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Item 8. Financial Statements and Supplementary Data

2023-02-14 compared with 2022-02-11 · 167 added, 180 removed, 890 unchanged (28% of the section changed)

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID:

The Board of Directors and Stockholders

14 unchanged sentences

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

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The product warranty liability is estimated based upon warranty loss experience using actual historical failure rates and estimated cost of product replacement.

Products generally carry warranties from one to ten years.

Products generally carry warranties from one to twelve years.

The Company performs separate warranty calculations based on the product type and the warranty term and aggregates them.

6 unchanged sentences

To test the Company’s calculation of the product warranty liability, our audit procedures included, among others, evaluating the methodology used, and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis.

We tested the validity and categorization of claims by product type and warranty period within the calculation and tested the completeness of the claims data against the Company’s claim log.

We tested the validity and categorization of claims by product type and warranty period within the calculation and tested the completeness and accuracy of the claims data.

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 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.

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

Further, we inquired of operational and quality control personnel regarding quality issues and trends.

35 unchanged sentences

Preferred Stock — —

Class A Common Stock (shares issued 26,104,441 and 26,168,513 )

Common Stock (shares issued 164,603,153 and 164,539,081 )

Class A Common Stock (shares issued 26,035,656 and 26,104,441 as of December 31, 2022 and 2021, respectively)

Common Stock (shares issued 164,671,938 and 164,603,153 as of December 31, 2022 and 2021, respectively)

Capital in excess of par value 555.9 545.2

14 unchanged sentences

Interest expense 9.4 4.3 7.3

Other income - net ( 20.4 ) ( 11.0 ) ( 18.0 )

Other expense (income), net 425.6 ( 20.4 ) ( 11.0 )

Earnings before provision for income taxes 223.7 625.6 443.9

Provision for income taxes 138.5 99.0 102.1

(Benefit from) provision for income taxes ( 12.0 ) 138.5 99.0

Net Earnings $ 235.7 $ 487.1 $ 344.9

Net Earnings Per Share of Common Stock (1)

$ 1.52 $ 3.05 $ 2.13

Diluted Net Earnings Per Share of Common Stock (1)

$ 1.51 $ 3.02 $ 2.12

(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS

5 unchanged sentences

Unrealized net gain on cash flow derivative instruments, less related income tax provision of $( 1.4 ) in 2022, $ — in 2021 and $( 0.1 ) in 2020

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

Change in pension liability less related income tax (provision) benefit of $( 179.0 ) in 2022 $ 4.5 in 2021 and $( 2.8 ) in 2020

284.1 ( 13.6 ) 8.6

9 unchanged sentences

Stock based compensation expense 11.1 11.9 12.7

Pension settlement expense 417.3 — —

Pension settlement non-cash taxes ( 167.7 ) — —

Net changes in operating assets and liabilities, net of acquisitions:

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Capital expenditures ( 70.3 ) ( 75.1 ) ( 56.8 )

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

Cash Provided by (Used in) Investing Activities 8.1 ( 349.9 ) 11.8

Financing Activities

1 unchanged sentence

Common stock repurchases ( 403.5 ) ( 366.5 ) ( 56.7 )

Net proceeds (payments) from stock option activity 32.1 11.4 ( 0.5 )

Payment of contingent consideration — — ( 1.0 )

Net (payments) proceeds from stock option activity ( 0.7 ) 32.1 11.4

Dividends paid ( 177.2 ) ( 170.1 ) ( 158.7 )

Cash Used in Financing Activities ( 430.8 ) ( 421.0 ) ( 374.8 )

Effect of exchange rate changes on cash and cash equivalents ( 20.8 ) — —

Net (decrease) increase in cash and cash equivalents ( 52.1 ) ( 129.8 ) 199.1

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Net earnings 235.7 487.1 344.9

Cash dividends on stock ( 170.1 ) ( 158.7 ) ( 149.4 )

Dividends on stock ( 177.3 ) ( 170.1 ) ( 158.7 )

Balance at the end of the year $ 2,885.0 $ 2,826.6 $ 2,509.6

3 unchanged sentences

Unrealized net gain on cash flow derivative instruments, less related income tax provision of $( 1.4 ) in 2022 $ — in 2021 and $( 0.1 ) in 2020

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

Change in pension liability less related income tax (provision) benefit of $( 179.0 ) in 2022, $ 4.5 in 2021 and $( 2.8 ) in 2020

284.1 ( 13.6 ) 8.6

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The carrying amounts of cash, cash equivalents, marketable securities, receivables, floating rate debt and trade payables approximated fair value as of December 31, 2022 and 2021, due to the short maturities or frequent rate resets of these instruments.

