What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-02-13 compared with 2023-02-14 · 178 added, 142 removed, 915 unchanged (26% of the section changed)

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID:

The Board of Directors and Stockholders

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and the Board of Directors of A.

Smith Corporation

34 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 and accuracy of the claims data.

We tested the validity of claims within the calculation and tested the completeness and accuracy of the claims settled data.

We recalculated the historical failure rates using actual claims data.

3 unchanged sentences

/s/ Ernst & Young LLP

We have served as A.

Smith Corporation’s auditor since 1917.

We have served as the Company’s auditor since 1917.

Milwaukee, Wisconsin

47 unchanged sentences

Selling, general and administrative expenses 727.4 670.9 701.4

Severance and restructuring expenses — — 7.7

Restructuring and impairment expenses 18.8 — —

Interest expense 12.0 9.4 4.3

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

Other (income) expense, net ( 6.9 ) 425.6 ( 20.4 )

Earnings before provision for income taxes 733.5 223.7 625.6

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

Provision for (benefit from) income taxes 176.9 ( 12.0 ) 138.5

Net Earnings $ 556.6 $ 235.7 $ 487.1

10 unchanged sentences

Foreign currency translation adjustments 3.8 ( 39.4 ) 3.4

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 (provision) benefit of $( 179.0 ) in 2022 $ 4.5 in 2021 and $( 2.8 ) in 2020

Unrealized net (loss) gain on cash flow derivative instruments, less related income tax benefit (provision) of $ 1.4 in 2023, ($ 1.4 ) in 2022 and $ — in 2021

( 4.2 ) 4.3 —

Change in pension liability less related income tax benefit (provision) of $ 0.5 in 2023, ($ 179.0 ) in 2022 and $ 4.5 in 2021

( 1.4 ) 284.1 ( 13.6 )

Comprehensive Earnings $ 554.8 $ 484.7 $ 476.9

8 unchanged sentences

Stock based compensation expense 11.5 11.1 11.9

Pension settlement expense 417.3 — —

Deferred Income Taxes ( 3.8 ) — —

Non-cash impairment 15.6 — —

Pension settlement (income) expense ( 0.9 ) 417.3 —

Pension settlement non-cash taxes 0.2 ( 167.7 ) —

4 unchanged sentences

Investing Activities

Acquisitions of businesses ( 8.0 ) ( 207.6 ) —

Investments in marketable securities ( 91.6 ) ( 185.4 ) ( 157.4 )

Proceeds from sales of marketable securities 178.0 118.2 226.0

Capital expenditures ( 72.6 ) ( 70.3 ) ( 75.1 )

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

Acquisitions ( 16.8 ) ( 8.0 ) ( 207.6 )

Investments in marketable securities ( 63.1 ) ( 91.6 ) ( 185.4 )

Net proceeds from sales of marketable securities 128.4 178.0 118.2

Cash (Used in) Provided by Investing Activities ( 24.1 ) 8.1 ( 349.9 )

Financing Activities

Long-term debt incurred (repaid) 150.6 83.5 ( 170.8 )

Long-term debt (repaid) incurred ( 218.1 ) 150.6 83.5

Common stock repurchases ( 306.5 ) ( 403.5 ) ( 366.5 )

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

Net proceeds (payments) from stock option activity 23.4 ( 0.7 ) 32.1

Dividends paid ( 183.5 ) ( 177.2 ) ( 170.1 )

1 unchanged sentence

Effect of exchange rate changes on cash and cash equivalents ( 12.8 ) ( 20.8 ) —

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

Net decrease in cash and cash equivalents ( 51.3 ) ( 52.1 ) ( 129.8 )

