2022 ANNUAL REPORT
INNOVATION HAS A NAME Corporate Profile
A. O. Smith is a global leader applying innovative technologies and
energy-efficient solutions to products manufactured and marketed
worldwide. The company is one of the world’s leading manufacturers
of residential and commercial water heating equipment and boilers,
as well as a manufacturer of water treatment products for residential
and light commercial applications.
A. O. Smith is headquartered in Milwaukee, Wisconsin, with
approximately 12,000 employees at operations in the United States,
Canada, China, India, Mexico, the Netherlands, Turkey, the United
Kingdom and Vietnam.
A. O. Smith Corporation is listed on the New York Stock Exchange
and is part of the S&P 500 Index. The company has paid cash
dividends on its common stock every year since 1940.
REGISTRAR. STOCK TRANSFER AGENT,
DIVIDEND REINVESTMENT AGENT
(FOR BOTH CLASSES OF STOCK)
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
800-468-9716
651-450-4064
www.shareowneronline.com
MARCH 2023
Letter to Shareholders
Kevin Wheeler,
Chairman, President and
Chief Executive Officer
Dear Shareholders:
A. O. Smith’s 2022 record-setting performance in revenue is
a direct result of our global strategy and the ability to execute
against improved but lingering headwinds in supply chain,
persistent cost inflation and a significant downward volume reset
in the U.S. residential water heater market. Following two years
of significant growth in the U.S. residential industry, we entered
2022 with a continued resilient residential market outlook.
However, partially due to improved delivery lead-times, we
experienced a larger than anticipated channel inventory destocking
of residential water heaters. I commend the A. O. Smith team
for taking the necessary steps to right-size our production and
meet current demands to improve efficiencies going forward.
We delivered record sales of $3.8 billion, largely driven by
inflation-related pricing and higher volumes of boilers. We have
seen continued improvement in the market for condensing
boilers, and Lochinvar’s CREST® Condensing Boiler with Hellcat™
Combustion Technology has done exceptionally well.
Performance in our China operations in 2022 was consistently
resilient, driving Rest of World operating margins to 10% against
a very challenging economic environment. Since early 2020,
the team in China has persevered amid COVID disruptions and
proactively restructured improving our cost position to deliver
near double-digit margins on lower volumes. In addition, the
team continues to introduce new products within our core
product categories aligned with our strategy to continue to
innovate and invest in our premium market position.
Our India operations experienced double-digit growth of 28% in
local currency coming out of the pandemic amid strong demand for
our water heating and water treatment products across each of our
channels. We view India as a long-term growth opportunity given
its attractive growth characteristics and changes in demographics.
Inflation-related pricing and higher volumes within our U.S. boiler
market more than offset adjustments in the residential water
heater industry and led to adjusted earnings of $488.7 million or
$3.14 per share, which is a 6% increase compared to last year.
For more than 30 consecutive years, we have increased our dividend
to shareholders, and in October, we announced a 7% increase in the
dividend rate that resulted in a five-year compound annual dividend
growth rate of 15%. We also repurchased approximately 6.6 million
shares of common stock for a total of $404 million in 2022.
In December 2022, we released our third
Environmental, Social and Governance (ESG) report,
which documents our ESG activities, progress
and performance over the past two years. This
includes preventing almost 500,000 metric tons
of carbon emissions in 2021 through sales of our
highly efficient water heaters and boilers. We also
received WAVE verification from The Water Council
as our initial step in creating a public strategy to
improve our water stewardship performance. ESG
concepts are embedded within the foundation
of our 149-year history, and the ESG report
demonstrates our commitment to the A. O. Smith
values: being a good citizen, being a good place
to work, emphasizing innovation, preserving our
good name and achieving profitable growth.
As we look to 2023, we are confident in our ability
to execute our strategy to innovate and expand our
portfolio of energy-efficient products, including
heat pump technology. In 2022, we launched our
best-in-class Voltex® AL residential heat pump
water heater with industry-leading energy efficiency
and new integrated leak protection technology. We
believe the new Voltex AL heat pump water heater is
a market-leading product that supports consumer
and legislative desires to reduce carbonization and
move toward cleaner and greener practices.
The Aquasana Clean Water Machine was also
updated in 2022, making it the first powered
countertop water filtration appliance to combine
a no-install design with four different methods of
advanced filtration technology. The Clean Water
Machine was recognized with an Eco Excellence
Award, marking the seventh consecutive year
one of our products has won this award.
We continued the geographic expansion of our
North America Water Treatment business with the
addition of Atlantic Filter, a manufacturer and dealer
of quality water treatment equipment for residential,
commercial, institutional and industrial use located
in West Palm Beach, Florida. As consumers remain
focused on the importance of reliable, clean
drinking water, we continue to seek opportunities
to further expand our presence in this segment.
We see opportunities for organic growth, innovation
and new product development across all our product
lines and geographies in the coming year. Our
strong balance sheet allows us to pursue strategic
acquisitions even in times of economic uncertainties
and enables us to maintain our exceptional track
record of delivering returns to shareholders.
As we remain focused on meeting the needs of our
customers, our portfolio of strong brands, combined
with our investment in technology to drive innovation
and new product development, will further enhance
our market leadership. We are excited for the year
ahead and are proud of the work we do every day to
bring value to our employees, customers, partners and
shareholders. We thank you for your continued trust,
confidence and motivation to be part of our journey.
Sincerely,
Kevin J. Wheeler
Chairman, President & Chief Executive Officer
2022 ESG Report
Sustainability is ingrained in who we are as an organization and what
we do every day at A. O. Smith. In 2022, we proudly released our
third Environmental, Social and Governance (ESG) report. Focusing
on ESG is good for the bottom line, beneficial to our shareholders,
critical to our customers and meaningful to our employees. Most
importantly, it has a positive impact on society and the planet.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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:
Title of Each Class
Class A Common Stock
(par value $5.00 per share)
Common Stock
(par value $1.00 per share)
Trading
Symbol(s)
None
AOS
Shares of Stock Outstanding
January 31, 2023
25,905,276
Name of Each Exchange on
Which Registered
Not listed
124,974,017
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
☒ Yes ¨ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ¨ Yes ☒ No
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 ¨ 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
☒ Yes ¨ No
such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting
company, or 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.
Large accelerated filer
Non-accelerated filer
☒ Accelerated filer
☐ Smaller reporting company
☐ Emerging growth company
☐
☐
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.
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public
accounting firm that prepared or issued its audit report.
☒
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act.)
☐ Yes ☒ No
The aggregate market value of voting stock held by non-affiliates of the registrant was $41,779,676 for Class A Common Stock and
$6,733,262,366 for Common Stock as of June 30, 2022.
1.
Portions of the company’s definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (to be filed with the Securities and
Exchange Commission under Regulation 14A within 120 days after the end of the registrant’s fiscal year and, upon such filing, to be
incorporated by reference in Part III).
DOCUMENTS INCORPORATED BY REFERENCE
1
A. O. Smith Corporation
Index to Form 10-K
Year Ended December 31, 2022
Part I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Part III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15. Exhibits, Financial Statement Schedules
Page
3
7
12
13
13
13
16
17
18
28
28
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61
2
PART 1
ITEM 1 – BUSINESS
As used in this annual report on Form 10-K, references to the “Company,” “A. O. Smith,” “AOS,” “we,” “us,” and “our”
refer to A. O. Smith and its consolidated subsidiaries. The following discussion should be read in conjunction with our
consolidated financial statements and notes thereto under “Item 8 Financial Statements and Supplementary Data” in this
annual report on Form 10-K. Our company is comprised of two reporting segments: North America and Rest of World. Both
segments manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers,
heat pump, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions
of the world. Our Rest of World segment is primarily comprised of China, Europe and India.
NORTH AMERICA
Sales in our North America segment accounts for 74% of our total sales in 2022. This segment serves residential and
commercial end markets with a broad range of products including:
Water heaters. Our residential and commercial water heaters, primarily come in sizes ranging from 40 to 80 gallon models,
however, we also offer sizes as low as 2.5 gallon (point-of-use) and as high as 2,500 gallon products with varying efficiency
ranges. We offer electric, natural gas and liquid propane tank-type models as well as tankless (gas and electric), heat pump
and solar tank units. Typical applications for our water heaters include residences, restaurants, hotels, office buildings,
laundries, car washes, schools and small businesses. In 2022, we continued our integration activities of Giant Factories, Inc.,
(Giant) a Canada-based manufacturer of residential and commercial water heaters, which we acquired in late 2021.
Boilers. Our residential and commercial boilers range in size from 45,000 British Thermal Units (BTUs) to 6.0 million BTUs.
Boilers are closed loop water heating systems used primarily for space heating or hydronic heating. Our boilers are primarily
used in applications in commercial settings for hospitals, schools, hotels and other large commercial buildings while
residential boilers are used in homes, apartments and condominiums.
Water treatment products. With the acquisition of Aquasana, Inc. (Aquasana) in 2016 we entered the water treatment market.
We expanded our product offerings with the acquisitions of Hague Quality Water International (Hague) in 2017, Water-
Right, Inc. (Water-Right) in 2019, Master Water Conditioning Corporation (Master Water) in 2021 and Atlantic Filter
Corporation (Atlantic Filter) in 2022. Our water treatment products range from point-of-entry water softeners, solutions for
problem well water, and whole-home water filtration products to on-the-go filtration bottles and point-of-use carbon and
reverse osmosis products. We also offer a comprehensive line of commercial water treatment and filtration products. Typical
applications for our water treatment products include residences, restaurants, hotels and offices.
Other. In our North America segment, we also manufacture expansion tanks, commercial solar water heating systems,
swimming pool and spa heaters, related products and parts.
A significant portion of our North America sales is derived from the replacement of existing products.
We believe we are the largest manufacturer and marketer of water heaters in North America with a leading share in both the
residential and commercial portions of the market. In the commercial portions of the market for both water heating and space
heating, we believe our comprehensive product lines and our high-efficiency products give us a competitive advantage. Our
wholesale distribution channel, where we sell our products primarily under the A. O. Smith and State brands, includes more
than 1,000 independent wholesale plumbing distributors serving residential and commercial end markets. We also sell our
residential water heaters through the retail and maintenance, repair and operations (MRO) channels. In the retail channel, our
customers include four of the six largest national hardware and home center chains, including a long-standing exclusive
relationship with Lowe’s where we sell A. O. Smith branded products.
Our Lochinvar brand is one of the leading residential and commercial boiler brands in the U.S. Approximately 40 percent of
Lochinvar branded sales consist of residential and commercial water heaters while the remaining 60 percent of Lochinvar
branded sales consist primarily of boilers and related parts. Our commercial boiler distribution channel is primarily
comprised of manufacturer representative firms with the remainder of our Lochinvar branded products being distributed
through wholesale channels.
We sell our A. O. Smith branded water treatment products through Lowe's and Amazon. Our Aquasana branded products are
primarily sold directly to consumers through e-commerce channels. Our water softener products and problem well water
solutions, which include Hague, Water-Right, Master Water, and Atlantic Filter, are sold through water quality dealers. Our
water softener products are also sold through home center retail chains.
3
Our energy-efficient product offerings continue to be a sales driver for our business. Our condensing commercial water
heaters and boilers continue to be an option for commercial customers looking for high-efficiency water and space heating
with a short payback period through energy savings. We offer residential heat pump, condensing tank-type and tankless water
heaters in North America, as well as other higher efficiency water heating solutions to round out our energy-efficient product
offerings. In addition, during 2021 we launched a commercial heat pump water heater to align with greenhouse gas emission
reduction trends across the U.S.
We sell our products in highly competitive markets. We compete in each of our targeted market segments based on product
design, reliability, quality of products and services, advanced technologies, energy efficiency, maintenance costs and price.
Our principal water heating and boiler competitors in North America include Rheem, Bradford White, Rinnai, Aerco and
Navien. Numerous other manufacturing companies also compete. Our principal water treatment competitors in the U.S. are
Culligan, Kinetico, Pentair, Franklin Electric and Ecowater as well as numerous regional assemblers.
REST OF WORLD
Sales in our Rest of World segment accounts for 26% of our total sales in 2022, a majority of which is in China. We have
operated in China for nearly 30 years. In that time, we have established A. O. Smith brand recognition in the residential and
commercial markets. We manufacture and market residential water heater and water treatment products, primarily
incorporating reverse osmosis technology, and commercial water treatment products. The Chinese water heater market is
predominantly comprised of electric wall-hung, gas tankless, combi-boiler, heat pump and solar water heaters. We believe we
are one of the market leaders of water heaters and reverse osmosis water treatment products to the residential market in China
in dollar terms. We also design and market range hoods and cooktops in China.
We sell our products in approximately 12,000 points of sale in China, of which approximately 5,400 are retail outlets in tier
one through tier three cities and approximately 2,000 exclusively sell our products. We also sell our products through e-
commerce channels. Our primary competitors in China in the water heater market segment are Haier, Midea, and Rinnai. Our
principal competitors in the water treatment market are Angel, Midea, Truliva, and Xiaomi.
In 2008, we established a sales office in India and began importing products specifically designed for India. We began
manufacturing water heaters in India in 2010 and water treatment products in 2015. We continue to expand our product
offerings and sales in this country, primarily through wholesale, e-commerce and retail channels. Our primary competitors in
India are Racold, Bajaj and Havells in the water heater market and Eureka Forbes, Kent and Hindustan Unilever in the water
treatment market.
We also sell water heaters in the European and Middle and Far Eastern markets and water treatment products in Hong Kong,
and Vietnam, all of which combined comprised less than 13 percent of total Rest of World sales in 2022.
RAW MATERIALS
We use a wide range of raw materials in our manufacturing operations. These raw materials are generally available in
adequate quantities, however, the COVID-19 pandemic and disruptions in the commercial transportation network have
stressed the availability of certain raw materials. While supply chain and logistics challenges lingered in 2022, we saw
improvement, particularly in the second half of the year. Our primary raw material input is steel which has experienced
volatility in costs over the last several years. A portion of our customers have contractual pricing tied to a steel price index.
RESEARCH AND DEVELOPMENT
To improve our competitiveness by generating new products and processes, we conduct research and development at our
Corporate Technology Center in Milwaukee, Wisconsin, our Global Engineering Center in Nanjing, China, and our operating
locations. Our total expenditures for research and development in 2022, 2021 and 2020 were $89.0 million, $94.2 million and
$80.7 million, respectively.
PATENTS AND TRADEMARKS
We invest, own and use in our businesses various trademarks, trade names, patents, trade secrets and licenses. We monitor
our intellectual property for infringement and in 2022 received a judgment of $11.5 million against a competitor related to
one of our patents. Although we believe our trademarks, trade names, patents, trade secrets, and licenses to constitute a
valuable asset in the aggregate, we do not regard our business as being materially dependent on any single trademark, trade
name, patent, trade secret, license or any group of related such rights. Our trade name is important with respect to our
products, particularly in China, India, and North America.
4
HUMAN CAPITAL
We employed approximately 12,000 employees as of December 31, 2022 with approximately 6,200 in North America and
5,800 in Rest of World. A small portion of our workforce in the U.S. is represented by a labor union, while outside the U.S.,
we have employees in certain countries that are represented by employee representative organizations, such as an employee
association, union, or works council.
Our Guiding Principles and Values. The foundation of how we conduct business and interact with our employees is outlined
in A. O. Smith Corporation’s Guiding Principles and our Statement of Values. These principles and values help to shape how
we hire, train and treat our employees, emphasizing teamwork and promoting diversity in seeking our objectives. We believe
that our Guiding Principles and Values shape the critical elements of our effort to attract, retain and develop talent.
Culture and Employee Engagement. We conduct a Global Employee Engagement Survey on a biannual basis. This third
party managed survey measures employees’ level of engagement against external norms and provides us with actionable
feedback that drives improvement priorities. Survey participation in 2022 was 97 percent, which we believe reflects our
employees’ desire to share their perspectives and a commitment to continuous improvement. Survey results help shape action
plans to further improve our culture and we will conduct the survey again in 2024.
Diversity and Inclusion. As reflected in our Guiding Principles, we strive to create a workplace where people from diverse
backgrounds can thrive and achieve their fullest potential. A. O. Smith’s commitment to this objective starts at the top with
its Board of Directors, which is 50% diverse. A. O. Smith monitors the gender and racial composition of its workforce in the
U.S. at various levels within the organization, and also tracks pay equity on an ongoing basis.
Compensation and Benefits. We provide what we believe is a robust total compensation program designed to be market-
competitive and internally equitable to attract, retain, motivate and reward a high-performance workforce. Regular internal
and external analysis is performed to ensure this market alignment. In addition to salaries, these programs, which vary by
country, can include annual performance-based bonuses, stock-based compensation awards, retirement plans with employee
matching opportunities, health benefits, health savings and flexible spending accounts, paid time off, family leave, and tuition
assistance, among others.
Training and Development. We provide all employees with a wide range of professional development experiences, both
formal and informal, to help them achieve their full potential. All of of our salaried employees are given formal development
plans. Some of the formal development programs that employees have access to include early-career leadership development
programs, front-line leadership development programs, continuous improvement skill-building programs, core process
technology councils and tuition reimbursement for degree programs or trade schools. In 2022, we partnered with a third party
provider to deliver diversity and inclusive leadership training to enhance the capability of our workforce with a program that
aligns with our Guiding Principles, Values, and overall leadership approach. In 2022, we provided this training to our senior
leadership team globally and senior management in the U.S., and we intend to expand that training program in 2023.
Globally, all office and professional employees also have formal performance reviews and development plans with a focus on
learning by doing. We expect our managers to work closely with their employees to ensure performance feedback and to
conduct development discussions on a regular basis.
Safety. The safety of our people is always at the forefront of what we do. We provide safety training in our production
facilities, designed to empower our employees with the knowledge and tools they need to make safe choices and mitigate
risks. In addition to traditional training, we use standardized signage and visual management throughout our facilities. Since
1954, we have awarded annually the Lloyd B. Smith President's Safety Award, which acknowledges an A. O. Smith facility
that demonstrates the most improvement over one year in the area of workplace safety.
BACKLOG
Due to the short-cycle nature of our businesses, our operations do not normally sustain significant backlogs.
5
GOVERNMENT REGULATIONS AND ENVIRONMENTAL MATTERS
Our operations, including the manufacture, packaging, labeling, storage, distribution, advertising and sale of our products, are
subject to various federal, state, local and foreign laws and regulations. In the U.S., many of our products are regulated by the
Department of Energy, the Consumer Product Safety Commission, and the Federal Trade Commission. State and local
governments, through laws, regulations, and building codes, also regulate our water heating and water treatment products.
Whether at the federal, state, or local level, these laws are intended to improve energy efficiency and product safety, and
protect public health and the environment. In recent years, a limited number of states and local authorities have proposed or
implemented bans on gas-fired products in new construction in an effort to address greenhouse gas emissions. Similar laws
and regulations have been adopted by government authorities in other countries in which we manufacture, distribute, and sell
our products. We offer a complete line of water and hydronic heating products, including electric-powered water heaters and
boilers, and we believe that any reduction in fossil fuel-powered products would be counterbalanced by the demand for our
non-fossil fuel powered products. We are confident that our continued emphasis on product design and innovation will keep
us well positioned to deliver products demanded by customers, regardless of fuel source.
In addition, our operations are subject to federal, state and local environmental laws. We are subject to regulations of the U.S.
Environmental Protection Agency and the Occupational Health and Safety Administration and their counterpart state
agencies. Compliance with government regulations and environmental laws has not had and is not expected to have a
material effect upon the capital expenditures, earnings, or competitive position of our company. See Item 3.
AVAILABLE INFORMATION
We maintain a website with the address www.aosmith.com. The information contained on our website is not included as a
part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet access
charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practical after we have
electronically filed such material with, or furnished such material to, the Securities and Exchange Commission (SEC). All
reports we file with the SEC are also available free of charge via EDGAR through the SEC’s website at www.sec.gov.
We are committed to sound corporate governance and have documented our corporate governance practices by adopting the
A. O. Smith Corporate Governance Guidelines. The Corporate Governance Guidelines, Criteria for Selection of Directors,
Financial Code of Ethics, the A. O. Smith Guiding Principles, as well as the charters for the Audit, Personnel and
Compensation, Nominating and Governance and the Investment Policy Committees of the Board of Directors and other
corporate governance materials, may be viewed on the Company’s website. Any waiver of or amendments to the Financial
Code of Conduct or the A. O. Smith Guiding Principles also would be posted on this website; to date there have been none.
Copies of these documents will be sent to stockholders free of charge upon written request of the corporate secretary at the
address shown on the cover page of this Annual Report on Form 10-K.
We are also committed to growing our business in a sustainable and socially responsible manner consistent with our Guiding
Principles. This commitment has driven us to design, engineer and manufacture highly innovative and efficient products in an
environmentally responsible manner that helps reduce energy consumption, conserve water and improve drinking water
quality and public health. Consistent with this commitment, we issue our sustainability report biennially detailing our
company’s historic and current efforts. We issued our third report, the 2022 Environmental, Social and Governance ("ESG")
Report in December 2022, documenting our ESG activities over the past two years. This report details the positive impact of
our highly efficient products, highlights our company’s commitment to employees and the communities in which we operate,
and reports on our progress toward our greenhouse gas emissions reduction goal of 10% by 2025. We have made significant
progress toward our ESG emission reduction goal and prevented almost 500,000 metric tons of carbon emissions in 2021
through the sale of our high efficiency water heaters and boilers. Our scorecard reflecting our progress is available on our
website. We have also achieved WAVE water stewardship verification and achieved our fourth consecutive Energy Star
Partner of the Year Award. Our ESG report is available on our website and not included as part of, or incorporated by
reference into, this Annual Report on Form 10-K.