The fair value of term notes with insurance companies was approximately $ 128.4 million as of December 31, 2021 compared with the carrying amount of $ 145.9 million for the same date.

The fair value of term notes with insurance companies included in Long-term debt within the consolidated balance sheets was approximately $ 120.2 million as of December 31, 2022 compared with the carrying amount of $ 136.5 million for the same date.

The fair value of term notes with insurance companies was approximately $ 128.4 million as of December 31, 2021 compared with the carrying amount of $ 145.9 million.

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The resulting translation adjustments were recorded as a separate component of stockholders’ equity.

The Barbados, Hong Kong, Mexican and Netherlands companies use the U.S.

The Barbados, Hong Kong, Mexican and non-operating Netherlands companies use the U.S.

dollar as the functional currency.

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The Company considers all highly liquid investments with maturities greater than 90 days when purchased to be marketable securities.

At December 31, 2021, the Company’s marketable securities consisted of bank time deposits with original maturities ranging from 180 days to 12 months and were primarily located at investment grade rated banks in China.

At December 31, 2022, the Company’s marketable securities consisted of bank time deposits with original maturities ranging from 180 days to 12 months and were primarily located at investment grade rated banks in China and Hong Kong.

Inventory valuation.

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Product warranties.

The Company’s products carry warranties that generally range from one to ten years and are based on terms that are consistent with the market.

The Company records a liability for the expected cost of warranty-related claims at the time of sale and is estimated based on the warranty period, product type and loss experience using actual historical failure

The Company’s products carry warranties that generally range from one to twelve years and are based on terms that are consistent with the market.

The Company records a liability for the expected cost of warranty-related claims

Organization and Significant Accounting Policies (continued)

rates and estimated costs of product replacement.

at the time of sale and is estimated based on the warranty period, product type and loss experience using actual historical failure rates and estimated costs of product replacement.

The variables used in the calculation of the provision are reviewed by the Company at least annually.

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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 2022 and 2021:

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The change in a derivative’s fair value is recorded each period in current earnings or accumulated other comprehensive loss (AOCL), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction.

See Note 14, “Derivative Instruments” of the notes to consolidated financial statements for disclosure of the Company’s derivative instruments and hedging activities.

See Note 14, “Derivative Instruments” for disclosure of the Company’s derivative instruments and hedging activities.

Fair Value Measurements.

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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

Quoted prices in active markets for identical assets (Level 1) $ 188.1 $ 116.5

Significant other observable inputs (Level 2) ( 0.7 ) ( 4.3 )

Fair Value Measurement Using Balance Sheet Location December 31, 2022 December 31, 2021

Quoted prices in active markets for identical assets (Level 1) Marketable Securities $ 90.6 $ 188.1

Significant other observable inputs (Level 2) Other current assets / Accrued liabilities 6.5 ( 0.7 )

There were no changes in the valuation techniques used to measure fair values on a recurring basis.

35 unchanged sentences

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 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.

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

Revenue Recognition

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

Revenue Recognition (continued)

The nature, timing and amount of revenue for a respective performance obligation are consistent for each customer.

2 unchanged sentences

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

Revenue Recognition (continued)

Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $ 85.7 million and $ 155.2 million at December 31, 2022 and December 31, 2021, respectively.

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

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

The Company assesses the collectability of customer receivables based on the creditworthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history.

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 $ 9.5 million at December 31, 2021 and $ 5.6 million at December 31, 2020.

In determining the allowance for credit losses, 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 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 credit losses was $ 9.5 million at both December 31, 2022 and December 31, 2021.

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

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The Rest of World segment is primarily comprised of China, Europe and India.

Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks and water treatment products.

Both segments 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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In addition, the impact of economic factors is unlikely to be differentiated by product line in the Rest of World segment.

The North America segment major product lines are defined as the following:

The North America segment's major product lines are defined as the following:

Water heaters The Company’s water heaters are open water heating systems that heat potable water.

Typical applications for water heaters include residences, restaurants, hotels and motels, office buildings, laundries, car washes and small businesses.

Typical applications for water heaters include residences, restaurants, hotels, office buildings, laundries, car washes and small businesses.

The Company sells residential and commercial water heater products and related parts through its wholesale distribution channel, which includes more than 1,000 independent wholesale plumbing distributors.