Cash and cash equivalents-beginning of year 391.2 443.3 573.1

18 unchanged sentences

Exercises of stock options 14.5 1.3 15.4

Stock incentives 7.0 6.6 7.3

Issuance of share based compensation 11.3 7.0 6.6

Balance at the end of the year $ 578.2 $ 555.9 $ 545.2

7 unchanged sentences

Foreign currency translation adjustments 3.8 ( 39.4 ) 3.4

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 (provision) benefit of $( 179.0 ) in 2022, $ 4.5 in 2021 and $( 2.8 ) in 2020

Unrealized net (loss) gain on cash flow derivative instruments, less related income tax benefit (provision) of $ 1.4 in 2023, ($ 1.4 ) in 2022 and $ — in 2021

( 4.2 ) 4.3 —

Change in pension liability less related income tax benefit (provision) of $ 0.5 in 2023, ($ 179.0 ) in 2022 and $ 4.5 in 2021

( 1.4 ) 284.1 ( 13.6 )

Balance at the end of the year $ ( 84.2 ) $ ( 82.4 ) $ ( 331.4 )

5 unchanged sentences

Shares repurchased ( 306.5 ) ( 403.5 ) ( 366.5 )

Excise tax on repurchases of common stock ( 3.1 ) — —

Vesting of share units 3.7 3.0 2.2

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

Cost is determined on the last-in, first-out (LIFO) method for a majority of the Company’s domestic inventories, which comprised 36 percent and 37 percent of the Company’s total inventory at December 31, 2022 and 2021, respectively.

Cost is determined on the last-in, first-out (LIFO) method for a certain of the Company’s domestic inventories, which comprised 39 percent and 36 percent of the Company’s total inventory at December 31, 2023 and 2022, respectively.

Inventories of foreign subsidiaries, the remaining domestic inventories and supplies were determined using the first-in, first-out (FIFO) method.

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Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for impairment on an annual basis.

Separable intangible assets, primarily comprised of customer relationships, that are not deemed to have an indefinite life are amortized on a straight-line basis over their estimated useful lives which range from five to 25 years.

Impairment of long-lived and amortizable intangible assets.

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The Company provides for any such warranty issues as they become known and estimable.

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

The following table presents the Company’s product warranty liability activity in 2023 and 2022:

3 unchanged sentences

Claims settled ( 74.3 ) ( 66.1 )

Acquired obligations — 12.2

Balance at end of year $ 188.1 $ 182.5

6 unchanged sentences

Fair Value Measurements.

Accounting Standards Codification (ASC) 820 Fair Value Measurements , among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis.

Accounting Standards Codification (ASC) 820 Fair Value Measurements , defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis.

ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

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Quoted prices in active markets for identical assets (Level 1) Marketable Securities $ 23.5 $ 90.6

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

Significant other observable inputs (Level 2) (Accrued liabilities) / Other current assets ( 4.1 ) 6.5

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

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The majority of advertising costs are charged to operations as incurred and totaled $ 93.9 million, $ 100.4 million and $ 107.0 million during 2023, 2022 and 2021, respectively.

Included in total advertising costs are expenses associated with store displays for water heater, water treatment products, range hood and cook tops in China that are amortized over 12 to 48 months which totaled $ 17.2 million, $ 25.2 million and $ 27.0 million during 2022, 2021 and 2020, respectively.

Included in total advertising costs are expenses associated with store displays for water heater, water treatment products, and kitchen products in China that are amortized over 12 to 48 months which totaled $ 15.2 million, $ 17.2 million and $ 25.2 million during 2023, 2022 and 2021, respectively.

Organization and Significant Accounting Policies (continued)

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Recent Accounting Pronouncements.

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

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

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

In December 2023, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 740, Income Taxes (issued under Accounting Standards Update (ASU) 2023-09, “Improvements to Income Tax Disclosures” ).

This ASU requires added disclosures related to the rate reconciliation, income taxes paid and other amendments intended to improve effectiveness and comparability.

The amendment is effective for the Company beginning with its 2025 annual disclosures with early adoption permitted and should be applied on a prospective basis.

The Company is currently evaluating the impact the adoption of ASU 2023-09 will have on its annual disclosures.