6
ITEM 1A – RISK FACTORS
In the ordinary course of our business, we face various strategic, operating, compliance and financial risks. These risks could
have an impact on our business, financial condition, operating results and cash flows. The risks set forth below are not an
exhaustive list of potential risks but reflect those that we believe to be material. You should carefully consider the risk factors
set forth below and all other information contained in this Annual Report on Form 10-K, including the documents
incorporated by reference, before making an investment decision regarding our common stock. If any of the events
contemplated by the following risks were to actually occur, then our business, financial condition, or results of operations
could be materially adversely affected. As a result, the trading price of our common stock could decline, and you may lose all
or part of your investment.
Economic and Industry Risks
■ The effects of global and regional economic conditions could have a material adverse effect on our business
A decline in economic activity, such as a recession or economic downturn, in the U.S. and other regions in the world in which
we do business, could adversely affect consumer confidence and spending patterns which could result in decreased demand
for the products we sell, a delay in purchases, increased price competition, slower adoption of energy-efficient water heaters
and boilers, or high-quality water treatment products, which could negatively impact our profitability and cash flows. Such
deterioration in economic conditions could arise from many factors or fears including public health crises, political instability
or risk of government default. In addition, an increase in price levels generally or in particular industries (such as the inflation
in steel prices in 2021 and the recent inflation in other material and logistics costs), could result in a consumer shift away
from the products we offer, which could adversely affect our revenues and, at the same time, increase our costs. A
deterioration in economic conditions also could negatively impact our vendors and customers, which could result in an
increase in bad debt expense, customer and vendor bankruptcies, interruption or delay in supply of materials, or increased
material prices, which could negatively impact our ability to distribute, market and sell our products and our financial
condition, results of operations and cash flows.
■ The occurrence or threat of extraordinary events, including natural disasters, political disruptions, terrorist attacks,
public health issues, and acts of war, could significantly disrupt production, or impact consumer spending
As a global company with a large international footprint, we are subject to increased risk of damage or disruption to us and
our employees, facilities, suppliers, distributors, or customers. Extraordinary events, including natural disasters, resulting
from but not limited to climate change, political disruptions, terrorist attacks, public health issues, such as the COVID-19
pandemic, and acts of war may disrupt our business and operations and impact our supply chain and access to necessary raw
materials or could adversely affect the economy generally, resulting in a loss of sales and customers. Any of these disruptions
or other extraordinary events outside of our control that impact our operations or the operations of our suppliers and key
distributors could affect our business negatively, harming operating results.
The COVID-19 pandemic continues to cause disruption to the global economy. We continue to monitor the pandemic, and
while periodic local increases and decreases in COVID-19 cases are likely, generally the restrictions due to and in response to
the pandemic continue to relax in most locations. However, the COVID-19 pandemic and efforts to manage it, including
those by governmental authorities, could have a material adverse effect on our financial condition, results of operations and
cash flows.
Natural disasters and extreme weather conditions may disrupt the productivity of our facilities. For example, two of our
manufacturing plants are located within a floodplain that has experienced past flooding events. We also have other
manufacturing facilities located in hurricane and earthquake zones. We maintain insurance coverage and have taken steps to
mitigate these physical risks related to natural disasters and extreme weather conditions. Pricing for our insurance program
has remained at the prevailing market rate with no significant change in the current year’s premium rates from the prior year.
Also, to mitigate the risk of flooding, we recently completed an approximately 7,000-foot-long berm, flood gates, and
pumping stations around our Ashland City, Tennessee facility, our largest manufacturing facility. Despite our mitigation
efforts, there is still the potential for natural disasters and extreme weather conditions to disrupt the productivity of our
facilities.
Apart from the potential impact on our operations, these types of events also could negatively impact consumer spending in
the impacted regions or depending on the severity, globally, which could materially and adversely affect our financial
condition, results of operations and cash flows.
7
■ Our business could be adversely impacted by changes in consumer purchasing behavior, consumer preferences,
technological changes, and market trends
Consumer preferences for products and the methods in which they purchase products are constantly changing based on,
among other factors, cost, performance, convenience, environmental and social concerns and perceptions. Consumer
purchasing behavior may shift the product mix in the markets in which we participate or result in a shift to other distribution
channels, for example e-commerce. Consumer preferences and broader trends, such as decarbonization and electrification
efforts in response to climate change, may result in increased demand for higher efficiency products and/or more electric
powered products. In addition, technologies are ever changing. Our ability to respond to these trends, timely transition our
product portfolio, develop new and innovative products, and acquire and protect the necessary intellectual property rights is
essential to our continued success, but cannot reasonably be assured. It is possible that we will not be able to develop new
technologies, products or distribution channels, or do so on a timely basis, to align with consumer purchasing behavior and
consumer preferences, which could materially and adversely affect our financial condition, results of operations and cash
flows.
■ Our operations could be adversely impacted by material and component price volatility, as well as supplier
concentration
The market prices for certain materials and components we purchase, primarily steel, have been volatile. We have also
experienced inflation related increases in our transportation costs. Significant increases in the cost of any of the key materials
and components we purchase would increase our cost of doing business and ultimately could lead to lower operating earnings
if we are not able to recover these cost increases through price increases to our customers. Historically, there has been a lag in
our ability to recover increased material costs from customers, and that lag, could negatively impact our profitability. In some
cases, we are dependent on a limited number of suppliers for some of the raw materials and components we require in the
manufacturing of our products. A significant disruption or termination of the supply from one of these suppliers could delay
sales or increase costs which could result in a material adverse effect on our financial condition, results of operations and
cash flows.
■ Because we participate in markets that are highly competitive, our revenues and earnings could decline as we respond to
competition
We sell all of our products in highly competitive and evolving markets. We compete in each of our targeted markets based on
product design, reliability, quality of products and services, advanced technologies, product performance, maintenance costs
and price. Some of our competitors may have greater financial, marketing, manufacturing, research and development and
distribution resources than we have; others may invest little in technology or product development but compete on price and
the rapid replication of features, benefits, and technologies, and some are increasingly expanding beyond their existing
manufacturing or geographic footprints. In North America, the gas tankless portion of the water heating market has for many
years increased as a percentage of the overall market. While we have many gas tankless products, our market share for gas
tankless products is lower than our market share for the remainder of the water heating market. Further expansion of the gas
tankless portion of the North America market, which we believe was approximately 11 percent of the residential market
segment in 2022, could have an impact on our operating results. We cannot assure that our products will continue to compete
successfully with those of our competitors. There could be new market participants that change the dynamics of those
markets and it is possible that we will not be able to retain our customer base or improve or maintain our profit margins on
sales to our customers, all of which could materially and adversely affect our financial condition, results of operations and
cash flows.
■ Because approximately 22 percent of our sales in 2022 were attributable to China, adverse economic conditions or
changes in consumer behavior in China could impact our business
Our sales in China decreased five percent in local currency in 2022 compared to 2021. Our 2022 sales in China were
impacted by lower consumer demand driven by COVID-19 related disruptions. Certain COVID-19 restrictions were lifted at
the end of 2022 but could return. We derive a substantial portion of our sales in China from premium-tier products. Changes
in consumer preferences and purchasing behaviors including preferences for e-commerce, weakening consumer confidence
and sentiment as well as economic uncertainty, socio-political risks, increased competition from Chinese-based companies,
and potential future COVID-19 related impacts, may prompt Chinese consumers to postpone purchases, choose lower-priced
products or different alternatives, or lengthen the cycle of replacement purchases. Further deterioration in the Chinese
economy may adversely affect our financial condition, results of operations and cash flows.
8
Business, Operational, and Strategic Risks
■ We sell our products and operate outside the U.S., and to a lesser extent, rely on imports and exports, which may present
additional risks to our business
Approximately 34 percent of our sales in 2022 were attributable to products sold outside of the U.S., primarily in China and
Canada, and to a lesser extent in Europe and India. We also have operations and business relationships outside the U.S. that
comprise a portion of our manufacturing, supply, and distribution. Approximately 5,200 of our 12,000 employees as of
December 31, 2022 were located in China. At December 31, 2022, approximately $472 million of cash and marketable
securities were held by our foreign subsidiaries, substantially all of which were located in China. International operations
generally are subject to various risks, including: political, religious, and economic instability; local labor market conditions;
new or increased tariffs or other trade restrictions, or changes to trade agreements; the impact of foreign government
regulations, actions or policies; the effects of income taxes; governmental expropriation; the changes or imposition of
statutory restrictions which prohibit repatriation of cash; the imposition or increases in withholding and other taxes on
remittances and other payments by foreign subsidiaries; labor relations problems; the imposition of environmental or
employment laws, or other restrictions or actions by foreign governments; and differences in business practices. Unfavorable
changes in the political, regulatory, or trade climate, diplomatic relations, or government policies, particularly in relation to
countries where we have a presence, including Canada, China, India and Mexico, could have a material adverse effect on our
financial condition, results of operations and cash flows or our ability to repatriate funds to the U.S.
■ A material loss, cancellation, reduction, or delay in purchases by one or more of our largest customers could harm our
business
Sales to our five largest customers represented approximately 39 percent of our sales in 2022. We expect that our customer
concentration will continue for the foreseeable future. Our concentration of sales to a relatively small number of customers
makes our relationships with each of these customers important to our business. We cannot assure that we will be able to
retain our largest customers. Some of our customers may shift their purchases to our competitors in the future. Our customers
may experience financial instability, affecting their ability to make or pay for future purchases. Further, a customer may be
acquired by a customer of a competitor which could result in our loss of that customer. The loss of one or more of our largest
customers, any material reduction or delay in sales to these customers, or our inability to successfully develop relationships
with additional customers could have a material adverse effect on our financial position, results of operations and cash flows.
■ A portion of our business could be adversely affected by a further decline in North American new residential or
commercial construction or a decline in replacement-related volume of water heaters and boilers, including a decline in
demand for commercial spaces
Residential new construction activity in North America and industry-wide replacement-related volume of water heaters had
growth in 2020 and 2021, and then declined in 2022. New residential housing starts in the U.S. are projected to decrease
further in 2023 compared to 2022. Commercial construction activity in North America grew in 2022 and 2021 after declining
in 2020. We believe that the significant majority of the markets we serve are for the replacement of existing products, and
residential water heater replacement volume was strong in 2022 and 2021. As a result of the COVID-19 pandemic, businesses
and commercial spaces have experienced and may experience in the future, fluctuation in demand and in occupancy that may
reduce demand for our products, and commercial sectors, such as the restaurant and hospitality industries in which we have
customers, may experience long-term shifts in consumer behavior which could negatively impact demand or capacity and
may not return to pre-pandemic levels. In addition, the acceptance of remote work arrangements could negatively impact
demand for commercial construction. Changes in the replacement volume and in the construction market in North America
could negatively affect us.
■ An inability to adequately maintain our information systems and their security, as well as to protect data and other
confidential information, could adversely affect our business and reputation
In the ordinary course of business, we utilize information systems for day-to-day operations, to collect and store sensitive
data and information, including our proprietary and regulated business information and personally identifiable information of
our customers, suppliers and business partners, as well as personally identifiable information about our employees. Our
information systems are susceptible to outages due to system failures, cybersecurity threats, failures on the part of third-party
information system providers, natural disasters, power loss, telecommunications failures, viruses, fraud, theft, malicious
actors or breaches of security. Like many companies, we, and some third parties upon which we rely, have experienced
cybersecurity incidents and attacks on information technology networks and systems, products and services in the past but, to
date, none have resulted in a material breach or had a material adverse impact on our financial condition, results of
operations, or cash flows. We may experience them in the future, potentially with increasing frequency from increasingly
9
sophisticated cyber threats. In addition, as a result of the COVID-19 pandemic, remote work and remote access to our
systems have increased, which may heighten these risks. A successful attack in the future could result in operations failure or
breach of security that could lead to disruptions of our business activities, the loss or disclosure of both our and our
customers’ financial, product and other confidential information and could result in regulatory actions, litigation and have a
material adverse effect on our financial condition, results of operations and cash flows and our reputation. We have a
response plan in place in the event of a data breach and we have an active program to maintain and improve data security and
address these risks and uncertainties by implementing and improving internal controls, security technologies, insurance
programs, network and data center resiliency and recovery processes.
■ Our international operations are subject to risks related to foreign currencies
We have a significant presence outside of the U.S., primarily in China and Canada and to a lesser extent Europe, Mexico, and
India, and therefore, hold assets, including $377 million of cash and marketable securities denominated in Chinese renminbi,
incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S. dollar. The financial statements
of our foreign subsidiaries are translated into U.S. dollars in our consolidated financial statements. Furthermore, typically our
products are priced in foreign countries in local currencies. As a result, we are subject to risks associated with operating in
foreign countries, including fluctuations in currency exchange rates and interest rates, hyperinflation in some foreign
countries such as Turkey, where we currently have minor operations, or global exchange rate instability or volatility that
strengthens the U.S. dollar against foreign currencies. An increase in the value of the U.S. dollar relative to the local
currencies of our foreign markets, as experienced globally in the second half of 2022, has negatively affected our sales,
profitability, and cash and cash equivalents balances and could have such effects in the future. In 2022, the change in foreign
currencies negatively impacted our sales and cash and cash equivalents by approximately $61 million and $21 million,
respectively. In addition to currency translation risks, we incur a currency transaction risk whenever one of our subsidiaries
enters into a purchase or sale transaction using a currency different from the operating subsidiaries’ functional currency. The
majority of our foreign currency transaction risk results from sales of our products in Canada, a portion of which we
manufacture in the U.S, and to a lesser extent from component purchases in Europe and India and payroll in Mexico. These
risks may adversely impact our reported sales and profits in the future or negatively impact revenues and earnings translated
from foreign currencies into U.S. dollars.
■ Our business may be adversely impacted by product defects
Product defects can occur through our own product development, design and manufacturing processes or through our reliance
on third parties for component design and manufacturing activities. We may incur various expenses related to product
defects, including product warranty costs, product liability and recall or retrofit costs. While we maintain a reserve for
product warranty costs based on certain estimates and our knowledge of current events and actions, our actual warranty costs
may exceed our reserve, resulting in current period expenses and a need to increase our reserves for warranty charges. In
addition, product defects and recalls may diminish the reputation of our brand. Further, our inability to cure a product defect
could result in the failure of a product line or the temporary or permanent withdrawal from a product or market. Any of these
events may have a material adverse impact on our financial condition, results of operations and cash flows.
■ Potential acquisitions could use a significant portion of our capital and we may not successfully integrate future
acquisitions or operate them profitably or achieve strategic objectives
We acquired Giant, a Canada-based manufacturer of residential and commercial water heaters, on October 19, 2021, for $199
million subject to customary adjustments using a combination of cash and debt. We will continue to evaluate potential
acquisitions, and we could use a significant portion of our available capital to fund future acquisitions. We may not be able to
successfully integrate Giant or any future acquired businesses or operate them profitably or accomplish our strategic
objectives for those acquisitions. If we complete any future acquisitions in new geographies, our unfamiliarity with relevant
regulations and market conditions may impact our ability to operate them profitably or achieve our strategic objectives for
those acquisitions. Our level of indebtedness may increase in the future if we finance acquisitions with debt, which would
cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry
conditions and limit our ability to service our debt or obtain additional financing. The impact of future acquisitions may have
a material adverse effect on our financial condition, results of operations and cash flows.
10
Legal, Regulatory, and Governance Risks
■ Changes in regulations or standards, such as those associated with climate change, could adversely affect our business
Our products are subject to a wide variety of statutory, regulatory and industry standards and requirements related to, among
other items, energy and water efficiency, environmental emissions, labeling and safety. We believe our products are currently
efficient, safe and environment-friendly. However, a limited number of federal, foreign, state and local governments are
adopting laws, regulations and codes in response to climate change that require a transition to non-fossil fuel based sources of
energy production as well as significantly reducing or eliminating the on-site combustion of fossil fuels in the building sector,
such as limiting or prohibiting the delivery of natural gas in new construction. A significant change to regulatory
requirements that promote a transition to alternative energy sources as a replacement for gas, or a significant shift in industry
standards, could substantially increase manufacturing costs, capital expenditures, transportation costs and raw material costs,
impact the size and timing of demand for our products, affect the types of products we are able to offer or put us at a
competitive disadvantage, any of which could harm our business and have a material adverse effect on our financial
condition, results of operations and cash flow.
■ We are subject to U.S. and global laws and regulations covering our domestic and international operations that could
adversely affect our business and results of operations
Due to our global operations, we are subject to many laws governing international relations, including those that prohibit
improper payments to government officials and restrict where we can do business, what information or products we can
supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the
Foreign Corrupt Practices Act and the U.S. Export Administration Act. Violations of these laws may result in criminal
penalties or sanctions that could have a material adverse effect on our financial condition, results of operations and cash
flows.
■ Our Environmental, Social, and Governance (ESG) commitments could result in additional costs, and our inability to
achieve them could have an adverse impact on our reputation and performance
We periodically communicate our strategies, commitments and targets related to ESG matters, including carbon emissions,
diversity and inclusion, and human rights through the issuance of our ESG report. Although we intend to meet these
strategies, commitments and targets and are committed to advancing sustainable innovations in our industry, we may be
unable to achieve them due to impacts on resources, operational costs, and technological advancements. Failure to meet these
sustainability requirements or targets could adversely impact our reputation as well as the demand for our products and
adversely affect our business, financial condition and results of operations. In addition, standards and processes for measuring
and reporting carbon emissions and other sustainability metrics may change over time, result in inconsistent data, or result in
significant revisions to our strategies, commitments and targets, or our ability to achieve them. Any scrutiny of our carbon
emissions or other sustainability disclosures or our failure to achieve related strategies, commitments and targets could
negatively impact our reputation or performance.
■ Our results of operations may be negatively impacted by product liability lawsuits and claims
Our products expose us to potential product liability risks that are inherent in the design, manufacture, sale and use of our
products. While we currently maintain what we believe to be suitable product liability insurance, we cannot be certain that we
will be able to maintain this insurance on acceptable terms, that this insurance will provide adequate protection against
potential liabilities or that our insurance providers will be able to ultimately pay all insured losses. In addition, we self-insure
a portion of product liability claims. A series of successful claims against us could materially and adversely affect our
reputation and our financial condition, results of operations and cash flows.
■ We have significant goodwill and indefinite-lived intangible assets and an impairment of our goodwill or indefinite-lived
intangible assets could cause a decline in our net worth
Our total assets include significant goodwill and indefinite-lived intangible assets. Our goodwill results from our acquisitions,
representing the excess of the purchase prices we paid over the fair value of the net tangible and intangible assets we
acquired. We assess whether there have been impairments in the value of our goodwill or indefinite-lived intangible assets
during the fourth quarter of each calendar year or sooner if triggering events warrant. If future operating performance at our
businesses does not meet expectations, we may be required to reflect non-cash charges to operating results for goodwill or
indefinite-lived intangible asset impairments. The recognition of an impairment of a significant portion of goodwill or
indefinite-lived intangible assets would negatively affect our results of operations and total capitalization, the effect of which
could be material. A significant reduction in our stockholders’ equity due to an impairment of goodwill or indefinite-lived
intangible assets may affect our ability to maintain the debt-to-capital ratio required under our existing debt arrangements.
11
We have identified the valuation of goodwill and indefinite-lived intangible assets as a critical accounting policy. See
“Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies—
Goodwill and Indefinite-lived Intangible Assets” included in Item 7 of this Annual Report on Form 10-K.
■ Certain members of the founding family of our company and trusts for their benefit have the ability to influence all
matters requiring stockholder approval
We have two classes of common equity: our Common Stock and our Class A Common Stock. The holders of Common Stock
currently are entitled, as a class, to elect only one-third of our Board of Directors. The holders of Class A Common Stock are
entitled, as a class, to elect the remaining directors. Certain members of the founding family of our company and trusts for
their benefit (Smith Family) have entered into a voting trust agreement with respect to shares of our Class A Common Stock
and shares of our Common Stock they own. As of December 31, 2022, through the voting trust, these members of the Smith
Family own approximately 65.6 percent of the total voting power of our outstanding shares of Class A Common Stock and
Common Stock, taken together as a single class, and approximately 96.8 percent of the voting power of the outstanding
shares of our Class A Common Stock, as a separate class. Due to the differences in the voting rights between shares of our
Common Stock (one-tenth of one vote per share) and shares of our Class A Common Stock (one vote per share), the Smith
Family voting trust is in a position to control to a large extent the outcome of matters requiring a stockholder vote, including
the adoption of amendments to our certificate of incorporation or bylaws or approval of transactions involving a change of
control. This ownership position may increase if other members of the Smith Family enter into the voting trust agreement,
and the voting power relating to this ownership position may increase if shares of our Class A Common Stock held by
stockholders who are not parties to the voting trust agreement are converted into shares of our Common Stock. The voting
trust agreement provides that, in the event one of the parties to the voting trust agreement wants to withdraw from the trust or
transfer any of its shares of our Class A Common Stock, such shares of our Class A Common Stock are automatically
exchanged for shares of our Common Stock held by the trust to the extent available in the trust. In addition, the trust will
have the right to purchase the shares of our Class A Common Stock and our Common Stock proposed to be withdrawn or
transferred from the trust. As a result, the Smith Family members that are parties to the voting trust agreement have the
ability to maintain their collective voting rights in our company even if certain members of the Smith Family decide to
transfer their shares.
ITEM 1B – UNRESOLVED STAFF COMMENTS
None.
