What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2025-02-11 compared with 2024-02-13 · 199 added, 131 removed, 962 unchanged (26% of the section changed)

23 unchanged sentences

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Product Warranty Liability Valuation

100 unchanged sentences

Deferred income taxes ( 4.6 ) ( 3.8 ) —

Non-cash impairment 15.6 — —

Non-cash impairments 4.7 15.6 —

Pension settlement (income) expense — ( 0.9 ) 417.3

11 unchanged sentences

Financing Activities

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

Long-term debt incurred (repaid) 69.7 ( 218.1 ) 150.6

Common stock repurchases ( 305.8 ) ( 306.5 ) ( 403.5 )

66 unchanged sentences

The carrying amounts of cash, cash equivalents, marketable securities, receivables, floating rate debt and trade payables approximated fair value as of December 31, 2024 and 2023, due to the short maturities or frequent rate resets of these instruments.

The fair value of term notes with insurance companies included in Long-term debt within the consolidated balance sheets was approximately $ 116.5 million as of December 31, 2023 compared with the carrying amount of $ 127.3 million for the same date.

The fair value of term notes with insurance companies was approximately $ 120.2 million as of December 31, 2022 compared with the carrying amount of $ 136.5 million.

The fair value of term notes with financial institutions included in Long-term debt within the consolidated balance sheets was approximately $ 143.6 million as of December 31, 2024 compared with the carrying amount of $ 163.2 million for the same date.

The fair value of term notes with financial institutions was approximately $ 116.5 million as of December 31, 2023 compared with the carrying amount of $ 127.3 million.

Foreign currency translation.

14 unchanged sentences

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

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

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

Cost is determined on the last-in, first-out (LIFO) method for a certain portion of the Company’s domestic inventories, which comprised 43 percent and 39 percent of the Company’s total inventory at December 31, 2024 and 2023, respectively.

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

Property, plant and equipment.

63 unchanged sentences

Compensation cost is recognized using the straight-line method over the vesting period of the award and forfeitures are recognized as they occur.

In accordance with amended ASC 718, the Company recognized $ 3.2 million, $ 1.1 million, and $ 5.6 million of discrete income tax benefits on settled stock based compensation awards during 2023, 2022, and 2021 respectively.

In accordance with amended ASC 718 Compensation-Stock Compensation , the Company recognized $ 4.1 million, $ 3.2 million, and $ 1.1 million of discrete income tax benefits on settled stock based compensation awards during 2024, 2023, and 2022 respectively.

Income taxes.

13 unchanged sentences

Recent Accounting Pronouncements

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

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

In November 2024, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2024-03 “Income Statement - Reporting Comprehensive Income (Topic 220):

Disaggregation of Income Statement Expenses.” The ASU requires additional disclosures by disaggregating the costs and expense line items that are presented on the face of the income statement.

The ASU is effective for the Company beginning with its 2027 annual disclosures and subsequent interim periods.

Early adoption is permitted.

This ASU requires a public company to apply the amendments either prospectively to financial statements issued for reporting periods after the effective date of this ASU or retrospectively to any or all prior periods presented in the financial statements.

The Company is currently evaluating the impact of adopting this ASU on its disclosures.

In December 2023, the FASB amended ASC 740 (issued under 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.

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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.

The update is effective for the Company beginning with its 2024 annual disclosures and interim periods beginning in 2025,

Organization and Significant Accounting Policies (continued)

with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements.

The adoption of ASU 2023-07 did not affect the Company’s financial position or its results of operations.

Refer to Note 17, Operations by Segment, for additional disclosures.

Revenue Recognition

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

Shipping documents are used to verify

Revenue Recognition (continued)

Shipping documents are used to verify shipment.

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

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

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

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

Disaggregation of Net Sales

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Typical applications for water heaters include residences, restaurants, hotels, office buildings, laundries, car washes and small businesses.

The Company sells residential and commercial water heater products and related parts through its wholesale distribution channel, which includes more than 900 independent wholesale plumbing distributors.

