What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-27 compared with 2023-07-28 · 121 added, 108 removed, 176 unchanged (57% of the section changed)

5 unchanged sentences

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

We saw improvement in our supply chain during 2022, particularly in the second half of the year and remained relatively stable through the first half of 2023.

We saw improvement in our supply chain during 2022, particularly in the second half of the year, which continued through the first nine months of 2023.

We remain in close contact with our suppliers and logistics providers to resolve supply chain constraints as they arise.

We continue to seek acquisitions that enable geographic growth, expand our core business, and establish adjacencies.

We will also continue to look for opportunities to add to our existing operations in high growth regions demonstrated by our previous introductions of water treatment products in India and range hoods and cooktops in China.

In the first half of 2023, we sold our business in Turkey.

1 unchanged sentence

While Turkey's more project-based business model did not fit well in our strategy, we remain committed to our global water treatment business and will continue to invest in other regions.

In our North America segment, we saw resilient demand in the residential water heater industry in the first half of 2023.

We continue to monitor proactive replacement and new home completions.

We project 2023 industry residential unit volumes will be approximately flat to up two percent compared to 2022.

Demand for commercial electric water heaters was strong in the first half of 2023 compared to last year.

Therefore, we expect that commercial water heater industry volumes will increase mid-teens compared to 2022.

Our boiler sales decreased 6 percent in the first half of the 2023.

We believe channel inventory levels of our residential and light commercial boiler products were elevated coming into 2023 and a mild end to winter and a warm spring led to lower industry demand coming out of the heating season which slowed channel inventory reduction efforts.

Orders for our energy efficient, custom condensing boilers remain steady.

Based on these factors, we are reducing our boiler sales outlook to decrease of high single digits in 2023 compared to 2022.

We anticipate sales of our North America water treatment products will increase approximately five to seven percent in 2023, compared to 2022, primarily driven by pricing and consumer demand.

In our Rest of World segment, we saw improvement in consumer demand in China although the economy remains challenged.

In our North America segment, we saw resilient demand in the residential water heater industry in the first nine months of 2023.

We project 2023 industry residential unit volumes will grow approximately four percent compared to 2022.

Demand for commercial electric water heaters was strong in the first nine months of 2023 compared to last year.

Therefore, we expect that commercial water heater industry volumes in 2023 will increase mid-teens compared to 2022.

Our boiler sales decreased 11 percent in the first nine months of 2023.

We believe channel inventory levels of our residential and light commercial boiler products were elevated coming into 2023, but are now approaching near normal levels.

Our boiler sales in the second half of 2022 benefited from a backlog reduction driven by production and supply chain improvements.

Orders for our energy efficient, custom condensing boilers have remained steady.

Based on these factors, we are reducing our boiler sales outlook to a decrease of high single digits in 2023 compared to 2022.

We anticipate sales of our North America water treatment products will increase approximately five to seven percent in 2023, compared to 2022, primarily driven by pricing.

In our Rest of World segment, the economy remains challenged in China.

We believe it will take time for consumer confidence to strengthen and for the economy to improve.

We project our sales in China will grow three to five percent in 2023 in local currency compared to 2022.

We assume that currency translation will negatively impact sales by approximately five percent.

Combining all of these factors, we expect our 2023 consolidated sales to be approximately flat to up two percent compared to 2022.

We assume that currency translation will negatively impact sales by approximately six percent.

Combining all of these factors, we expect our 2023 consolidated sales to be up two percent compared to 2022.

Our guidance excludes the impacts from potential future acquisitions.

1 unchanged sentence

(dollars in millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

6 unchanged sentences

Interest expense 2.4 2.4 10.9 6.0

Other (income) expense, net (9.0) 0.3 (13.0) 4.0

Other expense (income), net 2.5 2.4 (10.5) 6.4

Earnings before provision for income taxes 176.4 144.7 556.6 466.6

1 unchanged sentence

Net Earnings $ 135.4 $ 109.8 $ 419.3 $ 355.8

Our sales in the second quarter of 2023 were $960.8 million, or 0.5 percent lower than the second quarter 2022 sales of $965.9 million.

Sales in the first six months of 2023 were $1,927.2 million, or approximately 0.8 percent lower than $1,943.6 million in the same period last year.

Compared to the prior year quarter, higher volumes in China and higher volumes of commercial and residential water heaters in North America, were more than offset by lower boiler sales and unfavorable pricing in North America.

