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Item 7. Management’s Discussion and Analysis

2025-02-11 compared with 2024-02-13 · 108 added, 107 removed, 209 unchanged (51% of the section changed)

5 unchanged sentences

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

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

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

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

We will also continue to look for opportunities to add to our existing operations in high growth regions demonstrated by our previous introductions of water treatment products in India and kitchen products including our recently introduced dishwashers and steam ovens, in China.

We also launched our internally designed and manufactured gas tankless water heaters in early 2024.

In addition we are expanding our commercial water heater capacity in preparation for the 2026 commercial regulatory change.

In our North America segment, we saw resilient demand in the residential water heater industry in 2023 after three years of uneven growth, primarily related to the impacts of COVID-19-related supply chain constraints.

Proactive replacement remained above historical levels in 2023 and we project that will continue in 2024.

We believe that new home construction remains in a deficit and we expect it will be flat in 2024 compared to 2023.

Considering these factors, we project 2024 industry residential unit volumes will be approximately flat after approximately six percent growth in 2023.

We believe that commercial water heater industry volumes will grow low single digits in 2024 compared to 2023 as demand for commercial electric water heaters greater than 55 gallon continues a positive trend toward pre-2022 levels.

Sales of our boilers and water treatment products were negatively impacted by elevated channel inventories in 2023.

We believe that channel inventories were at near normal levels at the end of 2023 for both product categories.

We expect to see an eight to ten percent increase in our sales of boilers in 2024 compared to 2023 as we continue to benefit from the transition to higher efficiency boilers.

We anticipate sales of our North America water treatment products will increase approximately ten to 12 percent in 2024, compared to 2023, as we expect our sales to grow at approximately two times the market.

In our Rest of World segment, we saw a return to growth in China as our sales increased four percent in local currency in 2023.

We project our sales in China will grow three to five percent in 2024 in local currency compared to 2023 driven by innovative new products and resilient demand for our core products.

Our guidance assumes that the currency translation impact on sales will be minimal in 2024.

Combining all of these factors, we expect our 2024 consolidated sales to increase between three and five percent compared to 2023.

On November 1, 2024, we acquired Pureit from Unilever for approximately $125 million, subject to customary adjustments.

Pureit, a leading water purification business in South Asia, offers a broad range of residential water purification solutions and has annual sales of approximately USD $60 million.

The acquisition fits squarely in our core capabilities and doubles our market penetration in the South Asia region.

In the first quarter of 2024, we acquired Impact Water Products, a privately-held water treatment company.

The acquisition supports our geographic expansion and growth strategy by expanding the West Coast presence of our water treatment business.

Also, we continue to look for opportunities to add to our existing product portfolio in high growth regions demonstrated by our previous introductions of kitchen products and connected product technologies in China.

We also recently introduced our internally designed and manufactured gas tankless water heaters in North America.

In addition, we are expanding our commercial water heater capacity in North America in preparation for the new efficiency rule for commercial water heaters that the Department of Energy (DOE) has adopted that will take effect in 2026.

In 2024, we recognized restructuring and impairment expenses of $17.6 million.

In China, severance expenses of $11.3 million related to the right sizing of that business for current market conditions.

The remaining $6.3 million related to the restructuring of our water treatment business in North America as a part of a profitability improvement strategy that prioritizes improving our cost structure and emphasizes our more profitable channels.

In our North America segment, we saw soft residential and commercial water heater order demand in the second half of 2024 after a strong first half of the year.

We believe that a pre-buy ahead of our March 1st price increase pulled forward some demand into the first half of the year.

We also believe our second half order demand was negatively impacted by our improved lead times.

Those factors along with caution around softening of end market demand may have driven some customers to reduce their inventory levels.

2024 residential industry unit volumes were flat compared to the prior year and we project 2025 industry residential unit volumes will be flat as well.

Proactive replacement has been above historical levels for the last several years and we project that will continue in 2025.

We believe that new home construction remains in a deficit and will be flat compared to 2024.

We anticipate that commercial water heater industry volumes will be approximately flat in 2025 after minimal growth in 2024 driven by growth in commercial electric water heaters greater than 55 gallons which was offset by lower shipments of commercial gas water heaters.

