What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-02-10 compared with 2025-02-11 · 86 added, 103 removed, 214 unchanged (47% of the section changed)

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North America and Rest of World.

Our Rest of World segment is primarily comprised of China, Europe and India.

Our Rest of World segment is primarily comprised of China, India, and Europe.

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 region of the world.

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

Consistent with our stated strategic priorities, we continue to seek acquisitions that enable growth, expand our core business, and establish adjacencies.

In November 2025, we announced that we signed a definitive agreement to acquire LVC Holdco LLC (Leonard Valve) for $470 million, subject to customary adjustments, and was funded with cash borrowed under a new term loan with a group of eight banks.

The transaction was completed in January 2026.

Leonard Valve is a leading manufacturer of water temperature and flow solutions and we believe it represents a compelling strategic fit and a meaningful advancement into our presence in the water management market.

Leonard Valve is projected to contribute approximately $70 million in sales in 2026 in the North America segment.

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

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

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

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

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

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

Pureit, a leading water purification business in South Asia, offers a broad range of residential water purification solutions.

Pureit contributed $54 million to sales in 2025 in the Rest of World segment.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our guidance excludes the impacts from potential future acquisitions.

In our North America segment, water heater sales increased one percent in 2025 compared to 2024 as pricing benefits and higher commercial volumes were partially offset by lower wholesale residential volumes.

We estimate that 2025 residential industry unit volumes were approximately flat compared to the prior year and we project 2026 industry residential unit volumes will be flat to down, driven by softness in new construction.

We anticipate that commercial water heater industry volumes will increase mid-single digits in 2026 after growing approximately five percent in 2025.

We believe that the 2026 growth will come from the buy ahead of products that will be eliminated as a part of the DOE regulatory change for commercial water heaters that will take effect in October 2026.

In response to higher steel and other input costs, including tariffs, we announced price increases on most of our water heater and boiler products in the first half of 2025.

In addition to pricing, we continue to mitigate the impact of tariffs through footprint optimization, strategic sourcing actions and other cost containment initiatives.

Our boiler sales grew eight percent in 2025 primarily due to higher volumes and pricing benefits.

We expect our boiler sales to grow between six and eight percent in 2026 due to carryover pricing benefits and continued demand for our commercial high efficiency condensing gas boilers.

We anticipate sales of our North America water treatment products will grow between 10 and 12 percent primarily due to tariff-related pricing benefits and as we continue to expand our dealer network.

In our Rest of World segment, China third-party sales declined 12 percent in local currency in 2025 due to continued weak consumer demand and the cessation of the government appliance subsidy programs in the second half of the year.

For the full year 2026, we project our third-party sales in China to decrease mid-single digits in local currency compared to 2025 due to continued softness in consumer demand.

In the third quarter of 2025, we initiated an assessment of strategic opportunities for our China business, including strategic partnerships and other alternatives.

We believe the China market has substantial long-term prospects and are committed to realizing the potential upside inherent in our China business.

The assessment is ongoing.

Combining all of these factors, we expect our 2026 consolidated sales to grow between two and five percent compared to 2025.

Our guidance excludes the impacts from potential future acquisitions, any potential outcomes of the assessment of the China business and changes to tariffs.

RESULTS OF OPERATIONS

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Interest expense 13.5 6.7 12.0

Other (income) expense-net (8.5) (6.9) 425.6

Other income-net (0.6) (8.5) (6.9)

Earnings before provision for income taxes 715.1 701.0 733.5

Provision for (benefit from) income taxes 167.4 176.9 (12.0)

Provision for income taxes 168.9 167.4 176.9

Net Earnings $ 546.2 $ 533.6 $ 556.6

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

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

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

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

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

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

Our sales in 2025 were $3,830.2 million, an increase of $12.1 million compared to 2024 sales of $3,818.1 million.

Our net sales increase was mainly due to implementing price increases to address rising input costs, including tariffs, as well as higher sales volumes of commercial water heaters and boilers.

Additionally, the acquisition of Pureit in late 2024 contributed incremental sales of $54 million in 2025.

These positive factors outweighed the impact of decreased volumes in China, lower residential water heater sales in North America, and an unfavorable currency translation of approximately $7 million due to the depreciation of foreign currencies compared to the U.S.

Our 2025 gross profit margin of 38.8 percent increased compared to 38.1 percent in 2024.

The higher gross profit margin in 2025 compared to 2024 was primarily driven by the benefits of pricing actions implemented early in 2025 to address increased input costs in North America and higher mix of commercial water heaters and boilers.

Selling, general, and administrative (SG&A) expenses were $759.4 million in 2025, or $20.1 million higher than in 2024.

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

The increase in SG&A expenses in 2025 compared to the prior year was primarily due to higher employee costs, partially offset by benefits of our 2024 China restructuring actions.