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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)

quality dealers as well as directly to consumers including through internet sales channels.

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

A portion of the Company’s sales of water treatment products in the North America segment is comprised of replacement filters.

Revenue Recognition (continued)

The following table disaggregates the Company’s net sales by segment.

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Water treatment products 222.0 201.5 177.2

201.5 177.2 141.4

Total North America 2,819.1 2,529.5 2,118.3

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Total Net Sales $ 3,753.9 $ 3,538.9 $ 2,895.3

(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.

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.

(1) Includes the results of Giant Factories, Inc.

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

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 for $ 198.6 million, net of cash acquired.

The Company paid $ 2.5 million of the purchase price in the second quarter of 2022 as a result of final working capital adjustments.

The Company incurred acquisition costs of approximately $ 1.3 million in 2021.

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

The Company expects to pay out the escrow during the second quarter of 2023.

The allocation of the purchase price to goodwill decreased by $ 4.3 million in 2022 due to the net impact of a measurement period adjustment, primarily related to income tax matters, partially offset by the final working capital adjustment.

The addition of Giant increased the Company's North America market penetration, created additional capacity and enhanced 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 following table summarizes the 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 was assigned to trademarks that are not subject to amortization and $ 9.2 million was assigned to customer relationships which are amortized over 22 years, and the remaining $ 0.7 million was 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.

The following table summarizes the estimated fair values of Giant's assets acquired and liabilities assumed at the date of acquisition:

October 19, 2021 (dollars in millions)

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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.

Significant assumptions used to estimate the fair value of intangible assets acquired include discount rates and certain assumptions that form the basis of the forecasted results, including revenue growth rates, attrition rates and royalty rates.

The $ 60.4 million of acquired identifiable intangible assets was comprised of the following:

$ 40.2 million of customer relationships being amortized over 20 years, $ 19.0 million of trademarks not subject to amortization, and $ 1.2 million of non-compete agreements being amortized over 7.5 years.

April 8, 2019 (dollars in millions)

Current assets, net of cash acquired $ 9.7

Property, plant and equipment 8.6

Intangible assets 60.4

Goodwill 31.0

Total assets acquired 109.7

Current liabilities ( 2.7 )

Net assets acquired $ 107.0

During the second quarter of 2022, the Company acquired a privately-held water treatment company.

The Company paid an aggregate cash purchase price of $ 5.5 million, net of cash acquired.

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

During the third quarter of 2022, the Company incurred $ 4.3 million of expenses and related income tax benefit of $ 1.1 million associated with a terminated acquisition.

These expenses were related to the due diligence of a prospective acquisition target and recorded within selling, general and administrative expenses in the consolidated statement of earnings.

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.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants or material subleases.

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

Leases (continued)

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

Supplemental balance sheet information related to leases is as follows:

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Weighted-average discount rate 3.21 %

Leases (continued)

The components of lease expense were as follows:

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Selling, general and administrative expenses 15.8 16.8

(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.

(1) Includes short-term lease expense of $ 2.1 million and variable lease expenses of $ 3.1 million for the year ended December 31, 2022 and short-term lease expense of $ 2.5 million and variable lease expenses of $ 2.3 million for the year ended December 31, 2021, respectively.

Maturities of lease liabilities were as follows:

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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.

These expenses were comprised of $ 6.8 million in 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.

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$ ( 194.1 ) $ 90.8 $ 130.4

In addition cash interest paid during the years ended December 31, 2022, 2021 and 2020 were $ 9.3 million, $ 4.2 million, and $ 7.6 million, respectively.

Total cash and cash equivalents and marketable securities at December 31, 2022 and 2021 was $ 481.8 million and $ 631.4 million, respectively, of which $ 472.1 million and $ 608.0 million were held by the Company’s foreign subsidiaries, at December 31, 2022 and 2021, respectively.

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

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LIFO reserve ( 49.3 ) ( 70.8 )

$ 447.7 $ 300.1

Inventories, at LIFO cost $ 516.4 $ 447.7

Property, Plant and Equipment

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Accumulated depreciation and amortization ( 774.1 ) ( 736.5 )

$ 606.7 $ 541.3

Net property, plant, and equipment $ 590.7 $ 606.7

Goodwill and Other Intangible Assets

3 unchanged sentences

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

Currency translation adjustment ( 7.8 ) ( 0.3 ) ( 8.1 )

Acquisitions 82.5 — 82.5

Balance at December 31, 2022 $ 561.1 $ 58.6 $ 619.7

Goodwill and Other Intangible Assets (continued)

The carrying amount of other intangible assets consisted of the following:

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Total intangible assets $ 515.6 $ ( 167.7 ) $ 347.9 $ 519.3 $ ( 154.5 ) $ 364.8

Goodwill and Other Intangible Assets (continued)

Amortization expenses of other intangible assets of $ 12.8 million, $ 12.3 million, and $ 14.5 million were recorded in 2022, 2021 and 2020, respectively.

