SMITH A O CORP 10-Q

ITEM 1 - FINANCIAL STATEMENTS A. O. SMITH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (dollars in millions, except for per share data) (unaudited) Three Months Ended March 31, 2025 2024 Net sales $ 963.9 $ 978.8 Cost of products sold 588.5 594.1 Gross profit 375.4 384.7 Selling, general and administrative expenses 192.6 192.2 Interest expense 2.9 1.0 Other income, net ( 1.2 ) ( 1.2 ) Earnings before provision for income taxes 181.1 192.7 Provision for income taxes 44.5 45.1 Net Earnings $ 136.6 $ 147.6 Basic Net Earnings Per Share of Common Stock $ 0.95 $ 1.00 Diluted Net Earnings Per Share of Common Stock $ 0.95 $ 1.00 Dividends Per Share of Common Stock $ 0.34 $ 0.32 A. O. SMITH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (dollars in millions) (unaudited) Three Months Ended March 31, 2025 2024 Net earnings $ 136.6 $ 147.6 Other comprehensive earnings (loss) Foreign currency translation adjustments 0.7 ( 4.8 ) Unrealized gains on cash flow derivative instruments, less related income tax provision of $( 0.3 ) in 2025, and $( 0.3 ) in 2024 0.8 1.0 Adjustment to pension liability, less related income tax provision of $ 0.0 in 2025, and $ 0.0 in 2024 0.1 0.1 Comprehensive Earnings $ 138.2 $ 143.9 See accompanying notes to unaudited condensed consolidated financial statements. 3 Table of Contents A. O. SMITH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in millions) (unaudited) March 31, 2025 December 31, 2024 Assets Current Assets Cash and cash equivalents $ 173.0 $ 239.6 Marketable securities 27.2 36.5 Receivables 641.5 541.4 Inventories 532.6 532.1 Other current assets 47.8 43.3 Total Current Assets 1,422.1 1,392.9 Property, plant and equipment 1,517.8 1,495.9 Less accumulated depreciation ( 883.4 ) ( 867.2 ) Net property, plant and equipment 634.4 628.7 Goodwill 707.1 761.7 Other intangibles 373.9 321.1 Operating lease assets 34.6 32.8 Other assets 95.6 102.8 Total Assets $ 3,267.7 $ 3,240.0 Liabilities Current Liabilities Trade payables $ 541.0 $ 588.7 Accrued payroll and benefits 62.7 78.5 Accrued liabilities 198.6 153.0 Product warranties 69.8 67.0 Debt due within one year 10.0 10.0 Total Current Liabilities 882.1 897.2 Long-term debt 259.8 183.2 Product warranties 124.5 123.4 Long-term operating lease liabilities 25.2 23.5 Other liabilities 121.0 129.2 Total Liabilities 1,412.6 1,356.5 Stockholders’ Equity Class A Common Stock (shares issued, 26,000,449 and 26,014,825 as of March 31, 2025 and December 31, 2024, respectively) 130.0 130.1 Common Stock (shares issued 164,707,143 and 164,692,769 as of March 31, 2025 and December 31, 2024, respectively) 164.7 164.7 Capital in excess of par value 605.8 601.3 Retained earnings 3,688.8 3,601.3 Accumulated other comprehensive loss ( 110.3 ) ( 111.9 ) Treasury stock at cost ( 2,623.9 ) ( 2,502.0 ) Total Stockholders’ Equity 1,855.1 1,883.5 Total Liabilities and Stockholders’ Equity $ 3,267.7 $ 3,240.0 See accompanying notes to unaudited condensed consolidated financial statements. 4 Table of Contents A. O. SMITH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in millions) (unaudited) Three Months Ended March 31, 2025 2024 Operating Activities Net earnings $ 136.6 $ 147.6 Adjustments to reconcile net earnings to cash provided by (used in) operating activities: Depreciation and amortization 20.7 19.6 Stock based compensation expense 6.1 8.3 Deferred income taxes ( 5.0 ) 2.9 Net changes in operating assets and liabilities: Current assets and liabilities ( 125.3 ) ( 73.7 ) Noncurrent assets and liabilities 5.6 1.9 Cash Provided by Operating Activities 38.7 106.6 Investing Activities Capital expenditures ( 21.3 ) ( 22.0 ) Acquisition of business — ( 21.1 ) Investments in marketable securities ( 22.6 ) ( 48.1 ) Net proceeds from sale of marketable securities 33.1 20.0 Cash Used in Investing Activities ( 10.8 ) ( 71.2 ) Financing Activities Long-term debt incurred (repaid) 76.5 ( 6.8 ) Common stock repurchases ( 120.6 ) ( 74.5 ) Net (payments) proceeds from stock option activity ( 1.8 ) 8.0 Dividends paid ( 49.2 ) ( 47.3 ) Cash Used in Financing Activities ( 95.1 ) ( 120.6 ) Effect of exchange rate changes on cash and cash equivalents 0.6 ( 3.1 ) Net decrease in cash and cash equivalents ( 66.6 ) ( 88.3 ) Cash and cash equivalents - beginning of period 239.6 339.9 Cash and Cash Equivalents - End of Period $ 173.0 $ 251.6 See accompanying notes to unaudited condensed consolidated financial statements. 