What changed in this filing

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Item 1. Financial Statements

2023-07-28 compared with 2023-04-28 · 182 added, 84 removed, 458 unchanged (37% of the section changed)

4 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net sales $ 960.8 $ 965.9 $ 1,927.2 $ 1,943.6

9 unchanged sentences

Basic Net Earnings Per Share of Common Stock (1)

$ 1.04 $ 0.81 $ 1.88 $ 1.57

Diluted Net Earnings Per Share of Common Stock (1)

$ 1.04 $ 0.81 $ 1.87 $ 1.56

Dividends Per Share of Common Stock $ 0.30 $ 0.28 $ 0.60 $ 0.56

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

SMITH CORPORATION

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Net earnings $ 157.0 $ 126.2 $ 283.9 $ 246.0

1 unchanged sentence

Foreign currency translation adjustments ( 1.0 ) ( 24.6 ) 1.5 ( 24.0 )

Unrealized losses on cash flow derivative instruments, less related income tax benefit of $ 0.0 in 2023 and $ 0.2 in 2022

Unrealized (losses) gains on cash flow derivative instruments, less related income tax benefit (provision) of $ 0.5 and $ 0.5 in 2023, $( 0.7 ) and $( 0.5 ) in 2022

( 1.5 ) 2.1 ( 1.6 ) 1.5

Adjustment to pension liability, less related income tax provision of zero in 2023 and $( 1.2 ) in 2022

Adjustment to pension liability, less related income tax provision of $ 0.1 and $ 0.1 in 2023, $( 1.3 ) and $( 2.5 ) in 2022

0.1 3.7 0.1 7.5

Comprehensive Earnings $ 154.6 $ 107.4 $ 283.9 $ 231.0

31 unchanged sentences

Stockholders’ Equity

Class A Common Stock (shares issued, 26,034,116 and 26,035,656 as of March 31, 2023 and December 31, 2022, respectively)

Common Stock (shares issued 164,673,478 and 164,671,938 as of March 31, 2023 and December 31, 2022, respectively)

Class A Common Stock (shares issued, 26,034,044 and 26,035,656 as of June 30, 2023 and December 31, 2022, respectively)

Common Stock (shares issued 164,673,550 and 164,671,938 as of June 30, 2023 and December 31, 2022, respectively)

Capital in excess of par value 568.3 555.9

8 unchanged sentences

(dollars in millions)

Three Months Ended

Six Months Ended

Operating Activities

4 unchanged sentences

Non-cash impairment 15.6 —

Pension settlement income ( 6.0 ) —

Pension settlement income non-cash taxes 1.5 —

Net changes in operating assets and liabilities:

4 unchanged sentences

Capital expenditures ( 24.2 ) ( 30.7 )

Acquisitions of businesses — ( 8.0 )

Investments in marketable securities ( 14.7 ) ( 16.9 )

Net proceeds from sale of marketable securities 72.7 96.5

Cash (Used in) Provided by Investing Activities ( 9.8 ) 2.1

Cash Provided by Investing Activities 33.8 40.9

Financing Activities

5 unchanged sentences

Effect of exchange rate changes on cash and cash equivalents ( 15.1 ) —

Net increase (decrease) in cash and cash equivalents 15.0 ( 37.5 )

Net decrease in cash and cash equivalents ( 12.3 ) ( 83.9 )

Cash and cash equivalents - beginning of period 391.2 443.3

5 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Class A Common Stock

22 unchanged sentences

Exercise of stock options 1.6 — 1.8 ( 2.9 )

Stock incentives and directors’ compensation 0.3 0.3 0.3 0.3

Shares repurchased ( 17.1 ) ( 82.5 ) ( 69.6 ) ( 190.4 )

Excise tax on repurchases of common stock ( 0.1 ) — ( 0.7 ) —

Vesting of share units — — 3.1 2.4

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2023

June 30, 2023

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 months ended March 31, 2023 are not necessarily indicative of the results expected for the full year.

Operating results for the three and six months ended June 30, 2023 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, 2022 filed with the SEC on February 14, 2023.

