What changed in this filing

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Item 1A. Risk Factors

2025-02-11 compared with 2024-02-13 · 42 added, 30 removed, 143 unchanged (33% of the section changed)

8 unchanged sentences

■ The effects of global and regional economic conditions could have a material adverse effect on our business

A decline in economic activity, such as a recession or economic downturn, in the U.S.

and other regions in the world in which we do business, could further adversely affect consumer confidence and spending patterns which could result in decreased demand for the products we sell, a delay in purchases, increased price competition, slower adoption of energy-efficient water heaters and boilers, or high-quality water treatment products, which could negatively impact our profitability and cash flows.

Such deterioration in economic conditions could arise from many factors or fears including public health crises, political instability or risk of government default.

In addition, an increase in price levels generally or in particular industries (such as the inflation in steel prices in 2021 and the recent inflation in other material and logistics costs), could result in a consumer shift away from the products we offer, which could adversely affect our revenues and, at the same time, increase our costs.

A decline in economic activity, such as a recession or economic downturn, in the U.S., China, and other regions in the world in which we do business, could further adversely affect consumer confidence and spending patterns which could result in decreased demand for the products we sell, a delay in purchases, increased price competition, or slower adoption of energy-efficient water heaters and boilers, or high-quality water treatment products, which could negatively impact our profitability and cash flows.

Such deterioration in economic conditions could arise from many factors or fears including public health crises, further deterioration in the property market, political instability or risk of government default.

In addition, an increase in price levels generally or in particular industries, could result in a consumer shift away from the products we offer, including trading down to lower priced models, which could adversely affect our revenues and, at the same time, increase our costs.

A deterioration in economic conditions also could negatively impact our vendors and customers, which could result in an increase in bad debt expense, customer and vendor bankruptcies, interruption or delay in supply of materials, or increased material prices, which could negatively impact our ability to distribute, market and sell our products and our financial condition, results of operations and cash flows.

■ Import tariffs, taxes, customs duties and other trading regulations imposed by the U.S.

government and retaliatory responses from other countries, could significantly increase the prices we pay for raw materials that are critical to our ability to manufacture our products

Import tariffs, taxes, customs duties and other trading regulations imposed by the U.S.

government on foreign countries, or by foreign countries on the U.S., could significantly increase the prices we pay for raw materials that are critical to our ability to manufacture our products.

And, we may be unable to find a domestic supplier to provide the necessary raw materials on an economical basis in the amounts we require.

Also, the current U.S.

administration has expressed a desire to impose substantial new or increased tariffs.

Any widespread imposition of new or increased tariffs could increase the cost of and reduce the demand for our products and any cost increases will either require us to increase prices, foreclose our sales into impacted markets or negatively impact our profit margins.

Any new or increased tariffs could also trigger retaliatory responses from other countries which may decrease the competitiveness of our products in foreign markets.

New or increased tariffs could also negatively affect U.S.

national or regional economies, which could negatively affect the demand for our products.

Unfavorable changes to import tariffs, taxes, customs duties and other trading regulations could have a material adverse effect on our financial condition, results of operations and cash flows.

■ The occurrence or threat of extraordinary events, including natural disasters, political disruptions, terrorist attacks, public health issues, and acts of war, could significantly disrupt production, or impact consumer spending

As a global company with a large international footprint, we are subject to increased risk of damage or disruption to us and our employees, facilities, suppliers, distributors, or customers.

Extraordinary events, including natural disasters, resulting from but not limited to climate change, political disruptions, terrorist attacks, public health issues, such as the COVID-19 pandemic, and acts of war may disrupt our business and operations and impact our supply chain and access to necessary raw materials or could adversely affect the economy generally, resulting in a loss of sales and customers.

Extraordinary events, including natural disasters, resulting from but not limited to climate change, political disruptions, terrorist attacks, public health issues and acts of war may disrupt our business and operations and impact our supply chain and access to necessary raw materials or could adversely affect the economy generally, resulting in a loss of sales and customers.

Any of these disruptions or other extraordinary events outside of our control that impact our operations or the operations of our suppliers and key distributors could affect our business negatively, harming operating results.

3 unchanged sentences

We maintain insurance coverage and have taken steps to mitigate these physical risks related to natural disasters and extreme weather conditions.

Although we installed an approximately 7,000-foot-long berm, flood gates, and pumping stations around our Ashland City, Tennessee facility, our largest manufacturing facility, to mitigate the risk of flooding, there is still the potential for natural disasters and extreme weather conditions to disrupt the productivity of our facilities.

Although we have taken steps to

mitigate the risk of flooding, there is still the potential for natural disasters and extreme weather conditions to disrupt the productivity of our facilities.

Apart from the potential impact on our operations, these types of events also could negatively impact consumer spending in the impacted regions or depending on the severity, globally, which could materially and adversely affect our financial condition, results of operations and cash flows.