The Company sells residential and commercial water heater products and related parts through its wholesale distribution channel, which includes approximately 900 independent wholesale plumbing distributors.

The Company also sells residential water heaters and related parts through retail and maintenance, repair and operations (MRO) channels.

A significant portion of the Company’s water heater sales in the North America segment is derived from the replacement of existing products.

Revenue Recognition (continued)

Boilers The Company’s boilers are closed loop water heating systems used primarily for space heating or hydronic heating.

2 unchanged sentences

The Company’s boiler sales in the North America segment are derived from a combination of replacement of existing products and new construction.

Revenue Recognition (continued)

Water treatment products The Company’s water treatment products range from point-of-entry water softeners, solutions for problem well water, and whole-home water filtration products to on-the-go filtration bottles, point-of-use carbon, and reverse osmosis products.

9 unchanged sentences

Water heaters and related parts $ 2,441.7 $ 2,456.9 $ 2,325.1

$ 2,456.9 $ 2,325.1 $ 2,115.9

Boilers and related parts 260.0 240.1 272.0

7 unchanged sentences

Total Net Sales $ 3,818.1 $ 3,852.8 $ 3,753.9

(1) Includes the results of Giant Factories, Inc.

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

2024 Acquisitions

During the fourth quarter of 2024, the Company acquired Pureit, a residential water purification business in South Asia, from Unilever for an aggregate purchase price of $ 124.6 million.

The purchase price consists of an initial cash payment of $ 117.9 million upon the closing of the transaction and a separate payment of $ 6.7 million made under a transitional supply agreement with Unilever.

Due to the close proximity of the acquisition date and the Company's filing of its annual report on Form 10-K for the year ended December 31, 2024, the initial accounting for the business combination is incomplete and is pending identification and measurement of the assets acquired and liabilities assumed.

Therefore, the Company is unable to disclose the information required by ASC 805, Business Combinations .

Such information will be included in the Company's subsequent Form 10-Q.

At December 31, 2024, the purchase price allocated to Goodwill was $ 117.9 million and the payment of $ 6.7 million was included in Other current assets within the Company’s consolidated financial statements.

The acquired company is included in the Rest of World segment.

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

The Company paid an aggregate cash purchase price of $ 21.3 million, net of cash acquired.

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 expanded the Company's water treatment footprint in North America.

The acquired company is included in the North America segment.

Acquisitions (continued)

2023 Acquisitions

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

8 unchanged sentences

These expenses were related to the due diligence of a prospective acquisition target and recorded within selling, general and administrative expenses in the consolidated statement of earnings.

2021 Acquisitions

On October 19, 2021, the Company acquired 100 percent of the shares and related assets of Giant, a Canada-based manufacturer of residential and commercial water heaters for $ 198.6 million, net of cash acquired.

The Company paid $ 2.5 million of the purchase price in the second quarter of 2022 as a result of final working capital adjustments.

The Company incurred acquisition costs of approximately $ 1.3 million in 2021.

Under the Giant purchase agreement, approximately $ 8 million of the purchase price was set aside as an escrow to satisfy any potential obligations of the former owners of Giant, should they arise.

The allocation of the purchase price to goodwill decreased by $ 4.3 million in 2022 due to the net impact of a measurement period adjustment, primarily related to income tax matters, partially offset by the final working capital adjustment.

The addition of Giant increased the Company's North America market penetration, created additional capacity and enhanced the Company's distribution capabilities.

Giant is included in the North America segment.

Acquisitions (continued)

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

Of the $ 53.8 million of acquired identifiable intangible assets, $ 43.9 million was assigned to trademarks that are not subject to amortization and $ 9.2 million was assigned to customer relationships which are amortized over 22 years, and the remaining $ 0.7 million was assigned to non-compete agreements which are amortized over five years .

The excess of the acquisition purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as goodwill.

The following table summarizes the estimated fair values of Giant's assets acquired and liabilities assumed at the date of acquisition:

October 19, 2021 (dollars in millions)

Current assets, net of cash acquired $ 60.1

Property, plant and equipment 55.8

Intangible assets 53.8

Goodwill 77.6

Total assets acquired 247.3

Current liabilities ( 39.2 )

Long Term liabilities ( 9.5 )

Net assets acquired $ 198.6

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.