In addition, our sales in the second quarter of 2023 were unfavorably impacted by approximately $18 million in the second quarter of 2023 due to the depreciation of foreign currencies compared to the U.S.

In the first six months of 2023 our sales were negatively impacted by approximately $40 million due to the depreciation of foreign currencies compared to the U.S.

dollar and unfavorable pricing, and lower boiler sales in our North America segment.

These unfavorable impacts in the first six months of 2023 more than offset higher volumes of residential and commercial water heaters.

Our gross profit margin in the second quarter of 2023 was 40.0 percent and increased compared to 34.6 percent in the second quarter of 2022.

Gross profit margin in the first six months of 2023 was 39.4 percent compared to the gross profit margin of 34.8 percent in the first six months of 2022.

The higher gross profit margin in the second quarter and first six months of 2023 compared to the same periods last year was primarily due to lower material costs.

Selling, general, and administrative (SG&A) expenses increased by $13.6 million compared to the second quarter of 2022.

SG&A expenses increased $21.0 million in the first six months of 2023 compared to the prior year.

The increase in SG&A expense for the second quarter and first six months of 2023 compared to the prior period was primarily due to higher employee costs, which includes management incentive expenses related to higher earnings compared to the same periods last year and compensation increases.

Both periods in 2023 included higher consulting and insurance costs compared to the prior year.

Impairment expense in the first six months of 2023 was $15.6 million related to the sale of our business in Turkey.

Our sales in the third quarter of 2023 were $937.5 million, or 7.2 percent higher than the third quarter 2022 sales of $874.2 million.

Sales in the first nine months of 2023 were $2,864.7 million, or approximately 1.7 percent higher than $2,817.8 million in the same period last year.

Compared to the prior year quarter, higher volumes of residential water heaters were partially offset by lower boiler volumes in North America.

In addition, our sales in the third quarter of 2023 were unfavorably impacted by approximately $13 million due to the depreciation of foreign currencies compared to the U.S.

In the first nine months of 2023, higher volumes of residential and commercial water heaters more than offset unfavorable foreign currency impacts of approximately $53 million, unfavorable pricing, and lower boiler sales in our North America segment.

Our gross profit margin in the third quarter of 2023 was 38.0 percent and increased compared to 34.9 percent in the third quarter of 2022.

Gross profit margin in the first nine months of 2023 was 38.9 percent compared to the gross profit margin of 34.8 percent in the first nine months of 2022.

The higher gross profit margin in the third quarter and first nine months of 2023 compared to the same periods last year was primarily due to lower material costs.

Selling, general, and administrative (SG&A) expenses in the third quarter of 2023 increased by $19.4 million compared to the third quarter of 2022.

SG&A expenses increased $40.4 million in the first nine months of 2023 compared to the prior year.

The increase in SG&A expenses for the third quarter and first nine months of 2023 compared to the prior year periods was primarily due to higher employee costs, which includes management incentive expenses related to higher earnings and compensation increases.

The prior year periods include the recognition of an $11.5 million favorable judgment against a competitor related to its infringement of one of our patents, which reduced SG&A expenses, and was partially offset by a $4.3 million expense associated with a terminated acquisition.

Impairment expense in the first nine months of 2023 was $15.6 million related to the sale of our business in Turkey.

Of the $15.6 million impairment, $12.5 million was recorded in the Rest of World segment and $3.1 million in Corporate Expense.

There was no impairment expense recorded in the second quarter of 2023.

Interest expense in the second quarter of 2023 was $4.5 million compared to $2.1 million in the same period last year.

Interest expense in the first six months of 2023 was $8.5 million compared to $3.6 million in the same period the previous year.

The increase in interest expense in the second quarter and first six months of 2023 compared to the same periods last year was primarily due to higher debt levels and interest rates.

Other (income) expense, net was ($9.0) million in the second quarter of 2023 compared to expense of $0.3 million in the second quarter of 2022.

Other (income) expense, net was ($13.0) million in the first six months of 2023 compared to expense of $4.0 million in the same period last year.

The increase in Other (income) expense, net was due to a reduction in pension expense of $3.3 million and $6.6 million for the three months and six months ended 2023 compared to the prior year periods and also from $6.0 million of pension settlement income realized in the second quarter of 2023.

There was no impairment expense recorded in the third quarter of 2023.

Interest expense in the third quarter of 2023 was $2.4 million and flat to the same period last year.

Interest expense in the first nine months of 2023 was $10.9 million compared to $6.0 million in the same period the previous year.

The increase in interest expense in the first nine months of 2023 compared to the same period last year was primarily due to higher debt levels and interest rates.