We expect our boilers sales to grow between three and five percent in 2025 compared to 2024 as we continue to benefit from the transition to higher efficiency boilers.

We anticipate sales of our North America water treatment products will be between $235 million and $245 million, a year-over-year decrease of approximately five percent as we de-emphasize certain channels and focus on our more profitable channels.

In our Rest of World segment, after sales growth of three percent in the first half of the year, our full-year 2024 third-party sales in China declined six percent due to a further weakening of consumer demand in the second half of the year.

In 2025, we project our third-party sales in China to decrease between five to eight percent in local currency compared to 2024 as we expect consumer demand softness will persist in 2025.

Combining all of these factors, we expect our 2025 consolidated sales to be approximately flat to up two percent compared to 2024.

Our guidance excludes the impacts from potential future acquisitions.

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Net Earnings $ 533.6 $ 556.6 $ 235.7

Our sales in 2023 were $3,852.8 million, or 2.6 percent higher than 2022 sales of $3,753.9 million.

Higher sales in 2023 were driven by higher volumes of residential and commercial water heaters, which more than offset unfavorable foreign currency impacts of approximately $56 million, lower boiler sales and unfavorable pricing in our North America segment.

Our gross profit margin in 2023 of 38.5 percent increased compared to 35.4 percent in 2022.

The higher gross profit margin in 2023 was primarily due to lower material costs.

Our sales in 2024 were $3,818.1 million, a decrease of $34.7 million compared to 2023 sales of $3,852.8 million.

Our decrease in net sales was primarily driven by lower water heater volumes in North America, lower sales in China, and unfavorable currency translation of approximately $18 million due to the depreciation of foreign currencies compared to the U.S.

dollar, which more than offset our higher boiler sales and pricing actions.

Our 2024 and 2023 acquisitions of water treatment companies in North America added approximately $18 million of incremental net sales in 2024.

Our 2024 gross profit margin of 38.1 percent decreased compared to 38.5 percent in 2023.

The lower gross profit margin in 2024 compared to 2023 was primarily due to higher production costs and operational inefficiencies associated with volume volatility, which outpaced our pricing actions.

Selling, general, and administrative (SG&A) expenses were $739.3 million in 2024, or $11.9 million higher than in 2023.

The increase in SG&A expenses was primarily due to higher employee costs, which includes management incentive expenses related to higher earnings, and compensation increases.

In 2022 SG&A included the recognition of an $11.5 million favorable judgment against a competitor related to its infringement of one of our patents, which reduced SG&A expenses, and was partially offset by a $4.3 million expense associated with a terminated acquisition.

Restructuring and impairment expenses in 2023 were $18.8 million, of which $15.6 million related to the sale of our business in Turkey which was included in our Rest of World segment.

Of the $18.8 million restructuring and impairment expenses, $15.7 million was recorded in the Rest of World segment and $3.1 million in Corporate Expense.

The increase in SG&A expenses in 2024 compared to the prior year was primarily due to higher employee costs from increased wages and higher selling and advertising expenses to support our strategic initiatives.

We recognized $17.6 million of restructuring and impairment expenses during the year ended December 31, 2024.

Of these expenses, $6.3 million was related to our water treatment business in the North America segment and was a result of a profitability improvement strategy that prioritizes improving our cost structure and emphasizes our more profitable channels.

In the Rest of World segment, restructuring included severance costs in China of $11.3 million and was related to the right sizing of that business for current market conditions.

Restructuring and impairment expenses in 2023 were $18.8 million, of which $15.7 million was recorded in the Rest of World segment and $3.1 million was recorded in Corporate Expense and related primarily to the sale of our business in Turkey.

Interest expense was $6.7 million in 2024, compared to $12.0 million in 2023.

The increase in interest expense in 2023 was primarily due to higher debt levels and interest rates.

Other (income) expense, net was income of $6.9 million in 2023 compared to expense of $425.6 million in 2022.

The change in Other (income) expense, net was primarily due to a reduction in pension expenses and pension settlement expense associated with the termination of our defined benefit pension plan (the Plan).

In 2022, we recorded a $417.3 million pension settlement expense related to the termination of the Plan which represented over 95 percent of our pension plan liability.

The service cost component of our pension expense is reflected in cost of products sold and SG&A expenses.

All other components of our pension expense (income) are reflected in other (income) expense-net.