5 Table of Contents A. O. SMITH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars in millions) (unaudited) Three Months Ended March 31, 2025 2024 Class A Common Stock Balance at the beginning of period $ 130.1 $ 130.1 Conversion of Class A Common Stock ( 0.1 ) — Balance at end of period $ 130.0 $ 130.1 Common Stock Balance at the beginning of period $ 164.7 $ 164.7 Conversion of Class A Common Stock — $ — Balance at end of period $ 164.7 $ 164.7 Capital in Excess of Par Value Balance at the beginning of period $ 601.3 $ 578.2 Conversion of Class A Common Stock 0.1 — Issuance of share units ( 12.6 ) ( 14.6 ) Vesting of share units ( 1.7 ) ( 1.8 ) Stock based compensation expense 6.0 7.7 Exercises of stock options 0.1 5.4 Issuance of share based compensation 12.6 14.6 Balance at end of period $ 605.8 $ 589.5 Retained Earnings Balance at the beginning of period $ 3,601.3 $ 3,258.1 Net earnings 136.6 147.6 Dividends on stock ( 49.1 ) ( 47.1 ) Balance at end of period $ 3,688.8 $ 3,358.6 Accumulated Other Comprehensive Loss (see Note 14) $ ( 110.3 ) $ ( 87.9 ) Treasury Stock Balance at the beginning of period $ ( 2,502.0 ) $ ( 2,202.5 ) Exercise of stock options ( 1.8 ) 2.7 Shares repurchased ( 120.6 ) ( 74.5 ) Excise tax on repurchases of common stock ( 1.2 ) ( 0.7 ) Vesting of share units 1.7 1.8 Balance at end of period $ ( 2,623.9 ) $ ( 2,273.2 ) Total Stockholders’ Equity $ 1,855.1 $ 1,881.8 See accompanying notes to unaudited condensed consolidated financial statements. 6 Table of Contents A. O. SMITH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2025 (unaudited) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2025 are not necessarily indicative of the results expected for the full year. It is suggested the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 11, 2025. Recent Accounting Pronouncements 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 Accounting Standards Codification (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. The Company is currently evaluating the impact the adoption of ASU 2023-09 will have on its annual disclosures. 2. Revenue Recognition Substantially all of the Company’s sales are from contracts with customers for the purchase of its products. Contracts and customer purchase orders are used to determine the existence of a sales contract. 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. Each unit sold is considered an independent, unbundled performance obligation. The Company’s sales arrangements do not include other performance obligations that are material in the context of the contract. The nature, timing and amount of revenue for a respective performance obligation are consistent for each customer. The Company measures the sales transaction price based upon the payment terms associated with the transaction and whether the sales price is subject to refund or adjustment. Sales and value added taxes are excluded from the measurement of the transaction price. The Company’s payment terms for the majority of its customers are 30 to 90 days from shipment. Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $ 43.0 million and $ 54.4 million at March 31, 2025 and December 31, 2024, respectively. Customer deposit liabilities are short term in nature, recognized into revenue within one year of receipt. The Company assesses the collectability of customer receivables based on the creditworthiness of a customer as determined by credit checks and analysis, as well as the customer’s payment history. In determining the allowance for credit losses, the Company also considers various factors including the aging of customer accounts and historical write-offs. In addition, the Company monitors other risk factors including forward-looking information when establishing adequate allowances for credit losses, which reflects the current estimate of credit losses expected to be incurred over the life of the receivables. The Company’s allowance for credit losses was $ 14.6 million and $ 12.9 million at March 31, 2025 and December 31, 2024, respectively. Rebates and incentives are based on pricing agreements and are tied to sales volume. The amount of revenue is reduced for variable consideration related to customer rebates which are calculated using expected values and are based on program specific factors such as expected rebate percentages based on expected volumes. In situations where the customer has the right to return 7 Table of Contents 2. Revenue Recognition (continued) eligible products, the Company reduces revenue for its estimates of expected product returns, which are primarily based on an analysis of historical experience. Changes in such accruals may be required if actual sales volume differs from estimated sales volume or if future