12
ITEM 2 – PROPERTIES
Properties utilized by us at December 31, 2022 were as follows:
North America
In this segment, we have 20 manufacturing plants located in ten states and two non-U.S. countries, of which 17 are owned
directly by us or our subsidiaries and three are leased from outside parties. The terms of leases in effect at December 31,
2022, expire between 2023 and 2025.
Rest of World
In this segment, we have six manufacturing plants located in four non-U.S. countries, of which four are owned directly by us
or our subsidiaries and two are leased from outside parties. The terms of leases in effect at December 31, 2022, expire in
2025.
Corporate and General
We consider our plants and other physical properties to be suitable, adequate, and of sufficient productive capacity to meet
the requirements of our business. Our manufacturing plants operate at varying levels of utilization depending on the type of
operation and market conditions. The executive offices of the Company, which are leased, are located in Milwaukee,
Wisconsin.
ITEM 3 – LEGAL PROCEEDINGS
We are involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of our
business involving product liability, property damage, insurance coverage, exposure to asbestos and other substances, patents
and environmental matters, including the disposal of hazardous waste. Although it is not possible to predict with certainty the
outcome of these unresolved legal actions or the range of possible loss or recovery, we believe, based on past experience,
adequate reserves and insurance availability, that these unresolved legal actions will not have a material effect on our
financial position or results of operations. A more detailed discussion of certain of these matters appears in Note 16,
“Commitments and Contingencies” of Notes to the Consolidated Financial Statements.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
13
EXECUTIVE OFFICERS OF THE COMPANY
Pursuant to General Instruction of G(3) of Form 10-K, the following is a list of our executive officers which is included as an
unnumbered Item in Part I of this report in lieu of being included in our Proxy Statement for our 2023 Annual Meeting of
Stockholders.
Name (Age)
Samuel M. Carver (54)
Positions Held
Senior Vice President – Global Operations
Period Position Was Held
2021 to Present
Vice President – North America Manufacturing
Various A.O. Smith Officer and Management Positions
Robert J. Heideman (56)
Senior Vice President – Chief Technology Officer
Senior Vice President – Engineering & Technology
Various A.O. Smith Officer and Management Positions
D. Samuel Karge (48)
Senior Vice President
President – North America Water Treatment
Vice President, Sales and Marketing – Zurn Industries (water
solutions manufacturer)
Daniel L. Kempken (50)
Senior Vice President – Strategy and Corporate Development
Vice President and Controller
Parag Kulkarni (55)
Senior Vice President, International; President - A. O. Smith
India Water Products Private Limited
Managing Director - A. O. Smith India Water Products
Private Limited
Charles T. Lauber (60)
Executive Vice President and Chief Financial Officer
Senior Vice President, Strategy and Corporate Development
Senior Vice President – Chief Financial Officer – A. O. Smith
Water Products Company
Various A.O. Smith Officer and Management Positions
Stephen D. O'Brien (54)
Senior Vice President; President - Lochinvar, LLC
Chief Operating Officer – Lochinvar, LLC
Senior Vice President - Mitsubishi Electric Trane US
2011 to 2021
2006 to 2011
2013 to Present
2011 to 2012
2002 to 2011
2018 to Present
2018 to Present
2016 to 2018
2019 to Present
2011 to 2019
2022 to Present
2015 to 2022
2019 to Present
2013 to 2019
2006 to 2012
1999 to 2006
2022 to Present
2021 to 2022
2015 to 2021
Mark A. Petrarca (59)
Senior Vice President - Human Resources and Public Affairs
2006 to Present
Vice President – Human Resources and Public Affairs
Various A.O. Smith Officer and Management Positions
Jack Qiu (50)
Senior Vice President
President - A. O. Smith China
Vice President - A. O. Smith China
Various A.O. Smith Officer and Management Positions
S. Melissa Scheppele (60)
Senior Vice President - Chief Information Officer
Vice President and Chief Information Officer - Triumph
Group (aerospace and defense business)
James F. Stern (60)
Executive Vice President, General Counsel and Secretary
Partner – Foley & Lardner LLP
2005 to 2006
1999 to 2005
2020 to Present
2020 to Present
2012 to 2020
2003 to 2012
2020 to Present
2016 to 2020
2007 to Present
1997 to 2007
14
Name (Age)
David R. Warren (59)
Positions Held
Senior Vice President
Period Position Was Held
2017 to Present
President and General Manager – North America Water
Heating
Vice President – International
Various A.O. Smith Officer and Management Positions
Kevin J. Wheeler (63)
Chairman
President and Chief Executive Officer
President and Chief Operating Officer
Senior Vice President
President and General Manager – North America, India and
Europe Water Heating
Various A.O. Smith Officer and Management Positions
2017 to Present
2008 to 2017
1989 to 2008
2020 to Present
2018 to Present
2017 to 2018
2013 to 2017
2013 to 2017
1999 to 2013
15
PART II
ITEM 5 – MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
(a) Market Information. Our Common Stock is listed on the New York Stock Exchange under the symbol AOS. Our
Class A Common Stock is not listed. EQ Shareowner Services, P.O. Box 64874, St. Paul, Minnesota, 55164-0874
serves as the registrar, stock transfer agent and the dividend reinvestment agent for our Common Stock and Class A
Common Stock.
(b)
(c)
(d)
Holders. As of January 31, 2023, the approximate number of stockholders of record of Common Stock and Class A
Common Stock were 526 and 144, respectively. The actual number of stockholders is greater than this number of
holders of record, and includes stockholders who are beneficial owners, but whose shares are held in street name by
brokers and other nominees. This number of stockholders of record also does not include stockholders whose shares
may be held in trust by other entities.
Dividends. Dividends declared on the common stock are shown in Note 11, “Stockholders' Equity” of Notes to the
Consolidated Financial Statements appearing elsewhere herein.
Stock Repurchases. In 2022, the Board of Directors approved adding 3,500,000 shares of Common Stock to an
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 2022, we
repurchased 6,647,895 shares at an average price of $60.70 per share and at a total cost of $403.5 million. As of
December 31, 2022, there were 378,462 shares remaining on the existing repurchase authorization. On January 27,
2023, the Board of Directors approved adding 7,500,000 shares of common stock to the existing discretionary share
repurchase authority. Including the additional shares, we have approximately 7.6 million shares available for
repurchase as of the date of the Board of Directors' approval. We intend to spend approximately $200 million to
repurchase Common Stock in 2023 through a combination of 10b5-1 plans and open-market purchases.
(e)
Performance Graph. The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be
“soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange
Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be
incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent we specifically incorporate it by reference into such a filing.
16
The graph below shows a five-year comparison of the cumulative shareholder return on our Common Stock with the
cumulative total return of the Standard & Poor’s (S&P) 500 Index, S&P 500 Select Industrials Index, which are published
indices.
Comparison of Five-Year Cumulative Total Return
From December 31, 2017 to December 31, 2022
Assumes $100 Invested with Reinvestment of Dividends
250
200
150
100
50
0
2017
2018
2019
2020
2021
2022
SMITH (A O) CORP
S&P 500 INDEX
S&P INDUSTRIALS INDEX
Company/Index
A. O. Smith Corporation
S&P 500 Index
S&P 500 Select Industrial Index
Base
Period
12/31/17
100.0
100.0
100.0
12/31/18
12/31/19
Indexed Returns
12/31/20
12/31/21
12/31/22
70.6
95.6
86.7
80.2
125.7
112.2
94.2
148.9
124.5
149.9
191.6
150.8
101.7
156.9
142.6
ITEM 6 – SELECTED FINANCIAL DATA
Not applicable.
17
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.
Our sales in China in 2022 were impacted by lower consumer demand driven by COVID-19-related lockdowns. Certain
COVID-19 restrictions were lifted in China at the end of 2022 and we believe that economic activity there will improve in
2023 as a result.
While supply chain and logistics challenges lingered in 2022, we saw improvement, particularly in the second half of the
year. 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.
Consistent with this strategy, we acquired Giant Factories, Inc. (Giant), a Canada-based manufacturer of residential and
commercial water heaters, on October 19, 2021, for $199 million, subject to customary adjustments, using a combination of
debt and cash. The acquisition fits squarely in our core capabilities, supplements our presence in Canada and enhances our
capacity and distribution in the region. Giant contributed incremental sales of $94.3 million and $22.9 million in 2022 and
2021, respectively. Refer to Note 3, “Acquisitions” for additional information. 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 range hoods and cooktops in China.
In our North America segment, after approximately eight percent growth each year in 2021 and 2020, we believe that the
wholesale residential water heater industry is returning to a more historical growth rate following a channel inventory
destocking that occurred primarily in the third quarter of 2022, which resulted in a decrease in industry demand of 12 percent
compared to 2021. We believe the majority of our customers exited 2022 with near normal inventory levels. While we
believe that new home construction is in a deficit, we project it will be a headwind in 2023 and therefore, we project 2023
industry residential unit volumes will decrease approximately two to five percent from 2022. We believe that commercial
water heater industry volumes will be flat to slightly up in 2023 compared to 2022 as supply chain constraints continue to
ease. We expect to see a 10 to 12 percent increase in our sales of boilers in 2023 compared to 2022 due to industry growth of
approximately three to four percent and our expectation that the transition to higher-efficiency boilers will continue. 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 and consumer demand.
In our Rest of World segment, we see the recent change to certain COVID-19 restrictions in China as a positive step to an
improved economic environment. We project our sales in China will grow three to five percent in 2023 in local currency
compared to 2022. Our guidance assumes volume will improve sequentially through out the year. We assume that the
currency translation impact on sales will be similar to the 2022 and negatively impact sales by approximately four percent.
Combining all of these factors, we expect our 2023 consolidated sales to be flat to 2022, with a range of plus or minus three
percent. Our guidance excludes the impacts from potential future acquisitions and assumes the COVID-19-related impacts in
China improve in the second half of the year and do not have a significant impact on our productivity or significantly impact
the end markets that we serve.
18
RESULTS OF OPERATIONS
In this section, we discuss the results of our operations for 2022 compared with 2021. We discuss our cash flows and current
financial condition under “Liquidity and Capital Resources.” For a discussion related to 2021 compared with 2020, please
refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our
Annual Report on Form 10-K for the Year Ended December 31, 2021, which was filed with the United States Securities and
Exchange Commission (SEC) on February 11, 2022, and is available on the SEC's website at www.sec.gov.
(dollars in millions)
Net sales
Cost of products sold
Gross profit
Gross profit margin %
Selling, general and administrative expenses
Severance and restructuring expenses
Interest expense
Other expense (income)-net
Earnings before provision for income taxes
(Benefit from) provision for income taxes
Net Earnings
Years Ended December 31,
2022
2021
2020
$ 3,753.9
$ 3,538.9
$ 2,895.3
2,424.3
1,329.6
2,228.0
1,310.9
1,787.1
1,108.2
35.4 %
37.0 %
38.3 %
670.9
701.4
660.3
—
9.4
425.6
223.7
(12.0)
$
235.7
$
—
4.3
(20.4)
625.6
138.5
487.1
7.7
7.3
(11.0)
443.9
99.0
$
344.9
Our sales in 2022 were $3,753.9 million, or 6.1 percent higher than 2021 sales of $3,538.9 million. Higher sales in 2022 were
primarily driven by the impacts of inflation-related pricing actions partially offset by lower residential water heater volumes
in North America and lower sales in China. In addition, our sales were negatively impacted by approximately $61 million
compared to last year due to the depreciation of foreign currencies against the U.S. dollar. Our acquisition of Giant added
$94.3 million of incremental sales in 2022.
Our gross profit margin in 2022 of 35.4 percent declined compared to 37.0 percent in 2021. The lower gross margin in 2022
was primarily due to higher steel and other material costs and production inefficiencies, which outpaced the impact of our
pricing actions.
Selling, general, and administrative (SG&A) expenses were $670.9 million in 2022, or $30.5 million lower than in 2021. The
decrease in SG&A expenses was primarily due to the recognition of a gain from an $11.5 million judgment against a
competitor related to its infringement of one of our patents, lower management incentive expenses, and lower engineering
costs in China.
Interest expense was $9.4 million in 2022, compared to $4.3 million in 2021. The increase in interest expense in 2022 was
primarily due to higher debt levels and interest rates.
In 2021, our Board of Directors approved the termination of our defined benefit pension plan (the Plan) with a termination
date of December 31, 2021. The Plan represented over 95 percent of our pension plan liability. In the second quarter of 2022,
we received a determination letter from the Internal Revenue Service (IRS) that allowed us to proceed with the termination
process. In the fourth quarter of 2022, the settled Plan liabilities resulted in $417.3 million of pretax pension settlement
expense, of which, $346.8 million was recorded in the North America segment and $70.5 million in Corporate Expense, and
included $167.7 million in related tax benefits. For additional information, refer to the Critical Accounting Policies section
under “Pensions” below.
Other expense (income)-net in 2022 was $425.6 million in expense compared to income of $20.4 million in 2021. In 2022,
Other expense (income)-net reflected the $417.3 million pension settlement expense related to the termination of the Plan and
$13.9 million in pension expenses compared to $12.0 million of pension income in 2021. To protect the Plan's funded status,
the Plan transferred a significant portion of its assets to lower-risk investments in 2021. The impact of this transition resulted
in a lower expected rate of return on pension investments and, accordingly, higher pension expenses in 2022 compared to the
previous year. The service cost component of our pension income is reflected in cost of products sold and SG&A expenses.
All other components of our pension expense (income) are reflected in other expense (income)-net.
19
Our effective income tax rate in 2022 was lower than our effective income tax rate in 2021 primarily due to the tax effects of
the pension settlement expense associated with the termination of the Plan, a non-recurring $4.2 million favorable tax impact
recorded in the prior year periods related to amending a previously filed tax return and a change in geographic earnings mix.
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,
adjusted segment earnings and adjusted corporate expense) that exclude the impact of the pension settlement expense as well
as the income from the legal judgment, the expenses associated with a terminated acquisition and non-operating pension
income and 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, 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.
North America Segment
Years ended December 31 (dollars in millions)
Net Sales
Segment Earnings
Segment Margin
2022
2021
$
2,819.1
$
2,529.5
266.0
590.8
9.4 %
23.4 %
Sales in our North America segment were $2,819.1 million in 2022, or $289.6 million higher than sales of $2,529.5 million in
2021. The increased sales in 2022 compared to the prior year were primarily driven by the price increases implemented in
2021, largely on water heaters, in response to rising material and other input costs and more than offset lower residential
water heater volumes and unfavorable currency translation impact of approximately $12 million. In addition, our acquisition
of Giant added $94.3 million of incremental sales in 2022.
North America segment earnings were $266.0 million in 2022, a decrease of 55 percent compared to segment earnings of
$590.8 million in 2021. Segment margins were 9.4 percent and 23.4 percent in 2022 and 2021, respectively. Lower segment
earnings and margin in 2022 were primarily due to the Plan settlement expense of $346.8 million, lower residential water
heater volumes, higher material costs, and production inefficiencies, partially offset by price increases and the $11.5 million
patent infringement judgment referenced above. Adjusted segment earnings and adjusted segment margin in 2022 were
$611.0 million and 21.7 percent, respectively. Adjusted segment earnings and adjusted segment margin in 2021 were $580.3
million and 22.9 percent, respectively. We estimate our 2023 North America segment margin will be approximately 23
percent.
Adjusted segment earnings and adjusted segment margin in 2022 exclude the pension settlement expense of $346.8 million,
pension expense of $9.7 million and the recognition of the $11.5 million patent infringement judgment. Adjusted segment
earnings and adjusted segment margin in 2021 exclude pension income of $10.5 million.
Rest of World Segment
Years ended December 31 (dollars in millions)
Net Sales
Segment Earnings
Segment Margin
2022
2021
$
965.8
$
1,036.5
96.3
10.0 %
91.4
8.8 %
Rest of World sales of $965.8 million decreased seven percent year-over-year, including an unfavorable currency translation
impact of approximately $49 million, of which $36 million related to sales in China. In local currency, segment sales
decreased by approximately two percent year-over-year. The decrease in sales in 2022 was primarily driven by lower
consumer demand in China due to COVID-19-related disruptions and lockdowns. Sales in India increased 28 percent in local
currency in 2022 due to strong demand for our water heater and water treatment products.
Rest of World segment earnings were $96.3 million in 2022 compared to $91.4 million in 2021. Segment margins were 10.0
percent and 8.8 percent in 2022 and 2021, respectively. Compared to 2021, higher segment earnings and margin were
primarily driven by lower engineering, advertising, and selling expenses in China. We expect the full-year segment margin to
be approximately 10 percent in 2023.
20
LIQUIDITY AND CAPITAL RESOURCES
Our working capital was $699.5 million at December 31, 2022 compared with $633.8 million at December 31, 2021. A
majority of the increase in working capital was driven by lower accounts payable and payroll-related accruals and higher
inventory balances than at December 31, 2021, due to higher levels of safety stock which were partially offset by lower
accounts receivable, and cash balances. In addition, cash balances as of December 31, 2022 were negatively impacted by
$20.8 million due to the effects of changes in foreign currency during the year. In 2022, we repatriated approximately $120
million of cash from our foreign subsidiaries to the U.S. We used the proceeds to pay down outstanding debt balances.
Years ended December 31 (dollars in millions)
Cash provided by operating activities
Cash provided by (used in) investing activities
Cash used in financing activities
2022
2021
$
391.4
$
8.1
(430.8)
641.1
(349.9)
(421.0)
Cash provided by operating activities in 2022 was $391.4 million compared with $641.1 million during 2021. The decrease in
operating cash flows in 2022 was primarily due to lower customer deposits in China, higher 2021-related incentive payments
made in 2022 and additional working capital cash outlays primarily related to higher cost inventories that more than offset
lower accounts receivable balances. Our free cash flow in 2022 and 2021 was $321.1 million and $566.0 million,
respectively. We expect free cash flow to be between $550 million to $600 million in 2023. Free cash flow is a non-GAAP
measure and is described in more detail in the Non-GAAP Measures section below.
Our capital expenditures were $70.3 million in 2022 and $75.1 million in 2021. We project our 2023 capital expenditures
will be between $70 and $75 million and expect depreciation and amortization 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 December 31, 2022, and expect to be in compliance for
the foreseeable future.
The facility backs up commercial paper and credit line borrowings. At December 31, 2022, we had $208 million outstanding
under the facility and an available borrowing capacity of $292 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 $150.6 million in 2022 and was primarily due to repurchases of our common stock. Our leverage,
as measured by the ratio of total debt to total capitalization, was 16.5 percent at December 31, 2022, compared with 9.7
percent at December 31, 2021.
Our remaining U.S. pension plan continues to meet all funding requirements under ERISA regulations. We were not required
to make a contribution to our pension plan in 2022. We forecast that we will not be required to make a contribution to the
plan in 2023, and we do not plan to make any voluntary contributions in 2023. For further information on our pension plans,
see the Critical Accounting Policies below and Note 13, “Pension and Other Post-retirement Benefits” of Notes to the
Consolidated Financial Statements.
In 2022, our Board of Directors approved adding 3,500,000 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 2022, we repurchased
6,647,895 shares of our stock at a total cost of $403.5 million. As of December 31, 2022, we had 378,462 shares remaining
on the share repurchase authority. On January 27, 2023, the Board of Directors approved adding 7,500,000 shares of common
stock to the existing discretionary share repurchase authority. Including the additional shares, we have approximately 7.6
million 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 2023 through a combination of 10b5-1 plans and open-market
purchases.
21
We paid dividends of $1.14 per share in 2022 compared with $1.06 per share in 2021. We increased our dividend by seven
percent in the fourth quarter of 2022, and the five-year compound annual growth rate of our dividend payment is
approximately 15 percent. We have paid dividends for 83 consecutive years with annual amounts increasing each of the last
31 years.
Recent Accounting Pronouncements
Refer to Recent Accounting Pronouncements in Note 1, “Organization and Significant Accounting Policies” of Notes to the
Consolidated Financial Statements.
Critical Accounting Policies
Our accounting policies are described in Note 1, “Organization and Significant Accounting Policies” of Notes to the
Consolidated Financial Statements. Also as disclosed in Note 1, the preparation of financial statements in conformity with
accounting principles generally accepted in the U.S. 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 most significant accounting estimates inherent in the preparation of our financial statements include estimates associated
with the evaluation of the impairment of goodwill and indefinite-lived intangible assets, as well as significant estimates used
in the determination of liabilities related to warranty, product liability and pensions. Various assumptions and other factors
underlie the determination of these significant estimates. The process of determining significant estimates is fact-specific and
takes into account factors such as historical experience and trends, and in some cases, actuarial techniques. We monitor these
significant factors and adjustments are made as facts and circumstances dictate. Historically, actual results have not
significantly deviated from those determined using the estimates described above.
Goodwill and Indefinite-lived Intangible Assets
In conformity with GAAP, goodwill and indefinite-lived intangible assets are tested for impairment annually or more
frequently if events or changes in circumstances indicate that the assets might be impaired. We perform impairment reviews
for our reporting units using a fair-value method based on management’s judgments and assumptions. The fair value
represents the estimated amount at which a reporting unit could be bought or sold in a current transaction between willing
parties on an arms-length basis. The estimated fair value is then compared with the carrying amount of the reporting unit,
including recorded goodwill. We are subject to financial statement risk to the extent that goodwill and indefinite-lived
intangible assets become impaired. Any impairment review is, by its nature, highly judgmental as estimates of future sales,
earnings and cash flows are utilized to determine fair values. However, we believe that we conduct a thorough and competent
annual quantitative analysis of goodwill and indefinite-lived intangible assets. Based on the annual goodwill impairment test,
we determined there was no impairment of our goodwill as of December 31, 2022. The fair value of each of our reporting
units significantly exceeded its carrying value and a 20% decrease in the estimated fair value of our reporting units would not
have resulted in a different conclusion. Based on the annual indefinite-lived assets impairment test, we determined there was
no impairment of our indefinite-lived assets as of December 31, 2022.
