What changed in this filing

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Item 1. Financial Statements

2024-04-26 compared with 2023-10-27 · 94 added, 265 removed, 401 unchanged (47% of the section changed)

4 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net sales $ 978.8 $ 966.4

4 unchanged sentences

Interest expense 1.0 4.0

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

Other income, net ( 1.2 ) ( 4.0 )

Earnings before provision for income taxes 192.7 171.3

2 unchanged sentences

Basic Net Earnings Per Share of Common Stock $ 1.00 $ 0.84

$ 0.90 $ 0.71 $ 2.79 $ 2.29

Diluted Net Earnings Per Share of Common Stock $ 1.00 $ 0.84

$ 0.90 $ 0.71 $ 2.77 $ 2.27

Dividends Per Share of Common Stock $ 0.32 $ 0.30

(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

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Net earnings $ 147.6 $ 126.9

1 unchanged sentence

Foreign currency translation adjustments ( 4.8 ) 2.5

Unrealized (losses) gains on cash flow derivative instruments, less related income tax benefit (provision) of $ 0.3 and $ 0.8 in 2023, $( 1.1 ) and $( 1.6 ) in 2022

( 0.8 ) 3.5 ( 2.4 ) 5.0

Adjustment to pension liability, less related income tax provision of $ 0.0 and $( 0.1 ) in 2023, $( 1.3 ) and $( 3.8 ) in 2022

— 3.7 0.1 11.2

Unrealized gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $( 0.3 ) in 2024, and $ 0.0 in 2023

Adjustment to pension liability, less related income tax provision of $ 0.0 in 2024, and $ 0.0 in 2023

Comprehensive Earnings $ 143.9 $ 129.3

3 unchanged sentences

(dollars in millions)

September 30,

Current Assets

26 unchanged sentences

Stockholders’ Equity

Class A Common Stock (shares issued, 26,028,448 and 26,035,656 as of September 30, 2023 and December 31, 2022, respectively)

Common Stock (shares issued 164,679,146 and 164,671,938 as of September 30, 2023 and December 31, 2022, respectively)

Class A Common Stock (shares issued, 26,017,732 and 26,023,132 as of March 31, 2024 and December 31, 2023, respectively)

Common Stock (shares issued 164,689,862 and 164,684,460 as of March 31, 2024 and December 31, 2023, respectively)

Capital in excess of par value 589.5 578.2

8 unchanged sentences

(dollars in millions)

Nine Months Ended

September 30,

Three Months Ended

Operating Activities

3 unchanged sentences

Stock based compensation expense 8.3 7.0

Deferred income taxes 2.9 —

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 ( 22.0 ) ( 10.7 )

Acquisitions of businesses ( 16.1 ) ( 8.0 )

Acquisition of business ( 21.1 ) —

Investments in marketable securities ( 48.1 ) ( 14.7 )

Net proceeds from sale of marketable securities 20.0 15.6

Cash (Used in) Provided by Investing Activities ( 30.8 ) 58.3

Cash Used in Investing Activities ( 71.2 ) ( 9.8 )

Financing Activities

Long-term debt (repaid) incurred ( 214.9 ) 94.6

Long-term debt repaid ( 6.8 ) ( 3.7 )

Common stock repurchases ( 74.5 ) ( 53.1 )

Net proceeds (payments) from stock option activity 11.3 ( 1.6 )

Net proceeds from stock option activity 8.0 4.7

Dividends paid ( 47.3 ) ( 45.4 )

1 unchanged sentence

Effect of exchange rate changes on cash and cash equivalents ( 3.1 ) 2.4

Net decrease in cash and cash equivalents ( 110.2 ) ( 84.5 )

Net (decrease) increase in cash and cash equivalents ( 88.3 ) 15.0

Cash and cash equivalents - beginning of period 339.9 391.2

5 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Class A Common Stock

7 unchanged sentences

Balance at the beginning of period $ 578.2 $ 555.9

Conversion of Class A Common Stock — 0.2 — 0.2

Issuance of share units ( 14.6 ) ( 10.1 )

13 unchanged sentences

Exercise of stock options 2.7 0.2

Stock incentives and directors’ compensation — — 0.3 0.3

Shares repurchased ( 74.5 ) ( 53.1 )

6 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2023

March 31, 2024

Basis of Presentation

2 unchanged sentences

In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

Operating results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results expected for the full year.