3 unchanged sentences

December 31 (dollars in millions) 2022 2021

Bank credit lines, average year-end interest rates of 5.0 % for 2021 and — % for 2020

Bank credit lines, average year-end interest rates of 5.0 % for 2021

Revolving credit agreement borrowings, average year-end interest rates of 5.3 % for 2022 and 1.1 % for 2021

Commercial paper, average year-end interest rate of 4.6 % for 2022

Term notes with insurance companies, expiring 2029-2034, average year-end interest rates of 3.1 % for 2022 and 3.1 % for 2021

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Smith Corporation Class A Common Stock and Common Stock amounted to $ 1.14 , $ 1.06 and $ 0.98 per share in 2022, 2021 and 2020, respectively.

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

In 2022, the Board of Directors approved adding 3,500,000 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 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.

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

Stockholders’ Equity (continued)

plan that we may then have in effect.

In 2022, the Company repurchased 6,647,895 shares at an average price of $ 60.70 per share and at a total cost of $ 403.5 million.

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At December 31, 2021, a total of 130,380 and 32,924,647 shares of Class A Common Stock and Common Stock, respectively, were held as treasury stock.

Stockholders’ Equity (continued)

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

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Balance at beginning of period $ ( 44.7 ) $ ( 48.1 )

Other comprehensive gain before reclassifications 3.4 18.1

Other comprehensive (loss) gain before reclassifications ( 39.4 ) 3.4

Balance at end of period ( 84.1 ) ( 44.7 )

1 unchanged sentence

Balance at beginning of period 0.6 0.6

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)

Other comprehensive gain (loss) before reclassifications 7.4 ( 0.6 )

Realized (gains) losses on derivatives reclassified to cost of products sold (net of tax provision (benefit) of $ 1.0 and $( 0.2 ) in 2022 and 2021, respectively) (1)

Balance at end of period 4.9 0.6

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Balance at beginning of period ( 287.3 ) ( 273.7 )

Other comprehensive loss before reclassifications ( 28.6 ) ( 6.3 )

Other comprehensive gain (loss) before reclassifications 19.8 ( 28.6 )

Amounts reclassified from accumulated other comprehensive loss (1)

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(1) Amounts reclassified from accumulated other comprehensive loss:

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

Tax (benefit) provision ( 0.2 ) 0.4

Realized (gains) losses on derivatives reclassified to cost of products sold $ ( 4.1 ) $ 0.8

Tax provision (benefit) 1.0 ( 0.2 )

Reclassification net of tax $ ( 3.1 ) $ 0.6

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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 December 31, 2021, was 2,962,559 which includes 2,400,000 additional shares that were authorized on April 15, 2020 at the Company's annual meeting of stockholders.

The number of shares available for granting of options or share units at December 31, 2022, was

Stock Based Compensation (continued)

2,613,804 which includes 2,400,000 additional shares that were authorized on April 15, 2020 at the Company's annual meeting of stockholders.

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

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For active employees, all options granted in 2022, 2021 and 2020 expire ten years after the date of grant.

The Company’s stock options are

Stock Based Compensation (continued)

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.

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

however, included in the stock option expense recognized in 2022, 2021 and 2020 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.

Stock based compensation expense attributable to stock options for 2022, 2021 and 2020 was $ 5.5 million, $ 5.1 million and $ 6.2 million, respectively.

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 2022, 2021 and 2020 was $ 1.6 million, $ 31.0 million and $ 21.3 million, 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.

(2) The weighted average remaining contractual life of options outstanding was 7 years at December 31, 2022, and 8 years at December 31, 2021 and December 31, 2020, respectively.

The aggregate intrinsic value of options outstanding at December 31, 2022 was $ 22.6 million.

(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.

(3) The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2022, 7 years at December 31, 2021, and 6 years at December 31, 2020, respectively.

The aggregate intrinsic value of options exercisable at December 31, 2022 was $ 18.9 million.