Our effective income tax rate in 2023 was higher than our effective income tax rate in 2022 primarily due to the tax effects of the pension settlement expense associated with the termination of the Plan and a change in geographic earnings mix.

The decrease in interest expense in 2024 compared to last year was primarily due to lower average debt levels.

Other (income) expense, net was $8.5 million of income in 2024 compared to income of $6.9 million in 2023.

The increase in other income was driven by lower foreign currency translation losses compared to last year, partially offset by lower interest income from lower average cash balances.

Our effective income tax rate in 2024 was lower compared to 2023.

The change in the effective income tax rate in 2024 compared to the prior year was primarily due to the restructuring and impairment expense recorded in 2023 with no associated tax benefit.

We estimate that our annual effective income tax rate for the full year of 2025 will be approximately 24 to 24.5 percent.

We are providing non-U.S.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted earnings per share (EPS), total segment earnings, adjusted segment earnings, and adjusted corporate expense) that exclude the impact of restructuring and impairment expenses, pension settlement income and expenses, non-operating pension expenses, income from a legal judgment and expenses associated with a terminated acquisition.

Reconciliations from GAAP measures

to non-GAAP measures are provided in the Non-GAAP Measures section below.

Reconciliations from GAAP measures to non-GAAP measures are provided in the Non-GAAP Measures section below.

We believe that the measures of adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense provide useful information to investors about our performance and allow management and our investors to better understand our performance between periods without regard to items that we do not consider to be a component of our core operating performance or recurring in nature.

5 unchanged sentences

Sales in our North America segment were $2,950.1 million in 2024, or $27.2 million higher than sales of $2,922.9 million in 2023.

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

North America segment earnings were $726.7 million in 2023, or $460.7 million higher than segment earnings of $266.0 million in 2022.

Compared to the prior year, pricing actions, higher boiler sales, and approximately $18 million of incremental net sales from our 2024 and 2023 acquisitions of water treatment companies primarily drove our net sales increase and more than offset lower water heater volumes.

North America segment earnings were $707.5 million in 2024, or $19.2 million lower than segment earnings of $726.7 million in 2023.

Segment margins were 24.0 percent and 24.9 percent in 2024 and 2023, respectively.

Higher segment earnings and margins in 2023 were primarily due to higher volumes of residential and commercial water heaters and lower material costs that were partially offset by higher SG&A expenses.

Additionally in 2022, we realized pre-tax pension settlement expense of $346.8 million.

Adjusted segment earnings and adjusted segment margin in 2023 were $726.0 million and 24.8 percent, respectively which exclude $0.7 million of pension settlement income.

Adjusted segment earnings and adjusted segment margin in 2022 were $611.0 million and 21.7 percent, respectively and exclude pension settlement expense of $346.8 million, pension expense of $9.7 million and the recognition of the $11.5 million patent infringement judgment.

Lower segment earnings and margins in 2024 were primarily due to lower water heater volumes, higher production costs and higher SG&A expenses associated with strategic investments that outpaced our pricing actions and higher boiler volumes.

Segment earnings and margin in 2024 also included restructuring and impairment expenses of $6.3 million related to our water treatment business and a result of a profitability improvement strategy that prioritizes improving our cost structure and emphasizes our more profitable channels.

Adjusted segment earnings and adjusted segment margin in 2024 were $713.8 million and 24.2 percent, respectively, which excludes $6.3 million of pre-tax restructuring and impairment expenses.

Adjusted segment earnings and adjusted segment margin in 2023 were $726.0 million and 24.8 percent, respectively, and exclude pension settlement income.

We estimate our 2025 North America segment margin will be approximately 24.0 to 24.5 percent.

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Sales in our Rest of World segment were $918.6 million in 2024, or $38.3 million lower than sales of $956.9 million in 2023.

The decrease in sales in 2023 was primarily driven by the approximately $44 million unfavorable impact of foreign currency translation, partially offset by favorable volumes in China, particularly in our water treatment and kitchen products.

Rest of World segment earnings in 2023 were $83.4 million compared to $96.3 million in 2022.

Compared to the prior year, lower net sales in 2024 were primarily driven by decreased sales of our core water heating and water treatment products in China and included approximately $13 million of unfavorable currency translation.