Operating results for the three months ended March 31, 2024 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, 2023 filed with the SEC on February 13, 2024.

Recent Accounting Pronouncements

No recent accounting pronouncements are expected to have an impact on our condensed consolidated financial statements.

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 tax rate reconciliation and income taxes paid and includes 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

9 unchanged sentences

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

Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $ 155.9 million and $ 85.7 million at September 30, 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 $ 62.9 million and $ 59.7 million at March 31, 2024 and December 31, 2023, 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 $ 9.3 million and $ 9.5 million at September 30, 2023 and December 31, 2022, respectively.

The Company’s allowance for credit losses was $ 11.4 million and $ 10.1 million at March 31, 2024 and December 31, 2023, respectively.

Revenue Recognition (continued)

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

9 unchanged sentences

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

Revenue Recognition (continued)

As each segment manufactures and markets products in its respective region of the world, the Company has determined that geography is the primary factor in reporting its sales.

17 unchanged sentences

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.

2 unchanged sentences

(dollars in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

North America

1 unchanged sentence

Boilers and related parts 58.7 58.4

Water treatment products 54.4 51.8 169.8 168.4

Water treatment products and related parts 59.3 57.0

Total North America 766.3 752.7

5 unchanged sentences

Total Net Sales $ 978.8 $ 966.4

Acquisition and Disposition

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

Acquisition and Dispositions

During the first quarter of 2024, the Company acquired a privately-held water treatment company.

The Company paid an aggregate cash purchase price of $ 21.1 million, net of cash acquired.

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

The Company also agreed to make contingent payments based on the amount by which sales of products increase over the next three years .

The addition of the acquired company expands the Company's water treatment footprint in North America.

The acquired company is included in the North America segment.

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.

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.

As required under ASC 805 Business Combinations, results of operations have been included in the Company’s consolidated financial statements from the date of acquisition.

During the second quarter of 2024, the Company exited its operations in Vietnam.

The restructuring expense associated with the exit was recorded in the fourth quarter of 2023 and did not have a material impact on the Company's consolidated financial statements.

During the second quarter of 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.

2 unchanged sentences

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.

The Company defines a lease as a contract that gives the Company the right to control the use of a physical asset for a stated term.

The Company pays the lessor for that right, with a series of payments defined in the contract and a corresponding right of use operating lease asset and liability are recorded.

The Company has elected not to record leases with an initial term of 12 months or less on its condensed consolidated balance sheet.

To determine balance sheet amounts, required legal payments are discounted using the Company’s incremental borrowing rate as of the inception of the lease.

The incremental borrowing rate is the rate of interest that the Company would incur if it were to borrow, on a collateralized basis, an amount equal to the value of the leased item over a similar term, in a similar economic environment.

Variable lease components not based on an index or rate are excluded from the measurement of the lease asset and liability and expensed as incurred for all asset classes.

Certain leases include one or more options to renew or terminate.

Renewal terms can extend the lease term from one to five years and options to terminate can be effective within one year .

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 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 condensed consolidated statement of earnings.

Leases (continued)

Supplemental balance sheet information related to leases is as follows:

(dollars in millions) September 30,

2023 December 31, 2022

Accrued liabilities $ 9.4 $ 9.9

Operating lease liabilities 26.0 22.4

Total operating lease liabilities $ 35.4 $ 32.3

Rent incentives and deferrals ( 2.1 ) ( 2.5 )

Operating lease assets $ 33.3 $ 29.8

Lease Term and Discount Rate September 30, 2023

Weighted-average remaining lease term 7.1 years

Weighted-average discount rate 4.10 %

The components of lease expense were as follows:

(dollars in millions) Three months ended

September 30,

Lease Expense Classification 2023 (1)

Operating lease expense Cost of products sold $ 1.5 $ 0.7

Selling, general and administrative expenses 3.9 4.1

(1) 2023 includes short-term and variable lease expenses of $ 1.2 million and $ 1.0 million, respectively.

