SMITH A O CORP

Previous wording

Consistent with our stated strategic priorities, we continue to seek acquisitions that enable growth, expand our core business, and establish adjacencies. In January 2026, we acquired 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. 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. Leonard Valve contributed approximately $16 million and $32 million to sales in the second quarter and first half of 2026, respectively. In the first quarter, we recognized $6 million of acquisition-related transaction expenses.

Current wording

Consistent with our stated strategic priorities, we continue to seek acquisitions that enable growth, expand our core business, and establish adjacencies. In January 2026, we acquired LVC Holdco LLC (Leonard Valve) for $469.5 million which was funded with cash borrowed under a new term loan with a group of eight banks. Leonard Valve is a leading manufacturer of water temperature and flow solutions and we believe it represents a compelling strategic fit as we enter into the water management market. Leonard Valve contributed $14.8 million and $46.6 million to net sales in the third quarter and first nine months of 2026, respectively. In the first quarter of 2026, we recognized $6 million of acquisition-related transaction expenses.

Previous wording

Consistent with our Operational Excellence strategic priority, the Company announced a restructuring plan in its North America water treatment business designed to increase operational efficiency and accelerate growth through footprint optimization as well as brand rationalization. In the second quarter, the Company recognized a restructuring charge of $22.6 million, the majority of which is due to non-cash impairment expenses. Beginning in 2027, annual savings are projected to be approximately $6 million to $8 million.

Current wording

Consistent with our stated strategic priorities, we announced in April 2026 a restructuring plan in our North America water treatment business designed to increase operational efficiency and accelerate growth through footprint optimization as well as brand rationalization. In the second quarter, we recognized a restructuring charge of $22.6 million, the majority of which was due to non-cash impairment expenses. Annual savings are projected to be approximately $6 million to $8 million, with approximately $1 million expected to be realized in the second half of 2026. In October 2026, we ceased manufacturing water treatment products at our Groveport, Ohio facility and transferred production to our Appleton, Wisconsin and Haltom City, Texas facilities.

Previous wording

Our sales in the second quarter of 2026 were $1,004.3 million and were slightly lower than the second quarter of 2025 sales of $1,011.3 million. Sales in the first six months of 2026 were $1,949.9 million and lower than sales of $1,975.2 in the first six months of 2025. Compared to the prior year quarter, our net sales decrease was primarily driven by lower sales in China due to continued weak consumer demand partially offset by the sales contribution from the acquisition of Leonard Valve, and the three percent organic growth in our North America business. Our net sales decrease in the first six months of 2026 was primarily driven by lower sales in China partially offset by the sales contribution from the acquisition of Leonard Valve, and the one percent organic growth in our North America business.

Current wording

Our net sales in the third quarter of 2026 were $940.5 million and were slightly lower than the third quarter of 2025 net sales of $942.5 million. Net sales in the first nine months of 2026 were $2,890.4 million and lower than net sales of $2,917.7 million in the first nine months of 2025. Our net sales decrease in the third quarter and first nine months of 2026 was primarily driven by lower net sales in China due to continued weak consumer demand and lower residential water heater volumes, partially offset by the sales contribution in our North America business from the acquisition of Leonard Valve, higher boiler volumes, and the benefits of our pricing actions.

Previous wording

Our gross profit margin in the second quarter of 2026 was 38.6 percent compared to 39.3 percent in the second quarter of 2025. Gross profit margin in the first six months of 2026 was 38.6 compared to 39.1 percent in the first six months of 2025. The decrease in gross profit margin for the second quarter and first six months of 2026 compared to the prior year periods was primarily due to lower sales volumes and higher material cost.

Current wording

Our gross profit margin in the third quarter of 2026 was 38.8 percent compared to 38.7 percent in the third quarter of 2025. Gross profit margin in the first nine months of 2026 was 38.7 percent compared to 39.0 percent in the first nine months of 2025. The decrease in gross profit margin for first nine months of 2026 compared to the prior year period was primarily due to lower net sales volumes and higher material costs, partially offset by pricing actions and IEEPA tariff refunds.