6 unchanged sentences

Nonvested options at end of year 806,054 60.26

Stock Based Compensation (continued)

The weighted-average fair value per option at the date of grant during 2022, 2021 and 2020, using the Black-Scholes option-pricing model, was $ 17.57 , $ 14.03 and $ 8.17 , respectively.

7 unchanged sentences

The risk-free interest rates for purposes of these models are based on the U.S.

Treasury yield curve in effect on the date of grant for the respective expected lives of the option.

Treasury yield in effect on the date of grant for the respective expected lives of the option.

The expected dividend yields for purposes of these models are based on the dividends paid in the preceding four quarters divided by the grant date market value of the Common Stock.

The expected volatility for purposes of these models are based on the historical volatility of the Common Stock.

Stock Based Compensation (continued)

Restricted Stock and Share Units

5 unchanged sentences

however, included in share unit expense was expense associated with accelerated vesting of share unit awards for certain employees who are retirement eligible or will become retirement eligible during the vesting period.

Stock based compensation expense of $ 6.8 million, $ 6.5 million and $ 6.9 million was recognized in 2021, 2020 and 2019, respectively.

Stock based compensation expense attributable to share units of $ 5.6 million, $ 6.8 million and $ 6.5 million was recognized in 2022, 2021 and 2020, respectively.

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

13 unchanged sentences

The Company has a defined contribution plan which matches 100 percent of the first one percent of contributions made by participating employees and matches 50 percent of the next five percent of employee contributions.

The Company also has defined contribution plans for certain hourly employees which provide for matching Company contributions.

The Company also has a defined benefit plan for salaried employees and its non-union hourly workforce.

In addition, the Company has defined contribution plans for certain hourly employees which provide for matching Company contributions.

The Company had a defined benefit plan for salaried employees and its non-union hourly workforce.

In 2009, the Company announced U.S.

5 unchanged sentences

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)

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

In the second quarter of 2022, the Company received a determination letter from the Internal Revenue Service (IRS) that allowed the Company to proceed with the termination process.

In the fourth quarter of 2022, the Company settled approximately $ 169 million of Plan liabilities through lump-sum payments from existing plan assets to eligible participants who elected to receive them and settled approximately $ 463 million of Plan liabilities by entering into an agreement to purchase annuities from Mass Mutual Life Insurance Company (MML).

The irrevocable agreement with MML covers approximately 7,000 active and former employees and their beneficiaries, with MML assuming the future annuity payments for these individuals commencing March 1, 2023.

These settlements resulted in $ 417.3 million of pretax expense in 2022, partially offset by approximately $ 167.7 million in related tax benefits.

Obligations and Funded Status

1 unchanged sentence

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.

Pension and Other Post-retirement Benefits (continued)

Pension Benefits Post-retirement Benefits

7 unchanged sentences

Plan amendments — — — —

Actuarial loss including assumption changes ( 9.0 ) ( 63.8 ) 0.6 ( 0.8 )

Actuarial gain (loss) including assumption changes 147.6 ( 9.0 ) ( 0.2 ) 0.6

Benefits paid 219.3 52.8 0.9 3.3

Transfer to insurer 462.8 — — —

PBO at end of year $ ( 28.3 ) $ ( 842.1 ) $ ( 1.7 ) $ ( 2.2 )

5 unchanged sentences

Benefits paid ( 219.3 ) ( 52.8 ) ( 0.9 ) ( 3.3 )

Transfer to insurer ( 462.8 ) — — —

Plan assets at end of year $ 45.2 $ 825.9 $ — $ —

4 unchanged sentences

Non-current liabilities ( 9.7 ) ( 15.7 ) ( 1.5 ) ( 2.0 )

Net pension liability at end of year $ ( 16.2 ) * $ ( 11.0 ) * $ ( 2.2 ) $ ( 5.9 )

Net pension asset (liability) at end of year $ 16.9 * $ ( 16.2 ) * $ ( 1.7 ) $ ( 2.2 )

Amounts recognized in accumulated other comprehensive loss before tax

2 unchanged sentences

Total recognized in accumulated other comprehensive loss $ 7.3 $ 471.1 $ ( 2.1 ) $ ( 2.8 )

*In addition, the Company has a liability for a foreign pension plan of $ 0.2 million at December 31, 2021 and 2020.

*In addition, the Company has a liability for a foreign pension plan of $ 0.3 million and $ 0.2 million at December 31, 2022 and 2021, respectively.

