 30,

Lease Expense Classification 2022 (1)

3 unchanged sentences

(2) 2021 includes short-term and variable lease expenses of $ 0.5 million and $ 0.6 million, respectively.

(dollars in millions) Nine Months Ended

September 30,

Lease Expense Classification 2021 (1)

Operating lease expense Cost of products sold $ 2.9 $ 2.2

Selling, general and administrative expenses 12.3 12.3

(1) 2021 includes short-term and variable lease expenses of $ 1.6 million and $ 1.8 million, respectively.

(2) 2020 includes short-term and variable lease expenses of $ 1.5 million and $ 1.2 million, respectively.

Maturities of lease liabilities were as follows:

(dollars in millions) September 30,

(dollars in millions) March 31,

After 2026 9.4

3 unchanged sentences

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

(dollars in millions) September 30,

(dollars in millions) March 31,

2022 December 31, 2021

7 unchanged sentences

The Company offers warranties on the sales of certain of its products with terms that are consistent with the market and records an accrual for the estimated future claims.

The increase in our reserve for product warranties as of the first quarter ended 2022 compared to the prior year period was primarily due to increased steel prices and the acquisition of Giant.

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

The following table presents the Company’s warranty liability activity:

(dollars in millions) Three Months Ended

September 30,

Balance at July 1, $ 144.9 $ 136.0

Expense 18.5 12.4

Claims settled ( 11.9 ) ( 12.5 )

Balance at September 30, $ 151.5 $ 135.9

(dollars in millions) Nine Months Ended

September 30,

Balance at January 1, $ 184.4 $ 142.3

1 unchanged sentence

Claims settled ( 15.4 ) ( 13.3 )

Balance at September 30, $ 151.5 $ 135.9

Long-Term Debt

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.

Balance at March 31, $ 182.9 $ 141.6

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

Borrowings under bank credit lines and commercial paper borrowings are supported by a $ 500 million revolving credit agreement.

As a result of the long-term nature of this facility, the Company’s commercial paper and credit line borrowings are classified as long-term debt at March 31, 2022.

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 September 30, 2021.

The facility requires the Company to maintain two financial covenants, a leverage ratio test and an interest coverage test.

The Company was in compliance with the covenants as of March 31, 2022.

Earnings per Share of Common Stock

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Denominator for basic earnings per share - weighted average shares 157,018,566 161,526,733

3 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.

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

The number of shares available for granting of options or share units at March 31, 2022 was 7,117,740 .

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 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)

Total stock based compensation expense recognized in the three months ended March 31, 2022 and 2021 was $ 7.6 million and $ 7.4 million, respectively.

Stock Options

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.

The stock options granted in the three months ended March 31, 2022 and 2021 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 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:

however, included in the stock option expense for the three months ended March 31, 2022 and 2021 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

Stock Based Compensation (continued)

expense attributable to stock options in the three months ended March 31, 2022 and 2021 was $ 3.9 million and $ 3.6 million, respectively.

Changes in options, all of which relate to the Company’s Common Stock, were as follows for the three months ended March 31, 2022:

Price Number of

5 unchanged sentences

Forfeited 59.09 ( 8,269 )

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.

Outstanding at March 31, 2022 51.09 2,543,217 7 years $ 35.8

Exercisable at March 31, 2022 46.75 1,719,597 6 years $ 29.5

The weighted-average fair value per option at the date of grant during the three months ended March 31, 2022 and 2021 using the Black-Scholes option-pricing model was $ 17.59 and $ 14.01 , respectively.

Assumptions were as follows:

Nine Months Ended September 30,

Three Months Ended March 31,

Expected life (years) 5.7 5.8

8 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 104,223 and 172,426 share units under the Plan in the nine months ended September 30, 2021 and 2020, respectively.

The Company granted 88,894 and 100,153 share units under the Incentive Plan in the three months ended March 31, 2022 and 2021, respectively.

