A. O. Smith 10-Q 2023-09-30

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________

For the quarterly period ended September 30, 2023.

or

For the transition period from __________ to __________

Commission File Number 1-475

________________________________

A. O. Smith Corporation

(Exact name of registrant as specified in its charter)

________________________________

Delaware

(State of Incorporation)

11270 West Park Place, Milwaukee, Wisconsin

(Address of Principal Executive Office)

39-0619790

(I.R.S. Employer

Identification No.)

53224-9508

(Zip Code)

(414) 359-4000

(Registrant’s telephone number, including area code)

_________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.) ☐ Yes ☒ No

Class A Common Stock Outstanding as of October 25, 2023 - 25,892,752 shares

Common Stock Outstanding as of October 25, 2023 - 122,827,676 shares

Index

A. O. Smith Corporation

PART I - FINANCIAL INFORMATION

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions, except for per share data)

(unaudited)

(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(dollars in millions)

(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions)

See accompanying notes to unaudited condensed consolidated financial statements.

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

(unaudited)

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Overview

Our company is comprised of two reporting segments: North America and Rest of World. Our Rest of World segment is primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential and commercial gas, heat pump and electric water heaters, boilers, tanks, and water treatment products. Both segments primarily manufacture and market in their respective region of the world.

We saw improvement in our supply chain during 2022, particularly in the second half of the year, which continued through the first nine months of 2023. We remain in close contact with our suppliers and logistics providers to resolve supply chain constraints as they arise.

We continue to seek acquisitions that enable geographic growth, expand our core business, and establish adjacencies. We will also continue to look for opportunities to add to our existing operations in high growth regions demonstrated by our previous introductions of water treatment products in India and kitchen appliances in China.

In the first half of 2023, we sold our business in Turkey. We recognized a non-cash impairment charge in the first quarter of $15.6 million, primarily related to the liquidation of the cumulative foreign currency translation adjustment. While Turkey's more project-based business model did not fit well in our strategy, we remain committed to our global water treatment business and will continue to invest in other regions.

In our North America segment, we saw resilient demand in the residential water heater industry in the first nine months of 2023. We project 2023 industry residential unit volumes will grow approximately four percent compared to 2022. Demand for commercial electric water heaters was strong in the first nine months of 2023 compared to last year. Therefore, we expect that commercial water heater industry volumes in 2023 will increase mid-teens compared to 2022. Our boiler sales decreased 11 percent in the first nine months of 2023. We believe channel inventory levels of our residential and light commercial boiler products were elevated coming into 2023, but are now approaching near normal levels. Our boiler sales in the second half of 2022 benefited from a backlog reduction driven by production and supply chain improvements. Orders for our energy efficient, custom condensing boilers have remained steady. Based on these factors, we are reducing our boiler sales outlook to a decrease of high single digits in 2023 compared to 2022. We anticipate sales of our North America water treatment products will increase approximately five to seven percent in 2023, compared to 2022, primarily driven by pricing.

In our Rest of World segment, the economy remains challenged in China. We believe it will take time for consumer confidence to strengthen and for the economy to improve. We project our sales in China will grow three to five percent in 2023 in local currency compared to 2022. We assume that currency translation will negatively impact sales by approximately six percent.

Combining all of these factors, we expect our 2023 consolidated sales to be up two percent compared to 2022. Our guidance excludes the impacts from potential future acquisitions.

Results of Operations

Our sales in the third quarter of 2023 were $937.5 million, or 7.2 percent higher than the third quarter 2022 sales of $874.2 million. Sales in the first nine months of 2023 were $2,864.7 million, or approximately 1.7 percent higher than $2,817.8 million in the same period last year. Compared to the prior year quarter, higher volumes of residential water heaters were partially offset by lower boiler volumes in North America. In addition, our sales in the third quarter of 2023 were unfavorably impacted by approximately $13 million due to the depreciation of foreign currencies compared to the U.S. dollar. In the first nine months of 2023, higher volumes of residential and commercial water heaters more than offset unfavorable foreign currency impacts of approximately $53 million, unfavorable pricing, and lower boiler sales in our North America segment.

Our gross profit margin in the third quarter of 2023 was 38.0 percent and increased compared to 34.9 percent in the third quarter of 2022. Gross profit margin in the first nine months of 2023 was 38.9 percent compared to the gross profit margin of 34.8 percent in the first nine months of 2022. The higher gross profit margin in the third quarter and first nine months of 2023 compared to the same periods last year was primarily due to lower material costs.