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

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.

17 unchanged sentences

Operating lease assets $ 32.8 $ 37.3

Leases (continued)

Lease Term and Discount Rate December 31, 2024

1 unchanged sentence

Weighted-average discount rate 4.63 %

Leases (continued)

The components of lease expense were as follows:

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Present value of operating lease liabilities $ 34.8

Restructuring and Impairment

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

Restructuring and Impairment Expenses

2024 Restructuring and Impairment Expenses

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

These expenses were comprised of $ 12.1 million in severance costs, $ 0.8 million of other restructuring expenses, and asset impairments of $ 4.7 million, as well as a corresponding $ 3.2 million tax benefit.

Of the $ 17.6 million expense recognized during the year ended December 31, 2024, $ 6.3 million was related to the Company’s water treatment business in the North America segment and was a result of a profitability improvement strategy that prioritizes improving its cost structure.

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

2023 Restructuring and Impairment Expenses

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

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

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

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

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

Upon closing of the sale in the second quarter of 2023, the Company released $ 11.0 million of foreign currency translation losses from accumulated other comprehensive loss.

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

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

Restructuring and Impairment Expenses (continued)

The following table presents an analysis of the Company’s restructuring reserve for the years ended December 31, 2024, 2023, and 2022:

(dollars in millions) Severance

Costs Other Restructuring Expenses Non-cash

Impairments Total

Balance at December 31, 2022 — — — —

Charges 0.3 2.9 15.6 18.8

Non-cash and other adjustments — — ( 15.6 ) ( 15.6 )

Balance at December 31, 2023 0.3 2.9 — 3.2

Charges 12.1 0.8 4.7 17.6

Cash payments ( 3.5 ) ( 2.2 ) — ( 5.7 )

Non-cash and other adjustments — — ( 4.7 ) ( 4.7 )

Balance at December 31, 2024 8.9 1.5 — 10.4

Statement of Cash Flows

9 unchanged sentences

$ ( 22.6 ) $ 20.0 $ ( 194.1 )

In addition, cash interest paid during the years ended December 31, 2023, 2022 and 2021 were $ 12.3 million, $ 9.3 million, and $ 4.2 million, respectively.

In addition, cash interest paid during the years ended December 31, 2024, 2023 and 2022 was $ 6.7 million, $ 12.3 million, and $ 9.3 million, respectively.

Total cash and cash equivalents and marketable securities at December 31, 2024 and 2023 was $ 276.1 million and $ 363.4 million, respectively, of which $ 205.7 million and $ 291.8 million were held by the Company’s foreign subsidiaries, at December 31, 2024 and 2023, respectively.

21 unchanged sentences

Currency translation adjustment 2.6 ( 0.1 ) 2.5

Acquisitions 11.2 — 11.2

Balance at December 31, 2023 574.9 58.5 633.4

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Revolving credit agreement borrowings, average year-end interest rates of 5.3 % for 2024

Commercial paper, average year-end interest rate of 4.6 % for 2022

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

Fixed rate agreements, expiring 2027-2034, average year-end interest rates of 4.6 % for 2024 and 3.1 % for 2023

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

Long-term debt $ 183.2 $ 117.3

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.

The facility has an accordion provision which allows it to be increased up to $ 850 million if certain conditions (including lender approval) are satisfied.

In 2024, the Company renewed and amended its $ 500 million multi-year multi-currency revolving credit agreement with a new expiration date of August 23, 2029.

The facility has an accordion provision which allows it to be increased up to $ 1 billion if certain conditions (including lender approval) are satisfied.

Borrowings under the Company’s bank credit lines and commercial paper borrowings are supported by the $ 500 million revolving credit agreement.

As a result of the long-term nature of this facility, the Company’s credit line borrowings are classified as long-term debt at December 31, 2024.

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

The Company has fixed-rate interest expense

Debt (continued)

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

The Company has fixed-rate interest expense obligations of $ 23.9 million on outstanding debt as of December 31, 2024.