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

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

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

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Interest expense was $13.5 million in 2025, compared to $6.7 million in 2024.

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

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

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

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

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

The increase in interest expense in 2025 compared to the prior year was primarily due to higher average debt levels throughout 2025.

Other income - net for 2025 was income of $0.6 million, compared to income of $8.5 million in 2024.

The decrease in other income - net was driven by lower foreign currency translation losses compared to the prior year and lower interest income from lower average cash balances.

Our effective income tax rate in 2025 and 2024 was 23.6 percent and 23.9 percent, respectively.

The change in the effective income tax rate in 2025 compared to the prior year was primarily due to reductions in US cross-border tax.

We estimate that our annual effective income tax rate for the full year of 2026 will be approximately 24 to 24.5 percent.

We are providing non-U.S.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted earnings per share (EPS), total segment earnings, adjusted segment earnings, and adjusted corporate expense) that exclude the impact of restructuring and impairment expenses and pension settlement income.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted earnings per share (EPS), total segment earnings, and adjusted segment earnings) that exclude the impact of restructuring and impairment expenses.

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

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

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

North America Segment

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Sales in our North America segment were $2,984.2 million in 2025, or $34.1 million higher than sales of $2,950.1 million in 2024.

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

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

Our net sales increase in 2025 was driven by pricing actions and higher commercial water heater and boiler volumes, which were partially offset by lower residential water heater volumes and unfavorable currency translation of approximately $6 million.

North America segment earnings were $727.9 million in 2025, or $20.4 million higher than segment earnings of $707.5 million in 2024.

Segment margins were 24.4 percent and 24.0 percent in 2025 and 2024, respectively.

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

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

Higher segment earnings and segment margin in 2025 compared to 2024 were primarily driven by pricing benefits, higher boiler and commercial water heater volumes that more than offset lower residential water heater volumes and higher input costs, including tariffs.

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

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

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

We estimate our 2026 North America segment margin will be approximately 24.0 to 24.5 percent.

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Sales in our Rest of World segment were $880.4 million in 2025, or $38.2 million lower than sales of $918.6 million in 2024.

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

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

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

Our net sales decrease in 2024 was due to lower volumes of our residential water treatment and water heater products in China that were partially offset by incremental sales of approximately $53 million related to our 2024 acquisition of Pureit.

Rest of World segment earnings were $76.4 million in 2025 and higher compared to $64.5 million in 2024.

Segment margins were 8.7 percent and 7.0 percent in 2025 and 2024, respectively.

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

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

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

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

The higher segment earnings and segment margin in 2025 compared to 2024 were primarily driven by the benefits of restructuring actions taken at the end of 2024 and other cost saving measures that more than offset lower sales in China.

Segment earnings and margin in 2024 included restructuring and impairment expenses of $11.3 million.

Restructuring and impairment expenses in 2024 were severance costs in China related to the right sizing of that business for current market conditions.

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

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

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

We estimate our 2026 Rest of World segment margin will be approximately eight to nine percent.

As we begin 2026, we expect our consolidated sales to be up approximately two to five percent compared to 2025.

Our projection is driven by the additional sales expected from our Leonard Valve acquisition, as well as boiler sales growth of six to eight percent compared to 2025 due to the carryover of pricing benefits and the continuation of the transition to energy-efficient boilers.

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

Our 2025 full year earnings was $3.85 per share and we expect 2026 full-year earnings of between $3.85 and $4.15 per share.

Our guidance excludes the impacts of potential future acquisitions, any potential outcomes of the assessment of the China business, and changes to tariffs.

LIQUIDITY AND CAPITAL RESOURCES

Our working capital was $429.0 million at December 31, 2025, compared with $495.7 million at December 31, 2024.

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

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

The decrease in working capital was primarily related to lower inventory, cash balances, and increased short term debt maturities.

As of December 31, 2025, cash balances were positively impacted by changes in foreign currency during the year of $4.2 million.

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

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

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

In 2025, we repatriated approximately $109 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances.

Years ended December 31 (dollars in millions) 2025 2024

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Cash used in financing activities (633.1) (408.4)

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

Cash provided by operations in 2025 was $616.8 million and higher than $581.8 million in 2024, primarily as a result of higher earnings and a one-time tax adjustment related to a tax law change that benefited 2025.

Our free cash flow in 2025 and 2024 was $546.0 million and $473.8 million, respectively.

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Capital expenditures totaled $70.8 million in 2025 compared with $108.0 million in 2024.

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

Lower capital expenditures compared to the prior year were primarily due to our capacity expansion projects in Juarez, Mexico and McBee, South Carolina and our new engineering facility in Lebanon, Tennessee in 2024.