(2) 2022 includes short-term and variable lease expenses of $ 0.5 million and $ 0.8 million, respectively.

(dollars in millions) Nine Months Ended

September 30,

Lease Expense Classification 2023 (1)

Operating lease expense Cost of products sold $ 4.1 $ 2.7

Selling, general and administrative expenses 12.3 12.4

(1) 2023 includes short-term and variable lease expenses of $ 3.4 million and $ 3.4 million, respectively.

(2) 2022 includes short-term and variable lease expenses of $ 1.6 million and $ 2.5 million, respectively.

Maturities of lease liabilities were as follows:

(dollars in millions) September 30,

After 2027 13.2

Total lease payments 41.8

Imputed interest ( 6.4 )

Present value of operating lease liabilities $ 35.4

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

(dollars in millions) September 30,

(dollars in millions) March 31,

2024 December 31, 2023

9 unchanged sentences

(dollars in millions) Three Months Ended

September 30,

Balance at July 1, $ 180.7 $ 180.0

Expense 18.6 14.0

Claims settled ( 17.6 ) ( 16.8 )

Balance at September 30, $ 181.7 $ 177.2

(dollars in millions) Nine Months Ended

September 30,

Balance at January 1, $ 188.1 $ 182.5

1 unchanged sentence

Claims settled ( 22.8 ) ( 19.7 )

Balance at September 30, $ 181.7 $ 177.2

Balance at March 31, $ 185.0 $ 181.2

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 September 30, 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 March 31, 2024.

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 September 30, 2023.

The Company was in compliance with the covenants as of March 31, 2024.

Earnings per Share of Common Stock

2 unchanged sentences

Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Denominator for basic earnings per share - weighted average shares 147,178,955 150,897,302

3 unchanged sentences

The Company adopted the A.

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.

Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007, and the Incentive Plan was 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 September 30, 2023 was 2,475,242 .

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

Total stock based compensation expense recognized in the three months ended September 30, 2023 and 2022 was $ 1.5 million and $ 1.4 million, respectively.

Total stock based compensation expense recognized in the nine months ended September 30, 2023 and 2022 was $ 10.1 million and $ 10.4 million, respectively.

The number of shares available for granting of share units at March 31, 2024 was 2,293,586 .

Upon stock option exercise or share unit

Stock Based Compensation (continued)

vesting, shares are issued from treasury stock.

Total stock based compensation expense recognized in the three months ended March 31, 2024 and 2023 was $ 8.3 million and $ 7.0 million, respectively.

Stock Options

4 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 nine months ended September 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 September 30, 2023 and 2022 was $ 0.3 million and $ 0.5 million, respectively.

Stock based compensation expense attributable to stock options in the nine months ended September 30, 2023 and 2022 was $ 0.9 million and $ 5.0 million, respectively.

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

Stock based compensation expense attributable to stock options in the three months ended March 31, 2024 and 2023 was $ 0.2 million and $ 0.3 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, 2024:

Price Number of

4 unchanged sentences

Forfeited 74.27 ( 1,167 )

Outstanding at September 30, 2023 52.54 2,119,128 7 years $ 31.3

Exercisable at September 30, 2023 49.52 1,795,586 6 years $ 30.7

The weighted-average fair value per option at the date of grant during the nine months ended September 30, 2022 using the Black-Scholes option-pricing model was $ 17.57 .

Assumptions were as follows:

Stock Based Compensation (continued)

Nine Months Ended September 30,

Expected life (years) 5.7

Risk-free interest rate 1.9 %

Dividend yield 1.5 %

Expected volatility 26.8 %

The expected lives of options for purposes of these models are based on historical exercise behavior.