In November 2023, the FASB issued ASU 2023-07, “ Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures .” The update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses.

The ASU requires disclosures to include significant segment expenses that are regularly provided to the chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources.

The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods.

The update is effective for the Company beginning with its 2024 annual disclosures and interim periods beginning in 2025, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements.

The Company is currently evaluating the impact the adoption of ASU 2023-07 will have on its annual and interim disclosures.

Revenue Recognition

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Contracts and customer purchase orders are used to determine the existence of a sales contract.

Shipping documents are used to verify shipment.

Shipping documents are used to verify

Revenue Recognition (continued)

For substantially all of its products, the Company transfers control of products to the customer at the point in time when title and risk are passed to the customer, which generally occurs upon shipment of the product.

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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 $ 59.7 million and $ 85.7 million at December 31, 2023 and December 31, 2022, respectively.

3 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 $ 9.5 million at both December 31, 2022 and December 31, 2021.

The Company’s allowance for credit losses was $ 10.1 million and $ 9.5 million at December 31, 2023 and December 31, 2022, respectively.

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

2 unchanged sentences

Changes in such accruals may be required if actual sales volume differs from estimated sales volume or if future returns differ from historical experience.

Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold and are activities performed to fulfill the promise to transfer products.

Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold as they are activities performed to fulfill the promise to transfer products.

Disaggregation of Net Sales

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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.

Revenue Recognition (continued)

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.

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

2023 Acquisitions

During the third quarter of 2023, the Company acquired a privately-held water treatment company.

The Company paid an aggregate cash purchase price of $ 16.8 million, net of cash acquired.

The addition of the acquired company expands the Company's water treatment platform.

The acquired company is included in the North America segment.

2022 Acquisitions

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.

In addition, in 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.

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 for $ 198.6 million, net of cash acquired.

2 unchanged sentences

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.

1 unchanged sentence

Giant is included in the North America segment.

Acquisitions (continued)

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

11 unchanged sentences

Net assets acquired $ 198.6

Acquisitions (continued)

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 exercise of lease renewal or termination is at the Company’s discretion and when it is determined to be reasonably certain to renew or terminate, the option is reflected in the measurement of lease asset and liability.

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

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

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

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Operating lease assets $ 37.3 $ 29.8

Leases (continued)

Lease Term and Discount Rate December 31, 2023

1 unchanged sentence

Weighted-average discount rate 4.41 %

Leases (continued)

The components of lease expense were as follows:

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Present value of operating lease liabilities $ 39.5

Severance and Restructuring Expenses

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

These expenses were comprised of $ 6.8 million 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.

Restructuring and Impairment

During the first quarter of 2023, the Company determined that its business in Turkey (disposal group) included in the Rest of World segment met the criteria to be classified as held for sale.

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

As a result 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 remaining carrying value of the disposal group was $ 0.6 million and classified as held for sale.

During the second quarter of 2023, the Company sold the disposal group for an amount that approximated the carrying value of the net assets.

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.

During the fourth quarter of 2023, the Company recorded $ 3.2 million of restructuring expense related to the exit of a business within the Far East region.

Statement of Cash Flows

33 unchanged sentences

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

Currency translation adjustment 2.6 ( 0.1 ) 2.5

Acquisitions 11.2 — 11.2

Balance at December 31, 2023 $ 574.9 $ 58.5 $ 633.4

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Total intangible assets $ 514.4 $ ( 177.7 ) $ 336.7 $ 515.6 $ ( 167.7 ) $ 347.9

Goodwill and Other Intangible Assets (continued)

Amortization expenses of other intangible assets of $ 12.6 million, $ 12.8 million, and $ 12.3 million were recorded in 2023, 2022 and 2021, respectively.