returns differ from historical experience. Shipping and handling costs billed to customers are included in net sales and the related costs are included in cost of products sold and are activities performed to fulfill the promise to transfer products. Disaggregation of Net Sales The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas, heat pump and electric water heaters, boilers, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. As each segment manufactures and markets products in its respective region of the world, the Company has determined that geography is the primary factor in reporting its sales. The Company further disaggregates its North America segment sales by major product line as each of North America’s major product lines is sold through distinct distribution channels and these product lines may be impacted differently by certain economic factors. Within the Rest of World segment, particularly in China and India, the Company’s major customers purchase across the Company’s product lines, utilizing the same distribution channels regardless of product type. In addition, the impact of economic factors is unlikely to be differentiated by product line in the Rest of World segment. The North America segment's major product lines are defined as the following: Water heaters The Company’s water heaters are open water heating systems that heat potable water. 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 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. Boilers The Company’s boilers are closed loop water heating systems used primarily for space heating or hydronic heating. The Company’s boilers are primarily used in applications in commercial settings for hospitals, schools, hotels and other large commercial buildings while residential boilers are used in homes, apartments and condominiums. The Company’s boiler distribution channel is comprised primarily of manufacturer representative firms, with the remainder of its boilers distributed through wholesale channels. The Company’s boiler sales in the North America segment are derived from a combination of replacement of existing products and new construction. Water treatment products The Company’s water treatment products range from point-of-entry water softeners, solutions for problem well water, and whole-home water filtration products to on-the-go filtration bottles, point-of-use carbon, and reverse osmosis products. Typical applications for the Company’s water treatment products include residences, restaurants, hotels and offices. The Company sells water treatment products through its retail and wholesale distribution channels, similar to water heaters. The Company’s water treatment products are also sold through independent water quality dealers as well as directly to consumers including through e-commerce sales channels. A portion of the Company’s sales of water treatment products in the North America segment is comprised of replacement filters. 8 Table of Contents 2. Revenue Recognition (continued) The following table disaggregates the Company’s net sales by segment. As described above, the Company’s North America segment sales are further disaggregated by major product line. In addition, the Company’s Rest of World segment sales are disaggregated by China and all other Rest of World: (dollars in millions) Three Months Ended March 31, 2025 2024 North America Water heaters and related parts $ 624.6 $ 648.3 Boilers and related parts 64.4 58.7 Water treatment products and related parts 59.7 59.3 Total North America 748.7 766.3 Rest of World China $ 187.2 $ 200.6 All other Rest of World 39.5 26.3 Total Rest of World 226.7 226.9 Inter-segment sales ( 11.5 ) ( 14.4 ) Total Net Sales $ 963.9 $ 978.8 3. 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 acquired company is included in the Rest of World segment. The purchase price consisted of an initial cash payment of $ 117.9 million upon the closing of the transaction and a separate payment of $ 6.7 million for inventory made under a transitional supply agreement with Unilever. The Company incurred acquisition costs of approximately $ 1.4 million. The purchase price allocation remains preliminary and subject to final valuation adjustments that will be completed within the one-year period following the acquisition date. The following table summarizes the preliminary allocation of the fair value of the assets acquired and liabilities assumed at the date of acquisition. Of the $ 57.4 million of acquired identifiable intangible assets, $ 48.9 million was assigned to trademarks that are not subject to amortization, $ 3.9 million was assigned to patents which are amortized over 15 years, and the remaining $ 4.6 million was assigned to customer relationships which are amortized over two to three 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 Pureit's assets acquired and liabilities assumed at the date of acquisition: November 1, 2024 (dollars in millions) Current assets $ 5.6 Property, plant and equipment 0.6 Intangible assets 57.4 Goodwill 62.9 Total assets acquired 126.5 Current liabilities ( 1.9 ) Net assets acquired $ 124.6 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. 