Other expense (income), net was $2.5 million in the third quarter of 2023 and essentially flat compared to $2.4 million in the third quarter of 2022.

Other expense (income), net was ($10.5) million in the first nine months of 2023 compared to expense of $6.4 million in the same period last year.

The increase in Other expense (income), net was due to a reduction in pension expense of $10.0 million for the nine months ended 2023 compared to the prior year periods and also from $6.0 million of pension settlement income realized in the second quarter of 2023.

See Note 10 - Pensions for additional information on the pension settlement.

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

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 includes a $15.6 million impairment expense recorded with no associated tax benefit.

We estimate that our annual effective income tax rate for the full year of 2023 will be 24.0 percent.

Our effective income tax rate for the three and nine months ended September 30, 2023 was 23.2 percent and 24.7 percent, respectively.

The effective income tax rate for the three and nine months ended September 30, 2022 was 24.1 percent and 23.7 percent, respectively.

The change in the effective income tax rate for the three and nine months ended September 30, 2023

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

In addition, results in the nine months ended September 30, 2023 include a $15.6 million impairment expense recorded with no associated tax benefit.

We estimate that our annual effective income tax rate for the full year of 2023 will be approximately 24 percent.

We are providing non-U.S.

4 unchanged sentences

(dollars in millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

Segment margin 23.9 % 21.7 % 25.5 % 21.3 %

Sales in our North America segment were $722.3 million in the second quarter of 2023, or $21.8 million lower than sales of $744.1 million in the second quarter of 2022.

Sales in the first six months of 2023 were $1,475.0 million, essentially flat to sales of $1,474.2 million in the same period last year.

Lower sales in the second quarter of 2023 were primarily driven by lower boiler volumes and unfavorable pricing which offset higher water heater volumes.

Essentially flat sales in the first six months of 2023 compared to the prior year period were primarily driven by higher residential and commercial water heater volumes which were fully offset by unfavorable pricing and lower volumes of boilers.

North America segment earnings were $199.1 million in the second quarter of 2023, an increase of approximately 24.5 percent compared to segment earnings of $159.9 million in the second quarter of 2022.

Segment earnings in the first six months of 2023 were $387.7 million, an increase of 24.4 percent compared to segment earnings of $311.7 million in the first six months of 2022.

Segment margins were 27.6 percent and 21.5 percent in the second quarter of 2023 and 2022, respectively.

Segment margins were 26.3 percent and 21.1 percent in the first six months of 2023 and 2022, respectively.

Higher segment earnings and margins in the second quarter and first six months of 2023 compared to the prior year were primarily due to lower material costs and higher volumes of commercial and residential water heaters, partially offset by lower boiler volumes.

Additionally, we realized pre-tax pension settlement income of $5.0 million.

We estimate our 2023 North America segment margin will be approximately between 24 and 24.25 percent, excluding the pension settlement income.

Adjusted segment earnings and adjusted segment margin in the second quarter of 2023 were $194.1 million and 26.9 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the second quarter of 2023 exclude $5.0 million of pension settlement income.

Adjusted segment earnings and adjusted segment margin in the second quarter of 2022 were $162.5 million and 21.8 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the second quarter of 2022 exclude $2.6 million of pension expense.

Adjusted segment earnings and adjusted segment margin in the first six months of 2023 were $382.7 million and 25.9 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the first six months of 2023 exclude $5.0 million of pension settlement income.

Adjusted segment earnings and adjusted segment margin in the first six months of 2022 were $316.9 million and 21.5 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the first six months of 2022 exclude $5.2 million of pension expense.

Sales in our North America segment were $709.9 million in the third quarter of 2023, or $57.0 million higher than sales of $652.9 million in the third quarter of 2022.

Sales in the first nine months of 2023 were $2,184.9 million, or $57.8 million higher than sales of $2,127.1 million in the same period last year.

Higher sales in the third quarter of 2023 were primarily driven by higher residential water heater volumes, partially offset by lower boiler volumes.

Increased sales in the first nine months of 2023 compared to the prior year period were primarily driven by higher residential and commercial water heater volumes, partially offset by unfavorable pricing and lower volumes of boilers.

North America segment earnings were $170.0 million in the third quarter of 2023, an increase of approximately 19.9 percent compared to segment earnings of $141.8 million in the third quarter of 2022.

Segment earnings in the first nine months of 2023 were $557.7 million, an increase of 23.0 percent compared to segment earnings of $453.5 million in the first nine months of 2022.