12 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 $ 70.3 million and $ 85.7 million at March 31, 2023 and December 31, 2022, respectively.

Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $ 55.0 million and $ 85.7 million at June 30, 2023 and December 31, 2022, respectively.

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

2 unchanged sentences

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 $ 10.2 million at March 31, 2023 and $ 9.5 million at December 31, 2022.

The Company’s allowance for credit losses was $ 9.5 million at both June 30, 2023 and December 31, 2022.

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

24 unchanged sentences

The Company’s boiler sales in the North America segment are derived from a combination of replacement of existing products and new construction.

Water treatment products The Company’s water treatment products range from point-of-entry water softeners, solutions for problem well water, and whole-home water filtration products to on-the-go filtration bottles and point-of-use carbon and reverse osmosis products.

Water treatment products The Company’s water treatment products range from point-of-entry water softeners, solutions for problem well water, and whole-home water filtration products to on-the-go filtration bottles, point-of-use carbon, and reverse osmosis products.

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

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

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

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.

4 unchanged sentences

(dollars in millions) Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

North America

9 unchanged sentences

Total Net Sales $ 960.8 $ 965.9 $ 1,927.2 $ 1,943.6

Impairment Expense

In the first quarter of 2023, the Company entered into negotiations to sell its business in Turkey (disposal group), which is included in the Company's Rest of World segment.

The Company determined that the fair value of the disposal group, less cost to sell, was lower than its carrying amount.

On April 26, 2023, the Company sold its business in Turkey (disposal group), which was included in the Company's Rest of World segment, for an amount that approximated the carrying value of the net assets.

During the first quarter of 2023, the Company determined that the disposal group met the criteria to be classified as held for sale and that the fair value of the disposal group, less cost to sell, was lower than its carrying amount.

As a result, in the first quarter of 2023, the Company recorded an impairment expense of $ 15.6 million, of which $ 12.5 million was recorded in the Rest of World segment, and $ 3.1 million was recorded in Corporate Expense.

The impairment was recorded as a net reduction of $ 4.5 million to the assets and liabilities and $ 11.1 million for the anticipated liquidation of the cumulative foreign currency translation adjustment associated with the disposal group.

The accrual for the impairment is recorded in Accrued liabilities in the condensed consolidated balance sheet.

As of March 31, 2023, the disposal group did not meet the requirements to be classified as discontinued operations as the sale will not have a material effect on the Company's operations and does not represent a shift in the Company's strategy.

Accordingly, the remaining carrying value of the disposal group as of March 31, 2023, was $ 0.6 million and classified as held for sale.

The sale of the disposal group was completed in April 2023.

The remaining carrying value of the disposal group as of March 31, 2023, was $ 0.6 million and classified as held for sale.

Upon closing of the sale in the second quarter of 2023, the Company released $ 11.0 million of foreign currency translation losses from accumulated other comprehensive loss.

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.

11 unchanged sentences

Supplemental balance sheet information related to leases is as follows:

(dollars in millions) March 31,

(dollars in millions) June 30,

2023 December 31, 2022

4 unchanged sentences

Operating lease assets $ 32.6 $ 29.8

Lease Term and Discount Rate March 31, 2023

Lease Term and Discount Rate June 30, 2023

Weighted-average remaining lease term 8.0 years

8 unchanged sentences

(2) 2022 includes short-term and variable lease expenses of $ 0.6 million and $ 0.9 million, respectively.

(dollars in millions) Six Months Ended

Lease Expense Classification 2023 (1)

Operating lease expense Cost of products sold $ 2.6 $ 2.0

Selling, general and administrative expenses 8.4 8.3

(1) 2023 includes short-term and variable lease expenses of $ 2.2 million and $ 2.4 million, respectively.

(2) 2022 includes short-term and variable lease expenses of $ 1.1 million and $ 1.7 million, respectively.