The share units were valued at $ 6.6 million and $ 6.1 million at the date of issuance in 2022 and 2021, 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 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)

and 2020, respectively.

however, included in share unit expense in the three months ended March 31, 2022 and 2021 was expense associated with accelerated vesting of restricted stock and 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 $ 3.7 million and $ 3.8 million was recognized in the three months ended March 31, 2022 and 2021, 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 nine months ended September 30, 2021:

Stock Based Compensation (continued)

A summary of share unit activity under the Incentive Plan is as follows for the three months ended March 31, 2022:

Number of Units Weighted-Average

4 unchanged sentences

Forfeited ( 6,137 ) 53.21

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

Issued and unvested at March 31, 2022 379,704 52.88

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

(dollars in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

Service cost $ 0.4 $ 0.4

3 unchanged sentences

Amortization of prior service cost ( 0.1 ) ( 0.1 )

Defined benefit plan income $ ( 2.9 ) $ ( 1.8 ) $ ( 8.7 ) $ ( 5.9 )

The service cost component of net periodic benefit cost is presented within cost of products sold and selling, general and administrative expenses within the condensed consolidated statements of earnings while the other components of pension income are reflected in other income.

Defined benefit plan expense (income) $ 3.6 $ ( 2.9 )

The Company was not required to and did no t make a contribution to its U.S.

1 unchanged sentence

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

In 2021, the Company's Board of Directors approved the termination of the Company's largest defined benefit pension plan (the Plan) representing over 95 percent of the Company's pension plan liabilities with a termination date of December 31, 2021.

In April 2022, the Plan received a determination letter from the IRS that allowed the Company to proceed with the termination process for the Plan.

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

The Plan settlement, which the Company expects to complete in the fourth quarter of 2022, will accelerate the recognition of approximately $ 445 million of non-cash, pre-tax pension expenses.

Segment Results

4 unchanged sentences

Both segments primarily manufacture and market in their respective regions of the world.

Segment Results (continued)

The following table presents the Company’s segment results:

(dollars in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2021 2020 2021 2020

North America $ 730.1 $ 552.9

2 unchanged sentences

$ 977.7 $ 769.0

Segment earnings (losses)

Segment earnings

North America (1)

1 unchanged sentence

Rest of World 24.8 11.8

26.8 16.7 60.9 ( 31.3 )

Inter-segment ( 0.1 ) —

178.5 149.8 484.7 334.0

Corporate expense (2)

( 18.4 ) ( 15.1 )

Interest expense ( 1.5 ) ( 1.0 )

2 unchanged sentences

Net earnings $ 119.8 $ 97.7

(1) includes severance and restructuring expenses of:

(1) includes pension expense (income) of:

$ 2.6 $ ( 2.6 )

(2) includes severance and restructuring expenses of:

(2) includes pension expense (income) of:

$ 0.3 $ ( 0.6 )

9 unchanged sentences

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

Fair Value Measurement Using September 30,

Fair Value Measurement Using March 31,

2022 December 31, 2021

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 nine months ended September 30, 2021.

There were no changes in the Company’s valuation techniques used to measure fair values on a recurring basis during the three months ended March 31, 2022.

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) September 30, 2021 December 31, 2020

(dollars in millions) March 31, 2022 December 31, 2021

Buy Sell Buy Sell

British pound $ — $ 0.2 $ — $ 1.0

Canadian dollar $ — $ 103.0 $ — $ 113.4

2 unchanged sentences

Total $ 50.8 $ 103.0 $ 48.0 $ 113.4

Commodity Futures Contracts

In addition to entering into supply arrangements in the normal course of business, the Company also enters into futures contracts to fix the cost of certain raw material purchases, principally steel, with the objective of minimizing changes in cost due to market price fluctuations.

The hedging strategy for achieving this objective is to purchase steel futures contracts on the New York Metals Exchange (NYMEX) and copper futures contracts on the open market of the London Metals Exchange (LME) or over the counter contracts based on the LME.

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 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.

Net Investment Hedges

1 unchanged sentence

subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S.

For the derivative instruments that are designated and qualify as net investment

Derivative Instruments (continued)

hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Company’s net investments in its non-U.S.

For the derivative instruments that are designated and qualify as net investment hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Company’s net investments in its non-U.S.

subsidiaries.

These hedges are determined to be effective.

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 Company recognized $ 0.3 million and zero 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 months ended March 31, 2022 and 2021, respectively.

The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges is $ 50.0 million as of March 31, 2022.