■ Our business could be adversely impacted by changes in consumer purchasing behavior, consumer preferences, technological changes, and market trends

Consumer preferences for products and the methods in which they purchase products are constantly changing based on, among other factors, cost, performance, convenience, environmental and social concerns and perceptions.

Consumer purchasing behavior may shift the product mix in the markets in which we participate or result in a shift to other distribution channels, for example e-commerce.

Consumer preferences for products and the methods in which they purchase products are constantly changing based on, among other factors, cost, performance, convenience, availability of government incentives, environmental and social concerns and perceptions.

As consumer confidence changes, purchasing behavior may shift the product mix to lower priced models in the markets in which we participate or result in a shift to other distribution channels, for example e-commerce.

Consumer preferences and broader trends, such as decarbonization and electrification efforts in response to climate change, may result in reduced demand for gas or fossil fuel-powered products and increased demand for higher efficiency products and/or more electric powered products.

3 unchanged sentences

■ Our operations could be adversely impacted by material and component price volatility, as well as supplier concentration

The market prices for certain materials and components we purchase, primarily steel, have been volatile.

The market prices for certain materials and components we purchase, primarily steel, can be volatile.

In recent years, we have also experienced inflation-related increases in our transportation and other costs.

In addition tariffs could potentially increase volatility in steel and other input materials.

Significant increases in the cost of any of the key materials and components we purchase would increase our cost of doing business and ultimately could lead to lower operating earnings if we are not able to recover these cost increases through price increases to our customers.

12 unchanged sentences

■ Because approximately 21 percent of our sales in 2024 were attributable to China, adverse economic conditions or changes in consumer behavior in China could impact our business

Our sales in China increased four percent in local currency in 2023 compared to 2022.

Our 2022 sales in China were impacted by lower consumer demand driven by COVID-19 related disruptions.

Our third-party sales in China decreased six percent in local currency in 2024 compared to 2023.

We derive a substantial portion of our sales in China from premium-tier products.

Changes in consumer preferences and purchasing behaviors including preferences for e-commerce and manufacturer emphasis on brand ecosystems and connectivity, weakening consumer confidence and sentiment, as well as economic uncertainty, sociopolitical and demographic risks, and increased competition from Chinese-based companies may prompt Chinese consumers to postpone purchases, choose lower-priced products or different alternatives, or lengthen the cycle of replacement purchases.

government incentives, and increased competition from Chinese-based companies may prompt Chinese consumers to postpone purchases, choose lower-priced products or different alternatives, or lengthen the cycle of replacement purchases.

Further deterioration in the Chinese economy may adversely affect our financial condition, results of operations and cash flows.

29 unchanged sentences

■ A portion of our business could be adversely affected by a decline in North American new residential or commercial construction or a decline in replacement-related volume of water heaters and boilers, including a decline in demand for commercial spaces

Residential new construction activity in North America and industry-wide replacement-related volume of water heaters had growth in 2023 after a decline in 2022.

Residential new construction activity in North America and industry-wide replacement-related volume of water heaters were flat in 2024 after growth in 2023.

New residential housing starts in the U.S.

are projected to be approximately flat in 2024 compared to 2023.

are projected to be approximately flat in 2025.

Commercial construction activity in North America grew in 2024, although at a slower rate than 2023.

We believe that the significant majority of the markets we serve are for the replacement of existing products, and residential water heater replacement volume have been strong.

As a result of the COVID-19 pandemic, businesses and commercial spaces have experienced and may experience in the future, fluctuation in demand and in occupancy that may reduce demand for our products, and commercial sectors, such as the restaurant and hospitality industries in which we have customers, may experience long-term shifts in consumer behavior which could negatively impact demand or capacity and may not return to pre-pandemic levels.

We believe that the significant majority of the markets we serve are for the replacement of existing products, and residential water heater replacement volume has been strong.

In recent years, businesses and commercial spaces have experienced and may experience in the future, fluctuation in demand and in occupancy that may reduce demand for our products, and commercial sectors, such as the restaurant and hospitality industries in which we have customers, may experience long-term shifts in consumer behavior which could negatively impact demand or capacity and may not return to pre-pandemic levels.

In addition, the acceptance of remote work arrangements could negatively impact demand for commercial construction.

2 unchanged sentences

In the ordinary course of business, we utilize information systems for day-to-day operations, to collect and store sensitive data and information, including our proprietary and regulated business information and personally identifiable information of our customers, suppliers and business partners, as well as personally identifiable information about our employees.

Our information systems are susceptible to outages due to system failures, cybersecurity threats, failures on the part of third-party information system providers, natural disasters, power loss, telecommunications failures, viruses, fraud, theft, malicious actors or breaches of security.

actors or breaches of security.

Like many companies, we, and some third parties upon which we rely, have experienced cybersecurity incidents and attacks on information technology networks and systems, products and services in the past but, to date, none have resulted in a material breach or had a material adverse impact on our financial condition, results of operations, or cash flows.

We may experience such incidents and attacks in the future, potentially with increasing frequency

from increasingly sophisticated cyber threats.