9 Table of Contents 4. Inventories The following table presents the components of the Company’s inventory balances: (dollars in millions) March 31, 2025 December 31, 2024 Finished products $ 189.8 $ 196.1 Work in process 43.7 42.4 Raw materials 342.7 343.0 Inventories, at FIFO cost 576.2 581.5 LIFO reserve ( 43.6 ) ( 49.4 ) Inventories, at LIFO cost $ 532.6 $ 532.1 5. Product Warranties The Company offers warranties on the sales of certain of its products with terms that are consistent with the market and records an accrual for the estimated future claims. The following table presents the Company’s warranty liability activity: (dollars in millions) Three Months Ended March 31, 2025 2024 Balance at January 1, $ 190.4 $ 188.1 Expense 19.4 19.7 Acquired obligations (1) 1.1 — Claims settled ( 16.6 ) ( 22.8 ) Balance at March 31, $ 194.3 $ 185.0 (1) Refer to Note 3 for additional information regarding the acquisition of Pureit 6. Debt 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 that 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 a $ 500 million revolving credit agreement. As a result of the long-term nature of this facility, the Company’s commercial paper and credit line borrowings are classified as long-term debt at March 31, 2025. At its option, the Company either maintains cash balances or pays fees for bank credit and services. The facility requires the Company to maintain two financial covenants, a leverage ratio test and an interest coverage test. The Company was in compliance with the covenants as of March 31, 2025. 7. Earnings per Share of Common Stock The numerator for the calculation of basic and diluted earnings per share is net earnings. The following table sets forth the computation of basic and diluted weighted-average shares used in the earnings per share calculations: Three Months Ended March 31, 2025 2024 Denominator for basic earnings per share - weighted average shares 143,579,588 147,178,955 Effect of dilutive stock options and share units 828,132 1,118,526 Denominator for diluted earnings per share 144,407,720 148,297,481 10 Table of Contents 8. Stock Based Compensation The Company adopted the A. O. Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007, and the Incentive Plan was most recently reapproved by stockholders on April 15, 2020. The Incentive Plan is a continuation of the A. O. Smith Combined Executive Incentive Compensation Plan which was originally approved by stockholders in 2002. The number of shares available for granting of stock based compensation at March 31, 2025 was 2,079,233 . Upon vesting or exercise of stock based compensation, shares are issued from treasury stock. Share Units Participants in the Incentive Plan may be awarded share units. Share units vest three years after the date of grant. The Company granted 209,366 and 189,792 share units under the Incentive Plan in the three months ended March 31, 2025 and 2024, respectively. The share units were valued at $ 13.7 million and $ 15.6 million at the date of issuance in 2025 and 2024, respectively, based on the price of the Company’s Common Stock at the date of grant. The share units are recognized as compensation expense ratably over the three-year vesting period; however, included in share unit expense in the three months ended March 31, 2025 and 2024 was expense associated with accelerated vesting of share unit awards for certain employees who are retirement eligible or will become retirement eligible during the vesting period. Stock based compensation expense attributable to share units of $ 5.5 million and $ 7.8 million was recognized in the three months ended March 31, 2025 and 2024, respectively. Certain non-U.S.