Previous wording

Selling, general, and administrative (SG&A) expenses in the second quarter of 2026 increased $6.4 million compared to the second quarter of 2025. SG&A expenses increased $17.7 million in the first six months of 2026 compared to the prior year period. The increases in SG&A expenses in the second quarter of 2026 compared to the prior year period were primarily due to the Leonard Valve acquisition including higher amortization expenses, and consulting costs. The increases in first six months of 2026 compared to the prior year period were primarily due to higher employee costs, amortization expense and transaction costs related to the acquisition of Leonard Valve and consulting cost.

Current wording

Selling, general, and administrative (SG&A) expenses in the third quarter of 2026 were essentially flat compared to the third quarter of 2025. SG&A expenses increased $18.3 million in the first nine months of 2026 compared to the prior year period. The increase in the first nine months of 2026 compared to the prior year period was primarily due to higher employee costs, amortization expense and transaction costs related to the acquisition of Leonard Valve and consulting costs.

Previous wording

Restructuring and impairment expense in the three and six months ended June 30, 2026 was $22.6 million, and was associated with a restructuring plan designed to increase operational efficiency and accelerate growth through footprint optimization and brand rationalization. The expense was related to our water treatment business and recorded in the North America segment.

Current wording

Restructuring and impairment expense in the nine months ended September 30, 2026 was $22.6 million, and was associated with a restructuring plan designed to increase operational efficiency and accelerate growth through footprint optimization and brand rationalization. The expense was related to our water treatment business and recorded in the North America segment.

Previous wording

Interest expense in the second quarter of 2026 was $8.1 million compared to $4.6 million in the same period last year. Interest expense in the first six months of 2026 was $15.2 million compared to $7.5 million in the same period last year. The increase in interest expense in the second quarter and first six months of 2026 was primarily due to higher debt levels as a result of the Leonard Valve acquisition.

Current wording

Interest expense in the third quarter of 2026 was $7.7 million compared to $3.6 million in the same period last year. Interest expense in the first nine months of 2026 was $22.9 million compared to $11.1 million in the same period last year. The increase in interest expense in the third quarter and first nine months of 2026 was primarily due to higher debt levels as a result of the Leonard Valve acquisition.

Previous wording

Other expense (income), net for the second quarter of 2026 was expense of $1.4 million compared to income of $0.4 million for the second quarter of 2025. Other expense (income), net for the first six months of 2026 was expense of $1.4 million, compared to income of $1.6 million for the first six months of 2025. The change in Other expense (income), net in the second quarter of 2026 was primarily due to higher foreign currency translation losses. The change in Other expense (income), net in the first six months of 2026 was primarily due to higher foreign currency translation losses and lower interest income.

Current wording

Other expense (income), net for the third quarter of 2026 was expense of $0.8 million compared to $0.2 million for the third quarter of 2025. Other expense (income), net for the first nine months of 2026 was expense of $2.2 million, compared to income of $1.4 million for the first nine months of 2025. The change in Other expense (income), net in the third quarter of 2026 was primarily due to higher foreign currency translation losses. The change in Other expense (income), net in the first nine months of 2026 was primarily due to higher foreign currency translation losses and lower interest income.

Previous wording

Our effective income tax rate for the three and six months ended June 30, 2026 was 20.9 percent and 22.3 percent, respectively. The effective income tax rate for the three and six months ended June 30, 2025 was 24.5 percent. The change in the effective income tax rate for the three and six months ended June 30, 2026 compared to the effective income tax rate for the three and six months ended June 30, 2025 was primarily due to a discrete tax benefit recognized during the period ended June 30, 2026 related to U.S. cross border tax elections. We estimate that our annual effective income tax rate for the full year of 2026 will be approximately 24.0 percent.

Current wording

Our effective income tax rate for the three and nine months ended September 30, 2026 was 24.2 percent and 23.0 percent, respectively. The effective income tax rate for the three and nine months ended September 30, 2025 was 23.2 percent and 24.1 percent, respectively. The increase in the effective income tax rate for the three months ended September 30, 2026 compared to the effective income tax rate for the three months ended September 30, 2025 was primarily due to unfavorable geographical earnings mix. The decrease in the effective income tax rate for the nine months ended September 30, 2026 compared to the effective income tax rate for the nine months ended September 30, 2025 was primarily due to a discrete tax benefit recognized in the 2026 period related to U.S. cross border tax elections.