Scheduled maturities of long-term debt within each of the five years subsequent to December 31, 2024 are as follows:

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Balance at beginning of period $ ( 80.3 ) $ ( 84.1 )

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

Other comprehensive (loss) gain before reclassifications ( 24.0 ) 3.8

Balance at end of period ( 104.3 ) ( 80.3 )

1 unchanged sentence

Balance at beginning of period 0.7 4.9

Other comprehensive gain before reclassifications 2.8 7.4

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

Other comprehensive (loss) gain before reclassifications ( 0.5 ) 2.8

Realized gains on derivatives reclassified to cost of products sold (net of tax provision of $ 0.5 and $ 2.2 in 2023, respectively) (1)

( 1.7 ) ( 7.0 )

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Balance at beginning of period ( 4.6 ) ( 3.2 )

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

Other comprehensive loss before reclassifications ( 1.8 ) ( 1.6 )

Amounts reclassified from accumulated other comprehensive loss (1)

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Included in the results for 2023 is $ 11.0 million of foreign currency translation losses reclassified from accumulated other comprehensive loss to Net earnings related to the Company's sale of its business in Turkey.

See Note 5 - Restructuring and Impairment for additional details.

See Note 5 - Restructuring and Impairment Expenses for additional details.

Stock Based Compensation

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

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

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

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

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

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

The Company’s stock options are expensed ratably over the three year vesting period;

however, included in the stock option expense recognized in 2022 and 2021 is 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.

however, included in the stock option expense recognized in 2022 is 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 for 2024, 2023 and 2022 was $ 0.6 million, $ 1.2 million and $ 5.5 million, respectively.

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(1) The total intrinsic value of options exercised in 2024, 2023 and 2022 was $ 18.0 million, $ 15.0 million and $ 1.6 million, respectively.

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

(2) The weighted average remaining contractual life of options outstanding was 6 years at December 31, 2024, and 7 years at December 31, 2023 and December 31, 2022, respectively.

The aggregate intrinsic value of options outstanding at December 31, 2024 was $ 20.0 million.

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

(3) The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2024, December 31, 2023, and December 31, 2022, respectively.

The aggregate intrinsic value of options exercisable at December 31, 2024 was $ 20.0 million.

6 unchanged sentences

Stock Based Compensation (continued)

The weighted-average fair value per option at the date of grant during 2022 and 2021, using the Black-Scholes option-pricing model, was $ 17.57 and $ 14.03 , respectively.

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

Assumptions were as follows:

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Performance stock units vest over three years following the date of the grant.

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

Performance stock units vest under a set of measurement criteria which are based upon achievement of certain sustainability targets.

Potential payouts range from zero to 150 percent of the target awards and changes from target amounts are reflected as performance adjustments.

The Company granted 24,580 performance stock units under the Incentive Plan in 2023.

The performance stock units were valued at $ 1.7 million at the date of issuance in 2023, based on the price of the Company’s Common Stock at the date of grant of $ 67.14 .

The Company granted 29,475 and 24,580 performance stock units under the Incentive Plan in 2024 and 2023, respectively.

The performance stock units were valued at $ 2.4 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 $ 0.7 million was recognized in 2023.

Stock based compensation expense attributable to performance stock units of $ 1.8 million and $ 0.7 million was recognized in 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.

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Participant contributions — — ( 0.1 ) ( 0.1 )

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

Actuarial gain (loss) including assumption changes 0.7 ( 1.1 ) 0.1 —

Benefits paid 0.8 4.8 0.2 0.2

Transfer to insurer — 462.8 — —

PBO at end of year $ ( 27.7 ) $ ( 26.7 ) $ ( 1.6 ) $ ( 1.7 )

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Transfer related to plan termination — ( 21.2 ) — —

Transfer to insurer — ( 462.8 ) — —

Plan assets at end of year $ 18.6 $ 20.3 $ — $ —

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Non-current liabilities ( 10.8 ) ( 10.3 ) ( 1.4 ) ( 1.5 )

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

Net pension liability at end of year $ ( 9.1 ) * $ ( 6.4 ) * $ ( 1.6 ) $ ( 1.7 )

Amounts recognized in accumulated other comprehensive loss before tax

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Total recognized in net periodic cost (benefit) and other comprehensive loss $ 3.2 $ 1.7 $ ( 32.6 ) $ — $ 0.1 $ 0.3

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

The 2024 and 2023 after tax adjustments for additional minimum pension liability resulted in other comprehensive (loss) of $( 1.5 ) million and $( 1.4 ) million, respectively.