-based employees receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at each reporting period. A summary of share unit activity under the Incentive Plan is as follows for the three months ended March 31, 2025: Number of Units Weighted-Average Grant Date Value Issued and unvested at January 1, 2025 469,269 $ 71.50 Granted 209,366 65.51 Vested ( 82,177 ) 74.17 Forfeited ( 3,935 ) 72.66 Issued and unvested at March 31, 2025 592,523 68.83 Performance Stock Units Beginning in 2023, certain executives may be awarded performance stock units under the Incentive Plan. Performance stock units vest over three years following the date of the grant. Performance stock units vest under a set of measurement criteria which are based upon achievement of certain Sustainability targets. Potential payouts range from zero to 150 % of the target awards and changes from target amounts are reflected as performance adjustments. The Company granted 35,365 and 28,390 performance stock units under the Incentive Plan in the three months ended March 31, 2025 and 2024, respectively. The performance stock units were valued at $ 2.3 million and $ 2.3 million at the date of issuance in 2025 and 2024, 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 $ 0.5 million and $ 0.3 million was recognized in the three months ended March 31, 2025 and 2024, respectively. Certain non-U.S.-based executives receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at each reporting period. A summary of performance stock unit activity under the Incentive Plan is as follows for the three months ended March 31, 2025: Number of Units Weighted-Average Grant Date Value Issued and unvested at January 1, 2025 74,398 $ 75.40 Granted 35,365 65.51 Issued and unvested at March 31, 2025 109,763 72.21 11 Table of Contents 9. Segment Results The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. Three Months Ended March 31, 2025 (dollars in millions) North America Rest of World Inter-segment Elimination Total Segments Less: Corporate Expenses Total Sales from external customers $ 743.4 $ 220.5 $ — $ 963.9 $ — $ 963.9 Inter-segment sales 5.3 6.2 — 11.5 — 11.5 748.7 226.7 — 975.4 — 975.4 Elimination of Inter-segment sales ( 5.3 ) ( 6.2 ) — ( 11.5 ) — ( 11.5 ) Net Sales 743.4 220.5 — 963.9 — 963.9 Cost of products sold 445.7 142.8 — 588.5 — 588.5 Gross Profit 297.7 77.7 — 375.4 — 375.4 Inter-segment Profit — — — — — — Selling, general and administrative expenses 113.4 57.4 — 170.8 21.8 192.6 Other (income) expense, net ( 0.9 ) 0.6 — ( 0.3 ) ( 0.9 ) ( 1.2 ) Earnings $ 185.2 $ 19.7 $ — $ 204.9 $ ( 20.9 ) $ 184.0 Interest expense ( 2.9 ) Earnings before provision for income taxes $ 181.1 Three Months Ended March 31, 2024 (dollars in millions) North America Rest of World Inter-segment Elimination Total Segments Less: Corporate Expenses Total Sales from external customers $ 761.6 $ 217.2 $ — $ 978.8 $ — $ 978.8 Inter-segment sales 4.7 9.7 — 14.4 — 14.4 766.3 226.9 — 993.2 — 993.2 Elimination of Inter-segment sales ( 4.7 ) ( 9.7 ) — ( 14.4 ) — ( 14.4 ) Net Sales 761.6 217.2 — 978.8 — 978.8 Cost of products sold 449.1 145.0 — 594.1 — 594.1 Gross Profit 312.5 72.2 — 384.7 — 384.7 Inter-segment Profit — 0.3 ( 0.3 ) — — — Selling, general and administrative expenses 113.3 56.5 — 169.8 22.4 192.2 Other expense (income), net 0.5 ( 1.2 ) — ( 0.7 ) ( 0.5 ) ( 1.2 ) Earnings $ 198.7 $ 17.2 $ ( 0.3 ) $ 215.6 $ ( 21.9 ) $ 193.7 Interest expense ( 1.0 ) Earnings before provision for income taxes $ 192.7 12 Table of Contents 9. Segment Results (continued) Assets, depreciation and capital expenditures by segment Assets (dollars in millions) March 31, 2025 December 31, 2024 North America $ 2,437.3 $ 2,315.2 Rest of World 557.7 592.1 Total Segments 2,995.0 2,907.3 Corporate (1) 272.7 332.7 Total $ 3,267.7 $ 3,240.0 (1) The majority of corporate assets consist of cash, cash equivalents, marketable securities, and deferred income taxes. Depreciation and amortization Three Months Ended March 31, (dollars in millions) 2025 2024 North America $ 15.4 $ 14.8 Rest of World 5.0 4.4 Total Segments 20.4 19.2 Corporate 0.3 0.4 Total $ 20.7 $ 19.6 Capital expenditures Three Months Ended March 31, (dollars in millions) 2025 2024 North America $ 19.0 $ 19.8 Rest of World 2.3 2.1 Total Segments 21.3 21.9 Corporate — 0.1 Total $ 21.3 $ 22.0 10. Fair Value Measurements ASC 820, Fair Value Measurements , among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. Assets and liabilities measured at fair value are based on the market approach which are prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Assets (liabilities) measured at fair value on a recurring basis are as follows (dollars in millions): Fair Value Measurement Using Balance Sheet Location March 31, 2025 December 31, 2024 Quoted prices in active markets for identical assets (Level 1) Marketable Securities $ 27.2 $ 36.5 Significant other observable inputs (Level 2) Accrued Liabilities ( 0.7 ) ( 1.9 ) Items measured at fair value were comprised of the Company’s marketable securities (Level 1) and derivative instruments (Level 2). There were no changes in the Company's valuation techniques used to measure fair values on a recurring basis during the three months ended March 31, 2025. 