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

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

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

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

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

Outstanding at March 31, 2024 54.14 1,628,699 6 years $ 57.5

Exercisable at March 31, 2024 52.77 1,523,932 6 years $ 55.9

Participants in the Incentive Plan may be awarded share units.

Share units vest three years after the date of grant.

The Company granted 168,688 and 94,604 share units under the Incentive Plan in the nine months ended September 30, 2023 and 2022, respectively.

The Company granted 189,792 and 165,686 share units under the Incentive Plan in the three months ended March 31, 2024 and 2023, respectively.

The share units were valued at $ 15.6 million and $ 11.1 million at the date of issuance in 2024 and 2023, respectively, based on the price of the Company’s Common Stock at the date of grant.

The share units are recognized as compensation expense ratably over the three-year vesting period;

however, included in share unit expense in the three and nine months ended September 30, 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 $ 1.1 million and $ 1.0 million was recognized in the three months ended September 30, 2023 and 2022, respectively.

Stock based compensation expense attributable to share units of $ 8.7 million and $ 5.5 million was recognized in the nine months ended September 30, 2023 and 2022, respectively.

however, included in share unit expense in the three months ended March 31, 2024 and 2023 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 $ 7.8 million and $ 6.6 million was recognized in the three months ended March 31, 2024 and 2023, 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 nine months ended September 30, 2023:

A summary of share unit activity under the Incentive Plan is as follows for the three months ended March 31, 2024:

Number of Units Weighted-Average

4 unchanged sentences

Forfeited ( 776 ) 68.16

Issued and unvested at September 30, 2023 383,895 63.29

Issued and unvested at March 31, 2024 477,623 71.16

Stock Based Compensation (continued)

Performance Stock Units

3 unchanged sentences

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 nine months ended September 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 Company granted 28,390 and 24,580 performance stock units under the Incentive Plan in the three months ended March 31, 2024 and 2023, respectively.

The performance stock units were valued at $ 2.3 million and $ 1.7 million at the date of issuance in 2024 and 2023, respectively, based on the price of the Company’s Common Stock at the date of grant.

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 $ 0.2 million and $ 0.5 million was recognized in the three and nine months ended September 30, 2023, respectively.

Stock based compensation expense attributable to performance stock units of $ 0.3 million and $ 0.1 million was recognized in the three months ended March 31, 2024 and 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.

Stock Based Compensation (continued)

A summary of stock unit activity under the Incentive Plan is as follows for the nine months ended September 30, 2023:

A summary of performance stock unit activity under the Incentive Plan is as follows for the three months ended March 31, 2024:

Number of Units Weighted-Average

2 unchanged sentences

Granted 28,390 82.04

Forfeited ( 557 ) 67.14

Performance adjustments 1,550 67.14

Issued and unvested at September 30, 2023 36,308 67.14

Issued and unvested at March 31, 2024 64,698 73.68

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

(dollars in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

Service cost $ 0.3 $ 0.3

2 unchanged sentences

Amortization of unrecognized loss 0.1 —

Amortization of prior service cost — ( 0.1 ) 0.1 ( 0.3 )

Defined benefit plan expense before settlement income 0.2 3.6 0.9 10.9

Settlement income — — ( 6.0 ) —

Total pension (income) expense $ 0.2 $ 3.6 $ ( 5.1 ) $ 10.9

Total pension expense $ 0.4 $ 0.3

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 (income) expense, net.

2 unchanged sentences

The Company is no t required to make a contribution in 2024.

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.

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

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).

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 September 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.

For additional information regarding the termination of the Plan and the Company’s defined contribution plan, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 14, 2023.