3 unchanged sentences

December 31 (dollars in millions) 2023 2022

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

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

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

Term notes with insurance companies, expiring 2029-2034, average year-end interest rates of 3.1 % for both 2023 and 2022

Long-term debt due within one year ( 10.0 ) ( 10.0 )

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

The Company has fixed-rate interest expense obligations of $ 19.5 million on outstanding debt as of December 31, 2022.

The Company has fixed-rate interest expense

Debt (continued)

obligations of $ 16.6 million on outstanding debt as of December 31, 2023.

Scheduled maturities of long-term debt within each of the five years subsequent to December 31, 2023 are as follows:

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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

Stockholders’ Equity (continued)

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 plan that we may then have in effect.

In 2023, the Company repurchased 4,377,000 shares at an average price of $ 70.03 per share and at a total cost of $ 306.5 million.

4 unchanged sentences

At December 31, 2022, a total of 130,380 and 39,398,135 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 $ ( 84.1 ) $ ( 44.7 )

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

Other comprehensive gain (loss) before reclassifications 3.8 ( 39.4 )

Balance at end of period ( 80.3 ) ( 84.1 )

1 unchanged sentence

Balance at beginning of period 4.9 0.6

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)

Other comprehensive gain before reclassifications 2.8 7.4

Realized gains on derivatives reclassified to cost of products sold (net of tax provision of $ 2.2 and $ 1.0 in 2023 and 2022, respectively) (1)

( 7.0 ) ( 3.1 )

Balance at end of period 0.7 4.9

1 unchanged sentence

Balance at beginning of period ( 3.2 ) ( 287.3 )

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

Other comprehensive (loss) gain before reclassifications ( 1.6 ) 19.8

Amounts reclassified from accumulated other comprehensive loss (1)

2 unchanged sentences

(1) Amounts reclassified from accumulated other comprehensive loss:

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

Tax provision (benefit) 1.0 ( 0.2 )

Realized gains on derivatives reclassified to cost of products sold $ ( 9.2 ) $ ( 4.1 )

Tax provision 2.2 1.0

Reclassification net of tax $ ( 7.0 ) $ ( 3.1 )

6 unchanged sentences

See Note 13, “Pensions and Other Post-retirement Benefits” for additional details.

Included in the results for 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 5 - Restructuring and Impairment for additional details.

Stock Based Compensation

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 most recently reapproved by stockholders on April 15, 2020.

The Incentive Plan is a continuation of the A.

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

The number of shares available for granting of options or share units at 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.

The number of shares available for granting of options or share units at December 31, 2023, was 2,479,897 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.

Total stock based compensation expense recognized in 2023, 2022 and 2021 was $ 11.5 million, $ 11.1 million and $ 11.9 million, respectively.

Stock Based Compensation (continued)

Stock Options

The stock options granted in 2022, 2021 and 2020 have three year pro rata vesting from the date of grant.

Stock options are issued at exercise prices equal to the fair value of the Company’s Common Stock on the date of grant.

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

The stock options previously granted in 2022 and 2021 have three year pro rata vesting from the date of grant.

Stock options were issued at exercise prices equal to the fair value of the Company’s Common Stock on the date of grant.

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

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(1) The total intrinsic value of options exercised in 2023, 2022 and 2021 was $ 15.0 million, $ 1.6 million and $ 31.0 million, 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.

(2) The weighted average remaining contractual life of options outstanding was 7 years at December 31, 2023, and December 31, 2022, and 8 years at December 31, 2021, respectively.

The aggregate intrinsic value of options outstanding at December 31, 2023 was $ 55.3 million.

(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.

(3) The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2023, and December 31, 2022, and 7 years at December 31, 2021, respectively.

The aggregate intrinsic value of options exercisable at December 31, 2023 was $ 51.0 million.

2 unchanged sentences

Nonvested options at beginning of year 806,054 $ 60.26

Granted 322,460 74.11

Vested ( 477,245 ) 54.05

4 unchanged sentences

Assumptions were as follows:

2022 2021 2020

Expected life (years) 5.7 5.8

6 unchanged sentences

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.