13 Table of Contents 11. Derivative Instruments The Company utilizes certain derivative instruments to enhance its ability to manage currency exposure as well as raw materials price risk. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative purposes. The contracts are executed with major financial institutions with no credit loss anticipated for failure of the counterparties to perform. Cash Flow Hedges With the exception of its net investment hedges, the Company designates all of its hedging instruments that qualify for hedge accounting in accordance with ASC 815 as cash flow hedges. For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in expected future cash flows that is attributable to a particular risk), gains or losses on the derivative instrument are reported as a component of other comprehensive loss, net of tax, and are reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings. Foreign Currency Forward Contracts The Company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The Company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases, sales and certain intercompany transactions in the normal course of business. Principal currencies for which the Company utilizes foreign currency forward contracts from time to time include the British pound, Canadian dollar, Euro and Mexican peso. Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive loss to the condensed consolidated statement of earnings. The assessment of effectiveness for forward contracts is based on changes in the forward rates. These hedges have been determined to be effective. 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 $ 0.1 million as of March 31, 2025 which was recorded in Other current assets within the condensed 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 condensed consolidated balance sheet. The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts as of the dates indicated that were designated as cash flow hedges: (dollars in millions) March 31, 2025 December 31, 2024 Buy Sell Buy Sell Canadian dollar $ — $ 21.7 $ — $ 28.9 Euro 10.5 — 14.0 — Mexican peso 19.4 — 27.2 — Total $ 29.9 $ 21.7 $ 41.2 $ 28.9 14 Table of Contents 11. Derivative Instruments (continued) Interest Rate Swaps The Company is exposed to interest rate risk as a result of the Company’s floating rate borrowings. The Company entered into a forward interest rate swap agreement 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. An interest rate swap at March 31, 2025 has a maturity date of September 30, 2029 and effectively converts the Company’s variable interest rate obligation to a fixed interest rate obligation. The interest rate swap had an aggregate notional amount of 4.2 billion rupees outstanding as of March 31, 2025 and December 31, 2024. The aggregate effective interest rate of the swap as of March 31, 2025 was 8.25 %. The fair value of the interest rate swap contract was a liability balance of $ 0.8 million and $ 0.5 million as of March 31, 2025 and December 31, 2024, respectively, which was recorded in Accrued liabilities within the condensed consolidated balance sheet. The effect of cash flow hedges on the condensed consolidated statement of earnings: Three Months Ended March 31 (dollars in millions): Derivatives in ASC 815 cash flow hedging relationships Amount of gain (loss) recognized in other comprehensive loss on derivatives Location of (loss) gain reclassified from accumulated other comprehensive loss into earnings Amount of (loss) gain reclassified from accumulated other comprehensive loss into earnings 2025 2024 2025 2024 Foreign currency contracts $ 1.3 $ 1.8 Cost of products sold $ ( 0.2 ) $ 0.6 Interest rate swap ( 0.3 ) — Interest expense — — $ 1.0 $ 1.8 $ ( 0.2 ) $ 0.6 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. dollar. 