Segment Results

6 unchanged sentences

(dollars in millions) Three Months Ended

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

North America $ 766.3 $ 752.7

4 unchanged sentences

North America $ 198.7 $ 188.6

$ 170.0 $ 141.8 $ 557.7 $ 453.5

Rest of World (1)

23.2 21.8 56.8 64.7

Inter-segment earnings elimination ( 0.3 ) —

193.2 163.6 614.5 518.1

Corporate expense (2)

6 unchanged sentences

(1) Adjustments:

North America

includes pension settlement income of:

$ — $ — $ ( 5.0 ) $ —

includes pension expense of:

$ — $ 2.6 $ — $ 7.8

includes legal judgment income of:

$ — $ ( 11.5 ) $ — $ ( 11.5 )

(2) Adjustments:

Rest of World

includes impairment expense of:

$ — $ — $ 12.5 $ —

(2) Adjustments:

Corporate expense

includes terminated acquisition-related expenses of:

$ — $ 4.3 $ — $ 4.3

includes pension settlement income of:

$ — $ — $ ( 1.0 ) $ —

includes impairment expense of:

$ — $ — $ 3.1 $ —

includes pension expense of:

$ — $ 0.4 $ — $ 1.1

Fair Value Measurements

8 unchanged sentences

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

Fair Value Measurement Using Balance Sheet Location September 30,

Fair Value Measurement Using Balance Sheet Location March 31,

2024 December 31, 2023

Quoted prices in active markets for identical assets (Level 1) Marketable Securities $ 51.5 $ 23.5

Significant other observable inputs (Level 2) Other current assets 4.7 6.5

Significant other observable inputs (Level 2) Other current assets / (Accrued liabilities) 3.1 ( 4.1 )

Fair Value Measurements (continued)

Items measured at fair value were comprised of the Company’s marketable securities (Level 1) and derivative instruments (Level 2).

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

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, 2024.

Derivative Instruments

9 unchanged sentences

The Company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases, sales and certain intercompany transactions in the normal course of business.

Principal currencies for which the Company utilizes foreign currency forward contracts include the British pound, Canadian dollar, Euro and Mexican peso.

Principal currencies for which the Company utilizes foreign currency forward contracts from time to time include the British pound, Canadian dollar, Euro and Mexican peso.

Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying transaction is recorded in earnings.

3 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) September 30, 2023 December 31, 2022

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 $ 2.3 million as of March 31, 2024 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 $ 0.9 million as of December 31, 2023 which was recorded in Other current assets within the consolidated balance sheet.

The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts as of the dates indicated that were designated as cash flow hedges:

(dollars in millions) March 31, 2024 December 31, 2023

Buy Sell Buy Sell

British pound $ — $ 0.4 $ — $ —

Canadian dollar $ — $ 60.3 $ — $ 80.5

2 unchanged sentences

Total $ 41.2 $ 60.3 $ 38.3 $ 80.5

Derivative Instruments (continued)

Net Investment Hedges

4 unchanged sentences

These hedges are determined to be effective.

The Company recognized $( 0.2 ) million and zero of after-tax losses associated with hedges of net investments in non-U.S.

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

The Company recognized $ 1.1 million 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 loss in the nine months ended September 30, 2023 and September 30, 2022, respectively.

The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges was $ 204.0 million as of September 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 September 30,

2023 December 31,

Foreign currency contracts Other current assets $ 4.2 $ 6.4

The Company recognized $ 4.0 million and $ 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, 2024 and March 31, 2023, respectively.

The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges was $ 204.0 million as of March 31, 2024.

The combined fair value of the net investment hedges was an asset balance of $ 1.1 million as of March 31, 2024 which was recorded in Other current assets within the consolidated balance sheet.

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

Three Months Ended September 30 (dollars in millions):

Derivatives in ASC 815 cash flow hedging relationships Amount of gain 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 $ 1.4 $ 5.7 Cost of products sold $ 2.5 $ 1.0

Nine Months Ended September 30 (dollars in millions):

Three Months Ended March 31 (dollars in millions):

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

11 unchanged sentences

Foreign currency contracts $ 1.8 $ 1.7 Cost of products sold $ 0.6 $ 1.9

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 an asset balance of $ 0.5 million as of September 30, 2023 which was recorded in Other current assets within the consolidated balance sheet.

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 $( 0.3 ) million as of March 31, 2024 which was recorded in Accrued liabilities 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, 2023 which was recorded in Accrued liabilities within the consolidated balance sheet.