Restricted Stock and Share Units

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

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

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

Share units vest three years after the date of grant.

14 unchanged sentences

Issued and unvested at December 31, 2023 381,189 63.33

Performance Stock Units

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.

Performance stock units vest under a set of measurement criteria which are based upon achievement of certain Environmental, Social, and Governance targets.

Potential payouts range from zero to 150 percent 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 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 $ 0.7 million was recognized in 2023.

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.

Stock Based Compensation (continued)

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

Number of Units Weighted-Average

Grant Date Value

Issued and unvested at January 1, 2023 — $ —

Granted 24,580 67.14

Forfeited ( 557 ) 67.14

Performance adjustments 10,735 67.14

Issued and unvested at December 31, 2023 34,758 67.14

Pension and Other Post-retirement Benefits

9 unchanged sentences

The Company also has defined benefit and contribution plans for certain union hourly employees.

The Company has unfunded defined-benefit post-retirement plans covering certain hourly and salaried employees that provide medical and life insurance benefits from retirement to age 65 .

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

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

The Plan 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).

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

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.

In 2023, the Company realized pre-tax pension settlement income of $ 0.9 million, of which $ 0.7 million was recorded in the North America segment and $ 0.2 million in Corporate Expense, and included $ 0.2 million in related tax benefits.

The pension settlement income related to refunds from MML to the Plan for the reconciliation of participant data and was partially offset by settlement accounting adjustments.

The remaining pension assets associated with the Plan at December 31, 2023 were $ 22.6 million.

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

The Company has unfunded defined-benefit post-retirement plans covering certain hourly and salaried employees that provide medical and life insurance benefits from retirement to age 65 .

Obligations and Funded Status

10 unchanged sentences

Participant contributions — — ( 0.1 ) ( 0.1 )

Plan amendments — — — —

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

Actuarial (loss) gain including assumption changes ( 1.1 ) 147.6 — ( 0.2 )

Benefits paid 4.8 219.3 0.2 0.9

7 unchanged sentences

Benefits paid ( 4.8 ) ( 219.3 ) ( 0.2 ) ( 0.9 )

Transfer related to plan termination ( 21.2 ) — — —

Transfer to insurer — ( 462.8 ) — —

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Non-current liabilities ( 10.3 ) ( 9.7 ) ( 1.5 ) ( 1.5 )

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

Net pension (liability) asset at end of year $ ( 6.4 ) * $ 16.9 * $ ( 1.7 ) $ ( 1.7 )

Amounts recognized in accumulated other comprehensive loss before tax

2 unchanged sentences

Total recognized in accumulated other comprehensive loss $ 8.6 $ 7.3 $ ( 1.5 ) $ ( 2.1 )

*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.

*In addition, the Company has a liability for a foreign pension plan of $ 0.3 million at December 31, 2023 and 2022, respectively.

The actuarial loss in the current year for the pension plan was primarily due to the change in the discount rate.

Pension and Other Post-retirement Benefits (continued)

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Prior service cost 0.1 ( 0.4 ) ( 0.4 ) ( 0.5 ) ( 0.5 ) ( 0.5 )

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

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

Defined-benefit plan expense (income) 1.3 13.9 ( 12.0 ) ( 0.4 ) ( 0.4 ) $ ( 0.4 )

Pension settlement (income) expense ( 0.9 ) 417.3 — — — —

defined contribution plans cost 16.5 15.3 14.6 — — —

$ 16.9 $ 446.5 $ 2.6 $ ( 0.4 ) $ ( 0.4 ) $ ( 0.4 )

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

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

Other changes in plan assets and projected benefit

obligation recognized in other comprehensive loss

Net actuarial loss (gain) $ 1.5 $ ( 27.0 ) $ 38.1 $ — $ 0.2 $ ( 0.6 )

Amortization of net actuarial loss ( 0.1 ) ( 19.9 ) ( 20.3 ) — — —

Settlement loss — ( 417.3 ) — — — —

Prior service credit — — — — — ( 2.0 )

Amortization of prior service cost ( 0.1 ) 0.4 0.4 0.5 0.5 0.5

Total recognized in other comprehensive loss 1.3 ( 463.8 ) 18.2 0.5 0.7 ( 0.1 )

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.