Maturities of lease liabilities were as follows:

(dollars in millions) March 31,

(dollars in millions) June 30,

After 2027 14.2

3 unchanged sentences

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

(dollars in millions) March 31,

(dollars in millions) June 30,

2023 December 31, 2022

9 unchanged sentences

(dollars in millions) Three Months Ended

Balance at April 1, $ 181.2 $ 182.9

Expense 18.3 14.7

Claims settled ( 18.8 ) ( 17.6 )

Balance at June 30, $ 180.7 $ 180.0

(dollars in millions) Six Months Ended

Balance at January 1, $ 182.5 $ 184.4

1 unchanged sentence

Claims settled ( 38.5 ) ( 33.0 )

Balance at March 31, $ 181.2 $ 182.9

Balance at June 30, $ 180.7 $ 180.0

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.

1 unchanged sentence

Borrowings under the Company's 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, 2023.

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 June 30, 2023.

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

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, 2023.

The Company was in compliance with the covenants as of June 30, 2023.

Earnings per Share of Common Stock

2 unchanged sentences

Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Denominator for basic earnings per share - weighted average shares 150,475,003 155,692,240 150,684,986 156,351,739

3 unchanged sentences

The Company adopted 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.

Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007, and the Incentive Plan was 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 share units at March 31, 2023 was 2,491,654 .

The number of shares available for granting of share units at June 30, 2023 was 2,470,397 .

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 March 31, 2023 and 2022 was $ 7.0 million and $ 7.6 million, respectively.

Total stock based compensation expense recognized in the three months ended June 30, 2023 and 2022 was $ 1.6 million and $ 1.4 million, respectively.

Total stock based compensation expense recognized in the six months ended June 30, 2023 and 2022 was $ 8.6 million and $ 9.0 million, respectively.

Stock Based Compensation (continued)

Stock Options

The Company decided to no longer grant stock options beginning with fiscal year 2023.

Beginning in 2023, the Company no longer grants stock options.

Stock options previously granted have a three year pro rata vesting from the date of grant.

2 unchanged sentences

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

however, included in the stock option expense for the three months ended March 31, 2022 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 March 31, 2023 and 2022 was $ 0.3 million and $ 3.9 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, 2023:

however, included in the stock option expense for the six months ended June 30, 2022 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 June 30, 2023 and 2022 was $ 0.3 million and $ 0.6 million, respectively.

Stock based compensation expense attributable to stock options in the six months ended June 30, 2023 and 2022 was $ 0.6 million and $ 4.5 million, respectively.

Changes in options, all of which relate to the Company’s Common Stock, were as follows for the six months ended June 30, 2023:

Price Number of

4 unchanged sentences

Forfeited 61.09 ( 3,605 )

Outstanding at March 31, 2023 51.69 2,286,947 6 years $ 41.5

Exercisable at March 31, 2023 48.72 1,952,622 6 years $ 40.4

Stock Based Compensation (continued)

There were no stock options granted in 2023.

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

Outstanding at June 30, 2023 51.92 2,207,941 6 years $ 46.5

Exercisable at June 30, 2023 48.89 1,875,866 6 years $ 45.0

The weighted-average fair value per option at the date of grant during the six months ended June 30, 2022 using the Black-Scholes option-pricing model was $ 17.58 .

Assumptions were as follows:

Three Months Ended

Six Months Ended

Expected life (years) 5.7

7 unchanged sentences

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

Participants of the Incentive Plan may also be awarded share units.

Participants in the Incentive Plan may also be awarded share units.

Share units vest three years after the date of grant.

The Company granted 165,686 and 88,894 share units under the Incentive Plan in the three months ended March 31, 2023 and 2022, respectively.

The Company granted 168,044 and 93,211 share units under the Incentive Plan in the six months ended June 30, 2023 and 2022, respectively.

The share units were valued at $ 11.3 million and $ 6.9 million at the date of issuance in 2023 and 2022, 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 months ended March 31, 2023 and 2022 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 attributable to share units of $ 6.6 million and $ 3.7 million was recognized in the three months ended March 31, 2023 and 2022, respectively.

however, included in share unit expense in the three and six months ended June 30, 2023 and 2022 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 attributable to share units of $ 1.0 million and $ 0.8 million was recognized in the three months ended June 30, 2023 and 2022, respectively.