Previous wording

We are providing non-U.S. 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, as well as organic growth (decline) that excludes the impact of acquisitions and divestitures and foreign exchange from year-over-year comparisons. 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, organic growth (decline) and adjusted segment earnings 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.

Current wording

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 segment margin) that exclude the impact of restructuring and impairment expenses, as well as organic growth (decline) that excludes the impact of acquisitions and divestitures and foreign exchange from year-over-year comparisons. 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, organic growth (decline), adjusted segment earnings, and adjusted segment margin 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.

Previous wording

Sales in our North America segment were $820.5 million in the second quarter of 2026, an increase of $41.5 million from $779.0 million in the second quarter of 2025. Sales in the first six months of 2026 were $1,573.9 million, or $46.2 million higher than sales of $1,527.7 million in the same period last year. Compared to the prior year quarter, our net sales increase was primarily driven by the benefits of 2025 pricing actions, incremental sales of approximately $16 million from the 2026 acquisition of Leonard Valve, and increased boiler volumes partially offset by lower residential water heater volumes. Our net sales increase in the first six months compared to the prior year period was primarily driven by the benefits of 2025 pricing actions, incremental sales of approximately $32 million from the 2026 acquisition of Leonard Valve, and increased boiler volumes largely offset by lower residential water heater volumes.

Current wording

Net sales in our North America segment were $761.6 million in the third quarter of 2026, an increase of $18.8 million from $742.8 million in the third quarter of 2025. Net sales in the first nine months of 2026 were $2,335.5 million, or $65.0 million higher than net sales of $2,270.5 million in the same period last year. Compared to the prior year quarter, our net sales increase was primarily driven by the benefits of the incremental net sales of approximately $14.8 million from the 2026 acquisition of Leonard Valve, and increased boiler volumes partially offset by lower residential water heater volumes. Our net sales increase in the first nine months compared to the prior year period was primarily driven by the benefits of pricing actions, incremental net sales of approximately $46.6 million from the 2026 acquisition of Leonard Valve, and increased boiler volumes largely offset by lower residential water heater volumes.

Previous wording

North America segment earnings were $177.2 million in the second quarter of 2026, or $20.9 million lower than segment earnings of $198.1 million in the second quarter of 2025. North America segment earnings were $352.6 million in the first six months of 2026, or $30.7 million lower than segment earnings of $383.3 million in the first six months of 2025. Segment margins were 21.6 percent and 25.4 percent in the second quarter of 2026 and 2025, respectively. Segment margins were 22.4 percent and 25.1 percent in the first six months of 2026 and 2025, respectively. Adjusted segment earnings were $199.8 million in the second quarter of 2026 and $375.2 million for the first six months of 2026, with adjusted segment margins of 24.4% and 23.8%, respectively. These adjusted results exclude the $22.6 million of pretax restructuring and impairment charges as outlined above. Lower segment earnings and margins in the second quarter 2026 were driven by the restructuring and impairment charges. Lower segment earnings and segment margin in the first six months of 2026 were primarily driven by the restructuring and impairment charges, increased material and input cost including steel and lower residential water heater volumes that more than offset the pricing benefits of our 2025 pricing actions and the earnings contribution from Leonard Valve. We estimate our 2026 full year adjusted North America segment margin will be approximately 24 percent.