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 $( 1.2 ) million of after tax losses and $ 4.0 million of after-tax gains associated with hedges of net investments in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended March 31, 2025 and March 31, 2024, respectively. The contractual amount of the Company’s foreign currency denominated intercompany debt that is designated as a net investment hedge was ¥ 1.5 billion RMB as of March 31, 2025 and December 31, 2024. The fair value of the net investment hedge was zero as of March 31, 2025 and December 31, 2024. Balance Sheet Hedges Foreign Exchange Contracts The Company periodically enters into foreign exchange contracts to mitigate the foreign currency volatility relative to certain intercompany loans. These foreign exchange contracts did not qualify for hedge accounting in accordance with ASC 815 and as such were marked to market through earnings. The fair value of the foreign exchange contracts was zero as of March 31, 2025 and December 31, 2024. The following table summarizes the contractual amounts of the Company's foreign exchange contracts that are designated as balance sheet hedges: (dollars in millions) March 31, 2025 December 31, 2024 Buy Sell Buy Sell Canadian dollar $ — $ — $ — $ 6.4 15 Table of Contents 11. Derivative Instruments (continued) The amounts recognized within the condensed consolidated statements of earnings related to the Company's foreign exchange contracts are set forth below. Three Months Ended March 31 (dollars in millions): Derivatives not designated as hedging instruments: Location of expense within the condensed consolidated statements of earnings 2025 2024 Foreign exchange contracts Other expense, net $ — $ 4.0 12. Income Taxes The Company’s effective income tax rate for the three months ended March 31, 2025 was 24.6 percent. The Company estimates that its annual effective income tax rate for the full year 2025 will be approximately between 24 and 24.5 percent. The effective income tax rate for the three months ended March 31, 2024 was 23.4 percent. The change in the effective income tax rate for the three months ended March 31, 2025 compared to the effective income tax rate for the three months ended March 31, 2024 was primarily due to the geographical earnings mix. As of March 31, 2025, the Company had $ 16.2 million of unrecognized tax benefits of which $ 4.3 million would affect its effective income tax rate if recognized. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s U.S. federal income tax returns and its U.S. state and local income tax returns are subject to audit for the years 2018-2025 and 2006-2025, respectively. The Company is subject to examinations in foreign tax jurisdictions for the years 2019-2025. 13. Commitments and Contingencies The Company maintains a commercial relationship with a supply-chain service provider (the Provider) in connection with the Company’s business in China. In this capacity, the Provider offers order-entry, warehousing and logistics support. The Provider also offers asset-backed financing to certain of the Company’s distributors in China to facilitate their working capital needs. To facilitate its financing support business, the Provider has collateralized lending facilities in place with multiple Chinese banks under which the Company has agreed to repurchase inventory if both requested by the banks and certain defined conditions are met, primarily related to the aging of the distributors’ notes. The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory repurchase under these arrangements. Potential losses under the repurchase arrangements represent the difference between the repurchase price and net proceeds from the resale of the product plus costs incurred in the process, less related distributor rebates. The Company’s reserves for estimated losses under these repurchase arrangements were immaterial as of March 31, 2025 and December 31, 2024. 16 Table of Contents 14. Changes in Accumulated Other Comprehensive Loss by Component Changes to accumulated other comprehensive loss by component are as follows: (dollars in millions) Three Months Ended March 31, 2025 2024 Cumulative foreign currency translation Balance at beginning of period $ ( 104.3 ) $ ( 80.3 ) Other comprehensive gain (loss) before reclassifications 0.7 ( 4.8 ) Balance at end of period ( 103.6 ) ( 85.1 ) Unrealized net (loss) gain on cash flow derivatives Balance at beginning of period ( 1.5 ) 0.7 Other comprehensive gain before reclassifications 0.7 1.4 Realized losses (gains) on derivatives (net of income tax (benefit) provision of $( 0.1 ) and $ 0.1 in 2025 and 2024, respectively) 0.1 ( 0.4 ) Balance at end of period ( 0.7 ) 1.7 Pension liability Balance at beginning of period ( 6.1 ) ( 4.6 ) Amounts reclassified from accumulated other comprehensive loss: (1) 0.1 0.1 Balance at end of period ( 6.0 ) ( 4.5 ) Accumulated other comprehensive loss, end of period $ ( 110.3 ) $ ( 87.9 ) (1) Amortization of pension items: Actuarial losses $ 0.1 $ 0.1 0.1 0.1 Income tax benefit — — Reclassification net of income tax benefit $ 0.1 $ 0.1 17 Table of Contents