Product Warranty
Our products carry warranties that generally range from one to 12 years and are based on terms that are generally accepted in
the market. We provide for the estimated cost of product warranty at the time of sale. The product warranty provision is
estimated based upon warranty loss experience using actual historical failure rates and estimated costs of product
replacement. The variables used in the calculation of the provision are reviewed at least annually. At times, warranty issues
may arise which are beyond the scope of our historical experience. We provide for any such warranty issues as they become
known and estimable. While our warranty costs have historically been within calculated estimates, it is possible that future
warranty costs could differ significantly from those estimates. The allocation of the warranty liability between current and
long-term is based on the expected warranty liability to be paid in the next year as determined by historical product failure
rates. At December 31, 2022 and 2021, our reserve for product warranties was $182.5 million and $184.4 million,
respectively.
Pensions
We have significant pension benefit costs that are developed from actuarial valuations. The valuations reflect key
assumptions regarding, among other things, discount rates, expected return on plan assets, retirement ages, and years of
service. Consideration is given to current market conditions, including changes in interest rates in making these assumptions.
22
Our assumption for the expected return on plan assets was 3.12 and 6.25 percent in 2022 and 2021, respectively. The discount
rate used to determine net periodic pension costs increased to 2.80 percent in 2022 from 2.47 percent in 2021. For 2023, our
expected return on plan assets is 5.25 percent and our discount rate is 5.13 percent.
In developing our expected return on plan assets, we evaluate our pension plan’s current and target asset allocation, the
expected long-term rates of return of equity and bond indices and the actual historical returns of our pension plan. Our plan’s
target allocation to bonds managers is between 60 to 95 percent with the remainder allocated primarily to equities, private
equity managers and cash. Our actual asset allocation as of December 31, 2022, was eight percent to equity managers,
27 percent to bond managers, five percent to private equity managers, and the remainder allocated to cash. We regularly
review our actual asset allocation and periodically rebalance our investments to our targeted allocation when considered
ten-year and 25-year compounded annualized returns are 7.1 percent and
appropriate. Our pension plan’s historical
6.9 percent, respectively. We believe that with our target allocation and the expected long-term returns of equity and bond
indices as well as our actual historical returns, our 5.25 percent expected return on plan assets for 2023 is reasonable.
The discount rate assumptions used to determine future pension obligations at December 31, 2022 and 2021 were based on
the Aon AA Only Above Median yield curve, which was designed by Aon to provide a means for plan sponsors to value the
liabilities of their postretirement benefit plans. The AA Only Above Median yield curve represents a series of annual discount
rates from bonds with AA minimum average rating as rated by Moody’s Investor Service, Standard & Poor’s and Fitch
Ratings. We will continue to evaluate our actuarial assumptions at least annually, and we will adjust the assumptions as
necessary.
Lowering the expected return on plan assets by 25 basis points would increase our net pension expense for 2022 by
approximately $1.8 million. Lowering the discount rate by 25 basis points would decrease our 2022 net pension expense by
approximately $0.8 million.
In 2021, our Board of Directors approved the termination of our defined benefit pension plan (the Plan) with a termination
date of December 31, 2021. The Plan represented over 95 percent of our pension plan liability. In the second quarter of 2022,
we received a determination letter from the IRS that allowed us to proceed with the termination process. In the fourth quarter
of 2022, we settled approximately $169 million of Plan liabilities through lump-sum payments from existing plan assets to
eligible participants who elected to receive them and settled approximately $463 million of Plan liabilities by entering into an
agreement to purchase annuities from Mass Mutual Life Insurance Company (MML). The irrevocable agreement with MML
covers approximately 7,000 active and former employees and their beneficiaries, with MML assuming the future annuity
payments for these individuals commencing March 1, 2023. These settlements resulted in approximately $417.3 million of
pretax expense in 2022, partially offset by approximately $167.7 million in related tax benefits.
23
Non-GAAP Measures
We are providing non-U.S. Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted EPS,
adjusted segment earnings and adjusted corporate expense) that exclude the impact of pension settlement expense as well as
legal judgment income, expenses associated with a terminated acquisition and non-operating pension income and 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.
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 EPS to adjusted earnings (non-GAAP) and adjusted EPS (non-
GAAP):
Net Earnings (GAAP)
Pension settlement expense, before tax
Pension expense (income), before tax
Legal judgment income, before tax
Terminated acquisition-related expenses, before tax
Tax effect on above items
Adjusted Earnings (non-GAAP)
Diluted Earnings Per Share (GAAP)(1)
Pension settlement expense per diluted share, before tax
Pension expense (income) per diluted share, before tax
Legal judgment income per diluted share, before tax
Terminated acquisition-related expenses per diluted share, before tax
Tax effect on above items per diluted share
Adjusted Earnings Per Share (non-GAAP)(1)
(1) Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.
Twelve Months Ended
December 31,
2022
2021
$
$
$
$
235.7
417.3
11.7
(11.5)
4.3
(168.8)
488.7
1.51
2.68
0.08
(0.07)
0.03
(1.09)
3.14
$
$
$
$
487.1
—
(13.1)
—
—
3.3
477.3
3.02
—
(0.08)
—
—
0.02
2.96
24
A. O. SMITH CORPORATION
Adjusted Segment Earnings
(dollars in millions)
(unaudited)
The following is a reconciliation of reported segment earnings to adjusted segment earnings (non-GAAP):
Segment Earnings (GAAP)
North America
Rest of World
Inter-segment earnings elimination
Total Segment Earnings (GAAP)
Adjustments:
North America
Rest of World
Inter-segment earnings elimination
Total Adjustments
Adjusted Segment Earnings (non-GAAP)
North America
Rest of World
Inter-segment earnings elimination
Total Adjusted Segment Earnings (non-GAAP)
Additional Information
Adjustments: North America Segment
Pension settlement expense, before tax
Pension expense (income), before tax
Legal judgment income, before tax
Total Adjustments
Twelve Months Ended
December 31,
2022
2021
$
$
$
$
$
$
$
$
266.0
96.3
(0.3)
362.0
345.0
—
—
345.0
611.0
96.3
(0.3)
707.0
346.8
9.7
(11.5)
345.0
$
$
$
$
$
$
$
$
590.8
91.4
(0.2)
682.0
(10.5)
—
—
(10.5)
580.3
91.4
(0.2)
671.5
—
(10.5)
—
(10.5)
A. O. SMITH CORPORATION
Adjusted Corporate Expense
(dollars in millions)
(unaudited)
The following is a reconciliation of reported Corporate Expense to adjusted Corporate Expense (non-GAAP):
Corporate Expense (GAAP)
Adjustments:
Pension settlement expense, before tax
Corporate pension expense (income)
Terminated acquisition-related expenses
Corporate Expense (non-GAAP)
25
Twelve Months Ended
December 31,
2022
2021
$
(128.9) $
(52.1)
70.5
2.0
4.3
(52.1) $
—
(2.6)
—
(54.7)
$
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):
Cash provided by operating activities (GAAP)
Less: Capital expenditures
Free cash flow (non-GAAP)
Twelve Months Ended,
December 31,
2022
2021
$
$
391.4
(70.3)
321.1
$
$
641.1
(75.1)
566.0
A. O. SMITH CORPORATION
2023 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):
Diluted EPS (GAAP)
Pension settlement expense
Pension expense
Legal judgment income
Terminated acquisition-related expenses
Adjusted EPS (non-GAAP)
2023
Guidance
2022
$
3.15-3.45 $
—
—
—
—
$
3.15-3.45 $
1.51
1.60 (1)
0.06 (2)
(0.05)
0.02
3.14
(1) Includes pre-tax pension settlement expense of $346.8 million and $70.5 million, within the North America segment and
Corporate expenses, respectively.
(2) Includes pre-tax pension expense of $9.7 million and $2.0 million, within the North America segment and Corporate
expenses, respectively.
Outlook
As we begin 2023, we expect our consolidated sales to be flat to 2022 with a range of plus or minus three percent. Our sales
projection is driven by expected lower industry residential unit volumes in North America and offset by anticipated increased
boiler and water treatment sales in North America and higher sales in China. We expect to achieve full-year earnings of
between $3.15 and $3.45 per share. Our guidance excludes the impacts from potential future acquisitions and assumes the
COVID-19-related impacts in China improve in the second half of the year and do not have a significant impact on our
productivity or significantly impact the end markets that we serve.
OTHER MATTERS
Environmental
Our operations are governed by a number of federal, foreign, state, local and environmental laws concerning the generation
and management of hazardous materials, the discharge of pollutants into the environment and remediation of sites owned by
the Company or third parties. We have expended financial and managerial resources complying with such laws. Expenditures
related to environmental matters were not material in 2022 and we do not expect them to be material in any single year. We
have reserves associated with environmental obligations at various facilities and we believe these reserves together with
available insurance coverage are sufficient to cover reasonably anticipated remediation costs. Although we believe that our
operations are substantially in compliance with such laws and maintain procedures designed to maintain compliance, there
are no assurances that substantial additional costs for compliance will not be incurred in the future. However, since the same
laws govern our competitors, we should not be placed at a competitive disadvantage.
26
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 believe that risk-taking is an inherent aspect of the pursuit of our strategy. Our goal is to manage
risks prudently rather than avoid risks. We can mitigate risks and their impact on our company only to a limited extent.
A team of senior executives prioritizes identified risks, including decarbonization, new technologies and cyber threats among
others, and assigns an executive to address each major identified risk area and lead action plans to manage risks. Our Board
of Directors provides oversight of the ERM process and reviews significant identified risks. The Audit Committee of the
Board of Directors also reviews significant financial risk exposures and the steps management has taken to monitor and
manage them. Our other Board committees also play a role in risk management, as set forth in their respective charters.
Our goal is to proactively manage risks using a structured approach in conjunction with strategic planning, with the intent to
preserve and enhance shareholder value. However, the risks set forth in Item 1A - Risk Factors and elsewhere in this Annual
Report on Form 10-K and other risks and uncertainties could adversely affect us and cause our results to vary materially from
recent results or from our anticipated future results.
Market Risk
We are exposed to various types of market risks, primarily currency. We monitor our risks in such areas on a continuous
basis and generally enter into forward contracts to minimize such exposures. We do not engage in speculation in our
derivatives strategies. Further discussion regarding derivative instruments is contained in Note 1, “Organization and
Significant Accounting Policies” of Notes to Consolidated Financial Statements.
We enter into foreign currency forward contracts to minimize the effect of fluctuating foreign currencies. At December 31,
2022, we had net foreign currency contracts outstanding with notional values of $122.7 million. Assuming a hypothetical ten
percent movement in the respective currencies, the potential foreign exchange gain or loss associated with the change in
exchange rates would amount to $12.3 million. However, gains and losses from our forward contracts will be offset by gains
and losses in the underlying transactions being hedged.
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. Forward-looking statements address uncertain matters and include any statements that: are not historical,
such as statements about our strategy, financial plans, outlook, objectives, plans, intentions or goals (including those related
to our social, environmental and other sustainability goals); or address possible or future results of operations or financial
performance, including statements relating to orders, revenues, operating margins and earnings per share growth. 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 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; an
uneven recovery of the Chinese economy or 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
conflict in Ukraine; potential weakening in the high-efficiency 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
27
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.
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. All forward-looking statements made herein are based on
information currently available to us as of the date of this Report. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See “Market Risk” above.
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID: 42)
The Board of Directors and Stockholders
A. O. Smith Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of A. O. Smith Corporation (the Company) as of December
31, 2022 and 2021, the related consolidated statements of earnings, comprehensive earnings, stockholders’ equity, and cash
flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement
schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion,
the consolidated financial statements present fairly, in all material respects, the financial position of the Company at
December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework) and our report dated February 14, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and
are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also
included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the
overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
28
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the
critical audit matter or on the account or disclosure to which it relates.
Description of
the Matter
Product Warranty Liability Valuation
At December 31, 2022, the Company’s product warranty liability was $182.5 million. As discussed in
Note 1 of the consolidated financial statements, the Company records a liability for the expected cost of
warranty-related claims at the time of sale. The product warranty liability is estimated based upon
warranty loss experience using actual historical failure rates and estimated cost of product replacement.
Products generally carry warranties from one to twelve years. The Company performs separate warranty
calculations based on the product type and the warranty term and aggregates them.
Auditing the product warranty liability was complex due to the judgmental nature of the warranty loss
experience assumptions, including the estimated product failure rate and the estimated cost of product
replacement. In particular, it is possible that future product failure rates may not be reflective of historical
product failure rates, or that a product quality issue has not yet been identified as of the financial
statement date. Additionally,
the cost of product replacement could differ from estimates due to
fluctuations in the replacement cost of the product.
How We
Addressed the
Matter in our
Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls
over the Company’s product warranty liability calculation. For example, we tested controls over
management’s review of the product warranty liability calculation, including the significant assumptions
and the data inputs to the calculation.
To test the Company’s calculation of the product warranty liability, our audit procedures included, among
others, evaluating the methodology used, and testing the significant assumptions discussed above and the
underlying data used by the Company in its analysis. We tested the validity and categorization of claims
by product type and warranty period within the calculation and tested the completeness and accuracy of
the claims data. We recalculated the historical failure rates using actual claims data. We compared the
estimated cost of replacement included in the product warranty liability with the current costs to
manufacture a comparable product and assessed the impact of projected changes in significant product
costs. We also analyzed current year claims data to identify changes in failure trends and assessed the
historical accuracy of the prior year liability. Further, we inquired of operational and quality control
personnel regarding quality issues and trends.
/s/ Ernst & Young LLP
We have served as A. O. Smith Corporation’s auditor since 1917.
Milwaukee, Wisconsin
February 14, 2023
29
CONSOLIDATED BALANCE SHEETS
December 31 (dollars in millions)
Assets
Current Assets
Cash and cash equivalents
Marketable securities
Receivables
Inventories
Other current assets
Total Current Assets
Net property, plant and equipment
Goodwill
Other intangibles
Operating lease assets
Other assets
Total Assets
Liabilities
Current Liabilities
Trade payables
Accrued payroll and benefits
Accrued liabilities
Product warranties
Long-term debt due within one year
Total Current Liabilities
Long-term debt
Product warranties
Pension liabilities
Long-term operating lease liabilities
Other liabilities
Total Liabilities
Commitments and contingencies
Stockholders’ Equity
Preferred Stock
Class A Common Stock (shares issued 26,035,656 and 26,104,441 as of December 31,
2022 and 2021, respectively)
Common Stock (shares issued 164,671,938 and 164,603,153 as of December 31, 2022
and 2021, respectively)
Capital in excess of par value
Retained earnings
Accumulated other comprehensive loss
Treasury stock at cost
Total Stockholders’ Equity
Total Liabilities and Stockholders’ Equity
See accompanying notes which are an integral part of these statements.
30
2022
2021
$
$
$
391.2
90.6
581.2
516.4
54.3
1,633.7
590.7
619.7
347.9
29.8
110.5
3,332.3
625.8
75.7
159.1
63.6
10.0
934.2
334.5
118.9
9.9
22.4
164.7
1,584.6
—
443.3
188.1
634.4
447.7
39.1
1,752.6
606.7
627.8
364.8
32.5
90.0
3,474.4
745.9
113.4
181.8
70.9
6.8
1,118.8
189.9
113.5
15.9
22.3
181.8
1,642.2
—
—
—
130.2
130.5
164.7
555.9
2,885.0
(82.4)
(1,905.7)
1,747.7
3,332.3
$
164.7
545.2
2,826.6
(331.4)
(1,503.4)
1,832.2
3,474.4
$
$
$
$
CONSOLIDATED STATEMENT OF EARNINGS
Years ended December 31 (dollars in millions, except per share amounts)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Severance and restructuring expenses
Interest expense
Other expense (income), net
Earnings before provision for income taxes
(Benefit from) provision for income taxes
Net Earnings
Net Earnings Per Share of Common Stock (1)
Diluted Net Earnings Per Share of Common Stock (1)
2022
2021
2020
$
3,753.9
$
3,538.9
$
2,424.3
1,329.6
670.9
—
9.4
425.6
223.7
(12.0)
235.7
1.52
1.51
$
$
$
2,228.0
1,310.9
701.4
—
4.3
(20.4)
625.6
138.5
487.1
3.05
3.02
$
$
$
$
$
$
2,895.3
1,787.1
1,108.2
660.3
7.7
7.3
(11.0)
443.9
99.0
344.9
2.13
2.12
(1)Earnings per share amounts are calculated discretely and, therefore, may not add up to the total due to rounding.
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS
Years ended December 31 (dollars in millions)
Net Earnings
Other comprehensive earnings (loss)
Foreign currency translation adjustments
Unrealized net gain on cash flow derivative instruments, less related
income tax provision of $(1.4) in 2022, $— in 2021 and $(0.1) in 2020
Change in pension liability less related income tax (provision) benefit of
$(179.0) in 2022 $4.5 in 2021 and $(2.8) in 2020
Comprehensive Earnings
See accompanying notes which are an integral part of these statements.
2022
2021
2020
$
235.7
$
487.1
$
344.9
(39.4)
4.3
3.4
—
284.1
484.7
$
(13.6)
476.9
$
$
18.1
0.4
8.6
372.0
31
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31 (dollars in millions)
Operating Activities
Net earnings
Adjustments to reconcile earnings to cash provided by (used in) operating
activities:
Depreciation and amortization
Stock based compensation expense
Pension settlement expense
Pension settlement non-cash taxes
Net changes in operating assets and liabilities, net of acquisitions:
Current assets and liabilities
Noncurrent assets and liabilities
Cash Provided by Operating Activities
Investing Activities
Acquisitions of businesses
Investments in marketable securities
Proceeds from sales of marketable securities
Capital expenditures
Cash Provided by (Used in) Investing Activities
Financing Activities
Long-term debt incurred (repaid)
Common stock repurchases
Net (payments) proceeds from stock option activity
Dividends paid
Cash Used in Financing Activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents-beginning of year
Cash and Cash Equivalents-End of Year
See accompanying notes, which are an integral part of these statements.
2022
2021
2020
$
235.7
$
487.1
$
344.9
76.9
11.1
417.3
(167.7)
(194.1)
12.2
391.4
(8.0)
(91.6)
178.0
(70.3)
8.1
150.6
(403.5)
(0.7)
(177.2)
(430.8)
(20.8)
(52.1)
443.3
391.2
$
77.9
11.9
—
—
90.8
(26.6)
641.1
(207.6)
(185.4)
118.2
(75.1)
(349.9)
83.5
(366.5)
32.1
(170.1)
(421.0)
—
(129.8)
573.1
443.3
$
80.0
12.7
—
—
130.4
(5.9)
562.1
—
(157.4)
226.0
(56.8)
11.8
(170.8)
(56.7)
11.4
(158.7)
(374.8)
—
199.1
374.0
573.1
$
32
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
Years ended December 31 (dollars in millions)
Class A Common Stock
Balance at the beginning of the year
Conversion of Class A Common Stock
Balance at the end of the year
Common Stock
Balance at the beginning of the year
Conversion of Class A Common Stock
Balance at the end of the year
Capital in Excess of Par Value
Balance at the beginning of the year
Conversion of Class A Common Stock
Issuance of share units
Vesting of share units
Stock based compensation expense
Exercises of stock options
Stock incentives
Balance at the end of the year
Retained Earnings
Balance at the beginning of the year
Net earnings
Dividends on stock
Balance at the end of the year
Accumulated Other Comprehensive Loss
Balance at the beginning of the year
Foreign currency translation adjustments
Unrealized net gain on cash flow derivative instruments, less related income
tax provision of $(1.4) in 2022 $— in 2021 and $(0.1) in 2020
Change in pension liability less related income tax (provision) benefit of
$(179.0) in 2022, $4.5 in 2021 and $(2.8) in 2020
Balance at the end of the year
Treasury Stock
Balance at the beginning of the year
Exercise of stock options, net of 47,309, 34,679 and 35,467 shares
surrendered as proceeds and to pay taxes in 2022, 2021 and 2020,
Stock incentives and directors’ compensation
Shares repurchased
Vesting of share units
Balance at the end of the year
Total Stockholders’ Equity
See accompanying notes which are an integral part of these statements.
2022
2021
2020
130.5
(0.3)
130.2
164.7
—
164.7
545.2
0.3
(6.0)
(3.0)
11.1
1.3
7.0
555.9
2,826.6
235.7
(177.3)
2,885.0
$
$
$
$
$
$
$
$
130.8
(0.3)
130.5
164.6
0.1
164.7
520.4
0.3
(5.6)
(2.2)
10.3
15.4
6.6
545.2
2,509.6
487.1
(170.1)
2,826.6
$
$
$
$
$
$
$
$
130.9
(0.1)
130.8
164.5
0.1
164.6
509.0
0.1
(6.7)
(1.8)
12.4
0.1
7.3
520.4
2,323.4
344.9
(158.7)
2,509.6
(331.4) $
(39.4)
(321.2) $
3.4
(348.3)
18.1
4.3
—
0.4
284.1
(82.4) $
(13.6)
(331.4) $
8.6
(321.2)
(1,503.4) $
(1,155.9) $
(1,112.7)
(2.1)
0.3
16.5
0.3
(403.5)
3.0
(1,905.7) $
$
1,747.7
(366.5)
2.2
(1,503.4) $
$
1,832.2
11.3
0.4
(56.7)
1.8
(1,155.9)
1,848.3
$
$
$
$
$
$
$
$
$
$
$
$
$
33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization. A. O. Smith Corporation (A. O. Smith or the Company) is comprised of two reporting segments: North
America and Rest of World. The Rest of World segment is primarily comprised of China, Europe and India. Both segments
manufacture and market comprehensive lines of residential and commercial gas and electric water heaters, boilers, tanks and
water treatment products. Both segments primarily manufacture and market in their respective regions of the world.
Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries
after elimination of intercompany transactions.
Use of estimates. The preparation of financial statements in conformity with accounting principles generally accepted in the
United States (U.S.) requires management to make estimates and assumptions that affect the amounts reported in the
accompanying financial statements and notes. Actual results could differ from those estimates.
Fair value of financial instruments. The carrying amounts of cash, cash equivalents, marketable securities, receivables,
floating rate debt and trade payables approximated fair value as of December 31, 2022 and 2021, due to the short maturities
or frequent rate resets of these instruments. The fair value of term notes with insurance companies included in Long-term
debt within the consolidated balance sheets was approximately $120.2 million as of December 31, 2022 compared with the
carrying amount of $136.5 million for the same date. The fair value of term notes with insurance companies was
approximately $128.4 million as of December 31, 2021 compared with the carrying amount of $145.9 million.
Foreign currency translation. For all subsidiaries outside the U.S., with the exception of its Barbados, Hong Kong and
Mexican companies and its non-operating companies in the Netherlands, the Company uses the local currency as the
functional currency. For those operations using a functional currency other than the U.S. dollar, assets and liabilities were
translated into U.S. dollars at year-end exchange rates, and revenues and expenses were translated at weighted-average
exchange rates. The resulting translation adjustments were recorded as a separate component of stockholders’ equity. The
Barbados, Hong Kong, Mexican and non-operating Netherlands companies use the U.S. dollar as the functional currency.
Gains and losses from foreign currency transactions were included in net earnings and were not significant in 2022, 2021, or
2020.
Cash and cash equivalents. The Company considers all highly liquid investments with a maturity of three months or less
when purchased to be cash equivalents.
Marketable securities. The Company considers all highly liquid investments with maturities greater than 90 days when
purchased to be marketable securities. At December 31, 2022, the Company’s marketable securities consisted of bank time
deposits with original maturities ranging from 180 days to 12 months and were primarily located at investment grade rated
banks in China and Hong Kong.
Inventory valuation. Inventories are carried at lower of cost or net realizable value. Cost is determined on the last-in, first-
out (LIFO) method for a majority of the Company’s domestic inventories, which comprised 36 percent and 37 percent of the
Company’s total inventory at December 31, 2022 and 2021, respectively. Inventories of foreign subsidiaries, the remaining
domestic inventories and supplies were determined using the first-in, first-out (FIFO) method.
Property, plant and equipment. Property, plant and equipment are stated at cost. Depreciation is computed primarily by the
straight-line method. The estimated service lives used to compute depreciation are generally 25 to 50 years for buildings,
three to 20 years for equipment and three to 15 years for software. Maintenance and repair costs are expensed as incurred.
Goodwill and other intangibles. Goodwill and indefinite-lived intangible assets are not amortized but are reviewed for
impairment on an annual basis. Separable intangible assets, primarily comprised of customer relationships, that are not
deemed to have an indefinite life are amortized on a straight-line basis over their estimated useful lives which range from five
to 25 years.
Impairment of long-lived and amortizable intangible assets. Property, plant and equipment and intangible assets subject to
amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount
may not be recoverable. If the sum of the expected undiscounted cash flows is less than the carrying value of the related asset
or group of assets, a loss is recognized for the difference between the fair value and carrying value of the asset or group of
assets. Such analyses involves significant judgment.
Product warranties. The Company’s products carry warranties that generally range from one to twelve years and are based
on terms that are consistent with the market. The Company records a liability for the expected cost of warranty-related claims
34
1. Organization and Significant Accounting Policies (continued)
at the time of sale and is estimated based on the warranty period, product type and loss experience using actual historical
failure rates and estimated costs of product replacement. The variables used in the calculation of the provision are reviewed
by the Company at least annually. At times, warranty issues may arise which are beyond the scope of the Company’s
historical experience. The Company provides for any such warranty issues as they become known and estimable. The
allocation of the warranty liability between current and long-term is based on expected warranty claims to be paid in the next
year as determined by historical product failure rates.
The following table presents the Company’s product warranty liability activity in 2022 and 2021:
Years ended December 31 (dollars in millions)
Balance at beginning of year
Expense
Claims settled
Acquired obligations
Balance at end of year
2022
2021
184.4
$
64.2
(66.1)
—
182.5
$
142.3
81.2
(51.3)
12.2
184.4
$
$
Derivative instruments. The Company utilizes certain derivative instruments to enhance its ability to manage currency as
well as raw materials price risk. The Company does not enter into contracts for speculative purposes. The fair values of all
derivatives are recorded in the consolidated balance sheets. The change in a derivative’s fair value is recorded each period in
current earnings or accumulated other comprehensive loss (AOCL), depending on whether the derivative is designated as part
of a hedge transaction and if so, the type of hedge transaction. See Note 14, “Derivative Instruments” for disclosure of the
Company’s derivative instruments and hedging activities.
Fair Value Measurements. Accounting Standards Codification (ASC) 820 Fair Value Measurements, among other things,
defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset
and liability category measured at fair value on either a recurring basis or nonrecurring basis. ASC 820 clarifies that fair
value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants. As such, fair value is a market-based measurement
that should be
determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering
such assumptions, ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair
value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted
prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is
little or no market data, which require the reporting entity to develop its own assumptions.
Assets and liabilities measured at fair value are based on the market approach which are prices and other relevant information
generated by market transactions involving identical or comparable assets or liabilities.
Assets (liabilities) measured at fair value on a recurring basis are as follows (dollars in millions):
Fair Value Measurement Using
Quoted prices in active markets for identical
assets (Level 1)
Significant other observable inputs (Level 2)
Balance Sheet Location
Marketable Securities
Other current assets / Accrued liabilities
December 31,
2022
December 31,
2021
$
$
90.6
6.5
188.1
(0.7)
There were no changes in the valuation techniques used to measure fair values on a recurring basis.
Revenue recognition. Substantially all of the Company’s sales are from contracts with customers for the purchase of its
products. Contracts and customer purchase orders are used to determine the existence of a sales contract. Shipping documents
are used to verify shipment. For substantially all of its products, the Company transfers control of products to the customer at
the point in time when title and risk are passed to the customer, which generally occurs upon shipment of the product. See
Note 2, “Revenue Recognition” for disclosure of the Company’s revenue recognition activities.
Advertising. The majority of advertising costs are charged to operations as incurred and totaled $100.4 million, $107.0
million and $97.0 million during 2022, 2021 and 2020, respectively. Included in total advertising costs are expenses
associated with store displays for water heater, water treatment products, range hood and cook tops in China that are
amortized over 12 to 48 months which totaled $17.2 million, $25.2 million and $27.0 million during 2022, 2021 and 2020,
respectively.
35
1. Organization and Significant Accounting Policies (continued)
Research and development. Research and development costs are charged to operations as incurred and amounted to $89.0
million, $94.2 million and $80.7 million during 2022, 2021 and 2020, respectively.
Environmental costs. The Company accrues for costs associated with environmental obligations when such costs are
probable and reasonably estimable. Costs of estimated future expenditures are not discounted to their present value.
Recoveries of environmental costs from other parties are recorded as assets when their receipt is considered probable. The
accruals are adjusted as facts and circumstances change.
Stock-based compensation. Compensation cost is recognized using the straight-line method over the vesting period of the
award and forfeitures are recognized as they occur. In accordance with amended ASC 718, the Company recognized $1.1
million, $5.6 million, and $4.2 million of discrete income tax benefits on settled stock based compensation awards during
2022, 2021, and 2020 respectively.
Income taxes. The provision for income taxes is computed using the asset and liability method, in accordance with ASC 740
Income Taxes, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of
temporary differences between the financial reporting and tax bases of assets and liabilities and for operating losses and tax
credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates that apply to
taxable income in effect for the years in which those tax assets are expected to be realized or settled and are classified as
noncurrent in the consolidated balance sheet. The Company records a valuation allowance to reduce deferred tax assets to the
amount that is believed more likely than not to be realized.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater
than 50 percent likelihood of being realized upon settlement.
Earnings per share of common stock. The Company is not required to use the two-class method of calculating earnings per
share since its Class A Common Stock and Common Stock have equal dividend rights. The numerator for the calculation of
basic and diluted earnings per share is net earnings. The following table sets forth the computation of basic and diluted
weighted-average shares used in the earnings per share calculations:
Denominator for basic earnings per share - weighted-average shares
Effect of dilutive stock options, restricted stock and share units
Denominator for diluted earnings per share
Recent Accounting Pronouncements.
2022
154,786,327
993,037
155,779,364
2021
159,906,834
1,413,068
161,319,902
2020
161,530,589
1,073,560
162,604,149
In November 2021, the Financial Accounting Standards Board (FASB) amended ASC 832, Government Assistance (issued
under Accounting Standards Update (ASU) 2021-10, “Disclosures by Business Entities about Government Assistance”). This
amendment requires disclosures that are expected to increase the transparency of transactions with a government accounted
for by applying a grant or contribution accounting model by analogy, including (1) the types of transactions, (2) the
accounting for those transactions, and (3) the effect of those transactions on an entity’s financial statements. The Company
adopted the amendment on January 1, 2022, and the adoption of ASU 2021-10 did not impact its annual disclosures,
consolidated balance sheets, statements of earnings or statements of cash flows.
2. Revenue Recognition
Substantially all of the Company’s sales are from contracts with customers for the purchase of its products. Contracts and
customer purchase orders are used to determine the existence of a sales contract. Shipping documents are used to verify
shipment. For substantially all of its products, the Company transfers control of products to the customer at the point in time
when title and risk are passed to the customer, which generally occurs upon shipment of the product. Each unit sold is
considered an independent, unbundled performance obligation. The Company’s sales arrangements do not include other
performance obligations that are material in the context of the contract.
The nature, timing and amount of revenue for a respective performance obligation are consistent for each customer. The
Company measures the sales transaction price based upon the payment terms associated with the transaction and whether the
sales price is subject to refund or adjustment. Sales and value added taxes are excluded from the measurement of the
transaction price. The Company’s payment terms for the majority of its customers are 30 to 90 days from shipment.
36
2. Revenue Recognition (continued)
Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits
liability of $85.7 million and $155.2 million at December 31, 2022 and December 31, 2021, respectively. Customer deposit
liabilities are short
term in nature, recognized into revenue within one year of receipt. The Company assesses the
collectability of customer receivables based on the creditworthiness of a customer as determined by credit checks and
analysis, as well as the customer’s payment history. In determining the allowance for credit losses, the Company also
considers various factors including the aging of customer accounts and historical write-offs. In addition, the Company
monitors other risk factors including forward-looking information when establishing adequate allowances for credit losses,
which reflects the current estimate of credit losses expected to be incurred over the life of the receivables. The Company’s
allowance for credit losses was $9.5 million at both December 31, 2022 and December 31, 2021.
Rebates and incentives are based on pricing agreements and are tied to sales volume. The amount of revenue is reduced for
variable consideration related to customer rebates which are calculated using expected values and are based on program
specific factors such as expected rebate percentages based on expected volumes. In situations where the customer has the
right to return eligible products, the Company reduces revenue for its estimates of expected product returns, which are
primarily based on an analysis of historical experience. Changes in such accruals may be required if actual sales volume
differs from estimated sales volume or if future returns differ from historical experience. Shipping and handling costs billed
to customers are included in net sales and the related costs are included in cost of products sold and are activities performed
to fulfill the promise to transfer products.
Disaggregation of Net Sales
The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is
primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential
and commercial gas, heat pump and electric water heaters, boilers, tanks and water treatment products. Both segments
primarily manufacture and market in their respective regions of the world.
As each segment manufactures and markets products in its respective region of the world, the Company has determined that
geography is the primary factor in reporting its sales. The Company further disaggregates its North America segment sales by
major product line as each of North America’s major product lines is sold through distinct distribution channels and these
product lines may be impacted differently by certain economic factors. Within the Rest of World segment, particularly in
China and India,
lines, utilizing the same
distribution channels regardless of product type. In addition, the impact of economic factors is unlikely to be differentiated by
product line in the Rest of World segment.
the Company’s major customers purchase across the Company’s product
The North America segment's major product lines are defined as the following:
Water heaters The Company’s water heaters are open water heating systems that heat potable water. Typical applications for
water heaters include residences, restaurants, hotels, office buildings, laundries, car washes and small businesses. The
Company sells residential and commercial water heater products and related parts through its wholesale distribution channel,
which includes more than 1,000 independent wholesale plumbing distributors. The Company also sells residential water
heaters and related parts through retail and maintenance, repair and operations (MRO) channels. A significant portion of the
Company’s water heater sales in the North America segment is derived from the replacement of existing products.
Boilers The Company’s boilers are closed loop water heating systems used primarily for space heating or hydronic heating.
The Company’s boilers are primarily used in applications in commercial settings for hospitals, schools, hotels and other large
commercial buildings while residential boilers are used in homes, apartments and condominiums. The Company’s boiler
distribution channel is comprised primarily of manufacturer representative firms, with the remainder of its boilers distributed
through wholesale channels. The Company’s boiler sales in the North America segment are derived from a combination of
replacement of existing products and new construction.
Water treatment products The Company’s water treatment products range from point-of-entry water softeners, solutions for
problem well water, and whole-home water filtration products to on-the-go filtration bottles and point-of-use carbon and
reverse osmosis products. Typical applications for the Company’s water treatment products include residences, restaurants,
hotels and offices. The Company sells water treatment products through its retail and wholesale distribution channels, similar
to water heater products and related parts. The Company’s water treatment products are also sold through independent water
quality dealers as well as directly to consumers including through e-commerce sales channels. A portion of the Company’s
sales of water treatment products in the North America segment is comprised of replacement filters.
37
2. Revenue Recognition (continued)
The following table disaggregates the Company’s net sales by segment. As described above, the Company’s North America
segment sales are further disaggregated by major product line. In addition, the Company’s Rest of World segment sales are
disaggregated by China and all other Rest of World.
Years ended December 31 (dollars in millions)
North America
Water heaters and related parts(1)
Boilers and related parts
Water treatment products
Total North America
Rest of World
China
All other Rest of World
Total Rest of World
Inter-segment sales
Total Net Sales
2022
2021
2020
$
$
$
2,325.1
272.0
222.0
2,819.1
839.1
126.7
965.8
(31.0)
3,753.9
$
$
$
2,115.9
212.1
201.5
2,529.5
922.4
114.1
1,036.5
(27.1)
3,538.9
$
$
$
1,753.9
187.2
177.2
2,118.3
701.0
99.3
800.3
(23.3)
2,895.3
(1) Includes the results of Giant Factories, Inc. (Giant) from October 19, 2021, the date of acquisition.
3. Acquisitions
On October 19, 2021, the Company acquired 100 percent of the shares and related assets of Giant, a Canada-based
manufacturer of residential and commercial water heaters for $198.6 million, net of cash acquired. The Company paid
$2.5 million of the purchase price in the second quarter of 2022 as a result of final working capital adjustments. The
Company incurred acquisition costs of approximately $1.3 million in 2021.
Under the Giant purchase agreement, approximately $8 million of the purchase price was set aside as an escrow to satisfy any
potential obligations of the former owners of Giant, should they arise. The Company expects to pay out the escrow during
the second quarter of 2023. The allocation of the purchase price to goodwill decreased by $4.3 million in 2022 due to the net
impact of a measurement period adjustment, primarily related to income tax matters, partially offset by the final working
capital adjustment. The addition of Giant increased the Company's North America market penetration, created additional
capacity and enhanced the Company's distribution capabilities. Giant is included in the North America segment.
The following table summarizes the allocation of fair value of the assets acquired and liabilities assumed at the date of
acquisition. Of the $53.8 million of acquired identifiable intangible assets, $43.9 million was assigned to trademarks that are
not subject to amortization and $9.2 million was assigned to customer relationships which are amortized over 22 years, and
the remaining $0.7 million was assigned to non-compete agreements which are amortized over five years. The excess of the
acquisition purchase price over the fair value assigned to the assets acquired and liabilities assumed was recorded as
goodwill.
The following table summarizes the estimated fair values of Giant's assets acquired and liabilities assumed at the date of
acquisition:
October 19, 2021 (dollars in millions)
Current assets, net of cash acquired
Property, plant and equipment
Intangible assets
Goodwill
Total assets acquired
Current liabilities
Long Term liabilities
Net assets acquired
38
$
$
60.1
55.8
53.8
77.6
247.3
(39.2)
(9.5)
198.6
3. Acquisitions (continued)
During the second quarter of 2022, the Company acquired a privately-held water treatment company. The Company paid an
aggregate cash purchase price of $5.5 million, net of cash acquired. The addition of the company acquired expands the
Company's water treatment platform and is included in the North America segment for reporting purposes.
During the third quarter of 2022, the Company incurred $4.3 million of expenses and related income tax benefit of
$1.1 million associated with a terminated acquisition. These expenses were related to the due diligence of a prospective
acquisition target and recorded within selling, general and administrative expenses in the consolidated statement of earnings.
As required under ASC 805 Business Combinations, results of operations have been included in the Company’s consolidated
financial statements from the date of their acquisition.
4. Leases
The Company’s lease portfolio consists of operating leases for buildings and equipment, such as forklifts and copiers,
primarily in the United States and China. The Company defines a lease as a contract that gives the Company the right to
control the use of a physical asset for a stated term. The Company pays the lessor for that right, with a series of payments
defined in the contract and a corresponding right of use operating lease asset and liability are recorded. The Company has
elected not to record leases with an initial term of 12 months or less on its consolidated balance sheet. To determine balance
sheet amounts, required legal payments are discounted using the Company’s incremental borrowing rate as of the inception of
the lease. The incremental borrowing rate is the rate of interest that the Company would incur if it were to borrow, on a
collateralized basis, an amount equal to the value of the leased item over a similar term, in a similar economic environment.
Variable lease components not based on an index or rate are excluded from the measurement of the lease asset and liability
and expensed as incurred for all asset classes.
Certain leases include one or more options to renew or terminate. Renewal terms can extend the lease term from one to five
years and options to terminate can be effective within one year. The exercise of lease renewal or termination is at the
Company’s discretion and when it is determined to be reasonably certain to renew or terminate, the option is reflected in the
measurement of lease asset and liability. The Company’s lease agreements do not contain any material residual value
guarantees or material restrictive covenants or material subleases. Cash flows associated with leases are materially consistent
with the expense recorded in the consolidated statement of earnings.
Supplemental balance sheet information related to leases is as follows:
(dollars in millions)
Liabilities
Short term: Accrued liabilities
Long term: Operating lease liabilities
Total operating lease liabilities
Less: Rent incentives and deferrals
Assets
Operating lease assets
Lease Term and Discount Rate
Weighted-average remaining lease term
Weighted-average discount rate
December 31,
2022
December 31,
2021
$
$
$
$
$
9.9
22.4
32.3
(2.5)
29.8
$
11.7
22.3
34.0
(1.5)
32.5
December 31,
2022
6.4 years
3.21%
39
4. Leases (continued)
The components of lease expense were as follows:
(dollars in millions)
Lease Expense(1)
Operating lease expense
Classification
Cost of products sold
Selling, general and administrative expenses
Year ended
December 31, 2022
4.3
$
15.8
Year ended
December 31, 2021
3.6
$
16.8
(1)
Includes short-term lease expense of $2.1 million and variable lease expenses of $3.1 million for the year ended
December 31, 2022 and short-term lease expense of $2.5 million and variable lease expenses of $2.3 million for the year
ended December 31, 2021, respectively.
Maturities of lease liabilities were as follows:
(dollars in millions)
2023
2024
2025
2026
2027
After 2027
Total lease payments
Less: Imputed interest
Present value of operating lease liabilities
5. Severance and Restructuring Expenses
December 31, 2022
$
$
10.6
7.9
5.3
3.2
1.7
7.5
36.2
(3.9)
32.3
During the year ended December 31, 2020, to align its business to market conditions, the Company recognized $7.7 million
of pre-tax severance and restructuring expenses. These expenses were comprised of $6.8 million in severance costs, as well
as a corresponding $1.4 million tax benefit and were completed in 2020. $2.7 million of the expense was related to the North
America segment and $5.0 million was related to the Rest of World segment.
6. Statement of Cash Flows
Supplemental cash flow information is as follows:
Years ended December 31 (dollars in millions)
Net change in current assets and liabilities, net of acquisitions:
2022
2021
2020
Receivables
Inventories
Other current assets
Trade payables
Accrued liabilities, including payroll and benefits
Income taxes
$
42.5
$
(25.5) $
(82.8)
(9.1)
(89.4)
(46.5)
(8.8)
$
(194.1) $
(109.5)
4.9
142.9
56.3
21.7
90.8
4.5
2.9
4.7
85.6
29.3
3.4
$
130.4
In addition cash interest paid during the years ended December 31, 2022, 2021 and 2020 were $9.3 million, $4.2 million, and
$7.6 million, respectively. Total cash and cash equivalents and marketable securities at December 31, 2022 and 2021 was
$481.8 million and $631.4 million, respectively, of which $472.1 million and $608.0 million were held by the Company’s
foreign subsidiaries, at December 31, 2022 and 2021, respectively.