Stock based compensation expense attributable to share units of $ 7.6 million and $ 4.5 million was recognized in the six months ended June 30, 2023 and 2022, 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 Incentive Plan is as follows for the three months ended March 31, 2023:

Stock Based Compensation (continued)

A summary of share unit activity under the Incentive Plan is as follows for the six months ended June 30, 2023:

Number of Units Weighted-Average

4 unchanged sentences

Forfeited ( 2,789 ) 65.23

Issued and unvested at March 31, 2023 386,983 63.16

Issued and unvested at June 30, 2023 388,796 63.19

Performance Stock Units

Beginning in 2023, certain executives may also be awarded performance stock units under the Incentive Plan.

Beginning in 2023, certain executives may be awarded performance stock units under the Incentive Plan.

Performance stock units vest over three years following the date of the grant.

1 unchanged sentence

Potential payouts range from zero to 150 % of the target awards and changes from target amounts are reflected as performance adjustments.

The Company granted 24,580 performance stock units under the Incentive Plan in the three months ended March 31, 2023.

The performance stock units were valued at $ 1.7 million at the date of issuance in 2023, based on the price of the Company’s Common Stock at the date of grant.

The weighted average grant date value for the units granted was $ 67.14 .

The Company granted 24,580 performance stock units under the Incentive Plan in the six months ended June 30, 2023.

The performance stock units were valued at $ 1.7 million at the date of issuance in 2023, based on the price of the Company’s Common Stock at the date of grant of $ 67.14 .

The performance stock units are recognized as compensation expense ratably over the three-year vesting period.

Stock based compensation expense attributable to performance stock units of $ 0.1 million was recognized in the three months ended March 31, 2023.

Stock based compensation expense attributable to performance stock units of $ 0.2 million and $ 0.3 million was recognized in the three and six months ended June 30, 2023, respectively.

Certain non-U.S.-based executives 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 stock unit activity under the Incentive Plan is as follows for the six months ended June 30, 2023:

Number of Units Weighted-Average

Grant Date Value

Issued and unvested at January 1, 2023 — $ —

Granted 24,580 67.14

Performance adjustments 11,946 67.14

Issued and unvested at June 30, 2023 36,526 67.14

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

(dollars in millions) Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Service cost $ 0.2 $ 0.3 $ 0.5 $ 0.7

3 unchanged sentences

Amortization of prior service cost 0.1 ( 0.1 ) 0.1 ( 0.2 )

Defined benefit plan expense $ 0.3 $ 3.6

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 expense are reflected in other expense.

Defined benefit plan expense before settlement income 0.4 3.7 0.7 7.3

Settlement income ( 6.0 ) — ( 6.0 ) —

Total pension (income) expense $ ( 5.6 ) $ 3.7 $ ( 5.3 ) $ 7.3

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 2023.

Pensions (continued)

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

1 unchanged sentence

In the fourth quarter of 2022, the Company settled Plan liabilities through lump-sum payments from existing plan assets to eligible participants who elected to receive them and through the purchase of annuities from Mass Mutual Life Insurance Company (MML).

As of March 1, 2023, MML assumed the future annuity payments for those eligible active and former employees and their beneficiaries.

Remaining pension assets associated with the Plan at March 31, 2023 are $ 21.5 million.

In the second quarter of 2023, the Company realized pre-tax pension settlement income of $ 6.0 million, of which $ 5.0 million was recorded in the North America segment and $ 1.0 million in Corporate Expense, and included $ 1.5 million in related tax benefits.

The pension settlement income related to refunds from MML to the Plan for the final reconciliation of participant data.

The remaining pension assets associated with the Plan at June 30, 2023 were $ 27.4 million.

The Company intends to use the remaining assets to fund future non-elective contributions to the Company’s defined contribution plan.