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

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

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

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

Assumed health care cost trend rates

47 unchanged sentences

Total plan assets $ 20.3

Pension and Other Post-retirement Benefits (continued)

The short-term investments included in the Company’s plan assets consist of cash and cash equivalents.

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Options are valued using the closings market value on the last day of the year;

and private equity investments are valued at the estimated fair value at the previous quarter end, which is based on the proportionate share of the underlying portfolio investments.

and private equity investments are

Pension and Other Post-retirement Benefits (continued)

valued at the estimated fair value at the previous quarter end, which is based on the proportionate share of the underlying portfolio investments.

The following table presents a reconciliation of the fair value measurements using significant unobservable inputs (Level 3) as of December 31, 2024 and 2023 (dollars in millions):

Balance at December 31, 2022 $ 2.2

Actual (loss) return on plan assets:

Actual return (loss) on plan assets:

Relating to assets still held at the reporting date 3.9

1 unchanged sentence

Purchases, sales and settlements ( 0.3 )

Transfers in and/or out 0.2

Balance at December 31, 2023 2.4

3 unchanged sentences

Purchases, sales and settlements 0.1

Transfers in and/or out 0.2

Balance at December 31, 2024 $ 0.9

2 unchanged sentences

Bond investments include corporate and government issues, with short, mid, and long-term maturities, with a focus on investment-grade when purchased.

In preparation for the Plan settlement, which we completed in the fourth quarter of 2022, the target allocation to bonds managers is between 60 to 95 percent with the remainder allocated primarily to equities, private equity managers and cash.

The Company’s target allocation to equity managers is between 30 to 60 percent with the remainder allocated primarily to bonds, private equity managers, and cash.

Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies.

2 unchanged sentences

There was no Company stock included in plan assets at December 31, 2024.

The Company was not required to and did no t make any contributions in 2023 to the Plan.

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

Pension and Other Post-retirement Benefits (continued)

The Company was no t required to make any contributions in 2024 to the Plan and is no t required to make a contribution in 2025.

Estimated Future Payments

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

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

The combined fair value of the foreign currency forward contracts was a liability balance of $ 1.4 million as of December 31, 2024 which was recorded in Accrued liabilities 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 and recorded in Other current assets within the consolidated balance sheet.

Derivative Instruments (continued)

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

5 unchanged sentences

Total $ 41.2 $ 28.9 $ 38.3 $ 80.5

Net Investment Hedges

The Company enters into certain foreign currency forward contracts to hedge the exposure to a portion of the Company’s net investments in certain non-U.S.

subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S.

For the derivative instruments that are designated and qualify as net investment hedges, gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Company’s net investments in its non-U.S.

subsidiaries.

These hedges are determined to be effective.

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

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

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

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

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

Interest Rate Swaps

The Company is exposed to interest rate risk as a result of the Company’s floating rate borrowings.

The Company enters into forward interest rate swap agreements with an independent counterparty to hedge the variability in cash flows due to changes in Secured Overnight Financing Rate (SOFR) benchmark interest rate associated with variable rate borrowings.

The interest rate swap has a maturity date of September 30, 2029 and effectively converts the Company’s variable interest rate obligations to fixed interest rate obligations.

Interest rate swaps with an aggregate notional amount of 4.2 billion rupees and zero were

Derivative Instruments (continued)

outstanding as of December 31, 2024 and December 31, 2023, respectively.

The aggregate effective interest rate of the swap as of December 31, 2024 was 8.25 %.