Derivative Instruments (continued)

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 September 30,

(dollars in millions) Balance Sheet Location March 31,

2022 December 31,

3 unchanged sentences

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

Three Months Ended September 30 (dollars in millions):

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

Three Months Ended March 31 (dollars in millions):

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

comprehensive

10 unchanged sentences

Foreign currency contracts $ ( 0.7 ) $ ( 2.9 ) Cost of products sold $ 0.1 $ ( 0.3 )

Commodities contracts — ( 0.1 ) Cost of products sold — —

$ 0.6 $ 1.3 $ 0.2 $ 0.4

Nine Months Ended September 30 (dollars in millions):

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

recognized in other

comprehensive

loss on derivatives Location of (loss) gain

reclassified from

accumulated other

comprehensive loss

into earnings Amount of (loss) gain

reclassified from

accumulated other

comprehensive

loss into earnings

2021 2020 2021 2020

Foreign currency contracts $ ( 1.9 ) $ 2.2 Cost of products sold $ ( 0.9 ) $ 1.7

Commodities contracts — ( 0.2 ) Cost of products sold — —

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

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 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

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 zero as of March 31, 2022.

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

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

(dollars in millions) March 31, 2022 December 31, 2021

Buy Sell Buy Sell

Canadian dollar $ — $ 123.4 $ — $ 125.6

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

Three Months Ended March 31 (dollars in millions):

Derivatives not designated as hedging instruments:

Location of loss within the consolidated statements of earnings

Foreign exchange contracts Other expense (income) - net $ 1.3 $ —

The Company’s effective income tax rate for the three months ended March 31, 2022 was 23.5 percent compared to 22.5 percent for the three months ended March 31, 2021.

The Company estimates that its annual effective income tax rate for the full year 2022 will be between approximately 23.5 and 24 percent.

The change in the effective income tax rate for the three months ended March 31, 2022 compared to the effective income tax rate for the three months ended March 31, 2021 was primarily due to a change in geographical earnings mix.

As of March 31, 2022, the Company had $ 14.3 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

Income Taxes (continued)

subject to audit.

benefits as a component of income tax expense.

The Company’s U.S.

federal income tax returns for 2017-2022 are subject to audit.

The Company is subject to state and local income tax audits for tax years 2008-2022.

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 $ 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.

Before considering any reduction of distributor rebate accruals of $ 3.0 million and $ 3.9 million as of March 31, 2022 and December 31, 2021, 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 $ 6.8 million as of March 31, 2022 and $ 7.2 million as of December 31, 2021.

The Company’s reserves for estimated losses under repurchase arrangements were immaterial as of March 31, 2022 and December 31, 2021.

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 $ ( 44.7 ) $ ( 48.1 )

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

Balance at end of period ( 47.0 ) ( 64.8 )

Unrealized net (loss) gain on cash flow derivatives

Balance at beginning of period ( 0.5 ) ( 0.3 )

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

Pension liability

Balance at beginning of period ( 266.1 ) ( 275.0 )

Other comprehensive (loss) before reclassifications — ( 0.9 )

Amounts reclassified from accumulated other comprehensive loss:

Balance at end of period ( 262.2 ) ( 272.1 )

Accumulated other comprehensive loss, end of period $ ( 309.3 ) $ ( 336.5 )

(1) Amortization of pension items:

Actuarial losses $ 5.2 (2)

Prior year service cost ( 0.1 ) (2)

Income tax benefit ( 1.2 ) ( 1.3 )

Reclassification net of income tax benefit $ 3.9 $ 3.8

(2) These accumulated other comprehensive loss components are included in the computation of net periodic pension cost.

See Note 10 - Pensions for additional details.

Changes in Accumulated Other Comprehensive Loss by Component (continued)

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

(dollars in millions) Nine Months Ended

September 30,

Cumulative foreign currency translation

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

Other comprehensive income before reclassifications 0.6 ( 1.4 )

2 unchanged sentences

Balance at beginning of period 0.6 0.6

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)

Other comprehensive loss before reclassifications ( 0.5 ) ( 2.2 )

Realized (gains) losses on derivatives reclassified to cost of products sold (net of income tax provision (benefit) of $ — and ($ 0.1 ) in 2022 and 2021, respectively)

Balance at end of period — ( 1.4 )

1 unchanged sentence

Balance at beginning of period ( 287.3 ) ( 273.7 )

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