Segment margins were 23.9 percent and 21.7 percent in the third quarter of 2023 and 2022, respectively.

Segment margins were 25.5 percent and 21.3 percent in the first nine months of 2023 and 2022, respectively.

Higher segment earnings and margins in the third quarter of 2023 compared to the prior year were primarily due to higher volumes of residential water heaters and lower material costs which more than offset lower boiler volumes.

Higher segment earnings and margins in the first nine months of 2023 compared to the prior year were primarily due to the factors mentioned above and higher volumes of commercial water heaters.

Additionally, in the first nine months of 2023, we realized pre-tax pension settlement income of $5.0 million.

Adjusted segment earnings and adjusted segment margin in the third quarter of 2022 were $132.9 million and 20.4 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the third quarter of 2022 exclude $2.6 million of pension expense and the recognition of the $11.5 million patent infringement judgment.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 were $552.7 million and 25.3 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 exclude $5.0 million of pension settlement income.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2022 were $449.8 million and 21.1 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2022 exclude $7.8 million of pension expense and the recognition of the $11.5 million patent infringement judgment.

We estimate our 2023 North America segment margin will be approximately 25 percent.

Rest of World Segment

(dollars in millions) Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

2 unchanged sentences

Segment margin 9.9 % 9.5 % 8.2 % 9.0 %

Sales in the Rest of World segment were $244.2 million in the second quarter of 2023, or $14.3 million higher than sales of $229.9 million in the second quarter of 2022.

Sales in the first six months of 2023 were $463.3 million, or $22.6 million lower than sales of $485.9 million in the same period last year.

The increased sales in the second quarter of 2023 were primarily driven by stronger consumer demand in China, particularly for our residential and commercial water treatment products, and favorable product mix.

The second quarter of 2023 sales were negatively impacted by currency translation of approximately $14 million compared to last year due to the depreciation of foreign currencies compared to the U.S.

The decrease in sales in the first six months of 2023 was primarily driven by the approximately $31 million unfavorable impact of foreign exchange due to the depreciation of foreign currencies compared to the U.S.

Rest of World segment earnings were $28.3 million in the second quarter of 2023, compared to $18.1 million in the second quarter of 2022.

Segment earnings in the first six months of 2023 were $33.6 million, compared to $42.9 million in the first six months of 2022.

Segment margins were 11.6 percent and 7.9 percent in the second quarter of 2023 and 2022, respectively.

Segment margins were 7.3 percent and 8.8 percent in the first six months of 2023 and 2022, respectively.

Higher segment earnings and segment margin in the second quarter of 2023 were primarily driven by higher volumes and favorable mix in China.

Lower segment earnings and segment margin in the first six months of 2023, were primarily driven by the impairment expense of $12.5 million associated with the sale of our business in Turkey.

Adjusted segment earnings and adjusted segment margin in the first six months of 2023 were $46.1 million and 10.0 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the first six months of 2023 exclude the $12.5 million of impairment expense.

We estimate our 2023 Rest of World adjusted segment margin will be approximately 10 percent, excluding the impairment expense.

We expect our consolidated sales in 2023 to be flat to up two percent compared with 2022.

Our sales projection is driven by expected flat to up two percent industry residential unit volumes, increased commercial water heater volumes, and higher water treatment sales, partially offset by lower boiler sales in North America, and higher sales in China.

Sales in the Rest of World segment were $233.4 million in the third quarter of 2023, or $3.2 million higher than sales of $230.2 million in the third quarter of 2022.

Sales in the first nine months of 2023 were $696.7 million, or $19.4 million lower than sales of $716.1 million in the same period last year.

The increased sales in the third quarter of 2023 were primarily driven by higher volumes in China, particularly in our kitchen appliance products, partially offset by unfavorable foreign currency translation of approximately $11 million.

The decrease in sales in the first nine months of 2023 was primarily driven by approximately $42 million unfavorable impact of foreign currency translation, partially offset by favorable product mix.

Rest of World segment earnings were $23.2 million in the third quarter of 2023, compared to $21.8 million in the third quarter of 2022.

Segment earnings in the first nine months of 2023 were $56.8 million compared to $64.7 million in the first nine months of 2022.

Segment margins were 9.9 percent and 9.5 percent in the third quarter of 2023 and 2022, respectively.

Segment margins were 8.2 percent and 9.0 percent in the first nine months of 2023 and 2022, respectively.