The actuarial loss in the current year for both the pension and post-retirement benefit plans was primarily due to the change in the discount rate.

10 unchanged sentences

Defined-benefit plan income 13.9 ( 12.0 ) ( 7.6 ) ( 0.4 ) ( 0.4 ) $ ( 0.4 )

Curtailment and other one-time charges — 2.5 1.6 — ( 0.5 ) —

Settlements, curtailments and other one-time charges 417.3 — 2.5 — — ( 0.5 )

defined contribution plans cost 15.3 14.6 14.4 — — —

1 unchanged sentence

Other changes in plan assets and projected benefit obligation recognized in other comprehensive loss

Net actuarial loss (gain) $ 38.1 $ 11.7 $ 12.6 $ ( 0.6 ) $ 0.8 $ 1.2

Net actuarial (gain) loss $ ( 27.0 ) $ 38.1 $ 11.7 $ 0.2 $ ( 0.6 ) $ 0.8

Amortization of net actuarial loss ( 19.9 ) ( 20.3 ) ( 22.8 ) — — —

Settlement loss ( 417.3 ) — — — — —

Prior service credit — — — — — ( 2.0 )

1 unchanged sentence

Total recognized in other comprehensive loss ( 463.8 ) 18.2 ( 10.7 ) 0.7 ( 0.1 ) ( 0.7 )

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.

Total recognized in net periodic (benefit) cost and other comprehensive loss $ ( 32.6 ) $ 6.2 $ ( 15.8 ) $ 0.3 $ ( 0.5 ) $ ( 1.6 )

The 2022 and 2021 after tax adjustments for additional minimum pension liability resulted in other comprehensive gain (loss) of $ 284.1 million and $( 13.6 ) million, respectively.

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

7 unchanged sentences

Expected long-term return on plan assets 3.12 % 6.25 % 6.75 % N/A N/A N/A

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

Rate of compensation increase 4.00 % 4.00 % 4.00 % N/A 4.00 % 4.00 %

Assumed health care cost trend rates

Assumed health care cost trend rates as of December 31 are as follows:

Health care cost trend rate assumed for next year 7.00 % 7.40 %

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) 5.00 % 5.00 %

Year that the rate reaches the ultimate trend rate 2029 2029

Health care cost trend rate assumed for next year N/A 7.00 %

Rate to which the cost trend rate is assumed to decline (the ultimate trend rate) N/A 5.00 %

Year that the rate reaches the ultimate trend rate N/A 2029

(1) Health care inflation assumptions are no longer needed as all remaining retiree medical benefits are fixed subsidies or reimbursements.

Pension and Other Post-retirement Benefits (continued)

3 unchanged sentences

Debt securities 27 75

Real estate — 9

Private equity 5 1

11 unchanged sentences

Common stocks 3.7 3.7 — —

Commingled equity funds — — — —

Fixed income securities

1 unchanged sentence

Other fixed income securities 2.7 — 2.7 —

Commingled fixed income funds — — — —

Options — — — —

Other types of investments

Mutual funds 0.8 — 0.8 —

Real estate funds — — — —

Private equity 2.2 — — 2.2

2 unchanged sentences

Total plan assets $ 45.2

Pension and Other Post-retirement Benefits (continued)

December 31, 2021

9 unchanged sentences

Common stocks 3.7 3.7 — —

Commingled equity funds 132.0 — 132.0 —

Fixed income securities

1 unchanged sentence

Other fixed income securities 551.2 — 551.2 —

Commingled fixed income funds 119.5 — 119.5 —

Options ( 8.1 ) — ( 8.1 ) —

Other types of investments

Mutual funds 26.7 — 26.7 —

Real estate funds 79.8 — — 79.8

Private equity 5.1 — — 5.1

2 unchanged sentences

Total plan assets $ 825.9

Pension and Other Post-retirement Benefits (continued)

The short-term investments included in the Company’s plan assets consist of cash and cash equivalents.

18 unchanged sentences

Balance at December 31, 2022 $ — $ 2.2 $ 2.2

Pension and Other Post-retirement Benefits (continued)

The Company’s investment policies employ an approach whereby a diversified blend of equity and bond investments is used to maximize the long-term return of plan assets for a prudent level of risk.

1 unchanged sentence

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

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.

In preparation for the Plan settlement, which we 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.

4 unchanged sentences

The Company is no t required to make a contribution in 2023.