Total recognized in net periodic cost (benefit) and other comprehensive loss $ 1.7 $ ( 32.6 ) $ 6.2 $ 0.1 $ 0.3 $ ( 0.5 )

The 2023 and 2022 after tax adjustments for additional minimum pension liability resulted in other comprehensive (loss) gain of $( 1.4 ) million and $ 284.1 million, respectively.

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

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Expected long-term return on plan assets 5.25 % 3.12 % 6.25 % N/A N/A N/A

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

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

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

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The following table presents a reconciliation of the fair value measurements using significant unobservable inputs (Level 3) as of December 31, 2023 and 2022 (dollars in millions):

funds Private

Balance at December 31, 2021 $ 5.1

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Purchases, sales and settlements ( 0.3 )

Transfers in and/or out 0.2

Balance at December 31, 2023 $ 2.4

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

The combined fair value of the foreign currency forward contracts was an asset balance of $ 0.9 million as of December 31, 2023 which was recorded in Other current assets within the consolidated balance sheet.

The combined fair value of the foreign currency forward contracts was an asset balance of $ 6.4 million as of December 31, 2022 and recorded in Other current assets within the consolidated balance sheet.

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:

1 unchanged sentence

Buy Sell Buy Sell

British pound $ — $ — $ — $ —

Canadian dollar — 80.5 — 76.8

2 unchanged sentences

Total $ 38.3 $ 80.5 $ 45.9 $ 76.8

Derivative Instruments (continued)

Net Investment Hedges

4 unchanged sentences

These hedges are determined to be effective.

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.

The Company recognized ($ 1.8 ) million of after tax losses and $ 1.4 million of after-tax gains associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive income in 2023 and 2022, respectively.

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.

Fair value of derivatives designated as hedging instruments under ASC 815:

December 31 (dollars in millions) Balance Sheet Location 2022 2021

Foreign currency contracts Other current assets $ 6.4 $ 1.7

Accrued liabilities — ( 1.6 )

Total derivatives designated as hedging instruments $ 6.4 $ 0.1

The contractual amount of the Company’s foreign currency forward contracts that are designated as net investment hedges was $ 204.0 million as of December 31, 2023.

The combined fair value of the net investment hedges was a liability balance of ($ 4.2 ) million as of December 31, 2023 which was recorded in Accrued liabilities within the consolidated balance sheet.

The combined fair value of the foreign currency forward contracts was zero as of December 31, 2022.

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

1 unchanged sentence

Derivatives in ASC 815 cash flow

hedging relationships Amount of gain (loss)

recognized in other

hedging relationships Amount of gain recognized in other

comprehensive loss on

derivatives Location of gain (loss)

derivatives Location of gain

reclassified from

1 unchanged sentence

comprehensive loss into

earnings Amount of gain (loss) reclassified

earnings Amount of gain reclassified

from accumulated

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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

The combined fair value of the foreign exchange contracts was a liability balance of ($ 0.8 ) million as of December 31, 2023 which was recorded in Accrued liabilities within the consolidated balance sheet.

The combined 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:

2 unchanged sentences

Canadian dollar $ 44.1 $ — $ — $ 81.5

Chinese yuan 206.8 — — —

Total $ 250.9 $ — $ — $ 81.5

Derivative Instruments (continued)

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

3 unchanged sentences

2023 2022 2021

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:

Foreign exchange contracts Other (income) expense - net $ ( 3.7 ) $ 1.2 $ ( 0.9 )

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

Years ended December 31 (dollars in millions) 2023 2022 2021

6 unchanged sentences

$ 176.9 $ ( 12.0 ) $ 138.5

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

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

federal statutory rate due to the following items:

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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.