Higher segment earnings and segment margin in the third quarter of 2023 were primarily driven by sales of new products, particularly in our kitchen appliance products, and favorable mix in China.

Lower segment earnings and segment margin in the first nine months of 2023 were primarily driven by the impairment expense of $12.5 million associated with the sale of our business in Turkey.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 were $69.3 million and 9.9 percent, respectively.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 exclude the $12.5 million impairment expense.

We estimate our 2023 Rest of World segment margin will be approximately nine percent, and adjusted segment margin will be approximately 10 percent, excluding the impairment expense.

We expect our consolidated sales in 2023 to be up two percent compared with 2022.

Our sales projection is driven by an expected increase of approximately four percent industry residential unit volumes, increased commercial water heater volumes, and higher water treatment sales, partially offset by lower boiler sales in North America.

As a result, we expect to achieve full-year earnings of between $3.63 and $3.73 per share and adjusted earnings of between $3.70 and $3.80 per share.

1 unchanged sentence

Liquidity & Capital Resources

Our working capital was $700.6 million at June 30, 2023, and essentially the same compared with $699.5 million at December 31, 2022.

Movements in working capital comprised of lower Cash, cash equivalents, and Marketable securities due to the paydown of our Long-term debt and Trade payables.

In addition, as of June 30, 2023, cash balances were negatively impacted by $15.1 million due to changes in foreign currency during the year.

In the first six months of 2023, we repatriated approximately $98 million of cash from our foreign subsidiaries.

Our working capital was $608.9 million at September 30, 2023, compared with $699.5 million at December 31, 2022.

Movements in working capital consisted of lower Cash and cash equivalents, and Marketable securities due to the paydown of our Long-term debt and Trade payables.

In addition, as of September 30, 2023, cash balances were negatively impacted by $17.7 million due to changes in foreign currency during the year.

Cash and cash equivalents used to fund our operations are primarily generated through operating activities and provided by our existing credit facilities.

We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future.

We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate capital resources among various entities.

We have historically made and anticipate future cash repatriations to the United States from certain foreign subsidiaries.

In the first nine months of 2023, we repatriated approximately $100 million of cash from our foreign subsidiaries through dividends and approximately $200 million through our global cash pooling arrangement.

We used the proceeds to pay down outstanding debt balances.

(dollars in millions) Six Months Ended

(dollars in millions) Nine Months Ended

September 30,

Cash provided by operating activities $ 439.0 $ 214.7

Cash provided by investing activities 33.8 40.9

Cash (used in) provided by investing activities (30.8) 58.3

Cash used in financing activities (500.7) (320.1)

Cash provided by operating activities in the first six months of 2023 was $260.2 million compared with $54.4 million in the same period last year.

Cash provided by operations in the first six months of 2023 increased compared with the prior year due to increased earnings and a more favorable working capital contribution primarily related to lower inventory levels and incentive payments.

Our free cash flow in the first six months of 2023 and 2022 was $236.0 million and $23.7 million, respectively.

Cash provided by operating activities in the first nine months of 2023 was $439.0 million compared with $214.7 million in the same period last year.

Cash provided by operations in the first nine months of 2023 increased compared with the prior year due to increased earnings and a more favorable working capital contribution primarily related to lower inventory levels and incentive payments.

Our free cash flow in the first nine months of 2023 and 2022 was $396.3 million and $163.8 million, respectively.

We expect cash provided by operating activities to be between $640 million and $665 million in 2023.

1 unchanged sentence

Free cash flow is a non-GAAP measure described in more detail in the Non-GAAP Measures section below.

Capital expenditures totaled $24.2 million in the first six months of 2023 compared with $30.7 million in the same period last year.

We project 2023 capital expenditures will be between $70 and $75 million and full-year depreciation and amortization expense will be approximately $70 million.

Capital expenditures totaled $42.7 million in the first nine months of 2023 compared with $50.9 million in the same period last year.

We project 2023 capital expenditures will be approximately $65 million and full-year depreciation and amortization expense will be approximately $70 million.

In 2021, we renewed and amended our $500 million revolving credit facility, which now expires on April 1, 2026.

1 unchanged sentence

Borrowing rates under the facility are determined by our leverage ratio.

The facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of June 30, 2023, and expect to be in compliance for the foreseeable future.

The facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of September 30, 2023, and expect to be in compliance for the foreseeable future.

The facility backs up commercial paper and credit line borrowings.

At June 30, 2023, we had $75.6 million outstanding under the facility and an available borrowing capacity of $424.4 million.