40
7. Inventories
The following table presents the components of the Company’s inventory balances:
December 31 (dollars in millions)
Finished products
Work in process
Raw materials
Inventories, at FIFO cost
LIFO reserve
Inventories, at LIFO cost
8. Property, Plant and Equipment
December 31 (dollars in millions)
Land
Buildings
Equipment
Software
Accumulated depreciation and amortization
Net property, plant, and equipment
9. Goodwill and Other Intangible Assets
2022
2021
$
174.4
$
42.1
349.2
565.7
(49.3)
$
516.4
$
190.2
42.0
286.3
518.5
(70.8)
447.7
2022
2021
$
28.5
$
373.2
822.5
140.6
1,364.8
(774.1)
$
590.7
$
22.9
377.0
805.8
137.5
1,343.2
(736.5)
606.7
Changes in the carrying amount of goodwill during the years ended December 31, 2022 and 2021 consisted of the following:
(dollars in millions)
Balance at December 31, 2020
Currency translation adjustment
Acquisitions
Balance at December 31, 2021
Currency translation adjustment
Balance at December 31, 2022
North America Rest of World
Total
$
487.7
$
59.1
$
(1.3)
82.5
568.9
(7.8)
(0.2)
—
58.9
(0.3)
$
561.1
$
58.6
$
546.8
(1.5)
82.5
627.8
(8.1)
619.7
The carrying amount of other intangible assets consisted of the following:
December 31 (dollars in millions)
Amortizable intangible assets:
Patents
Customer lists
Total amortizable intangible
Indefinite-lived intangible assets:
Trade names
Total intangible assets
2022
2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
$
3.7 $
(3.7) $
— $
3.7 $
(3.7) $
288.6
292.3
223.3
(164.0)
(167.7)
124.6
124.6
288.3
292.0
(150.8)
(154.5)
—
223.3
227.3
—
$
515.6 $
(167.7) $
347.9 $
519.3 $
(154.5) $
—
137.5
137.5
227.3
364.8
41
9. Goodwill and Other Intangible Assets (continued)
Amortization expenses of other intangible assets of $12.8 million, $12.3 million, and $14.5 million were recorded in 2022,
the Company expects
2021 and 2020, respectively. In the future, excluding the impact of any future acquisitions,
amortization expense of approximately $12.5 million annually and the intangible assets will be amortized over a weighted-
average period of 12 years.
The Company concluded that no goodwill impairment existed at the time of the annual impairment tests which were
performed in the fourth quarters of 2022, 2021 and 2020. No impairments of other intangible assets were recorded in 2022,
2021 and 2020.
10. Debt
December 31 (dollars in millions)
Bank credit lines, average year-end interest rates of 5.0% for 2021
Revolving credit agreement borrowings, average year-end interest rates of 5.3% for 2022 and
1.1% for 2021
Commercial paper, average year-end interest rate of 4.6% for 2022
Term notes with insurance companies, expiring 2029-2034, average year-end interest rates of
3.1% for 2022 and 3.1% for 2021
Long-term debt due within one year
Long-term debt
2022
2021
$
— $
185.4
22.6
136.5
344.5
(10.0)
334.5
$
$
0.8
50.0
—
145.9
196.7
(6.8)
189.9
In 2021, the Company renewed and amended its $500 million multi-year multi-currency revolving credit agreement with a
new expiration date of April 1, 2026. The facility has an accordion provision which allows it to be increased up to $850
million if certain conditions (including lender approval) are satisfied. Borrowings under the Company’s bank credit lines and
commercial paper borrowings are supported by the $500 million revolving credit agreement. At its option, the Company
either maintains cash balances or pays fees for bank credit and services. The Company has fixed-rate interest expense
obligations of $19.5 million on outstanding debt as of December 31, 2022. Scheduled maturities of long-term debt within
each of the five years subsequent to December 31, 2022 are as follows:
Years ending December 31 (dollars in millions)
2023
2024
2025
2026
2027
11. Stockholders’ Equity
$
Amount
10.0
10.0
10.0
236.5
28.5
The Company’s authorized capital consists of three million shares of Preferred Stock $1 par value, 27 million shares of
Class A Common Stock $5 par value, and 240 million shares of Common Stock $1 par value. The Common Stock has equal
dividend rights with Class A Common Stock and is entitled, as a class, to elect one-third of the Board of Directors and has
1/10th vote per share on all other matters. Class A Common Stock is convertible to Common Stock on a one for one basis.
There were 68,785 shares during 2022, 64,072 shares during 2021 and 12,372 shares during 2020, of Class A Common Stock
converted into Common Stock. Regular dividends paid on the A. O. Smith Corporation Class A Common Stock and
Common Stock amounted to $1.14, $1.06 and $0.98 per share in 2022, 2021 and 2020, respectively.
In 2022, the Board of Directors approved adding 3,500,000 shares of Common Stock to an 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 the
Company's Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading
42
11. Stockholders’ Equity (continued)
plan that we may then have in effect. In 2022, the Company repurchased 6,647,895 shares at an average price of $60.70 per
share and at a total cost of $403.5 million. As of December 31, 2022, there were 378,462 shares remaining on the existing
repurchase authorization. In 2021, the Company repurchased 5,087,467 shares at a cost of $366.5 million. In 2020, the
Company repurchased 1,348,391 shares at a cost of $56.7 million.
At December 31, 2022, a total of 130,380 and 39,398,135 shares of Class A Common Stock and Common Stock,
respectively, were held as treasury stock. At December 31, 2021, a total of 130,380 and 32,924,647 shares of Class A
Common Stock and Common Stock, respectively, were held as treasury stock.
Changes to accumulated other comprehensive loss by component are as follows:
(dollars in millions)
Cumulative foreign currency translation
Balance at beginning of period
Other comprehensive (loss) gain before reclassifications
Balance at end of period
Unrealized net gain (loss) on cash flow derivatives
Balance at beginning of period
Other comprehensive gain (loss) before reclassifications
Realized (gains) losses on derivatives reclassified to cost of products sold (net of tax
provision (benefit) of $1.0 and $(0.2) in 2022 and 2021, respectively)(1)
Balance at end of period
Pension liability
Balance at beginning of period
Other comprehensive gain (loss) before reclassifications
Amounts reclassified from accumulated other comprehensive loss(1)
Balance at end of period
Total accumulated other comprehensive loss, end of period
(1) Amounts reclassified from accumulated other comprehensive loss:
Realized (gains) losses on derivatives reclassified to cost of products sold
Tax provision (benefit)
Reclassification net of tax
Amortization of pension items:
Actuarial losses
Prior year service cost
Tax benefit
Reclassification net of tax
Years ended December 31,
2022
2021
$
$
$
$
$
$
(44.7)
(39.4)
(84.1)
0.6
7.4
(3.1)
4.9
(287.3)
19.8
264.3
(3.2)
(82.4)
(4.1)
1.0
(3.1)
$
$
$
$
437.2 (2) $
(0.4) (2)
436.8
(172.5)
264.3
$
(48.1)
3.4
(44.7)
0.6
(0.6)
0.6
0.6
(273.7)
(28.6)
15.0
(287.3)
(331.4)
0.8
(0.2)
0.6
20.3 (2)
(0.4) (2)
19.9
(4.9)
15.0
(2) These accumulated other comprehensive loss components are included in the computation of net periodic benefit cost.
See Note 13, “Pensions and Other Post-retirement Benefits” for additional details.
12. Stock Based Compensation
The Company adopted the A. O. Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1,
2007. The Incentive Plan was most recently reapproved by stockholders on April 15, 2020. The Incentive Plan is a
continuation of the A. O. Smith Combined Executive Incentive Compensation Plan which was originally approved by
stockholders in 2002. The number of shares available for granting of options or share units at December 31, 2022, was
43
12. Stock Based Compensation (continued)
2,613,804 which includes 2,400,000 additional shares that were authorized on April 15, 2020 at the Company's annual
meeting of stockholders. Upon stock option exercise or share unit vesting, shares are issued from treasury stock. Total stock
based compensation expense recognized in 2022, 2021 and 2020 was $11.1 million, $11.9 million and $12.7 million,
respectively.
Stock Options
The stock options granted in 2022, 2021 and 2020 have three year pro rata vesting from the date of grant. Stock options are
issued at exercise prices equal to the fair value of the Company’s Common Stock on the date of grant. For active employees,
all options granted in 2022, 2021 and 2020 expire ten years after the date of grant. The Company’s stock options are
expensed ratably over the three year vesting period; however, included in the stock option expense recognized in 2022, 2021
and 2020 is expense associated with the accelerated vesting of stock option awards for certain employees who either are
retirement eligible or become retirement eligible during the vesting period. Stock based compensation expense attributable to
stock options for 2022, 2021 and 2020 was $5.5 million, $5.1 million and $6.2 million, respectively.
Changes in options, all of which relate to the Company’s Common Stock, were as follows:
Years Ended December 31
2022
2021
2020
Weighted
Avg. Per
Share
Exercise
Price
Number of
Options
Weighted
Avg. Per
Share
Exercise
Price
Number of
Options
Weighted
Avg. Per
Share
Exercise
Price
Number of
Options
Number of shares under options:
Outstanding at beginning of year
2,252,498
$
Granted
Exercised(1)
Forfeited
Outstanding at end of year(2)
Exercisable at end of year(3)
322,460
(66,697)
(26,655)
2,481,606
1,675,552
47.73
74.11
39.77
61.46
51.22
46.88
2,785,654
$
368,780
(889,345)
(12,591)
2,252,498
1,191,795
43.01
60.85
38.35
49.18
47.73
45.71
2,728,350
$
798,970
(662,215)
(79,451)
2,785,654
1,529,464
37.64
42.50
19.59
48.98
43.01
40.35
(1) The total intrinsic value of options exercised in 2022, 2021 and 2020 was $1.6 million, $31.0 million and $21.3 million,
respectively.
(2) The weighted average remaining contractual life of options outstanding was 7 years at December 31, 2022, and 8 years at
December 31, 2021 and December 31, 2020, respectively. The aggregate intrinsic value of options outstanding at
December 31, 2022 was $22.6 million.
(3) The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2022, 7 years at
December 31, 2021, and 6 years at December 31, 2020, respectively. The aggregate intrinsic value of options exercisable
at December 31, 2022 was $18.9 million.
Nonvested options at beginning of year
Granted
Vested
Forfeited
Nonvested options at end of year
Weighted Avg.
Per
Share Exercise
Price
Number of
Options
1,060,703
$
322,460
(559,150)
(17,959)
806,054
49.99
74.11
48.73
61.83
60.26
44
12. Stock Based Compensation (continued)
The weighted-average fair value per option at the date of grant during 2022, 2021 and 2020, using the Black-Scholes option-
pricing model, was $17.57, $14.03 and $8.17, respectively. Assumptions were as follows:
Expected life (years)
Risk-free interest rate
Dividend yield
Expected volatility
2022
2021
2020
5.7
1.9 %
1.5 %
26.8 %
5.8
1.2 %
1.6 %
27.4 %
5.7
1.5 %
2.1 %
23.7 %
The expected lives of options for purposes of these models are based on historical exercise behavior. The risk-free interest
rates for purposes of these models are based on the U.S. Treasury yield in effect on the date of grant for the respective
expected lives of the option. The expected dividend yields for purposes of these models are based on the dividends paid in the
preceding four quarters divided by the grant date market value of the Common Stock. The expected volatility for purposes of
these models are based on the historical volatility of the Common Stock.
Restricted Stock and Share Units
Participants may also be awarded shares of restricted stock or share units under the Incentive Plan. Share units vest three
years after the date of grant. The Company granted 94,731, 104,312 and 174,420 share units under the Incentive Plan in
2022, 2021 and 2020, respectively.
The share units were valued at $7.0 million, $6.4 million and $7.4 million at the date of issuance in 2022, 2021 and 2020,
respectively, based on the price of the Company’s Common Stock at the date of grant. The share units are recognized as
compensation expense ratably over the three-year vesting period; however, included in share unit expense was expense
associated with accelerated vesting of share unit awards for certain employees who are retirement eligible or will become
retirement eligible during the vesting period. Stock based compensation expense attributable to share units of $5.6 million,
$6.8 million and $6.5 million was recognized in 2022, 2021 and 2020, respectively. Certain non-U.S.-based employees
receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at
each reporting period.
A summary of share unit activity under the Incentive Plan is as follows:
Issued and unvested at January 1, 2021
Granted
Vested
Forfeited
Issued and unvested at December 31, 2022
Number of Units
421,138
94,731
(126,631)
(9,319)
379,919
Weighted-
Average
Grant Date Value
47.28
$
73.40
49.49
56.28
52.92
45
13. Pension and Other Post-retirement Benefits
The Company provides retirement benefits for all U.S. employees including benefits for employees of previously owned
businesses which were earned up to the date of sale. The Company also has two foreign pension plans, neither of which is
material to the Company’s financial position.
The Company has a defined contribution plan which matches 100 percent of the first one percent of contributions made by
participating employees and matches 50 percent of the next five percent of employee contributions. In addition, the Company
has defined contribution plans for certain hourly employees which provide for matching Company contributions.
The Company had a defined benefit plan for salaried employees and its non-union hourly workforce. In 2009, the Company
announced U.S. employees hired after January 1, 2010, would not participate in the defined benefit plan, and benefit accruals
for the majority of current salaried and hourly employees sunset on December 31, 2014. An additional Company contribution
is made to the defined contribution plan in lieu of benefits earned in a defined benefit plan. The Company also has defined
benefit and contribution plans for certain union hourly employees.
The Company has unfunded defined-benefit post-retirement plans covering certain hourly and salaried employees that
provide medical and life insurance benefits from retirement to age 65. Certain hourly employees retiring after January 1,
1996, are subject to a maximum annual benefit and salaried employees hired after December 31, 1993, are not eligible for
post-retirement medical benefits.
In 2021, the Company's Board of Directors approved the termination of the defined benefit pension plan (the Plan) with a
termination date of December 31, 2021. The Plan represented over 95 percent of the Company's pension plan liability. In the
second quarter of 2022, the Company received a determination letter from the Internal Revenue Service (IRS) that allowed
the Company to proceed with the termination process. In the fourth quarter of 2022, the Company settled approximately
$169 million of Plan liabilities through lump-sum payments from existing plan assets to eligible participants who elected to
receive them and settled approximately $463 million of Plan liabilities by entering into an agreement to purchase annuities
from Mass Mutual Life Insurance Company (MML). The irrevocable agreement with MML covers approximately 7,000
active and former employees and their beneficiaries, with MML assuming the future annuity payments for these individuals
commencing March 1, 2023. These settlements resulted in $417.3 million of pretax expense in 2022, partially offset by
approximately $167.7 million in related tax benefits.
Obligations and Funded Status
Pension and Post-retirement Disclosure Information
The following tables present the changes in benefit obligations, plan assets and funded status for domestic pension and post-
retirement plans and the components of net periodic benefit costs.
46
13. Pension and Other Post-retirement Benefits (continued)
Pension Benefits
Post-retirement Benefits
2021
(841.2)
2022
2021
N/A
(869.8)
$
(2.2)
$
(1.6)
(14.5)
—
—
(9.0)
52.8
—
(842.1)
858.8
18.9
1.0
—
(52.8)
—
$
$
Years ended December 31 (dollars in millions)
Accumulated benefit obligation (ABO) at December 31
Change in projected benefit obligations (PBO)
PBO at beginning of year
Service cost
Interest cost
Participant contributions
Plan amendments
Actuarial gain (loss) including assumption changes
Benefits paid
Transfer to insurer
PBO at end of year
Change in fair value of plan assets
Plan assets at beginning of year
Actual return on plan assets
Contribution by the Company
Participant contributions
Benefits paid
Transfer to insurer
Plan assets at end of year
Funded status
Amount recognized in the balance sheet
Noncurrent assets
Current liabilities
Non-current liabilities
Net pension asset (liability) at end of year
Amounts recognized in accumulated other
comprehensive loss before tax
Net actuarial loss
$
$
$
$
$
$
$
$
$
Prior service cost
Total recognized in accumulated other comprehensive loss $
2022
(27.7)
(842.1)
(1.4)
(14.5)
—
—
147.6
219.3
462.8
(28.3)
825.9
(99.1)
0.5
—
(219.3)
(462.8)
45.2
16.9
27.1
(0.5)
(9.7)
$
$
$
$
$
$
$
825.9
(16.2)
$
$
— $
(1.7)
$
— $
— $
(0.5)
(15.7)
16.9 * $
(16.2) * $
5.2
2.1
7.3
$
$
469.7
1.4
471.1
$
$
(1.7)
$
(2.2)
N/A
(5.9)
—
(0.1)
(0.1)
—
0.6
3.3
—
—
—
3.2
0.1
(3.3)
—
—
(2.2)
—
(0.2)
(2.0)
(2.2)
—
(2.8)
(2.8)
—
(0.1)
(0.1)
—
(0.2)
0.9
—
— $
—
0.8
0.1
(0.9)
—
(0.2)
(1.5)
(1.7)
0.2
(2.3)
(2.1)
$
$
$
*In addition, the Company has a liability for a foreign pension plan of $0.3 million and $0.2 million at December 31, 2022
and 2021, respectively.
The actuarial loss in the current year for both the pension and post-retirement benefit plans was primarily due to the change in
the discount rate.
47
13. Pension and Other Post-retirement Benefits (continued)
Years ended December 31 (dollars in millions)
Net periodic cost (benefit)
Service cost
Interest cost
Expected return on plan assets
Amortization of unrecognized:
Net actuarial loss
Prior service cost
Defined-benefit plan income
Settlements, curtailments and other one-time charges
Various U.S. defined contribution plans cost
Other changes in plan assets and projected benefit
obligation recognized in other comprehensive loss
Net actuarial (gain) loss
Amortization of net actuarial loss
Settlement loss
Prior service credit
Amortization of prior service cost
Total recognized in other comprehensive loss
Total recognized in net periodic (benefit) cost and
other comprehensive loss
Pension Benefits
2021
2022
2020
Post-retirement Benefits
2021
2020
2022
$
1.4 $
1.6 $
1.5 $
— $ — $
14.5
(21.5)
19.9
(0.4)
13.9
417.3
15.3
14.5
(48.0)
20.3
(0.4)
(12.0)
—
14.6
23.0
(51.9)
20.2
(0.4)
(7.6)
2.5
14.4
0.1
—
—
(0.5)
(0.4)
—
—
0.1
—
—
(0.5)
(0.4) $
—
—
—
0.1
—
—
(0.5)
(0.4)
(0.5)
—
$
446.5 $
2.6 $
9.3 $
(0.4) $
(0.4) $
(0.9)
$
(27.0) $
38.1 $
11.7 $
(19.9)
(417.3)
—
0.4
(20.3)
(22.8)
—
—
0.4
—
—
0.4
(463.8)
18.2
(10.7)
0.2 $
—
(0.6) $
—
—
—
0.5
0.7
—
—
0.5
(0.1)
0.8
—
—
(2.0)
0.5
(0.7)
$
(32.6) $
6.2 $
(15.8) $
0.3 $
(0.5) $
(1.6)
The 2022 and 2021 after tax adjustments for additional minimum pension liability resulted in other comprehensive gain (loss)
of $284.1 million and $(13.6) million, respectively.
Actuarial assumptions used to determine benefit obligations at December 31 are as follows:
Discount rate
Pension Benefits
Post-retirement Benefits
2022
2021
2022
2021
5.13 %
2.72 %
5.02 %
2.43 %
Actuarial assumptions used to determine net periodic benefit cost for the year ended December 31 are as follows:
Years ended December 31
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Assumed health care cost trend rates
Pension Benefits
2021
2022
2020
Post-retirement Benefits
2021
2020
2022
2.80 %
3.12 %
4.00 %
2.47 %
6.25 %
4.00 %
3.18 %
6.75 %
4.00 %
2.44 %
2.05 %
2.95 %
N/A
N/A
N/A
N/A
4.00 %
4.00 %
Assumed health care cost trend rates as of December 31 are as follows:
Health care cost trend rate assumed for next year
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)
2022 (1)
2021
N/A
N/A
7.00 %
5.00 %
Year that the rate reaches the ultimate trend rate
2029
(1) Health care inflation assumptions are no longer needed as all remaining retiree medical benefits are fixed subsidies or
N/A
reimbursements.
48
13. Pension and Other Post-retirement Benefits (continued)
Plan Assets
The Company’s pension plan weighted asset allocations as of December 31 by asset category are as follows:
Asset Category
Equity securities
Debt securities
Private equity
Cash
2022
2021
8 %
1 %
27
5
60
75
1
23
100 %
100 %
The following tables present the fair value measurement of the Company’s plan assets as of December 31, 2022 and 2021
(dollars in millions):
Asset Category
Short-term investments
Equity securities
Common stocks
Fixed income securities
U.S. Treasury securities
Other fixed income securities
Other types of investments
Mutual funds
Private equity
Total fair value of plan asset investments
Non-investment plan assets
Total plan assets
Asset Category
Short-term investments
Equity securities
Common stocks
Fixed income securities
U.S. Treasury securities
Other fixed income securities
Other types of investments
Mutual funds
Private equity
Total fair value of plan asset investments
Non-investment plan assets
Total plan assets
December 31, 2022
Quoted Prices in
Active Markets for
Identical Contracts
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Non-
observable Inputs
(Level 3)
Total
$
26.9
$
26.9
$
— $
3.7
8.6
2.7
0.8
2.2
3.7
8.6
—
—
—
44.9
$
39.2
$
0.3
45.2
—
—
2.7
0.8
—
3.5
$
—
—
—
—
—
2.2
2.2
December 31, 2021
Quoted Prices in
Active Markets for
Identical Contracts
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant Non-
observable Inputs
(Level 3)
Total
182.9
$
182.9
$
— $
3.7
52.8
551.2
26.7
5.1
3.7
52.8
—
—
—
—
—
551.2
26.7
—
822.4
$
239.4
$
577.9
$
—
—
—
—
—
5.1
5.1
3.5
825.9
49
$
$
$
$
$
13. Pension and Other Post-retirement Benefits (continued)
The short-term investments included in the Company’s plan assets consist of cash and cash equivalents. The fair value of the
remaining categories of the Company’s plan assets are valued as follows: equity securities are valued using the closing stock
price on a national securities exchange, which reflects the last reported sales price on the last business day of the year; fixed
income securities are valued using institutional bond quotes, which are based on various market and industry inputs; mutual
funds and real estate funds are valued using the net asset value of the fund, which is based on the fair value of the underlying
securities; Options are valued using the closings market value on the last day of the year; and private equity investments are
valued at the estimated fair value at the previous quarter end, which is based on the proportionate share of the underlying
portfolio investments.