Current wording

North America segment earnings were $179.9 million in the third quarter of 2026, relatively flat to the segment earnings of $179.7 million in the third quarter of 2025. North America segment earnings were $532.5 million in the first nine months of 2026, or $30.5 million lower than segment earnings of $563.0 million in the first nine months of 2025. Segment margins were 23.6 percent and 24.2 percent in the third quarter of 2026 and 2025, respectively. Segment margins were 22.8 percent and 24.8 percent in the first nine months of 2026 and 2025, respectively. Adjusted segment earnings were $555.1 million for the first nine months of 2026, with an adjusted segment margin of 23.8%. These adjusted results exclude the $22.6 million of pretax restructuring and impairment charges as outlined above. Lower segment margin in the third quarter of 2026 was driven by lower residential water heater volumes and higher material and input costs, including steel and freight costs, that more than offset benefits of higher boiler volumes and IEEPA tariff refunds. Lower segment earnings and segment margin in the first nine months of 2026 were primarily driven by the restructuring and impairment charges, increased material and input costs, including steel and freight costs, and lower residential water heater volumes that more than offset the benefits of 2025 pricing actions, IEEPA tariff refunds, and the earnings contribution from Leonard Valve.

Previous wording

Sales in the Rest of World segment were $194.9 million in the second quarter of 2026, a decrease of $45.2 million from $240.1 million in the second quarter of 2025. Sales in the first six months of 2026 were $395.6 million, or $71.2 million lower than sales of $466.8 million in the same period last year. The decrease in sales in the second quarter of 2026 compared to the same period in 2025 was primarily due to lower sales in China that more than offset the favorable foreign currency translation impact of approximately $6 million resulting from the appreciation of foreign currencies compared to the U.S. dollar. The decrease in sales in the first six months of 2026 compared to same period in 2025 was primarily due to lower sales in China that more than offset the favorable foreign currency translation impact of approximately $14 million resulting from the appreciation of foreign currencies compared to the U.S. dollar.

Current wording

Net sales in the Rest of World segment were $192.8 million in the third quarter of 2026, a decrease of $15.1 million from $207.9 million in the third quarter of 2025. Net sales in the first nine months of 2026 were $588.4 million, or $86.3 million lower than net sales of $674.7 million in the same period last year. The decrease in net sales in the third quarter of 2026 compared to the same period in 2025 was primarily due to lower net sales in China due to continued weak consumer demand and disruption related to the recently concluded strategic assessment that more than offset the favorable foreign currency translation impact of approximately $5 million resulting from the appreciation of foreign currencies compared to the U.S. dollar. The decrease in net sales in the first nine months of 2026 compared to same period in 2025 was primarily due to lower net sales in China that more than offset the favorable foreign currency translation impact of approximately $19 million resulting from the appreciation of foreign currencies compared to the U.S. dollar.

Previous wording

Rest of World segment earnings were $10.2 million in the second quarter of 2026, or $15.1 million lower compared to $25.3 million in the second quarter of 2025. Segment earnings in the first six months of 2026 were $22.6 million, a decrease of $22.4 million compared to segment earnings of $45.0 million in the same period last year. Segment margins were 5.2 percent and 10.5 percent in the second quarter of 2026 and 2025, respectively. Segment margins were 5.7 percent and 9.6 percent in the first six months of 2026 and 2025, respectively. The lower segment earnings and segment margin in the second quarter and first six months of 2026 compared to the prior periods were primarily driven by lower sales in China due to continued weak consumer demand, partially offset by tight spending controls in China. We estimate our 2026 full year Rest of World segment margin will be approximately six to seven percent.

Current wording

Rest of World segment earnings were $10.5 million in the third quarter of 2026, or $4.9 million lower compared to $15.4 million in the third quarter of 2025. Segment earnings in the first nine months of 2026 were $33.1 million, a decrease of $27.3 million compared to segment earnings of $60.4 million in the same period last year. Segment margins were 5.4 percent and 7.4 percent in the third quarter of 2026 and 2025, respectively. Segment margins were 5.6 percent and 9.0 percent in the first nine months of 2026 and 2025, respectively. The lower segment earnings and segment margin in the third quarter and first nine months of 2026 compared to the prior periods were primarily driven by lower net sales in China due to continued weak consumer demand and the negative impact of the recently concluded strategic assessment, partially offset by tight spending controls in China.