Selling, general, and administrative (SG&A) expenses in the third quarter of 2023 increased by $19.4 million compared to the third quarter of 2022. SG&A expenses increased $40.4 million in the first nine months of 2023 compared to the prior year. The increase in SG&A expenses for the third quarter and first nine months of 2023 compared to the prior year periods was primarily due to higher employee costs, which includes management incentive expenses related to higher earnings and compensation increases. The prior year periods include the recognition of an $11.5 million favorable judgment against a competitor related to its infringement of one of our patents, which reduced SG&A expenses, and was partially offset by a $4.3 million expense associated with a terminated acquisition.

Impairment expense in the first nine months of 2023 was $15.6 million related to the sale of our business in Turkey. Of the $15.6 million impairment, $12.5 million was recorded in the Rest of World segment and $3.1 million in Corporate Expense. There was no impairment expense recorded in the third quarter of 2023.

Interest expense in the third quarter of 2023 was $2.4 million and flat to the same period last year. Interest expense in the first nine months of 2023 was $10.9 million compared to $6.0 million in the same period the previous year. The increase in interest expense in the first nine months of 2023 compared to the same period last year was primarily due to higher debt levels and interest rates.

Other expense (income), net was $2.5 million in the third quarter of 2023 and essentially flat compared to $2.4 million in the third quarter of 2022. Other expense (income), net was ($10.5) million in the first nine months of 2023 compared to expense of $6.4 million in the same period last year. The increase in Other expense (income), net was due to a reduction in pension expense of $10.0 million for the nine months ended 2023 compared to the prior year periods and also from $6.0 million of pension settlement income realized in the second quarter of 2023. See Note 10 - Pensions for additional information on the pension settlement.

Our effective income tax rate for the three and nine months ended September 30, 2023 was 23.2 percent and 24.7 percent, respectively. The effective income tax rate for the three and nine months ended September 30, 2022 was 24.1 percent and 23.7 percent, respectively. The change in the effective income tax rate for the three and nine months ended September 30, 2023

compared to the effective income tax rate for the three and nine months ended September 30, 2022 was primarily due to a change in geographical earnings mix. In addition, results in the nine months ended September 30, 2023 include a $15.6 million impairment expense recorded with no associated tax benefit. We estimate that our annual effective income tax rate for the full year of 2023 will be approximately 24 percent.

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 the 2023 impairment expense and pension settlement income and 2022 non-operating pension expenses related to the terminated pension plan. 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.

North America Segment

Sales in our North America segment were $709.9 million in the third quarter of 2023, or $57.0 million higher than sales of $652.9 million in the third quarter of 2022. Sales in the first nine months of 2023 were $2,184.9 million, or $57.8 million higher than sales of $2,127.1 million in the same period last year. Higher sales in the third quarter of 2023 were primarily driven by higher residential water heater volumes, partially offset by lower boiler volumes. Increased sales in the first nine months of 2023 compared to the prior year period were primarily driven by higher residential and commercial water heater volumes, partially offset by unfavorable pricing and lower volumes of boilers.

North America segment earnings were $170.0 million in the third quarter of 2023, an increase of approximately 19.9 percent compared to segment earnings of $141.8 million in the third quarter of 2022. Segment earnings in the first nine months of 2023 were $557.7 million, an increase of 23.0 percent compared to segment earnings of $453.5 million in the first nine months of 2022. Segment margins were 23.9 percent and 21.7 percent in the third quarter of 2023 and 2022, respectively. Segment margins were 25.5 percent and 21.3 percent in the first nine months of 2023 and 2022, respectively.

Higher segment earnings and margins in the third quarter of 2023 compared to the prior year were primarily due to higher volumes of residential water heaters and lower material costs which more than offset lower boiler volumes. Higher segment earnings and margins in the first nine months of 2023 compared to the prior year were primarily due to the factors mentioned above and higher volumes of commercial water heaters. Additionally, in the first nine months of 2023, we realized pre-tax pension settlement income of $5.0 million.

Adjusted segment earnings and adjusted segment margin in the third quarter of 2022 were $132.9 million and 20.4 percent, respectively. Adjusted segment earnings and adjusted segment margin in the third quarter of 2022 exclude $2.6 million of pension expense and the recognition of the $11.5 million patent infringement judgment. Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 were $552.7 million and 25.3 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 exclude $5.0 million of pension settlement income. Adjusted segment earnings and adjusted segment margin in the first nine months of 2022 were $449.8 million and 21.1 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first nine months of 2022 exclude $7.8 million of pension expense and the recognition of the $11.5 million patent infringement judgment. We estimate our 2023 North America segment margin will be approximately 25 percent.