8 unchanged sentences

(dollars in millions) Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

North America $ 722.3 $ 744.1 $ 1,475.0 $ 1,474.2

6 unchanged sentences

Rest of World (2)

28.3 18.1 33.6 42.9

Inter-segment earnings elimination — — — ( 0.1 )

227.4 178.0 421.3 354.5

Corporate expense (3)

7 unchanged sentences

North America

includes pension settlement income of:

$ ( 5.0 ) $ — $ ( 5.0 ) $ —

includes pension expense of:

$ — $ 2.6 $ — $ 5.2

(2) Adjustments:

1 unchanged sentence

includes impairment expense of:

$ — $ — $ 12.5 $ —

(3) Adjustments:

Corporate expense

includes pension settlement income of:

$ ( 1.0 ) $ — $ ( 1.0 ) $ —

includes impairment expense of:

$ — $ — $ 3.1 $ —

includes pension expense of:

$ — $ 0.4 $ — $ 0.7

Fair Value Measurements

7 unchanged sentences

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

Fair Value Measurements (continued)

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

Fair Value Measurement Using Balance Sheet Location March 31,

Fair Value Measurement Using Balance Sheet Location June 30,

2023 December 31, 2022

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 three months ended March 31, 2023.

There were no changes in the Company's valuation techniques used to measure fair values on a recurring basis during the six months ended June 30, 2023.

Derivative Instruments

15 unchanged sentences

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

Derivative Instruments (continued)

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) March 31, 2023 December 31, 2022

(dollars in millions) June 30, 2023 December 31, 2022

Buy Sell Buy Sell

7 unchanged sentences

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 hedges,

Derivative Instruments (continued)

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 $ 0.5 million of after-tax gains associated with hedges of net investments in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended March 31, 2023.

The Company recognized $ 0.3 million of after-tax losses associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended March 31, 2022.

The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges was $ 25.0 million as of March 31, 2023.

The Company recognized $ 0.8 million and $ 1.7 million after-tax gains associated with hedges of net investments in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended June 30, 2023 and June 30, 2022, respectively.

The Company recognized $ 1.3 million and $ 1.4 million of after-tax losses associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive loss in the six months ended June 30, 2023 and June 30, 2022, respectively.

The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges was zero as of June 30, 2023.

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 March 31,

(dollars in millions) Balance Sheet Location June 30,

2023 December 31,

Foreign currency contracts Other current assets $ 4.4 $ 6.4

Accrued liabilities — —

Total derivatives designated as hedging instruments $ 7.0 $ 6.4

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

Three Months Ended March 31 (dollars in millions):

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

Three Months Ended June 30 (dollars in millions):

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

comprehensive

10 unchanged sentences

Foreign currency contracts $ 0.4 $ 3.4 Cost of products sold $ 2.3 $ 0.7

Six Months Ended June 30 (dollars in millions):

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

comprehensive

loss on derivatives Location of gain

reclassified from

accumulated other

comprehensive loss

into earnings Amount of gain

reclassified from

accumulated other

comprehensive

loss into earnings

2023 2022 2023 2022

Foreign currency contracts $ 2.1 $ 2.8 Cost of products sold $ 4.2 $ 0.8

Derivative Instruments (continued)

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 zero as of March 31, 2023.

The fair value of the foreign exchange contracts was zero as of June 30, 2023.

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 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, 2023 December 31, 2022

(dollars in millions) June 30, 2023 December 31, 2022

Buy Sell Buy Sell

1 unchanged sentence

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):

Three Months Ended June 30 (dollars in millions):

Derivatives not designated as hedging instruments:

Location of loss within the consolidated statements of earnings

Location within the consolidated statements of earnings

Foreign exchange contracts Other (income) expense - net $ 0.1 $ ( 0.2 )

The Company’s effective income tax rate for the three months ended March 31, 2023 was 25.9 percent compared to 23.5 percent for the three months ended March 31, 2022.

Six Months Ended June 30 (dollars in millions):

Derivatives not designated as hedging instruments:

Location within the consolidated statements of earnings

Foreign exchange contracts Other (income) expense - net $ — $ 1.1

The Company’s effective income tax rate for the three and six months ended June 30, 2023 was 24.8 percent and 25.3 percent, respectively.

The Company estimates that its annual effective income tax rate for the full year 2023 will be approximately 24.0 percent.