The decline in sales in 2024 was partially offset by higher volumes of kitchen products in China and included increased inter-segment sales of approximately $16 million related to our tankless water heaters manufactured in China and shipped to the U.S.

Rest of World segment earnings were $64.5 million in 2024 and lower compared to $83.4 million in 2023.

Segment margins were 7.0 percent and 8.7 percent in 2024 and 2023, respectively.

Lower segment earnings and segment margin in 2023 were primarily driven by restructuring and impairment expenses of $15.7 million, of which $12.5 million was associated with the sale of our business in Turkey.

Lower volumes of our core water heating and water treatment products and an unfavorable product mix and sales promotions in China primarily drove lower segment earnings and segment margin in 2024, partially offset by lower SG&A costs.

Segment earnings and margin in 2024 and 2023 included restructuring and impairment expenses of $11.3 million and $15.7 million, respectively.

Restructuring and impairment expenses in 2024 were severance costs in China related to the right sizing of that business for current market conditions, and 2023 expenses were primarily associated with the sale of our business in Turkey.

Adjusted segment earnings and adjusted segment margin in 2024 were $75.8 million and 8.3 percent, respectively.

Adjusted segment earnings and adjusted segment margin in 2023 exclude restructuring and impairment expenses.

We estimate our 2024 Rest of World segment margin will be approximately 10 percent.

Adjusted segment earnings and adjusted segment margin in 2023 were $99.1 million and 10.4 percent, respectively.

Adjusted segment earnings and adjusted segment margin in 2024 and 2023 exclude $11.3 million and $15.7 million of restructuring and impairment expenses, respectively.

We estimate our 2025 Rest of World segment margin will be approximately eight to nine percent.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital was $495.7 million at December 31, 2024, compared with $555.0 million at December 31, 2023.

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

In addition, as of December 31, 2023, cash balances were negatively impacted by $12.8 million due to changes in foreign currency.

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

The decrease in working capital was primarily related to lower cash and receivable balances, partially offset by higher inventory balances, lower accounts payable and lower payroll-related accruals.

As of December 31, 2024, cash balances were negatively impacted by $6.6 million due to changes in foreign currency during the year.

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

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

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

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

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

We used the proceeds to pay down outstanding debt balances.

We have historically made and anticipate future cash repatriations from certain foreign subsidiaries.

In 2024, we repatriated approximately $90 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances and fund acquisitions.

Years ended December 31 (dollars in millions) 2024 2023

Cash provided by operating activities $ 581.8 $ 670.3

Cash (used in) provided by investing activities (24.1) 8.1

Cash used in investing activities (267.1) (24.1)

Cash used in financing activities (408.4) (684.7)

Cash provided by operating activities in 2023 was $670.3 million compared with $391.4 million during 2022.

The increase in operating cash flows in 2023 compared with the prior year is due to increased earnings and a more favorable working capital contribution primarily related to lower inventory levels and incentive payments.

Cash provided by operations in 2024 was $581.8 million and lower than $670.3 million in 2023, primarily as a result of higher incentive payments associated with record sales and profits earned in 2023, higher inventory balances and lower earnings, which more than offset lower trade receivable balances.

Our free cash flow in 2024 and 2023 was $473.8 million and $597.7 million, respectively.

We expect cash provided by operating activities to be between $600 million and $650 million in 2025.

We expect free cash flow to be between $525 million to $575 million in 2024.

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

Our capital expenditures were $72.6 million in 2023 and $70.3 million in 2022.

We project our 2024 capital expenditures will be between $105 and $115 million and expect depreciation and amortization will be approximately $70 million.

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

The renewed and amended facility, with a group of nine banks, has an accordion provision that allows it to be increased up to $850 million if certain conditions (including lender approval) are satisfied.

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

The facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of December 31, 2023, and expect to be in compliance for the foreseeable future.

The facility backs up commercial paper and credit line borrowings.

At December 31, 2023, we had no borrowings outstanding under the facility and an available borrowing capacity of $500 million.

We expect free cash flow to be between $500 million and $550 million in 2025.

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

Capital expenditures totaled $108.0 million in 2024 compared with $72.6 million in 2023.

Higher capital expenditures compared to the prior year were primarily due to our capacity expansion projects in Juarez, Mexico and McBee, South Carolina and our new engineering facility in Lebanon, Tennessee.