Previous wording

Our working capital was $517.6 million at June 30, 2026, compared with $429.0 million at December 31, 2025. The increase in working capital was primarily related to higher accounts receivable balances. As of June 30, 2026, cash balances were positively impacted by changes in foreign currency during the quarter of $1.2 million. Cash and cash equivalents used to fund our operations are primarily generated through operating activities and our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate capital resources among various entities. We have historically made and anticipate future cash repatriations from certain foreign subsidiaries. In the first six months of 2026, we repatriated approximately $38 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances.

Current wording

Our working capital was $549.0 million at September 30, 2026, compared with $429.0 million at December 31, 2025. The increase in working capital was driven by higher cash, accounts receivable and inventory balances. As of September 30, 2026, cash balances were positively impacted by changes in foreign currency of $2.4 million during 2026. Cash and cash equivalents used to fund our operations are primarily generated through operating activities and our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate capital resources among various entities. We have historically made and anticipate future cash repatriations from certain foreign subsidiaries. In the first nine months of 2026, we repatriated approximately $96 million of cash from our foreign subsidiaries and used the proceeds to pay down outstanding debt balances.

Previous wording

Cash provided by operations in the first six months of 2026 was $253.8 million, an increase of $75.5 million from $178.3 million in the first six months of 2025, primarily due to working capital management that more than offset lower earnings. Our free cash flow in the first six months of 2026 and 2025 was $233.3 million and $139.9 million, respectively. We expect cash provided by operating activities to be between $595 million and $645 million in 2026. We expect free cash flow to be between $525 million and $575 million in 2026. Free cash flow is a non-GAAP measure described in more detail in the Non-GAAP Measures section below.

Current wording

Cash provided by operations in the first nine months of 2026 was $429.4 million, a decrease of $4.3 million from $433.7 million in the first nine months of 2025, primarily due to lower earnings that more than offset benefits of working capital management and higher non-cash expense adjustments. Our free cash flow in the first nine months of 2026 and 2025 was $396.2 million and $380.5 million, respectively. Free cash flow is a non-GAAP measure described in more detail in the Non-GAAP Measures section below.

Previous wording

In 2024, we renewed and amended our $500 million revolving credit facility ("facility") which now expires on August 23, 2029. The facility is with a group of nine banks and has an accordion provision that allows it to be increased up to $1 billion if certain conditions (including lender approval) are satisfied. Borrowing rates under the facility are determined by our leverage ratio. The facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of June 30, 2026, and expect to be in compliance for the foreseeable future. The facility backs up commercial paper and credit line borrowings. At June 30, 2026, we had $40.0 million borrowings outstanding under the facility and an available borrowing capacity of $460.0 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.

Current wording

In 2024, we renewed and amended our $500 million revolving credit facility ("facility") which now expires on August 23, 2029. The facility is with a group of nine banks and has an accordion provision that allows it to be increased up to $1 billion if certain conditions (including lender approval) are satisfied. Borrowing rates under the facility are determined by our leverage ratio. The facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of September 30, 2026, and expect to be in compliance for the foreseeable future. The facility backs up commercial paper and credit line borrowings. At September 30, 2026, we had no borrowings outstanding under the 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.

Previous wording

In the first quarter of 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 and used the proceeds to finance the purchase. Our leverage, as measured by the ratio of total debt to total capitalization, was 25.7 percent at June 30, 2026, compared with 7.7 percent at December 31, 2025. Our total debt increased by $482.5 million in the first six months of 2026.

Current wording

In the first quarter of 2026, we completed the acquisition of Leonard Valve for $469.5 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 and used the proceeds to finance the purchase. In July 2026, the Company entered into two loan agreements in China and borrowed the full amounts of 400 million RMB ($59.6 million at September 30, 2026) and 100 million RMB ($14.9 million at September 30, 2026), respectively. Our leverage, as measured by the ratio of total debt to total capitalization, was 27.0 percent at September 30, 2026, compared with 7.7 percent at December 31, 2025. Our total debt increased by $518.1 million in the first nine months of 2026.