The change in the effective income tax rate for the three months ended March 31, 2023 compared to the effective income tax rate for the three months ended March 31, 2022 was primarily due to a change in geographical earnings mix as well as a $ 15.6 million impairment expense recorded with no associated tax benefit.

Refer to Note 3 for additional information regarding the impairment expense.

As of March 31, 2023, the Company had $ 15.0 million of unrecognized tax benefits of which $ 2.9 million would affect its effective income tax rate if recognized.

The effective income tax rate for the three and six months ended June 30, 2022 was 23.7 percent and 23.6 percent, respectively.

The change in the effective income tax rate for the three and six months ended June 30, 2023 compared to the effective income tax rate for the three and six months ended June 30, 2022 was primarily due to a change in geographical earnings mix.

In addition, results in the six months ended June 30, 2023 included a $ 15.6 million impairment expense recorded with no associated tax benefit.

Refer to Note 3 - Disposition for additional information regarding the impairment expense.

As of June 30, 2023, the Company had $ 15.0 million of unrecognized tax benefits of which $ 2.9 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.

8 unchanged sentences

To facilitate its financing support business, the Provider has collateralized lending facilities in place with multiple Chinese banks under which the Company has agreed to repurchase inventory if both requested by the banks and certain defined conditions are met, primarily related to the aging of the distributors’ notes.

Commitments and Contingencies (continued)

The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory repurchase under these arrangements.

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 $ 1.2 million and $ 1.1 million as of March 31, 2023 and December 31, 2022, 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 $ 2.3 million as of March 31, 2023 and $ 2.4 million as of December 31, 2022.

The Company’s reserves for estimated losses under repurchase arrangements were immaterial as of March 31, 2023 and December 31, 2022.

Before considering any reduction of distributor rebate accruals of $ 1.0 million and $ 1.1 million as of June 30, 2023 and December 31, 2022, 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 $ 2.1 million as of June 30, 2023 and $ 2.4 million as of December 31, 2022.

The Company’s reserves for estimated losses under repurchase arrangements were immaterial as of June 30, 2023 and December 31, 2022.

Changes in Accumulated Other Comprehensive Loss by Component

3 unchanged sentences

Balance at beginning of period $ ( 81.6 ) $ ( 44.1 )

Other comprehensive loss before reclassifications ( 1.0 ) ( 24.6 )

Balance at end of period ( 82.6 ) ( 68.7 )

Unrealized net gain on cash flow derivatives

Balance at beginning of period 4.8 —

Other comprehensive gain before reclassifications 0.3 2.6

Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ 0.5 and $ 0.2 in 2023 and 2022, respectively)

( 1.8 ) ( 0.5 )

Balance at end of period 3.3 2.1

Unrealized net gain (loss) on cash flow derivatives

Pension liability

Balance at beginning of period ( 3.2 ) ( 283.5 )

Amounts reclassified from accumulated other comprehensive loss:

Balance at end of period ( 3.1 ) ( 279.8 )

Accumulated other comprehensive loss, end of period $ ( 82.4 ) $ ( 346.4 )

(1) Amortization of pension items:

Actuarial losses $ 0.1 $ 5.1 (2)

Prior year service cost 0.1 ( 0.1 ) (2)

Income tax benefit ( 0.1 ) ( 1.3 )

Reclassification net of income tax benefit $ 0.1 $ 3.7

(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) Six Months Ended

Cumulative foreign currency translation

Balance at beginning of period $ ( 84.1 ) $ ( 44.7 )

Other comprehensive gain (loss) before reclassifications 1.5 ( 24.0 )

Balance at end of period ( 82.6 ) ( 68.7 )

Unrealized net gain on cash flow derivatives

Balance at beginning of period 4.9 0.6

Other comprehensive gain before reclassifications 1.6 2.1

Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ 1.0 and $ 0.2 in 2023 and 2022, respectively)

13 unchanged sentences

See Note 10 - Pensions for additional details.

Included in the results for the three and six months ended June 30, 2023 is $ 11.0 million of foreign currency translation losses reclassified from accumulated other comprehensive loss to Net earnings related to the Company's sale of its business in Turkey.

See Note 3 - Disposition, for additional details.

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