The following table presents a reconciliation of the fair value measurements using significant unobservable inputs (Level 3)
as of December 31, 2022 and 2021 (dollars in millions):
Balance at December 31, 2020
Actual (loss) return on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, sales and settlements
Balance at December 31, 2021
Actual return (loss) on plan assets:
Relating to assets still held at the reporting date
Relating to assets sold during the period
Purchases, sales and settlements
Balance at December 31, 2022
Real estate
funds
Private
equity
Total
$
79.8
$
4.9
$
84.7
—
8.3
(88.1)
—
—
—
$
—
— $
3.8
(3.1)
(0.5)
5.1
(2.8)
(0.2)
0.1
2.2
$
3.8
5.2
(88.6)
5.1
(2.8)
(0.2)
0.1
2.2
The Company’s investment policies employ an approach whereby a diversified blend of equity and bond investments is used
to maximize the long-term return of plan assets for a prudent level of risk. Equity investments are diversified across domestic
and non-domestic stocks, as well as growth, value, and small to large capitalizations. Bond investments include corporate and
government issues, with short, mid, and long-term maturities, with a focus on investment-grade when purchased. In
preparation for the Plan settlement, which we completed in the fourth quarter of 2022, the target allocation to bonds managers
is between 60 to 95 percent with the remainder allocated primarily to equities, private equity managers and cash. Investment
and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual
liability measurements and periodic asset/liability studies.
The Company’s actual asset allocations are in line with target allocations. The Company regularly reviews its actual asset
allocation and periodically rebalances its investments to the targeted allocation when considered appropriate.
There was no Company stock included in plan assets at December 31, 2022.
Cash Flows
The Company was not required to and did not make any contributions in 2022 to the Plan. The Company is not required to
make a contribution in 2023.
50
13. Pension and Other Post-retirement Benefits (continued)
Estimated Future Payments
As of December 31, 2022, the following benefit payments, which reflect expected future service, as appropriate, are expected
to be paid:
Years ended December 31 (dollars in millions)
2023
2024
2025
2026
2027
2028 – 2032
14. Derivative Instruments
$
Pension
Benefits
Post-retirement
Benefits
$
4.9
0.7
0.8
0.9
5.1
9.2
0.2
0.2
0.2
0.2
0.2
0.7
The Company utilizes certain derivative instruments to enhance its ability to manage currency exposure as well as raw
materials price risk. Derivative instruments are entered into for periods consistent with the related underlying exposures and
do not constitute positions independent of those exposures. The Company does not enter into contracts for speculative
purposes. The contracts are executed with major financial institutions with no credit loss anticipated for failure of the
counterparties to perform.
Cash Flow Hedges
With the exception of its net investment hedges, the Company designates all of its hedging instruments as cash flow hedges.
For derivative instruments that are designated and qualify as a cash flow hedge (i.e., hedging the exposure to variability in
expected future cash flows that is attributable to a particular risk), gains or losses on the derivative instrument are reported as
a component of other comprehensive loss, net of tax, and are reclassified into earnings in the same line item associated with
the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings.
Foreign Currency Forward Contracts
The Company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional
currency of certain subsidiaries. The Company utilizes foreign currency forward purchase and sale contracts to manage the
volatility associated with foreign currency purchases, sales and certain intercompany transactions in the normal course of
business. Principal currencies for which the Company utilizes foreign currency forward contracts include the British pound,
Canadian dollar, Euro and Mexican peso.
Gains and losses on these instruments are recorded in accumulated other comprehensive loss, net of tax, until the underlying
transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other
comprehensive loss to the consolidated statement of earnings. The assessment of effectiveness for forward contracts is based
on changes in the forward rates. These hedges have been determined to be effective.
The majority of the amounts in accumulated other comprehensive loss for cash flow hedges are expected to be reclassified
into earnings within one year.
The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts
that are designated as cash flow hedges:
December 31 (dollars in millions)
2022
2021
Buy
Sell
Buy
Sell
British pound
Canadian dollar
Euro
Mexican peso
Total
$
$
51
— $
— $
— $
—
30.2
15.7
45.9
76.8
—
—
$
76.8
$
—
24.2
23.8
48.0
—
113.4
—
—
$
113.4
14. Derivative Instruments (continued)
Net Investment Hedges
The Company enters into certain foreign currency forward contracts to hedge the exposure to a portion of the Company’s net
investments in certain non-U.S. subsidiaries against the effect of exchange rate fluctuations on the translation of foreign
currency balances to the U.S. dollar. For the derivative instruments that are designated and qualify as net investment hedges,
gains and losses are reported in other comprehensive loss where they offset gains and losses recorded on the Company’s net
investments in its non-U.S. subsidiaries. These hedges are determined to be effective. The Company recognized $1.4 million
of after tax gains and $(0.5) million of after-tax losses associated with hedges of a net investment in non-U.S. subsidiaries in
currency translation adjustment in other comprehensive income in 2022 and 2021, respectively. The contractual amount of
the Company’s foreign currency forward contracts that are designated as net investment hedges is zero as of December 31,
2022.
The following tables present the impact of derivative contracts on the Company’s financial statements.
Fair value of derivatives designated as hedging instruments under ASC 815:
December 31 (dollars in millions)
Foreign currency contracts
Total derivatives designated as hedging instruments
Balance Sheet Location
2022
2021
Other current assets
Accrued liabilities
$
$
6.4
—
6.4
$
$
1.7
(1.6)
0.1
The effect of cash flow hedges on the consolidated statement of earnings:
Years ended December 31 (dollars in millions):
Derivatives in ASC 815 cash flow
hedging relationships
Amount of gain (loss)
recognized in other
comprehensive loss on
derivatives
2022
2021
Location of gain (loss)
reclassified from
accumulated other
comprehensive loss into
earnings
Amount of gain (loss)
reclassified
from accumulated
other comprehensive
loss into earnings
2021
2022
Foreign currency contracts
$
9.8
$
(0.8) Cost of products sold
$
4.1
$
(0.8)
Balance Sheet Hedges
Foreign Exchange Contracts
The Company periodically enters into foreign exchange contracts to mitigate the foreign currency volatility relative to certain
intercompany loans. These foreign exchange contracts did not qualify for hedge accounting in accordance with ASC 815, and
as such were marked to market through earnings. The fair value of the foreign exchange contracts was an asset balance of
$0.1 million as of December 31, 2022 and recorded in Other current assets within the consolidated balance sheet. The fair
value of the foreign exchange contracts was a liability balance of $0.8 million as of December 31, 2021 and recorded in
Accrued liabilities within the consolidated balance sheet
The following table summarizes the contractual amounts of the Company's foreign exchange contracts that are designated as
balance sheet hedges:
December 31 (dollars in millions)
Canadian dollar
2022
2021
Buy
Sell
Buy
Sell
$
— $
81.5
$
— $
125.6
The amounts recognized within the consolidated statements of earnings related to the Company's foreign exchange contracts
are set forth below.
Years ended December 31 (dollars in millions)
Derivatives not designated as hedging
instruments:
Foreign exchange contracts
Location of gain within the
consolidated statements of earnings
Other expense (income) - net
2022
2021
2020
$
1.2
$
(0.9) $
—
52
15. Income Taxes
The components of the (benefit from) provision for income taxes consisted of the following:
Years ended December 31 (dollars in millions)
Current:
Federal
State
International
Deferred:
Federal
State
International
2022
2021
2020
$
101.8
$
26.6
30.5
(136.9)
(34.1)
0.1
$
92.2
22.4
29.5
(3.2)
(0.6)
(1.8)
$
(12.0) $
138.5
$
67.1
17.4
25.8
5.6
2.3
(19.2)
99.0
The (benefit from) provision for income taxes differs from the U.S. federal statutory rate due to the following items:
Years ended December 31
Provision at U.S. federal statutory rate(1)
State taxes, net of federal benefit(1)
U.S pension plan settlement expense(1)
International income tax rate differential—China
International income tax rate differential—other
Research tax credits
Excess tax benefit on stock compensation
Other
2022
2021
2020
21.0 %
2.7
(29.5)
(4.6)
3.5
(1.0)
(0.5)
3.0
21.0 %
2.8
—
(1.6)
0.7
(0.4)
(0.9)
0.5
21.0 %
3.5
—
(0.6)
0.2
(0.5)
(0.9)
(0.4)
(5.4)%
22.1 %
22.3 %
(1) Included in 2022 is tax effects of the pension plan settlement expense associated with the termination of the Plan. Refer to
Note 13, “Pension and Other Postretirement Benefits” for more information. A tax benefit of $101.9 million on the pretax
expense were reflected in computed tax provision at U.S. federal statutory rate and state taxes, net of federal tax benefit for
2022. In 2022, the tax benefit of $65.8 million or a 29.5% benefit related to the release of stranded tax effects in AOCL
through the income statement was reflected in U.S. pension plan settlement expense.
Components of earnings before income taxes were as follows:
Years ended December 31 (dollars in millions)
U.S.
International
2022
2021
2020
$
$
63.9
159.8
223.7
$
$
479.0
146.6
625.6
$
$
407.3
36.6
443.9
Our 2022 provision for income taxes included $167.7 million of tax benefit related to the effective settlement of the Plan,
$101.9 million of which was the related tax effect on the pretax expense of $417.3 million and $65.8 million of which was
related to the release of stranded tax effects in AOCL through the Tax Cuts and Jobs Act. Refer to Note 13, “Pension and
Other Postretirement Benefits,” for more information.
The Company paid income taxes of $175.4 million, $131.2 million, and $114.1 million in 2022, 2021 and 2020, respectively.
Undistributed earnings of the Company’s foreign subsidiaries amounted to $647.7 million at December 31, 2022. The
Company had $5.3 million accrued for its estimate of withholding taxes due upon repatriation of approximately
$173.0 million of foreign earnings it considers not permanently reinvested as of December 31, 2022. The Company considers
$474.7 million of the total undistributed earnings to be permanently reinvested as a result of various factors including
imposition of statutory restrictions at certain jurisdictions that prohibit the repatriation of a portion of the earnings.
53
15. Income Taxes (continued)
Accordingly, no provision for state, local and foreign withholding income taxes has been provided thereon. Upon repatriation
of those earnings, in the form of dividends or otherwise, the Company would be subject to state and local taxes, and
withholding taxes payable to the various foreign countries. The Company expects to be able to take a 100% dividend received
deduction to offset any US federal income tax liability. Determination of the amount of unrecognized state and local deferred
income tax liability and associated foreign withholding taxes is not practicable due to the complexities associated with its
hypothetical calculation.
The tax effects of temporary differences of assets and liabilities between income tax and financial reporting are as follows:
December 31 (dollars in millions)
Employee benefits
Product liability and warranties
Inventories
Accounts receivable
Property, plant and equipment
Intangibles
Environmental liabilities
Undistributed foreign earnings
Tax loss and credit carryovers
All other
Valuation allowance
Net liability
2022
2021
Assets
Liabilities
Assets
Liabilities
$
$
13.9
50.7
1.4
14.6
—
—
1.6
—
10.1
14.0
(8.3)
98.0
$
— $
—
—
—
51.5
66.2
—
5.3
—
—
—
$
22.6
52.3
7.6
18.3
—
—
1.7
—
8.9
12.9
(7.1)
—
—
—
—
46.6
85.2
—
6.5
—
—
—
$
$
123.0
$
117.2
25.0
$
$
138.3
21.1
The Company believes it is more likely than not that it will realize its net deferred tax assets through the reduction of future
taxable income. The Company considered historical operating results in determining the probability of the realization of the
deferred tax assets.
A reconciliation of the beginning and ending amounts of tax loss carryovers, credit carryovers and valuation allowances is as
follows:
December 31 (dollars in millions)
Beginning balance
(Decreases) / increases
Ending balance
Net Operating Losses and
Tax Credits
2022
2021
Valuation Allowances
2021
2022
$
$
8.9
1.2
10.1
$
$
20.3
(11.4)
8.9
$
$
7.1
1.2
8.3
$
$
13.0
(5.9)
7.1
The Company has foreign net operating loss carryovers that expire in 2023 through 2028 and state and local net operating
loss carryovers that expire in 2030.
A reconciliation of the beginning and ending amount of unrecognized benefits is as follows:
(Dollars in millions)
Balance at January 1
Additions / (decreases) for tax positions of prior years
Balance at December 31
2022
2021
$
$
14.3
0.7
15.0
$
$
9.0
5.3
14.3
The amount of unrecognized tax benefits that, if recognized, would affect the effective income tax rate is $2.9 million. The
Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax
expense. At December 31, 2022, there was an immaterial amount of interest and penalties accrued. The Company anticipates
that there will not be a material decrease in the total amount of unrecognized tax benefits in 2023. The Company’s U.S.
federal income tax returns and its U.S. state and local income tax returns are subject to audit for the years 2017-2022 and
54
15. Income Taxes (continued)
2009-2022, respectively. The Company is subject to examinations in foreign tax jurisdictions for the years 2016-2022. If the
examinations at certain foreign tax jurisdictions are resolved unfavorably, there could be additional assessments imposed by
the relevant authorities.
16. Commitments and Contingencies
Environmental Contingencies
The Company is a potentially responsible party in judicial and administrative proceedings seeking to clean up sites which
have been environmentally impacted. In each case, the Company has established reserves, insurance proceeds and/or a
potential recovery from third parties. The Company believes any environmental claims will not have a material effect on its
financial position or results of operations.
Product Liability
The Company is subject to various claims and pending lawsuits for product liability and other matters arising out of the
conduct of the Company’s business. With respect to product liability claims, the Company has self-insured a portion of its
product liability loss exposure for many years. The Company has established reserves and has insurance coverage, which it
believes are adequate to cover incurred claims. For the years ended December 31, 2022 and 2021, the Company had $125
million of product liability insurance for individual losses in excess of $7.5 million. At December 31, 2022 and 2021, our
reserve for product liability was $31.7 million and $35.4 million, respectively. The Company periodically reevaluates its
exposure on claims and lawsuits and makes adjustments to its reserves as appropriate. The Company believes, based on
current knowledge, consultation with counsel, adequate reserves and insurance coverage that the outcome of such claims and
lawsuits will not have a material adverse effect on the Company’s financial position, results of operations or cash flows.
Purchase Obligations
The Company utilizes blanket purchase orders to communicate expected annual requirements to many suppliers.
Requirements under blanket purchase orders generally do not become committed until several weeks prior to the scheduled
unit production. The purchase obligations the Company considers firm as of December 31, 2022, is $211.4 million, most of
which will be ordered in 2023.
Inventory Repurchase Arrangements
The Company maintains a commercial relationship with a supply-chain service provider (the Provider) in connection with the
Company’s business in China. In this capacity, the Provider offers order-entry, warehousing and logistics support. The
Provider also offers asset-backed financing to certain of the Company’s distributors in China to facilitate their working
capital needs. To facilitate its financing support business, the Provider has collateralized lending facilities in place with
multiple Chinese banks under which the Company has agreed to repurchase inventory if both requested by the banks and
certain defined conditions are met, primarily related to the aging of the distributors’ notes.
The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory
repurchase under these arrangements. Potential losses under the repurchase arrangements represent the difference between
the repurchase price and net proceeds from the resale of product plus costs incurred in the process, less related distributor
rebates.
Before considering any reduction of distributor rebate accruals of $1.1 million and $3.9 million as of December 31, 2022 and
December 31, 2021, respectively, and from the resale of the related inventory, the gross amount the Company would be
obligated to repurchase, which would be contingent on the default of all of the outstanding loans, was approximately $2.4
million and $7.2 million as of December 31, 2022 and December 31, 2021, respectively. The Company’s reserves for
estimated losses under repurchase arrangements were immaterial as of December 31, 2022 and December 31, 2021.
Legal Judgment Income
On September 28, 2022, the Company received a cash judgment of $11.5 million from a competitor of our North America
segment related to its infringement of one of the Company’s patents. The terms of the judgment resulted in pre-tax income of
$11.5 million which is recorded as an offset to selling, general and administrative expenses and a related tax expense of
$2.9 million.
55
17. Operations by Segment
The Company is comprised of two reporting segments: North America and Rest of World. The Rest of World segment is
primarily comprised of China, Europe and India. Both segments manufacture and market comprehensive lines of residential
and commercial gas and electric water heaters, boilers, tanks and water treatment products. Both segments primarily
manufacture and market in their respective regions of the world.
The accounting policies of the reportable segments are the same as those described in the “Summary of Significant
Accounting Policies” outlined in Note 1. Segment earnings, defined by the Company as earnings before interest, taxes,
general corporate and corporate research and development expenses, were used to measure the performance of the segments.
Years ended December 31 (dollars in millions)
North America
Rest of World
Inter-segment
Total segments – sales, segment earnings
Corporate expenses
Interest expense
Earnings before income taxes
(Benefit from) provision for income taxes
Net earnings
Net Sales
2021
2022
2020
2022 (1)
Earnings
2021
$ 2,819.1 $ 2,529.5 $ 2,118.3 $
1,036.5
965.8
800.3
(31.0)
(27.1)
$ 3,753.9 $ 3,538.9 $ 2,895.3 $
(23.3)
$
266.0 $
96.3
(0.3)
362.0 $
(128.9)
(9.4)
223.7
(12.0)
235.7 $
590.8 $
91.4
(0.2)
682.0 $
(52.1)
(4.3)
625.6
138.5
487.1 $
2020 (2)
503.5
—
(0.3)
503.2
(52.0)
(7.3)
443.9
99.0
344.9
(1) The Company recognized a pre-tax pension settlement expense of $346.8 million in the North America segment and
$70.5 million within Corporate expenses. The (benefit from) provision for income taxes includes a tax benefit of
($167.7 million) related to the pension settlement. For additional information, see Note 13, “Pension and Other Post-
retirement Benefits.”
(2) The Company recognized pre-tax severance and restructuring expenses of $2.7 million within the North America
segment and $5.0 million within the Rest of World segment. For additional information, see Note 5, “Severance and
Restructuring Expenses.”
In 2022, sales to the Company's North America segment’s two largest customers were $596.4 million and $414.2 million
which represented 16 percent and 11 percent of the Company’s net sales, respectively. In 2021, sales to the Company's North
America segment’s two largest customers were $536.9 million and $401.5 million which represented 15 percent and 11
percent of the Company’s net sales, respectively. In 2020, sales to the Company's North America segment’s two largest
customers were $471.9 million and $349.9 million which represented 16 percent and 12 percent of the Company’s net sales,
respectively.
Assets, depreciation and capital expenditures by segment
Total Assets (December 31)
2020
2021
2022
$2,230.3
$2,181.9
$1,759.1
$
597.7
504.3
792.7
499.8
664.9
736.7
Depreciation and
Amortization (Years Ended
December 31)
2021
2022
2020
$
55.7
20.5
0.7
$
$
52.2
25.1
0.6
51.5
27.9
0.6
$3,332.3
$3,474.4
$3,160.7
$
76.9
$
77.9
$
80.0
$
Capital Expenditures (Years
Ended December 31)
2021
2020
2022
48.6
10.9
10.8
70.3
$
$
48.0
15.8
11.3
75.1
$
41.7
14.9
0.2
$
56.8
(dollars in millions)
North America
Rest of World
Corporate
Total
The majority of corporate assets consist of cash, cash equivalents, marketable securities and deferred income taxes.
Net sales and long-lived assets by geographic location
The following data by geographic area includes net sales based on product shipment destination and long-lived assets based
on physical location. Long-lived assets include net property, plant and equipment, operating lease assets and other long-term
assets.
56
17. Operations by Segment (continued)
(dollars in millions)
United States
China
Canada
Other Foreign
Total
Long-lived Assets (December 31)
2020
2021
2022
Net Sales (Years Ended December 31)
2021
2022
2020
$
409.8
$
366.2
$
355.8 United States
$ 2,430.0
$ 2,239.1
$ 1,904.9
225.2
54.7
41.3
259.9
59.1
44.0
268.3 China
4.5 Canada
43.4 Other Foreign
826.6
341.6
155.7
912.6
247.2
140.0
695.6
175.0
119.8
$
731.0
$
729.2
$
672.0 Total
$ 3,753.9
$ 3,538.9
$ 2,895.3
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A – CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the
effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report. Based on the evaluation, our
Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period our disclosure controls
and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to
be disclosed by us in the reports that we file or submit under the Exchange Act, and that information is accumulated and
communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions
regarding required disclosure.
Management Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined
in Exchange Act Rule 13a-15(f)). The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our management, with the participation of our Chief Executive
Officer and Chief Financial Officer, has evaluated the effectiveness of our internal control over financial reporting based on
the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our management has concluded that, as of December 31, 2022, our internal control
over financial reporting was effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Ernst &
Young LLP, an independent registered public accounting firm, has audited our consolidated financial statements and the
effectiveness of internal controls over financial reporting as of December 31, 2022 as stated in their report which is included
herein.