Rest of World Segment

Sales in the Rest of World segment were $233.4 million in the third quarter of 2023, or $3.2 million higher than sales of $230.2 million in the third quarter of 2022. Sales in the first nine months of 2023 were $696.7 million, or $19.4 million lower than sales of $716.1 million in the same period last year. The increased sales in the third quarter of 2023 were primarily driven by higher volumes in China, particularly in our kitchen appliance products, partially offset by unfavorable foreign currency translation of approximately $11 million. The decrease in sales in the first nine months of 2023 was primarily driven by approximately $42 million unfavorable impact of foreign currency translation, partially offset by favorable product mix.

Rest of World segment earnings were $23.2 million in the third quarter of 2023, compared to $21.8 million in the third quarter of 2022. Segment earnings in the first nine months of 2023 were $56.8 million compared to $64.7 million in the first nine months of 2022. Segment margins were 9.9 percent and 9.5 percent in the third quarter of 2023 and 2022, respectively. Segment margins were 8.2 percent and 9.0 percent in the first nine months of 2023 and 2022, respectively.

Higher segment earnings and segment margin in the third quarter of 2023 were primarily driven by sales of new products, particularly in our kitchen appliance products, and favorable mix in China. Lower segment earnings and segment margin in the first nine months of 2023 were primarily driven by the impairment expense of $12.5 million associated with the sale of our business in Turkey.

Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 were $69.3 million and 9.9 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first nine months of 2023 exclude the $12.5 million impairment expense. We estimate our 2023 Rest of World segment margin will be approximately nine percent, and adjusted segment margin will be approximately 10 percent, excluding the impairment expense.

Outlook

We expect our consolidated sales in 2023 to be up two percent compared with 2022. Our sales projection is driven by an expected increase of approximately four percent industry residential unit volumes, increased commercial water heater volumes, and higher water treatment sales, partially offset by lower boiler sales in North America. As a result, we expect to achieve full-year earnings of between $3.63 and $3.73 per share and adjusted earnings of between $3.70 and $3.80 per share. Our guidance excludes the impacts from potential future acquisitions.

Liquidity & Capital Resources

Our working capital was $608.9 million at September 30, 2023, compared with $699.5 million at December 31, 2022. Movements in working capital consisted of lower Cash and cash equivalents, and Marketable securities due to the paydown of our Long-term debt and Trade payables. In addition, as of September 30, 2023, cash balances were negatively impacted by $17.7 million due to changes in foreign currency during the year. Cash and cash equivalents used to fund our operations are primarily generated through operating activities and provided by 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 to the United States from certain foreign subsidiaries. In the first nine months of 2023, we repatriated approximately $100 million of cash from our foreign subsidiaries through dividends and approximately $200 million through our global cash pooling arrangement. We used the proceeds to pay down outstanding debt balances.

Cash provided by operating activities in the first nine months of 2023 was $439.0 million compared with $214.7 million in the same period last year. Cash provided by operations in the first nine months of 2023 increased compared with the prior year due to increased earnings and a more favorable working capital contribution primarily related to lower inventory levels and incentive payments. Our free cash flow in the first nine months of 2023 and 2022 was $396.3 million and $163.8 million, respectively. We expect cash provided by operating activities to be between $640 million and $665 million in 2023. We expect free cash flow to be between $575 million and $600 million in 2023. Free cash flow is a non-GAAP measure described in more detail in the Non-GAAP Measures section below.

Capital expenditures totaled $42.7 million in the first nine months of 2023 compared with $50.9 million in the same period last year. We project 2023 capital expenditures will be approximately $65 million and full-year depreciation and amortization expense will be approximately $70 million.

In 2021, we renewed and amended our $500 million revolving credit facility, which now expires on April 1, 2026. The renewed and amended facility, with a group of nine banks, has an accordion provision that allows it to be increased up to $850 million 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, 2023, and expect to be in compliance for the foreseeable future. The facility backs up commercial paper and credit line borrowings. At September 30, 2023, 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.

Our total debt decreased by $214.9 million in the first nine months of 2023 primarily due to payments. Our leverage, as measured by the ratio of total debt to total capitalization, was 6.4 percent at September 30, 2023, compared with 16.5 percent at December 31, 2022.

In the first quarter of 2023, our Board of Directors approved adding 7,500,000 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. During the first nine months of 2023, we repurchased 2,388,000 shares of our stock at a total cost of $161.4 million. At September 30, 2023, we had 5,490,462 shares remaining on the share repurchase authority. 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 2023 through a combination of any renewed Rule 10b5-1 automatic trading plan and open market repurchases.

