What changed in this filing

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Item 1A. Risk Factors

2026-02-10 compared with 2025-02-11 · 50 added, 46 removed, 139 unchanged (41% of the section changed)

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

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

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

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

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

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

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

Also, the current U.S.

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

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

administration has imposed new tariffs and raised the possibility of imposing additional new or increased tariffs.

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

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

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We also have other manufacturing facilities located in hurricane and earthquake zones.

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

Although we have taken steps to

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

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

Although we have taken steps to mitigate

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

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

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

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

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

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

In addition, technologies are ever changing.

Our ability to respond to these trends, timely transition our product portfolio, develop new and innovative products, and acquire and protect the necessary intellectual property rights is essential to our continued success, but cannot reasonably be assured.

It is possible that we will not be able to develop new technologies, products or distribution channels, or do so on a timely basis, to align with consumer purchasing behavior and consumer preferences, which could materially and adversely affect our financial condition, results of operations and cash flows.

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

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

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

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

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

Historically, there has been a lag in our ability to recover increased material costs from customers, and that lag, could negatively impact our profitability.

In some cases, we are dependent on a limited number of suppliers for some of the raw materials and components we require in the manufacturing of our products.

A significant disruption or termination of the supply from one of these suppliers could delay sales or increase costs which could result in a material adverse effect on our financial condition, results of operations and cash flows.

■ Because we participate in markets that are highly competitive, our revenues and earnings could decline as we respond to competition

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Failure to adapt to the evolving competitive environment could materially and adversely affect our financial condition, results of operations and cash flows.

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

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

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

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

Historically, there has been a lag in our ability to recover increased material costs from customers, and that lag, could negatively impact our profitability.

In some cases, we are dependent on a limited number of suppliers for some of the raw materials and components we require in the manufacturing of our products.

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

In addition, technologies are ever changing.

■ Because approximately 18 percent of our sales in 2025 were attributable to China, adverse economic conditions or changes in consumer behavior in China could impact our business

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

Our third-party sales in China decreased twelve percent in local currency in 2025 compared to 2024.

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

Changes in consumer preferences and purchasing behaviors including preferences for e-commerce and manufacturer emphasis on brand ecosystems and connectivity, weakening consumer confidence and sentiment, as well as economic uncertainty, sociopolitical and demographic risks, availability of

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

Changes in consumer preferences and purchasing behaviors including preferences for e-commerce and manufacturer emphasis on brand ecosystems and connectivity, weakening

consumer confidence and sentiment, as well as economic uncertainty, sociopolitical and demographic risks, availability of government incentives, and increased competition from Chinese-based companies may prompt Chinese consumers to postpone purchases, choose lower-priced products or different alternatives, or lengthen the cycle of replacement purchases.

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

In 2025, we announced a strategic assessment of our China business.

This may lead to uncertain outcomes, costs, and impacts that could negatively affect the company.

The announcement might also cause uncertainty among employees, customers, suppliers, and investors that could have a material adverse effect on our financial position, results of operations and cash flows.

Business, Operational, and Strategic Risks

■ We sell our products and operate outside the U.S., and to a lesser extent, rely on imports and exports, which may present additional risks to our business

Approximately 32 percent of our sales in 2024 were attributable to products sold outside of the U.S., primarily in China and Canada, and to a lesser extent in Europe and India.

Approximately 31 percent of our sales in 2025 were attributable to products sold outside of the U.S., primarily in China and Canada, and to a lesser extent in India and Europe.

We also have operations and business relationships outside the U.S.

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The loss of one or more of our largest customers, any material reduction or delay in sales to these customers, or our inability to successfully develop relationships with additional customers could have a material adverse effect on our financial position, results of operations and cash flows.

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

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

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

Residential new construction activity in North America declined in 2025 and industry-wide replacement-related volume of water heaters was flat compared to 2024.

New residential housing starts in the U.S.

are projected to be approximately flat in 2025.

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

are projected to be approximately flat and housing completions are expected to decrease in 2026 compared to 2025.

Commercial construction activity in North America grew in 2025.

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

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

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

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

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

actors or breaches of security.

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

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

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

In addition, remote work and remote access to our systems may heighten these risks.

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

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■ Our international operations are subject to risks related to foreign currencies

We have a significant presence outside of the U.S., primarily in China and Canada and to a lesser extent Europe, Mexico, and India, and therefore, hold assets, including $119 million of cash and marketable securities denominated in Chinese renminbi, incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S.

We have a significant presence outside of the U.S., primarily in China and Canada and to a lesser extent India, Europe, and Mexico, and therefore, hold assets, including $83 million of cash and marketable securities denominated in Chinese renminbi, incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S.

The financial statements of our foreign subsidiaries are translated into U.S.

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dollar relative to the local currencies of our foreign markets, particularly in China, has negatively affected our sales, profitability, and cash and cash equivalents balances and could have such effects in the future.

In 2024, the change in foreign currencies negatively impacted our sales and cash and cash equivalents by approximately $18 million and $7 million, respectively.

In addition to currency translation risks, we incur a currency transaction risk whenever one of our subsidiaries enters into a purchase or sale transaction using a currency different from the operating subsidiaries’ functional currency.

The majority of our foreign currency transaction risk results from sales of our products in Canada, a portion of which we manufacture in the U.S., and to a lesser extent from component purchases in Europe and India and payroll in Mexico.

These risks may adversely impact our reported sales and profits in the future or negatively impact revenues and earnings translated from foreign currencies into U.S.

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■ Potential acquisitions could use a significant portion of our capital and we may not successfully integrate future acquisitions or operate them profitably or achieve strategic objectives

We will continue to evaluate potential acquisitions, and we could use a significant portion of our available capital to fund future acquisitions.

Consistent with our stated strategic priorities, we will continue to evaluate potential acquisitions, and we could use a significant portion of our available capital to fund future acquisitions.

We may not be able to successfully integrate future acquired businesses or operate them profitably or accomplish our strategic objectives for those acquisitions.

If we complete any future acquisitions in new geographies, our unfamiliarity with relevant regulations and market conditions may impact our ability to operate them profitably or achieve our strategic objectives for those acquisitions.

Our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing.

Our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and

could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing.

The impact of future acquisitions may have a material adverse effect on our financial condition, results of operations and cash flows.

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

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

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

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

For example, the U.S.

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

The DOE has also adopted a new efficiency rule for our residential water heaters that will take effect in 2029, which seeks to rapidly increase market adoption of heat pump water heating technology.

In addition, evolving national drinking water standards regulating per- and poly-fluoroalkyl substances (PFAS), as well as mandatory lead pipe replacements by public water utilities, could affect the demand for our water filtration products.

There are also a number of foreign, federal, state and local governments adopting laws, regulations and codes in response to climate change that will require a mandatory transition to non-fossil fuel based sources of space and water heating equipment in the building sector.

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

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

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

■ We are subject to U.S.

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

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

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

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

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

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

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

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

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

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

What changed 10-K

Item 1A. Risk Factors