At September 30, 2023, we had no borrowings outstanding under the facility and an available borrowing capacity of $500.0 million.

We believe the combination of available borrowing capacity and operating cash flows will provide sufficient funds to finance our existing operations for the foreseeable future.

Our total debt decreased by $138.5 million in the first six months of 2023 which was primarily due to payments.

Our leverage, as measured by the ratio of total debt to total capitalization, was 9.8 percent at June 30, 2023, compared with 16.5 percent at December 31, 2022.

Our total debt decreased by $214.9 million in the first nine months of 2023 primarily due to payments.

Our leverage, as measured by the ratio of total debt to total capitalization, was 6.4 percent at September 30, 2023, compared with 16.5 percent at December 31, 2022.

In the first quarter of 2023, our Board of Directors approved adding 7,500,000 shares of common stock to our existing discretionary share repurchase authority.

1 unchanged sentence

The stock repurchase authorization remains effective until terminated by our 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.

During the first six months of 2023, we repurchased 1,075,000 shares of our stock at a total cost of $69.6 million.

At June 30, 2023, we had 6,803,462 shares remaining on the share repurchase authority.

During the first nine months of 2023, we repurchased 2,388,000 shares of our stock at a total cost of $161.4 million.

At September 30, 2023, we had 5,490,462 shares remaining on the share repurchase authority.

Depending on factors such as stock price, working capital requirements, and alternative investment opportunities, we expect to spend approximately $300 million on stock repurchases in 2023 through a combination of any renewed Rule 10b5-1 automatic trading plan and open market repurchases.

On July 10, 2023, our Board of Directors declared a regular quarterly cash dividend of $0.30 per share on our Common Stock and Class A common stock.

The dividend is payable on August 15, 2023, to shareholders of record on July 31, 2023.

On October 9, 2023, our Board of Directors declared a regular quarterly cash dividend of $0.32 per share on our Common Stock and Class A common stock.

The dividend is payable on November 15, 2023, to shareholders of record on October 31, 2023.

Non-GAAP Financial Information

9 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

3 unchanged sentences

Pension expense, before tax — 3.0 — 8.9

Legal judgment income, before tax — (11.5) — (11.5)

Terminated acquisition-related expenses, before tax — 4.3 — 4.3

Tax effect on above items — 1.0 1.5 (0.4)

5 unchanged sentences

Pension expense per diluted share, before tax — 0.02 — 0.06

Legal judgment income per diluted share, before tax — (0.07) — (0.07)

Terminated acquisition-related expenses per diluted share, before tax — 0.03 — 0.03

Tax effect on above items per diluted share — — 0.01 (0.01)

7 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

16 unchanged sentences

Pension expense, before tax — 0.4 — 1.1

Terminated acquisition-related expenses, before tax — 4.3 — 4.3

Adjusted Corporate expense (non-GAAP) $ (14.4) $ (11.8) $ (44.9) $ (40.1)

3 unchanged sentences

Pension expense, before tax — 2.6 — 7.8

Legal judgment income, before tax — (11.5) — (11.5)

Adjusted North America (non-GAAP) $ 170.0 $ 132.9 $ 552.7 $ 449.8

7 unchanged sentences

The following is a reconciliation of reported cash flow from operating activities to free cash flow (non-GAAP):

Six Months Ended

Nine Months Ended

September 30,

Cash provided by operating activities (GAAP) $ 439.0 $ 214.7

22 unchanged sentences

The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022.

We believe that at June 30, 2023, there was no material change to this information.

We believe that at September 30, 2023, there was no material change to this information.

Recent Accounting Pronouncements

5 unchanged sentences

Important factors that could cause actual results to differ materially from these expectations include, among other things, the following:

further softening in U.S.

softening in U.S.

residential water heater demand;

5 unchanged sentences

inability of the Company to implement or maintain pricing actions;

inconsistent recovery of the Chinese economy or decline in the growth rate of consumer spending or housing sales in China;

inconsistent recovery of the Chinese economy or further decline in the growth rate of consumer spending or housing sales in China;

negative impact to the Company’s business in China as a result of future COVID-19 related disruptions there;

negative impact to the Company's businesses from international tariffs, trade disputes and geopolitical differences, including the conflict in Ukraine;

negative impact to the Company's businesses from international tariffs, trade disputes and geopolitical differences, including the conflicts in Ukraine and Middle East;

potential further weakening in the high-efficiency gas boiler segment in the U.S.;

9 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-Q

Item 2. Management’s Discussion and Analysis