We project that 2026 capital expenditures will be between $70 million and $80 million and full-year depreciation and amortization expense will be approximately $100 million.

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

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

At December 31, 2025, we had no borrowings outstanding under the renewed facility and an available borrowing capacity of $500.0 million.

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

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

Our total debt decreased by $38.2 million in 2025 as we used available cash to pay down outstanding debt balances.

Our leverage, as measured by the ratio of total debt to total capitalization, was 7.7 percent at December 31, 2025, compared with 9.3 percent at December 31, 2024.

On January 6, 2026, we completed the acquisition of Leonard Valve for $470 million.

The acquisition was funded under a new three-year, $470 million term loan with a group of eight banks.

The Company borrowed the full available amount on January 5, 2026 and used the proceeds to finance the purchase.

In 2025, our Board of Directors approved adding 5,000,000 shares of common stock to our existing discretionary share repurchase authority.

Under our share repurchase program, we may purchase our common stock through a combination of a Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws.

The stock repurchase authorization remains effective until terminated by our Board of Directors, which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect.

repurchase authorization remains effective until terminated by our Board of Directors, which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect.

During 2025, we repurchased 5,942,601 shares of our stock at a total cost of $400.8 million.

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On January 28, 2026, the Board of Directors approved adding 5,000,000 shares of common stock to the existing discretionary share repurchase authority.

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

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

Including the additional shares, we had 5,545,241 shares available for repurchase as of the date of the Board of Directors' approval.

We intend to repurchase approximately $200 million of our common stock in 2026 through a combination of 10b5-1 plans and open-market purchases.

We paid dividends of $1.38 per share in 2025 compared with $1.30 per share in 2024.

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

We increased our dividend by six percent in the fourth quarter of 2025, and the five-year compound annual growth rate of our dividend payment is approximately seven percent.

We have paid dividends for 86 consecutive years with annual amounts increasing each of the last 34 years.

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Based on the annual goodwill impairment test, we determined there was no impairment of our goodwill as of December 31, 2025.

The fair value of each of our reporting units significantly exceeded its carrying value and a 20 percent decrease in the estimated fair value of our reporting units would not have resulted in a different conclusion.

The fair value of each of our reporting units significantly exceeded its carrying value.

Based on the annual indefinite-lived assets impairment test, we determined there was no impairment of our indefinite-lived assets as of December 31, 2025.

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We are providing non-U.S.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense) that exclude the impact of restructuring and impairment expenses and pension settlement income.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted EPS, total segment earnings, and adjusted segment earnings) that exclude the impact of restructuring and impairment expenses.

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

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

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

SMITH CORPORATION

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Restructuring and impairment expenses, before tax — 17.6

Pension settlement income, before tax — (0.9)

Tax effect on above items — (3.2)

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

Pension settlement income per diluted share, before tax — —

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

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Additional Information

(1) Corporate expense

$ (63.9) $ (64.1)

Pension settlement income, before tax — (0.2)

Impairment expense, before tax — 3.1

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

(1) North America

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Restructuring and impairment expenses, before tax — 6.3

Pension settlement income, before tax — (0.7)

Adjusted North America (non-GAAP) $ 727.9 $ 713.8

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Free cash flow (non-GAAP) $ 546.0 $ 473.8

SMITH CORPORATION

2025 EPS Guidance and 2024 Adjusted EPS

The following is a reconciliation of diluted EPS to adjusted EPS (non-GAAP) (all items are net of tax):

Guidance 2024

Diluted EPS (GAAP) $ 3.60 - 3.90 $ 3.63

Restructuring and impairment expenses — 0.10 (1)

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

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

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

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

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

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

Our guidance excludes the impacts of potential future acquisitions.

OTHER MATTERS

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Risk Management

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

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

Commission (COSO).

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

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

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

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

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

difficulties in predicting results of operations of an acquired business;

negative impact to the Company’s businesses from international tariffs, including any new or increased tariffs that could also trigger retaliatory responses from other countries, as well as trade disputes and geopolitical differences, including the conflicts in Ukraine and the Middle East;

further softening in U.S.

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the Company’s ability to continue to obtain commodities, components, parts and accessories on a timely basis through its supply chain and at expected costs;

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

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

inability of the Company to implement or maintain pricing actions;

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the availability, timing or effects of China stimulus programs;

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

uncertain outcomes and costs and other potential impacts of the Company’s assessment relating to the Company’s China business;

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

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foreign currency fluctuations;

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

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

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

competitive pressures on the Company’s businesses;

including new technologies and new competitors;

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

the impact of potential information technology or data security breaches;

negative impact of changes in government regulations or regulatory requirements;

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

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

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

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

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

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

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

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

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

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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 7. Management’s Discussion and Analysis