We project that 2025 capital expenditures will be between $90 million and $100 million and full-year depreciation and amortization expense will be approximately $80 million.

In 2024, we renewed and amended our $500 million revolving credit facility ("renewed facility") which now expires on August 23, 2029.

The renewed facility is with a group of nine banks and has an accordion provision that allows it to be increased up to $1 billion if certain conditions (including lender approval) are satisfied.

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

The renewed facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of December 31, 2024, and expect to be in compliance for the foreseeable future.

The renewed facility backs up commercial paper and credit line borrowings.

At December 31, 2024, we had $30.0 million of borrowings outstanding under the renewed facility and an available borrowing capacity of $470.0 million.

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

Our total debt decreased by $217.2 million in 2023 primarily due to the use of operating cash flows to pay down debt.

Our total debt increased by $65.9 million in 2024 primarily due to borrowings associated with our share repurchase program and Pureit acquisition.

Our leverage, as measured by the ratio of total debt to total capitalization, was 9.3 percent at December 31, 2024, compared with 6.5 percent at December 31, 2023.

Our remaining U.S.

pension plan continues to meet all funding requirements under ERISA regulations.

We were not required to make a contribution to our pension plan in 2023.

We forecast that we will not be required to make a contribution to the plan in 2024, and we do not plan to make any voluntary contributions in 2024.

For further information on our pension plans, see Note 13, “Pension and Other Post-retirement Benefits” of Notes to the Consolidated Financial Statements.

In 2024, our Board of Directors approved adding 2,000,000 shares of common stock to our existing discretionary share repurchase authority.

4 unchanged sentences

On January 26, 2025, the Board of Directors approved adding 5,000,000 shares of common stock to the existing discretionary share repurchase authority.

Including the additional shares, we have 5,202,462 shares available for repurchase as of the date of the Board of Directors' approval.

Including the additional shares, we had 6,476,677 shares

available for repurchase as of the date of the Board of Directors' approval.

We intend to repurchase approximately $400 million of our common stock in 2025 through a combination of 10b5-1 plans and open-market purchases.

We paid dividends of $1.30 per share in 2024 compared with $1.22 per share in 2023.

We increased our dividend by seven percent in the fourth quarter of 2023, and the five-year compound annual growth rate of our dividend payment is approximately 10 percent.

We increased our dividend by six percent in the fourth quarter of 2024, and the five-year compound annual growth rate of our dividend payment is approximately eight percent.

We have paid dividends for 85 consecutive years with annual amounts increasing each of the last 33 years.

36 unchanged sentences

We are providing non-U.S.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense) that exclude the impact of restructuring and impairment expenses, pension settlement income and expenses, non-operating pension expenses, income from a legal judgment and expenses associated with a terminated acquisition.

Reconciliations from GAAP measures to non-GAAP measures are provided below.

7 unchanged sentences

Restructuring and impairment expenses, before tax 17.6 18.8

Pension settlement expense (income), before tax (0.9) 417.3

Pension expense, before tax — 11.7

Legal judgment income, before tax — (11.5)

Terminated acquisition-related expenses, before tax — 4.3

Pension settlement income, before tax — (0.9)

Tax effect on above items (3.2) 0.3

3 unchanged sentences

Restructuring and impairment expenses, per diluted share, before tax 0.12 0.12

Pension settlement expense (income) per diluted share, before tax — 2.68

Pension expense per diluted share, before tax — 0.08

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

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

Pension settlement income per diluted share, before tax — —

Tax effect on above items per diluted share (0.02) —

19 unchanged sentences

$ (63.9) $ (64.1)

Pension settlement expense (income), before tax (0.2) 70.5

Pension settlement income, before tax — (0.2)

Impairment expense, before tax — 3.1

Pension expense, before tax — 2.0

Terminated acquisition-related expenses, before tax — 4.3

Adjusted Corporate expense (non-GAAP) $ (63.9) $ (61.2)

1 unchanged sentence

$ 707.5 $ 726.7

Pension settlement expense (income), before tax (0.7) 346.8

Pension expense, before tax — 9.7

Legal judgment income, before tax — (11.5)

Restructuring and impairment expenses, before tax 6.3 —

Pension settlement income, before tax — (0.7)

Adjusted North America (non-GAAP) $ 713.8 $ 726.0

18 unchanged sentences

Adjusted EPS (non-GAAP) $ 3.60 - 3.90 $ 3.73

(1) Includes pre-tax restructuring and impairment expenses of $15.7 million and $3.1 million, within the Rest of World segment and Corporate expenses, respectively.