On October 9, 2023, our Board of Directors declared a regular quarterly cash dividend of $0.32 per share on our Common Stock and Class A common stock. The dividend is payable on November 15, 2023, to shareholders of record on October 31, 2023.

Non-GAAP Financial Information

We provide non-GAAP measures of free cash flow, adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense. We define free cash flow as cash provided by operating activities less capital expenditures. Our adjusted earnings, adjusted EPS, adjusted segment earnings, and adjusted corporate expenses exclude the impact of the 2023 impairment expense and pension settlement income and 2022 non-operating pension expenses related to the terminated pension plan.

We believe that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. We believe that the measure of adjusted earnings, adjusted EPS, adjusted segment earnings and adjusted corporate expense provides useful information to investors about our performance and allows management and our investors to better understand our performance between periods without regard to items we do not consider to be a component of our core operating performance.

A. O. SMITH CORPORATION

Adjusted Earnings and Adjusted Earnings Per Share

(dollars in millions, except per share data)

(unaudited)

The following is a reconciliation of net earnings and diluted earnings per share to adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP):

(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.

A. O. SMITH CORPORATION

Adjusted Segment Earnings

(dollars in millions)

(unaudited)

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):

A. O. SMITH CORPORATION

Free Cash Flow

(dollars in millions)

(unaudited)

The following is a reconciliation of reported cash flow from operating activities to free cash flow (non-GAAP):

A. O. SMITH CORPORATION

2023 Adjusted EPS Guidance and 2022 Adjusted EPS

(unaudited)

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

(1)Includes pre-tax impairment expense of $12.5 million and $3.1 million, within the Rest of World segment and Corporate expenses, respectively.

(2)Includes pre-tax pension settlement income of $5.0 million and $1.0 million, within the North America segment and Corporate expenses, respectively.

(3)Includes pre-tax pension settlement expense of $346.8 million and $70.5 million, within the North America segment and Corporate expenses, respectively.

(4)Includes pre-tax pension expense of $9.7 million and $2.0 million, within the North America segment and Corporate expenses, respectively.

Critical Accounting Policies

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, 2022. We believe that at September 30, 2023, there was no material change to this information.

Recent Accounting Pronouncements

Refer to Recent Accounting Pronouncements in Note 1 – Basis of Presentation in the notes to our condensed consolidated financial statements included in Part 1 Financial Information.

Forward Looking Statements

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” 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: softening in U.S. residential water heater demand; 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; negative impacts to demand for the Company’s products, particularly commercial products, as a result of the severity and duration of the lingering effects of the COVID-19 pandemic; further weakening in U.S. residential or commercial construction or instability in the Company's replacement markets; inability of the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or further decline in the growth rate of consumer spending or housing sales in China; negative impact to the Company’s business in China as a result of future COVID-19 related disruptions there; negative impact to the Company's businesses from international tariffs, trade disputes and geopolitical differences, including the conflicts in Ukraine and Middle East; potential 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; the Company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; competitive pressures on the Company’s businesses; the impact of potential information technology or data security breaches; 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. Forward-looking statements included in this filing are made only as of the date of this filing, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirely by these cautionary statements.

As is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2022, we are exposed to various types of market risks, including currency and certain commodity risks. Our quantitative and qualitative disclosures about market risk have not materially changed since that report was filed. We monitor our currency and commodity risks on a continuous basis and generally enter into forward and futures contracts to minimize these exposures. The majority of the contracts are for periods of less than one year. Our Company does not engage in speculation in our derivative strategies. It is important to note that gains and losses from our forward and futures contract activities are offset by changes in the underlying costs of the transactions being hedged.

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon this evaluation of these disclosure controls and procedures, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of September 30, 2023 to ensure that information required to be

disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.

Changes in internal control over financial reporting

There have been no changes in our internal control over financial reporting during the quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

There have been no material changes in the legal and environmental matters discussed in Part 1, Item 3 and Note 16 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES

In the first quarter of 2023, our Board of Directors approved adding 7,500,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, the 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 number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, as well as working capital requirements, general business conditions and other factors, including alternative investment opportunities. 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. In the third quarter of 2023, we repurchased 1,313,000 shares at an average price of $69.89 per share and at a total cost of $91.8 million. As of September 30, 2023, there were 5,490,462 shares remaining on the existing repurchase authorization.

The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.

During the three months ended September 30, 2023, none of our directors or Section 16 officers adopted or terminated a “Rule 10b5-1trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.

Refer to the Exhibit Index on page 31 of this report.

INDEX TO EXHIBITS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf by the undersigned.