The fair value of the interest rate swap contract was a liability balance of $ 0.5 million as of December 31, 2024 which was recorded in Accrued liabilities within the consolidated balance sheet.

The fair value of the interest rate swap contract was zero as of December 31, 2023.

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

1 unchanged sentence

Derivatives in ASC 815 cash flow

hedging relationships Amount of gain recognized in other

hedging relationships Amount of (loss) gain recognized in other

comprehensive loss on

derivatives Location of gain

derivatives Location of gain (loss)

reclassified from

1 unchanged sentence

comprehensive loss into

earnings Amount of gain reclassified

earnings Amount of gain (loss) reclassified

from accumulated

3 unchanged sentences

Foreign currency contracts $ ( 0.7 ) $ 3.7 Cost of products sold $ 2.2 $ 9.2

Interest rate swaps $ ( 0.5 ) $ — Interest Expense $ ( 0.1 ) $ —

Net Investment Hedges

The Company uses foreign currency denominated intercompany debt and third-party foreign currency forward contracts to hedge the exposure to a portion of the Company’s net investments in certain non-U.S.

subsidiaries against the effect of exchange rate fluctuations on the translation of foreign currency balances to the U.S.

subsidiaries.

These hedges are determined to be effective.

The Company recognized $ 2.3 million of after tax gains and $( 1.8 ) million of after-tax losses associated with hedges of a net investment in non-U.S.

subsidiaries in currency translation adjustment in other comprehensive income in 2024 and 2023, respectively.

The contractual amount of the Company’s foreign currency denominated intercompany debt that are designated as net investment hedge was 1.5 billion RMB as of December 31, 2024.

The fair value of the net investment hedges was zero as of December 31, 2024.

The contractual amount of the Company’s foreign currency denominated intercompany debt that are designated as net investment hedge was $ 204.0 million as of December 31, 2023.

The fair value of the third-party foreign currency forward contracts was a liability balance $( 4.2 ) million as of December 31, 2023 which was recorded in Accrued liabilities within the consolidated balance sheet.

Balance Sheet Hedges

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These foreign exchange contracts did not qualify for hedge accounting in accordance with ASC 815 and as such were marked to market through earnings.

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

The combined fair value of the foreign exchange contracts was an asset balance of $ 0.1 million as of December 31, 2022 and recorded in Other current assets within the consolidated balance sheet.

The combined fair value of the foreign exchange contracts was zero as of December 31, 2024.

The combined fair value of the foreign exchange contracts was an liability balance of $( 0.8 ) million as of December 31, 2023 and 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:

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Total $ — $ 6.4 $ 250.9 $ —

Derivative Instruments (continued)

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

Derivative Instruments (continued)

Years ended December 31 (dollars in millions)

Derivatives not designated as hedging instruments:

Location of gain within the consolidated statements of earnings

Location of within the consolidated statements of earnings

2024 2023 2022

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

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

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

32 unchanged sentences

$ 701.0 $ 733.5 $ 223.7

Our 2022 provision for income taxes included $ 167.7 million of tax benefit related to the effective settlement of the Plan, $ 101.9 million of which was the related tax effect on the pretax expense of $ 417.3 million and $ 65.8 million of which was

Income Taxes (continued)

related to the release of stranded tax effects in AOCL through the Tax Cuts and Jobs Act.

Refer to Note 13, “Pension and Other Postretirement Benefits,” for more information.

The Company paid income taxes of $ 187.7 million, $ 189.5 million, and $ 175.4 million in 2024, 2023 and 2022, respectively.

Income Taxes (continued)

Undistributed earnings of the Company’s foreign subsidiaries amounted to $ 695.0 million at December 31, 2024.

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Beginning balance $ 12.3 $ 10.1 $ 11.7 $ 8.3

Increases 2.2 1.2 3.4 1.2

Change in balance ( 2.6 ) 2.2 ( 5.6 ) 3.4

Ending balance $ 9.7 $ 12.3 $ 6.1 $ 11.7

The Company has foreign net operating loss carryovers that expire in 2025 through 2030, with some net operating losses being carried forward indefinitely and state and local net operating loss carryovers that are carried forward indefinitely.