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

pension plan settlement expense.

4 unchanged sentences

$ 733.5 $ 223.7 $ 625.6

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.

Income Taxes (continued)

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.

3 unchanged sentences

The Company considers $ 492.1 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.

The Company expects to be able to take a 100 percent 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.

21 unchanged sentences

Beginning balance $ 10.1 $ 8.9 $ 8.3 $ 7.1

(Decreases) / increases 1.2 ( 11.4 ) 1.2 ( 5.9 )

Increases 2.2 1.2 3.4 1.2

Ending balance $ 12.3 $ 10.1 $ 11.7 $ 8.3

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.

The Company has foreign net operating loss carryovers that expire in 2025 through 2029, with some net operating losses being carried forward indefinitely and state and local net operating loss carryovers that are carried forward indefinitely.

Income Taxes (continued)

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

1 unchanged sentence

Balance at January 1 $ 15.0 $ 14.3

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

Additions for tax positions of prior years 2.2 0.7

Balance at December 31 $ 17.2 $ 15.0

5 unchanged sentences

federal income tax returns and its U.S.

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

Income Taxes (continued)

2009-2022, respectively.

state and local income tax returns are subject to audit for the years 2017-2023 and 2006-2023, respectively.

The Company is subject to examinations in foreign tax jurisdictions for the years 2017-2023.

7 unchanged sentences

The Company is subject to various claims and pending lawsuits for product liability and other matters arising out of the conduct of the Company’s business.

With respect to product liability claims, the Company has self-insured a portion of its product liability loss exposure for many years.

The Company has established reserves and has insurance coverage, which it believes are adequate to cover incurred claims.

For product liability claims, the Company self insures a portion of its product liability loss exposure.

The Company has established reserves and insurance coverage that it believes are adequate to cover incurred claims.

For the years ended December 31, 2023 and 2022, 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.

At December 31, 2023 and 2022, the reserve for product liability was $ 30.5 million and $ 31.7 million, respectively.

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

1 unchanged sentence

Purchase Obligations

The Company utilizes blanket purchase orders to communicate expected annual requirements to many suppliers.

The Company utilizes blanket purchase orders to communicate expected annual requirements to certain suppliers.

Requirements under blanket purchase orders generally do not become committed until several weeks prior to the scheduled unit production.

7 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 $ 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.

Before considering any reduction of distributor rebate accruals of $ 0.6 million and $ 1.1 million as of December 31, 2023 and December 31, 2022, respectively, and from the resale of the related inventory, the gross amount the Company would be

Commitments and Contingencies (continued)

obligated to repurchase, which would be contingent on the default of all of the outstanding loans, was approximately $ 0.8 million and $ 2.4 million as of December 31, 2023 and December 31, 2022, respectively.

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

12 unchanged sentences

Years ended December 31 (dollars in millions) 2023 2022 2021 2023 2022 (1)

2021 2020 (2)

North America $ 2,922.9 $ 2,819.1 $ 2,529.5 $ 726.7 $ 266.0 $ 590.8

5 unchanged sentences

Earnings before income taxes 733.5 223.7 625.6

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

Provision for (benefit from) income taxes 176.9 ( 12.0 ) 138.5

Net earnings $ 556.6 $ 235.7 $ 487.1

(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.

The provision for (benefit from) 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.”

In 2023, sales to the Company's North America segment’s two largest customers were $ 604.5 million and $ 509.0 million which represented 16 percent and 13 percent of the Company’s net sales, respectively.

8 unchanged sentences

Total $ 3,213.9 $ 3,332.3 $ 3,474.4 $ 78.3 $ 76.9 $ 77.9 $ 72.6 $ 70.3 $ 75.1

Operations by Segment (continued)

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

2 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