As we begin 2024, we expect our consolidated sales to increase between three and five percent.

Our sales projection is driven by continued end-market demand in water heating and a rebound in boiler and water treatment volumes after 2023 corrections in end-market inventories.

In our Rest of the World segment, we see overall growth with stability in China as the economy continues to work through its challenges.

We expect to achieve full-year earnings of between $3.90 and $4.15 per share.

Our guidance excludes the impacts from potential future acquisitions.

(1) Includes pre-tax restructuring and impairment expenses of $11.3 million and $6.3 million, within the Rest of World segment and North America segment, respectively.

As we begin 2025, we expect our consolidated sales to be approximately flat to up two percent compared to 2024.

Our projection is driven by expected flat industry residential and commercial volumes.

In our Rest of the World segment, after a challenging 2024, we expect consumer demand softness will persist in 2025 in China and a decline in third-party sales.

We expect full-year earnings of between $3.60 and $3.90 per share.

Our guidance excludes the impacts of potential future acquisitions.

OTHER MATTERS

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We evaluate risk to our business in a number of ways, primarily through our Enterprise Risk Management (ERM) process, which we conduct enterprise-wise on a periodic basis, and seeks to identify and address significant and material risks.

Our ERM process assesses, manages, and monitors risks consistent with the integrated risk framework in the Enterprise Risk Management-Integrated Framework (2017) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

Commission (COSO).

We believe that risk-taking is an inherent aspect of the pursuit of our strategy.

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

softening in U.S.

residential water heater demand;

further softening in U.S.

residential and commercial water heater demand;

negative impacts to the Company, particularly the demand for its products, resulting from global inflationary pressures or a potential recession in one or more of the markets in which the Company participates;

1 unchanged sentence

negative impacts to demand for the Company’s products, particularly commercial products, as a result of changes in commercial property usage that followed the COVID-19 pandemic;

further weakening in U.S.

residential or commercial construction or instability in the Company's replacement markets;

further weakening in North American residential or commercial construction or instability in the Company's replacement markets;

inability of the Company to implement or maintain pricing actions;

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

negative impact to the Company’s businesses from international tariffs, trade disputes and geopolitical differences, including the conflicts in Ukraine, the Middle East and attacks on commercial shipping vessels in the Red Sea;

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

the availability, timing or effects of China stimulus programs;

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

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

substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer;

1 unchanged sentence

the Company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions;

competitive pressures on the Company’s businesses, including new technologies and new competitors;

failure to realize the expected benefits of acquisitions or expected synergies;

failure to realize the expected benefits, timing and extent, of regulatory changes;

competitive pressures on the Company’s businesses;

including new technologies and new competitors;

the impact of potential information technology or data security breaches;

changes in government regulations or regulatory requirements;

the inability to respond to secular trends toward decarbonization and energy efficiency;

and adverse developments in general economic, political and business conditions in key regions of the world.

negative impact of changes in government regulations or regulatory requirements;

the inability to respond to secular trends toward decarbonization and energy efficiency and adverse developments in general economic, political and business conditions in key regions of the world.

A more detailed description of these risks is contained under the heading "Risk Factors" in Item 1A above.

Forward-looking statements included in this filing are made only as of the date of this filing, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances.

1 unchanged sentence

Forward-looking and other statements in this Form 10-K regarding our environmental and other sustainability plans and goals are not an indication that these statements are necessarily material to investors or are required to be disclosed in our filings with the SEC.

In addition, historical, current, and forward-looking social, environmental and sustainability-related statements may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.

In addition, historical, current, and forward-looking social, environmental and sustainability-related statements

may be based on standards for measuring progress that are still developing, internal controls and processes that continue to evolve, and assumptions that are subject to change in the future.

Any such forward-looking statements made herein are based on information currently available to us as of the date of this Report.

3 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 7. Management’s Discussion and Analysis