Income Taxes (continued)

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

1 unchanged sentence

Balance at January 1 $ 17.2 $ 15.0

Additions for tax positions of prior years 2.2 0.7

Change to tax positions from prior years ( 1.0 ) 2.2

Balance at December 31 $ 16.2 $ 17.2

Income Taxes (continued)

The amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is $ 4.3 million.

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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 $ 0.6 million and $ 1.1 million as of December 31, 2023 and December 31, 2022, respectively, and from the resale of the related inventory, the gross amount the Company would be

Commitments and Contingencies (continued)

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

Before considering any reduction of distributor rebate accruals of $ 2.0 million and $ 0.6 million as of December 31, 2024 and December 31, 2023, respectively, and from the resale of the related inventory, the gross amount the Company would be obligated to repurchase, which would be contingent on the default of all of the outstanding loans, was approximately $ 2.9 million and $ 0.8 million as of December 31, 2024 and December 31, 2023, respectively.

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

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

The accounting policies of the reportable segments are the same as those described in the “Summary of Significant Accounting Policies” outlined in Note 1.

Segment earnings, defined by the Company as earnings before interest, taxes, general corporate and corporate research and development expenses, were used to measure the performance of the segments.

Net Sales Earnings

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

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

Rest of World 956.9 965.8 1,036.5 83.4 96.3 91.4

Inter-segment ( 27.0 ) ( 31.0 ) ( 27.1 ) ( 0.5 ) ( 0.3 ) ( 0.2 )

Total segments – sales, segment earnings $ 3,852.8 $ 3,753.9 $ 3,538.9 $ 809.6 $ 362.0 $ 682.0

Corporate expenses ( 64.1 ) ( 128.9 ) ( 52.1 )

The Company’s Chief Executive Officer (CEO) is the Chief Operating Decision Maker (CODM).

The CODM allocates resources and makes operating decisions based on the financial information presented by the two reporting segments.

The measures regularly reviewed by our CODM include segment sales, earnings, and segment margin.

Segment earnings, defined by the Company as earnings before interest expense, taxes, corporate expense, and corporate research and development expenses, were used to measure the performance of the segments.

Our CODM uses these financial measures to evaluate and allocate capital and company resources as critical determinants of segment performance.

The accounting policies of the reportable segments are the same as those described in the “Summary of Significant Accounting Policies” outlined in Note 1 - Organization and Significant Accounting Policies.

December 31, 2024

(dollars in millions) North America Rest of World Inter-segment Elimination Total Segments Less:

Corporate Expenses Total

Sales from external customers $ 2,928.1 $ 890.0 $ — $ 3,818.1 $ — $ 3,818.1

Inter-segment sales 22.0 28.6 — 50.6 — 50.6

2,950.1 918.6 — 3,868.7 — 3,868.7

Elimination of Inter-segment sales ( 22.0 ) ( 28.6 ) — ( 50.6 ) — ( 50.6 )

Net Sales 2,928.1 890.0 — 3,818.1 — 3,818.1

Cost of products sold 1,780.1 581.9 — 2,362.0 — 2,362.0

Gross Profit 1,148.0 308.1 — 1,456.1 — 1,456.1

Inter-segment Profit — 0.4 ( 0.4 ) — — —

Selling, general and administrative expenses 433.2 235.0 — 668.2 71.1 739.3

Restructuring and impairment expense 6.3 11.3 — 17.6 — 17.6

Other expense (income), net (1)

1.0 ( 2.3 ) — ( 1.3 ) ( 7.2 ) ( 8.5 )

Earnings $ 707.5 $ 64.5 $ ( 0.4 ) $ 771.6 $ ( 63.9 ) $ 707.7

Interest expense ( 6.7 )

Earnings before income taxes 733.5 223.7 625.6

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

Net earnings $ 556.6 $ 235.7 $ 487.1

(1) The Company recognized a pre-tax pension settlement expense of $ 346.8 million in the North America segment and $ 70.5 million within Corporate expenses.