Changes in Internal Control Over Financial Reporting
There have been no changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rule
13a-15(f)) during the year ended December 31, 2022 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B – OTHER INFORMATION
None.
ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
None.
57
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
A. O. Smith Corporation
Opinion on Internal Control over Financial Reporting
We have audited A. O. Smith Corporation’s internal control over financial reporting as of December 31, 2022, based on
criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (2013 framework) (the COSO criteria). In our opinion, A. O. Smith Corporation (the Company)
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the
COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of A. O. Smith Corporation as of December 31, 2022 and 2021, and the related
consolidated statements of earnings, comprehensive earnings, stockholders’ equity, and cash flows for each of the three years
in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the index at Item
15(a) and our report dated February 14, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report
on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control
over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk,
and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 14, 2023
58
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information included under the headings “Election of Directors” and “Board Committees” in our definitive Proxy
Statement for the 2023 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission (SEC)
under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference. The
information required regarding Executive Officers of the Company is included in Part I of this Annual Report on Form 10-K
under the caption “Executive Officers of the Company.”
We have a separately designated Audit Committee on which Idelle K. Wolf, Earl E. Exum, Michael M. Larsen and Gene C.
Wulf serve, with Ms. Wolf, as Chairperson. All members are independent under applicable SEC and New York Stock
Exchange rules; the Board of Directors of the Company has concluded that Mr. Larsen, Ms. Wolf and Mr. Wulf are “audit
committee financial experts” in accordance with SEC rules.
We have adopted a Financial Code of Ethics applicable to our principal executive officer, principal financial officer and
principal accounting officer. As a best practice, this code has been executed by key financial and accounting personnel as
well. In addition, we have adopted a general code of business conduct for our directors, officers and all employees, which is
known as the A. O. Smith Guiding Principles. The Financial Code of Ethics, the A. O. Smith Guiding Principles and other
company corporate governance matters are available on our website at www.aosmith.com. We are not including the
information contained on our website as a part of or incorporating it by reference into, this Form 10-K. We intend to disclose
on this website any amendments to, or waivers from, the Financial Code of Ethics or the A. O. Smith Guiding Principles that
are required to be disclosed pursuant to SEC rules. There have been no waivers of the Financial Code of Ethics or the A. O.
Smith Guiding Principles. Stockholders may obtain copies of any of these corporate governance documents free of charge by
writing to the Corporate Secretary at the address on the cover page of this Form 10-K.
The information included under the heading “Compliance with Section 16(a) of the Securities Exchange Act” in our
definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A
within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.
ITEM 11 – EXECUTIVE COMPENSATION
The information included under the headings “Executive Compensation,” “Director Compensation,” “Report of the Personnel
and Compensation Committee” and “Compensation Committee Interlocks and Insider Participation” in the Company’s
definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A
within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.
59
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The information included under the headings “Principal Stockholders” and “Security Ownership of Directors and
Management” in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (to be filed with the SEC
under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about our equity compensation plans as of December 31, 2022.
Number of securities to
be issued upon the
exercise of outstanding
options, warrants and
rights
Weighted-average
exercise
price of outstanding
options,
warrants and rights
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
the first column)
3,073,707 (1)
$
51.22 (2)
2,613,804 (3)
—
3,073,707
—
51.22
—
2,613,804
Plan Category
Equity compensation plans approved
by security holders
Equity compensation plans not
approved by security holders
Total
(1) Consists of 2,481,606 shares subject to stock options, 345,775 shares subject to employee share units and 272,212 shares
subject to director share units.
(2) Represents the weighted average exercise price of outstanding options and does not take into account outstanding share
units.
(3) Represents securities remaining available for issuance under the A. O. Smith Combined Incentive Compensation Plan. If
any awards lapse, expire, terminate or are canceled without issuance of shares, or shares are forfeited under any award,
then such shares will become available for issuance under the A. O. Smith Combined Incentive Compensation Plan,
hereby increasing the number of securities remaining available.
ITEM 13 – CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The information included under the headings “Director Independence and Financial Literacy”, “Compensation Committee
Interlocks and Insider Participation” and “Procedure for Review of Related Party Transactions” in our definitive Proxy
Statement for the 2023 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days
after the end of the registrant’s fiscal year) is incorporated herein by reference.
ITEM 14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our principal accountant is Ernst & Young, LLP (PCAOB ID: 42). The information included under the heading “Report of
the Audit Committee” in our definitive Proxy Statement for the 2023 Annual Meeting of Stockholders (to be filed with the
SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) required by this Item 14 is
incorporated herein by reference.
60
PART IV
ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this Annual Report on Form 10-K:
1. Financial Statements of the Company
The following consolidated financial statements of A. O. Smith Corporation are included in Item 8:
Consolidated Balance Sheets at December 31, 2022 and 2021
For each of the three years in the period ended December 31, 2022:
- Consolidated Statement of Earnings
- Consolidated Statement of Comprehensive Earnings
- Consolidated Statement of Cash Flows
- Consolidated Statement of Stockholders’ Equity
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule II—Valuation and Qualifying Accounts
Schedules not included have been omitted because they are not applicable.
Form 10-K
Page Number
30
31
31
32
33
34-57
65
3. Exhibits - see the Index to Exhibits on pages 62-63 of this report. Each management contract or compensatory plan
or arrangement required to be filed as an exhibit to this report on Form 10-K are listed as Exhibits 10(a) through
10(o) in the Index to Exhibits.
Pursuant to the requirements of Rule 14a-3(b)(10) of the Securities Exchange Act of 1934, as amended, we will,
upon request and upon payment of a reasonable fee not to exceed the rate at which such copies are available from
the SEC, furnish copies to our security holders of any exhibits listed in the Index to Exhibits.
61
INDEX TO EXHIBITS
Exhibit
Number Description
(3)(i)
(3)(ii)
(4)
(a)
(b)
(c)
(d)
Restated Certificate of Incorporation of A. O. Smith Corporation as amended through April 11, 2016,
incorporated by reference to Exhibit 3i(b) in the quarterly report on Form 10-Q for the quarter ended
March 31, 2016.
By-laws of A. O. Smith Corporation as amended October 13, 2015, incorporated by reference to Exhibit
3.1 in the current report on Form 8-K dated October 16, 2015.
Restated Certificate of Incorporation of A. O. Smith Corporation as amended through April 11, 2016,
incorporated by reference to Exhibit 3i(b) in the quarterly report on Form 10-Q for the quarter ended
March 31, 2016.
Amended and Restated Credit Agreement, dated as of December 12, 2012, among A. O. Smith
Corporation, A. O. Smith Enterprises Ltd., A. O. Smith International Holdings B.V., and the financial
institutions and agents party thereto, incorporated by reference to Exhibit 4.1 in the current report on Form
8-K dated December 12, 2012.
Amendment No. 1 dated as of December 15, 2016, to the Amended and Restated Credit Agreement, dated
as of December 12, 2012, among A. O. Smith Corporation, A. O Smith Enterprises Ltd., A. O. Smith
International Holdings B.V., and the financial institutions and agents party thereto, incorporated by
reference to Exhibit 4(c) in the annual report on Form 10-K for the fiscal year ended December 31, 2016.
The corporation has instruments that define the rights of holders of long-term debt that are not being filed
with this Registration Statement in reliance upon Item 601(b)(4)(iii) of Regulation S-K. The Registrant
agrees to furnish to the SEC, upon request, copies of these instruments.
(10)
Material Contracts
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
A. O. Smith Combined Incentive Compensation Plan, incorporated by reference to Exhibit A of the Proxy
Statement filed on March 6, 2020 for the 2020 Annual Meeting of Stockholders.
A. O. Smith Corporation Executive Life Insurance Plan, as amended January 1, 2009, incorporated by
reference to Exhibit 10(b) of the annual report on Form 10-K for the fiscal year ended December 31, 2008.
A. O. Smith Nonqualified Deferred Compensation Plan, adopted December 1, 2008, incorporated by
reference to Exhibit 10(c) of the annual report on Form 10-K for the fiscal year ended December 31, 2008.
A. O. Smith Corporation Executive Supplemental Pension Plan, as amended January 1, 2009, incorporated
by reference to Exhibit 10(d) of the annual report on Form 10-K for the fiscal year ended December 31,
2008.
A. O. Smith Corporation Executive Incentive Compensation Award Agreement, incorporated by reference
to Exhibit 10.1 of the quarterly report on Form 10-Q for the quarter ended March 31, 2012 (for grants
between February 2012 and January 2016).
A. O. Smith Corporation Executive Incentive Compensation Award Agreement, incorporated by reference
to Exhibit 10 of the quarterly report on Form 10-Q for the quarter ended March 31, 2016 (for grants
between February 2016 and January 2021).
A.O. Smith Corporation Executive Incentive Compensation Award Agreement, incorporated by reference
to Exhibit 10(h) of the annual report on Form 10-K for the fiscal year ended December 31, 2020 (for
grants between February 2021 and January 2022).
A.O. Smith Corporation Executive Incentive Compensation Award Agreement
(International),
incorporated by reference to Exhibit 10(i) of the annual report on Form 10-K for the fiscal year ended
December 31, 2020 (for grants between February 2021 and January 2022).
A.O. Smith Corporation Executive Incentive Compensation Award Agreement incorporated by reference
to exhibit 10(i) of the annual report on Form 10-K for the fiscal year ended December 31, 2021 (for grants
between February 2022 and January 2023).
A.O. Smith Corporation Executive Incentive Compensation Award Agreement incorporated by reference
to exhibit 10(j) of the annual report on Form 10-K for the fiscal year ended December 31, 2021
(International) (for grants between February 2022 and January 2023).
62
Exhibit
Number Description
(k)
(l)
(m)
(n)
(o)
A. O. Smith Corporation Executive Incentive Compensation Award Agreement (Acceptance Certificates
and Terms and Conditions) (for grants after February 2023).
A. O. Smith Corporation Senior Leadership Severance Plan, incorporated by reference to Exhibit 10.1 of
the quarterly report for Form 10-Q for the quarter ended June 30, 2009.
Form of A. O. Smith Corporation Special Retention Award Agreement, incorporated by reference to
Exhibit 10.1 of the quarterly report on Form 10-Q for the quarter ended March 31, 2011.
Stockholder Agreement dated as of December 9, 2008, between A. O. Smith Corporation and each Smith
Investment Company stockholder who becomes a signatory thereto, incorporated by reference to Exhibit
10.3 of the current report on Form 8-K dated December 9, 2008.
Summary of Directors’ Compensation incorporated by reference to Exhibit 10.1 of the quarterly report on
Form 10-Q for the quarter ended June 30, 2021.
Subsidiaries.
Consent of Independent Registered Public Accounting Firm.
Certification by the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act, dated
February 14, 2023.
Certification by the Executive Vice-President and Chief Financial Officer, pursuant to Section 302 of the
Sarbanes-Oxley Act, dated February 14, 2023.
Written Statement of the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350.
Written Statement of the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.
The following materials from A. O. Smith Corporation’s Annual Report on Form 10-K for the fiscal year
ended December 31, 2022 are filed herewith, formatted in XBRL (Extensive Business Reporting
Language): (i) the Consolidated Balance Sheets as of December 31, 2022 and 2021, (ii) the Consolidated
Statement of Earnings for the three years ended December 31, 2022, (iii) the Consolidated Statement of
Comprehensive Earnings for the three years ended December 31, 2022, (iv) the Consolidated Statement of
Cash Flows for the three years ended December 31, 2022, (v) the Consolidated Statement of Stockholders’
Equity for the three years ended December 31, 2022 and (vi) the Notes to Consolidated Financial
Statements.
(21)
(23)
(31.1)
(31.2)
(32.1)
(32.2)
(101)
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on behalf of the undersigned, thereunto duly authorized.
A. O. SMITH CORPORATION
Date: February 14, 2023
By:
/s/ Kevin J. Wheeler
Kevin J. Wheeler
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below as of February 14,
2023 by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
/s/ Kevin J. Wheeler
Kevin J. Wheeler
/s/ Charles T. Lauber
Charles T. Lauber
/s/ Benjamin A. Otchere
Benjamin A. Otchere
/s/ Ronald D. Brown
Ronald D. Brown
/s/ Earl E. Exum
Earl E. Exum
/s/ Victoria M. Holt
Victoria M. Holt
/s/ Dr. Ilham Kadri
Dr. Ilham Kadri
/s/ Michael M. Larsen
Michael M. Larsen
/s/ Ajita G. Rajendra
Ajita G. Rajendra
/s/ Mark D. Smith
Mark D. Smith
/s/ Idelle K. Wolf
Idelle K. Wolf
/s/ Gene C. Wulf
Gene C. Wulf
Name and Title
KEVIN J. WHEELER
Director
Chairman, President and Chief Executive Officer
CHARLES T. LAUBER
Executive Vice President and Chief Financial Officer
BENJAMIN A. OTCHERE
Vice President and Controller
RONALD D. BROWN
Director
EARL E. EXUM
Director
VICTORIA M. HOLT
Director
DR. ILHAM KADRI
Director
MICHAEL M. LARSEN
Director
AJITA G. RAJENDRA
Director
MARK D. SMITH
Director
IDELLE K. WOLF
Director
GENE C. WULF
Director
64
A. O. SMITH CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in millions)
Years ended December 31, 2022, 2021 and 2020
Description
2022:
Valuation allowance for trade and notes
receivable
Valuation allowance for deferred tax
assets
2021:
Valuation allowance for trade and notes
receivable
Valuation allowance for deferred tax
assets
2020:
Valuation allowance for trade and notes
receivable
Valuation allowance for deferred tax
assets
$
$
$
Balance at
Beginning
of Year
Charged to
Costs and
Expenses
Acquisition
of
Businesses
Deductions
Balance at
End of
Year
9.5
$
0.6
$
— $
(0.6) $
7.1
1.2
—
—
5.6
$
4.2
$
0.8
$
(1.1) $
13.0
—
—
(5.9)
6.6
$
0.8
$
— $
(1.8) $
11.9
1.1
—
—
9.5
8.3
9.5
7.1
5.6
13.0
65
Exhibit 21
SUBSIDIARIES: The following lists all subsidiaries and affiliates of A. O. Smith Corporation.
Name of Subsidiary
AOS Holding Company
A. O. Smith Water Treatment (North America) Holdings, Inc.
SICO Acquisition, LLC
Takagi - A. O. Smith Tankless Water Heater Company LLC
Atlantic Filter Corporation
Mineral-Right, Inc.
American Water Heater Company
Hague Europe, LLC
Master Water Conditioning Corporation
Lochinvar, LLC
State Industries, LLC.
A. O. Smith Water Treatment (North America), Inc.
A. O. Smith Holdings (Barbados) SRL
A. O. Smith Enterprises Ltd.
Giant Factories Inc.
A. O. Smith (China) Environmental Products Co., Ltd.
A. O. Smith (China) Investment Co., Ltd.
A. O. Smith (China) Water Heater Co., Ltd.
A. O. Smith (China) Water Products Co., Ltd.
A. O. Smith (Shanghai) HVAC Co., Ltd.
A. O. Smith (Wuhan) HVAC Co., Ltd.
A. O. Smith L’eau chaude S.a.r.l.
Waterboss Europe, SARL
A. O. Smith (Hong Kong) Limited
A. O. Smith India Water Products Private Limited
Products de Agua, S. de R.L. de C.V.
A.O. Smith Holdings I B.V.
A.O. Smith Holdings II B.V.
A.O. Smith Holdings III B.V.
A.O. Smith International Holdings B.V.
A.O. Smith Products v.o.f.
A.O. Smith Water Products Company B.V.
AO Smith Su Teknolojileri Anonim Sirketi
A. O. Smith Water FZE
Lochinvar Limited
A. O. Smith Vietnam Company Limited
66
Jurisdiction in Which
Incorporated
Delaware
Delaware
Delaware
Delaware
Florida
Kansas
Nevada
Ohio
Pennsylvania
Tennessee
Tennessee
Texas
Barbados
Canada
Canada
China
China
China
China
China
China
France
France
Hong Kong SAR
India
Mexico
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
The Netherlands
Turkey
United Arab Emirates
United Kingdom
Vietnam
Exhibit 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 333-144950 and 333-170436)
pertaining to the A. O. Smith Combined Incentive Compensation Plan of our reports dated February 14, 2023, with respect to the
consolidated financial statements and schedule of A. O. Smith Corporation, and the effectiveness of internal control over financial
reporting of A. O. Smith Corporation, included in this Annual Report (Form 10-K) for the year ended December 31, 2022.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 14, 2023
67
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Kevin J. Wheeler, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of A. O. Smith Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 14, 2023
/s/ Kevin J. Wheeler
Kevin J. Wheeler
Chairman, President and Chief Executive Officer
68
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Charles T. Lauber, certify that;
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of A. O. Smith Corporation;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report, fairly present
in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting
(as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
Disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize
and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in
the registrant’s internal control over financial reporting.
Date: February 14, 2023
/s/ Charles T. Lauber
Charles T. Lauber
Executive Vice President and Chief Financial Officer
69
Exhibit 32.1
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of A. O. Smith Corporation (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”). I, Kevin J.
Wheeler, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted
pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 14, 2023
/s/ Kevin J. Wheeler
Kevin J. Wheeler
Chairman, President and Chief Executive Officer
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
70
Exhibit 32.2
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Annual Report of A. O. Smith Corporation (the “Company”) on Form 10-K for the fiscal year ended
December 31, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”). I, Charles T.
Lauber, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as
adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
(1)
(2)
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Company.
Date: February 14, 2023
/s/ Charles T. Lauber
Charles T. Lauber
Executive Vice President and Chief Financial Officer
This certification accompanies this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by
the Company and furnished to the Securities and Exchange Commission or its staff upon request.
71
Global Locations
A. O. Smith Corporation has a strong and growing presence around the globe. Employees live
and work in 12 countries and serve customers in more than 60 countries around the world.
CORPORATE
OFFICES
Milwaukee, Wisconsin
Nanjing, China
Hong Kong, SAR
NORTH AMERICA
Appleton, Wisconsin
Johnson City, Tennessee
Ashland City, Tennessee
Knoxville, Tennessee
Austin, Texas
Lebanon, Tennessee
Charlotte, North Carolina
McBee, South Carolina
Ciudad Juárez, Chihuahua
Montréal, Québec
Cookeville, Tennessee
Nashville, Tennessee
EUROPE &
MIDDLE EAST
Banbury, United Kingdom
Bourges, France
Dubai, United Arab Emirates
Istanbul, Turkey
Veldhoven, the Netherlands
El Paso, Texas
Fergus, Ontario
Florence, Kentucky
Franklin, Tennessee
Groveport, Ohio
Haltom City, Texas
Phillipsburg, Kansas
Pottstown, Pennsylvania
Rancho Cucamonga,
California
Stratford, Ontario
West Palm Beach, Florida
ASIA & PACIFIC
Bengaluru, India
Hanoi, Vietnam
Nanjing, China
Board of Directors
Kevin J. Wheeler
A. O. Smith Corporation
– Chairman of the Board
– President & CEO
Elected 2017
Idelle K. Wolf
Audit Committee
– Chairperson
Barnes Distribution
– President (retired)
Elected 2005 1
Victoria M. Holt
Nominating & Governance Committee
– Chairperson
Proto Labs, Inc.
– Director (retired)
– President & CEO (retired)
Elected 2021 2, 3
Ronald D. Brown
Personnel & Compensation Committee
– Chairperson
Milacron, Inc
– Chairman & CEO (retired)
Elected 2001 2, 3
Earl E. Exum
International Aero Engines, AG,
Raytheon Technologies Corporation
– President
Ilham Kadri, PhD
Solvay S.A.
– Director
– CEO
Elected 2022 1
Elected 2016 2, 3
Michael M. Larsen
Illinois Tool Works, Inc.
– SVP & CFO
Elected 2021 1
Ajita G. Rajendra
A. O. Smith Corporation
– Executive Chairman (retired)
Mark D. Smith
Strattec Security Corporation
– Business Manager (retired)
Elected 2011
Elected 2001 2, 3
Gene C. Wulf
Bemis Company, Inc.
– Director (retired)
– EVP (retired)
Elected 2003 1
1 Audit Committee 2 Nominating & Governance Committee 3 Personnel & Compensation Committee
Senior Leadership
Samuel M. Carver
Senior Vice President
– Global Operations
Joshua C. Greene
Vice President
– Government, Regulatory
and Industry Affairs
Helen E. Gurholt
Vice President
– Investor Relations and Financial
Planning and Analysis
Robert J.
Heideman, PhD
Senior Vice President
– Chief Technology Officer
D. Samuel Karge
Senior Vice President
President
– North America Water Treatment
Daniel L. Kempken
Senior Vice President
– Strategy and Corporate
Development
Parag Kulkarni
Senior Vice President
– International
President
– A. O. Smith India
Water Products Private Limited
Charles T. Lauber
Executive Vice President and
Chief Financial Officer
Stephen D. O’Brien
Senior Vice President
President
– Lochinvar, LLC
Benjamin A. Otchere
Vice President and Controller
Mark A. Petrarca
Senior Vice President
– Human Resources and
Public Affairs
Jack Qiu, PhD
Senior Vice President
President
– A. O. Smith China
S. Melissa Scheppele
Senior Vice President
– Chief Information Officer
James F. Stern
Executive Vice President,
General Counsel and Secretary
David R. Warren
Senior Vice President
President and General Manager
– North America Water Heating
Kevin J. Wheeler
Chairman, President and
Chief Executive Officer
11270 West Park Place
P.O. Box 245008
Milwaukee, WI 53224-9508
414.359.4000
www.aosmith.com