Previous wording

In the first quarter of 2026, our Board of Directors approved adding 5,000,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, common stock may be purchased through a combination of 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. During the second quarter of 2026, we repurchased 1,885,727 shares at an average price of $58.93 per share and at a total cost of $111.1 million. As of June 30, 2026, there were 3,202,304 shares remaining on the existing repurchase authorization. Depending on factors such as stock price, working capital requirements, and alternative investment opportunities, we expect to spend approximately $300 million on stock repurchases in 2026 through a combination of any Rule 10b5-1 automatic trading plan and open market repurchases.

Current wording

In the first quarter of 2026, our Board of Directors approved adding 5,000,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, common stock may be purchased through a combination of 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. During the third quarter of 2026, we repurchased 1,598,303 shares at an average price of $61.44 per share and at a total cost of $98.2 million. As of September 30, 2026, there were 1,604,001 shares remaining on the existing repurchase authorization.

Previous wording

On July 13, 2026, our Board of Directors declared a regular quarterly cash dividend of $0.36 per share on our Common Stock and Class A common stock. The dividend is payable on August 17, 2026, to shareholders of record on July 31, 2026.

Current wording

On October 12, 2026, our Board of Directors declared a regular quarterly cash dividend of $0.38 per share on our Common Stock and Class A common stock. The dividend is payable on November 16, 2026, to shareholders of record on October 30, 2026.

Previous wording

We are providing non-U.S. 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 measure of adjusted earnings, adjusted EPS, and adjusted segment earnings 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.

Current wording

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 segment margin) that exclude the impact of restructuring and impairment expenses. We believe that the measure of adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted segment margin 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.

Previous wording

Free cash flow is cash provided by operations less capital expenditures. We believe that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements.

Current wording

Free cash flow is a non-GAAP measure calculated as cash provided by operations less capital expenditures. We believe that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements.

Previous wording

(1)The acquisition effect includes the sales impact of the Leonard Valve acquisition in 2026.

Current wording

(1)The acquisition effect includes the net sales impact of the Leonard Valve acquisition in 2026.

Previous wording

The following is a reconciliation of reported earnings before provision for income taxes to total segment earnings (non-GAAP) and adjusted segment earnings (non-GAAP):

Current wording

The following is a reconciliation of reported earnings before provision for income taxes to total segment earnings (non-GAAP), adjusted segment earnings (non-GAAP), and adjusted segment margin (non-GAAP):

Previous wording

Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2025. We believe that at June 30, 2026, there was no material change to this information.

Current wording

Our condensed consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2025. We believe that at September 30, 2026, there was no material change to this information.

Previous wording

This filing contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “continue,” “guidance,” “outlook”, “confident” or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this filing. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: further softening in U.S. residential and commercial water heater demand; 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; negative impacts to the Company, particularly the demand for its products, resulting from global inflationary pressures or a potential recession in one or more of the markets in which the Company participates; 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, including the recent volatility in fuel and other material prices; inability of the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housing sales in China; the availability, timing or effects of China stimulus programs; uncertain outcomes and costs and other potential impacts of the Company’s assessment relating to the Company’s China business; the failure to realize the expected benefits of restructuring actions; further weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; failure to realize the expected benefits, timing and extent of regulatory changes; competitive pressures on the Company’s businesses, including new technologies and new competitors; the impact of potential information technology or data security breaches; 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 co…

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Current wording

This filing contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “continue,” “guidance,” “outlook,” “confident” or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this filing. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: further softening in U.S. residential and commercial water heater demand; further weakening in North American residential or commercial construction or instability in the Company’s replacement markets; the timing and effects of the China business transaction, including the possibility that the parties will fail to obtain necessary regulatory approvals or to satisfy any of the other conditions to the transaction; potential negative effects relating to the announcement of the China business transaction; failure to realize the expected benefits of the China business transaction; 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; negative impacts to the Company, particularly the demand for its products, resulting from global inflationary pressures or a potential recession in one or more of the markets in which the Company participates; 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, including the recent volatility in fuel and other material prices; inability of the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housing sales in China; the availability, timing or effects of China stimulus programs; the failure to realize the expected benefits of restructuring actions; further weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; failure to realize the expected benefits, timing and extent of regulatory changes; competitive pressures on the Company’s businesses, including new technologies and new competitors; the impact of potential information technology or data securi…

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