In addition, as a result of the COVID-19 pandemic, remote work and remote access to our systems have increased, which may heighten these risks.

We may experience such incidents and attacks in the future, potentially with increasing frequency from increasingly sophisticated cyber threats.

In addition, remote work and remote access to our systems have increased in recent years, which may heighten these risks.

Use of artificial intelligence software may also create risks from unintentional disclosure of proprietary, confidential, personal or otherwise sensitive information.

29 unchanged sentences

Our products are subject to a wide variety of statutory, regulatory, codes and industry standards and requirements related to, among other items, energy and water efficiency, environmental emissions, labeling and safety.

For example, the Department of Energy (DOE) has adopted a new efficiency rule for commercial water heaters that will take effect in 2026.

In addition, there are proposed federal rule makings that would require our residential water heater product line to be more energy efficient as well as the establishment of a national drinking water standard regulating per- and poly-fluoroalkyl substances (PFAS), which could affect the demand for our water filtration products.

There are also a number of federal, foreign, state and local governments adopting laws, regulations and codes in response to climate change that require a transition to non-fossil fuel based sources of energy production as well as significantly reducing or eliminating the on-site combustion of fossil fuels in the building sector, such as limiting or prohibiting the delivery of natural gas in new construction.

For example, the Department of Energy (DOE) has adopted a new efficiency rule for commercial water heaters that will take effect in 2026 and for our residential water heaters that will take effect in 2029.

In addition, new national drinking water standards regulating per- and poly-fluoroalkyl substances (PFAS), as well as lead, could affect the demand for our water filtration products.

We believe our products are currently efficient, safe and environment-friendly.

However, a significant change to regulatory or code requirements that promote a transition to alternative energy sources as a replacement for gas, or a significant shift in industry standards, could substantially increase manufacturing costs, capital expenditures, transportation costs and raw material costs, alter distribution channels, attract new competitors, impact the size and timing of demand for our products, affect the types of products we are able to offer or put us at a competitive disadvantage, any of which could harm our business and have a material adverse effect on our financial condition, results of operations and cash flow.

However, a significant change to regulatory or code requirements that promotes a transition to alternative energy sources as a replacement for gas, or a significant shift in industry standards, could substantially increase manufacturing costs, capital expenditures, transportation costs and raw material costs, alter distribution channels, attract new competitors, impact the size and timing of demand for our products, affect the types of products we are able to offer or put us at a competitive disadvantage, any of which could harm our business and have a material adverse effect on our financial condition, results of operations and cash flow.

■ We are subject to U.S.

4 unchanged sentences

Violations of these laws may result in criminal penalties or sanctions that could have a material adverse effect on our financial condition, results of operations and cash flows.

■ Our Environmental, Social, and Governance (ESG) commitments could result in additional costs, and our inability to achieve them could have an adverse impact on our reputation and performance

We periodically communicate our strategies, commitments and targets related to ESG matters, including carbon emissions, water usage, diversity and inclusion, and human rights through the issuance of our ESG report.

Although we intend to meet these strategies, commitments and targets and are committed to advancing sustainable innovations in our industry, we may be unable to achieve them due to impacts on resources, operational costs, and technological advancements.

■ Our sustainability commitments could result in additional costs, and our inability to achieve them could have an adverse impact on our reputation and performance

We periodically communicate our strategies, commitments and targets related to sustainability matters, including carbon emissions, water usage, and human rights, through the issuance of our sustainability report.

Although we intend to meet these strategies, commitments and targets and are committed to advancing sustainable innovations in our industry, we may be unable to achieve them due to availability of resources, significant increases in operational costs, and technological changes.

Failure to meet these sustainability requirements or targets could adversely impact our reputation as well as the demand for our products and adversely affect our business, financial condition and results of operations.

In addition, standards and processes for measuring and reporting carbon emissions and other sustainability metrics may change over time, result in inconsistent data, or result in significant revisions to our strategies, commitments and targets, or our ability to achieve them.

In addition, standards and processes for measuring and reporting carbon emissions, water usage, and other sustainability metrics may change over time, result in inconsistent data, or result in significant revisions to our strategies, commitments and targets, or our ability to achieve them.

Any scrutiny of our carbon emissions or other sustainability disclosures or our failure to achieve related strategies, commitments and targets could negatively impact our reputation or performance.

8 unchanged sentences

We assess whether there have been impairments in the value of our goodwill or indefinite-lived intangible assets during the fourth quarter of each calendar year or sooner if triggering events warrant.

If future operating performance at our businesses does not meet expectations, we may be required to reflect non-cash charges to operating results for goodwill or

indefinite-lived intangible asset impairments.

If future operating performance at our businesses does not meet expectations, we may be required to reflect non-cash charges to operating results for goodwill or indefinite-lived intangible asset impairments.

The recognition of an impairment of a significant portion of goodwill or indefinite-lived intangible assets would negatively affect our results of operations and total capitalization, the effect of which could be material.

15 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 1A. Risk Factors