Pension and Other Post-retirement Benefits (continued)

Estimated Future Payments

As of December 31, 2022, 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

2023 50.5 0.2

2024 49.4 0.2

2025 48.2 0.2

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

2023 $ 4.9 $ 0.2

2028 – 2032 9.2 0.7

(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.

11 unchanged sentences

Total $ 45.9 $ 76.8 $ 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.

There were no outstanding commodity futures contracts as of December 31, 2021 and 2020.

Derivative Instruments (continued)

Net Investment Hedges

4 unchanged sentences

These hedges are determined to be effective.

The Company recognized $( 0.5 ) million and $( 3.1 ) million of after-tax losses associated with hedges of a net investment in non-U.S.

The Company recognized $ 1.4 million of after tax gains and $( 0.5 ) 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 2022 and 2021, 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 December 31, 2021.

The contractual amount of the Company’s foreign currency forward contracts that are designated as net investment hedges is zero as of December 31, 2022.

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

4 unchanged sentences

Total derivatives designated as hedging instruments $ 6.4 $ 0.1

Derivative Instruments (continued)

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

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

Years ended December 31 (dollars in millions):

Derivatives in ASC 815 cash flow

hedging relationships Amount of (loss) gain

hedging relationships Amount of gain (loss)

recognized in other

comprehensive loss on

derivatives Location of (loss) gain

derivatives Location of gain (loss)

reclassified from

1 unchanged sentence

comprehensive loss into

earnings Amount of (loss) gain reclassified

earnings Amount of gain (loss) reclassified

from accumulated

3 unchanged sentences

Foreign currency contracts $ 9.8 $ ( 0.8 ) Cost of products sold $ 4.1 $ ( 0.8 )

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

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

Balance Sheet Hedges

2 unchanged sentences

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 an asset balance of $ 0.1 million as of December 31, 2022 and recorded in Other current assets within the consolidated balance sheet.

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

December 31 (dollars in millions) 2022 2021

Buy Sell Buy Sell

Canadian dollar $ — $ 81.5 $ — $ 125.6

4 unchanged sentences

2022 2021 2020

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

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

Foreign exchange contracts Other expense (income) - net $ 1.2 $ ( 0.9 ) $ —

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

Years ended December 31 (dollars in millions) 2022 2021 2020

6 unchanged sentences

$ ( 12.0 ) $ 138.5 $ 99.0

Income Taxes (continued)

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

The (benefit from) provision for income taxes differs from the U.S.

federal statutory rate due to the following items:

2 unchanged sentences

federal statutory rate (1)

21.0 % 21.0 % 21.0 %

State taxes, net of federal benefit (1)

U.S pension plan settlement expense (1)

International income tax rate differential—China ( 4.6 ) ( 1.6 ) ( 0.6 )

4 unchanged sentences

( 5.4 ) % 22.1 % 22.3 %

(1) Included in 2022 is tax effects of the pension plan settlement expense associated with the termination of the Plan.

Refer to Note 13, “Pension and Other Postretirement Benefits” for more information.

A tax benefit of $ 101.9 million on the pretax expense were reflected in computed tax provision at U.S.

federal statutory rate and state taxes, net of federal tax benefit for 2022.

In 2022, the tax benefit of $ 65.8 million or a 29.5 % benefit related to the release of stranded tax effects in AOCL through the income statement was reflected in U.S.

pension plan settlement expense.

Components of earnings before income taxes were as follows:

3 unchanged sentences

$ 223.7 $ 625.6 $ 443.9

Our 2022 provision for income taxes included $ 167.7 million of tax benefit related to the effective settlement of the Plan, $ 101.9 million of which was the related tax effect on the pretax expense of $ 417.3 million and $ 65.8 million of which was related to the release of stranded tax effects in AOCL through the Tax Cuts and Jobs Act.

Refer to Note 13, “Pension and Other Postretirement Benefits,” for more information.

The Company paid income taxes of $ 175.4 million, $ 131.2 million, and $ 114.1 million in 2022, 2021 and 2020, 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.

Undistributed earnings of the Company’s foreign subsidiaries amounted to $ 647.7 million at December 31, 2022.

The Company had $ 5.3 million accrued for its estimate of withholding taxes due upon repatriation of approximately $ 173.0 million of foreign earnings it considers not permanently reinvested as of December 31, 2022.

The Company considers $ 474.7 million of the total undistributed earnings to be permanently reinvested as a result of various factors including imposition of statutory restrictions at certain jurisdictions that prohibit the repatriation of a portion of the earnings.

Income Taxes (continued)

Accordingly, no provision for state, local and foreign withholding income taxes has been provided thereon.