The provision for (benefit from) income taxes includes a tax benefit of ($ 167.7 million) related to the pension settlement.

For additional information, see Note 13, “Pension and Other Post-retirement Benefits.”

Earning before provision for income taxes $ 701.0

(1) Other expense (income), net consist primarily of interest income that is located within Corporate Expenses.

December 31, 2023

(dollars in millions) North America Rest of World Inter-segment Elimination Total Segments Less:

Corporate Expenses Total

Sales from external customers $ 2,904.3 $ 948.5 $ — $ 3,852.8 $ — $ 3,852.8

Inter-segment sales 18.6 8.4 — 27.0 — 27.0

2,922.9 956.9 — 3,879.8 — 3,879.8

Elimination of Inter-segment sales ( 18.6 ) ( 8.4 ) — ( 27.0 ) — ( 27.0 )

Net Sales 2,904.3 948.5 — 3,852.8 — 3,852.8

Cost of products sold 1,761.1 607.0 — 2,368.1 ( 0.1 ) 2,368.0

Gross Profit 1,143.2 341.5 — 1,484.7 0.1 1,484.8

Inter-segment Profit — 0.5 ( 0.5 ) — — —

Selling, general and administrative expenses 411.6 243.0 — 654.6 72.8 727.4

Restructuring and impairment expense — 15.7 — 15.7 3.1 18.8

Other expense (income), net (2)

4.9 ( 0.1 ) — 4.8 ( 11.7 ) ( 6.9 )

Earnings $ 726.7 $ 83.4 $ ( 0.5 ) $ 809.6 $ ( 64.1 ) $ 745.5

Interest expense ( 12.0 )

Earnings before provision for income taxes $ 733.5

(2) Other expense (income), net consist primarily of interest income that is located within Corporate Expenses.

Operations by Segment (continued)

December 31, 2022

(dollars in millions) North America Rest of World Inter-segment Elimination Total Segments Less:

Corporate Expenses Total

Sales from external customers $ 2,792.4 $ 961.5 $ — $ 3,753.9 $ — $ 3,753.9

Inter-segment sales 26.7 4.3 — 31.0 — 31.0

2,819.1 965.8 — 3,784.9 — 3,784.9

Elimination of Inter-segment sales ( 26.7 ) ( 4.3 ) — ( 31.0 ) — ( 31.0 )

Net Sales 2,792.4 961.5 — 3,753.9 — 3,753.9

Cost of products sold 1,813.9 610.6 — 2,424.5 ( 0.2 ) 2,424.3

Gross Profit 978.5 350.9 — 1,329.4 0.2 1,329.6

Inter-segment Profit 0.3 — ( 0.3 ) — — —

Selling, general and administrative expenses 356.2 252.0 — 608.2 62.7 670.9

Other expense (income), net (3)

356.6 2.6 — 359.2 66.4 425.6

Earnings $ 266.0 $ 96.3 $ ( 0.3 ) $ 362.0 $ ( 128.9 ) $ 233.1

Interest expense ( 9.4 )

Earnings before provision for income taxes $ 223.7

(3) Other expense (income), net consist primarily of a pre-tax pension settlement expense of $ 346.8 million in the North America segment and $ 70.5 million within Corporate expenses.

In 2024, sales to the Company's North America segment’s two largest customers were $ 586.6 million and $ 495.8 million which represented 15 percent and 13 percent of the Company’s net sales, respectively.

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Rest of World 592.1 475.0 597.7 17.0 18.3 20.5 7.6 11.0 10.9

Total Segments 2,907.3 2,772.4 2,828.0 77.4 76.9 76.2 107.9 69.4 59.5

Corporate 332.7 441.5 504.3 1.4 1.4 0.7 0.1 3.2 10.8

Total $ 3,240.0 $ 3,213.9 $ 3,332.3 $ 78.8 $ 78.3 $ 76.9 $ 108.0 $ 72.6 $ 70.3

Operations by Segment (continued)

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

Operations by Segment (continued)

Net sales and long-lived assets by geographic location

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data