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

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

(dollars in millions) March 31, 2024 December 31, 2023

Buy Sell Buy Sell

1 unchanged sentence

Chinese yuan 202.2 — 206.8 —

Total $ 202.2 $ 30.4 $ 250.9 $ —

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

Three Months Ended September 30 (dollars in millions):

Derivatives not designated as hedging instruments:

Location within the consolidated statements of earnings

Foreign exchange contracts Other expense (income) - net $ 1.1 $ 0.4

Nine Months Ended September 30 (dollars in millions):

Three Months Ended March 31 (dollars in millions):

Derivatives not designated as hedging instruments:

Location within the consolidated statements of earnings

Foreign exchange contracts Other expense (income) - net $ 1.1 $ 1.5

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

The Company estimates that its annual effective income tax rate for the full year 2023 will be approximately 24 percent.

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

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

As of September 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.

Foreign exchange contracts Other income - net $ 4.0 $ ( 0.1 )

The Company’s effective income tax rate for the three months ended March 31, 2024 was 23.4 percent.

The Company estimates that its annual effective income tax rate for the full year 2024 will be approximately between 24 and 24.5 percent.

The effective income tax rate for the three months ended March 31, 2023 was 25.9 percent.

The change in the effective income tax rate for the three months ended March 31, 2024 compared to the effective income tax rate for the three months ended March 31, 2023 was primarily due to a $ 15.6 million impairment expense recorded in the prior year period with no associated tax benefit.

Refer to Note 3 - Acquisition and Dispositions for additional information regarding the impairment expense.

As of March 31, 2024, the Company had $ 17.2 million of unrecognized tax benefits of which $ 3.5 million would affect its effective income tax rate if recognized.

The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense.

9 unchanged sentences

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 $ 1.0 million and $ 1.1 million as of September 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 $ 1.7 million as of September 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 September 30, 2023 and December 31, 2022.

Potential losses under the repurchase arrangements represent the difference between the repurchase price and net proceeds from the resale of the product plus costs incurred in the process, less related distributor rebates.

The Company’s reserves for estimated losses under these repurchase arrangements were immaterial as of March 31, 2024 and December 31, 2023.

Changes in Accumulated Other Comprehensive Loss by Component

1 unchanged sentence

(dollars in millions) Three Months Ended

September 30,

Cumulative foreign currency translation

15 unchanged sentences

Actuarial losses $ 0.1 $ — (2)

Prior year service cost — ( 0.1 ) (2)

Income tax benefit — ( 1.3 )

Reclassification net of income tax benefit $ 0.1 $ —

1 unchanged sentence

See Note 9 - Pensions for additional details.

Changes in Accumulated Other Comprehensive Loss by Component (continued)

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

(dollars in millions) Nine Months Ended

September 30,

Cumulative foreign currency translation

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

Other comprehensive loss before reclassifications ( 5.4 ) ( 52.9 )

Balance at end of period ( 89.5 ) ( 97.6 )

Unrealized net gain on cash flow derivatives

Balance at beginning of period 4.9 0.6

Other comprehensive gain before reclassifications 2.7 6.4

Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $ 1.6 and $ 0.4 in 2023 and 2022, respectively)

( 5.1 ) ( 1.4 )

Balance at end of period 2.5 5.6

Pension liability

Balance at beginning of period ( 3.2 ) ( 287.3 )

Amounts reclassified from accumulated other comprehensive loss:

Balance at end of period ( 3.1 ) ( 276.1 )

Accumulated other comprehensive loss, end of period $ ( 90.1 ) $ ( 368.1 )

(1) Amortization of pension items:

Actuarial losses $ 0.1 $ 15.3 (2)

Prior year service cost 0.1 ( 0.3 ) (2)

Income tax benefit ( 0.1 ) ( 3.8 )

Reclassification net of income tax benefit $ 0.1 $ 11.2

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

See Note 10 - Pensions for additional details.

Included in the results for the nine months ended September 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 - Acquisition and 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