Upon repatriation of those earnings, in the form of dividends or otherwise, the Company would be subject to state and local taxes, and withholding taxes payable to the various foreign countries.

The Company expects to be able to take a 100 % dividend received deduction to offset any US federal income tax liability.

Determination of the amount of unrecognized state and local deferred income tax liability and associated foreign withholding taxes is not practicable due to the complexities associated with its hypothetical calculation.

The tax effects of temporary differences of assets and liabilities between income tax and financial reporting are as follows:

16 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:

4 unchanged sentences

Ending balance $ 10.1 $ 8.9 $ 8.3 $ 7.1

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.

The Company has foreign net operating loss carryovers that expire in 2023 through 2028 and state and local net operating loss carryovers that expire in 2030.

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

9 unchanged sentences

federal income tax returns and its U.S.

state and local income tax returns are subject to audit for the years 2017-2021 and 2008-2021, respectively.

The Company is subject to non-U.S.

income tax audits for the years 2015-2021.

state and local income tax returns are subject to audit for the years 2017-2022 and

Income Taxes (continued)

2009-2022, respectively.

The Company is subject to examinations in foreign tax jurisdictions for the years 2016-2022.

If the examinations at certain foreign tax jurisdictions are resolved unfavorably, there could be additional assessments imposed by the relevant authorities.

Commitments and Contingencies

8 unchanged sentences

For the years ended December 31, 2022 and 2021, the Company had $ 125 million of product liability insurance for individual losses in excess of $ 7.5 million.

At December 31, 2022 and 2021, our reserve for product liability was $ 31.7 million and $ 35.4 million, respectively.

The Company periodically reevaluates its exposure on claims and lawsuits and makes adjustments to its reserves as appropriate.

4 unchanged sentences

The purchase obligations the Company considers firm as of December 31, 2022, is $ 211.4 million, most of which will be ordered in 2023.

Commitments and Contingencies (continued)

Inventory Repurchase Arrangements

5 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 $ 3.9 and $ 5.4 million as of December 31, 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 $ 7.2 million and $ 6.5 million as of December 31, 2021 and December 31, 2020, respectively.

Before considering any reduction of distributor rebate accruals of $ 1.1 million and $ 3.9 million as of December 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 $ 2.4 million and $ 7.2 million as of December 31, 2022 and December 31, 2021, respectively.

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

Legal Judgment Income

On September 28, 2022, the Company received a cash judgment of $ 11.5 million from a competitor of our North America segment related to its infringement of one of the Company’s patents.

The terms of the judgment resulted in pre-tax income of $ 11.5 million which is recorded as an offset to selling, general and administrative expenses and a related tax expense of $ 2.9 million.

Operations by Segment

8 unchanged sentences

Years ended December 31 (dollars in millions) 2022 2021 2020 2022 (1)

North America (1)

2021 2020 (2)

North America $ 2,819.1 $ 2,529.5 $ 2,118.3 $ 266.0 $ 590.8 $ 503.5

Rest of World 965.8 1,036.5 800.3 96.3 91.4 —

1,036.5 800.3 935.8 91.4 — 40.2

Inter-segment ( 31.0 ) ( 27.1 ) ( 23.3 ) ( 0.3 ) ( 0.2 ) ( 0.3 )

3 unchanged sentences

Earnings before income taxes 223.7 625.6 443.9

Provision for income taxes ( 138.5 ) ( 99.0 ) ( 102.1 )

(Benefit from) provision for income taxes ( 12.0 ) 138.5 99.0

Net earnings $ 235.7 $ 487.1 $ 344.9

(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.

(1) The Company recognized a pre-tax pension settlement expense of $ 346.8 million in the North America segment and $ 70.5 million within Corporate expenses.

The (benefit from) provision for income taxes includes a tax benefit of ($ 167.7 million) related to the pension settlement.

For additional information, see Note 13, “Pension and Other Post-retirement Benefits.”

(2) The Company recognized pre-tax severance and restructuring expenses of $ 2.7 million within the North America segment and $ 5.0 million within the Rest of World segment.

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

2 unchanged sentences

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.

Operations by Segment (continued)

Assets, depreciation and capital expenditures by segment

9 unchanged sentences

Long-lived assets include net property, plant and equipment, operating lease assets and other long-term assets.

Operations by Segment (continued)

Long-lived Assets (December 31) Net Sales (Years Ended December 31)

7 unchanged sentences

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