UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2023.2024.
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 ClassTrading
Symbol
Name of Each Exchange
on Which Registered
Common Stock (par value $1.00 per share)AOSNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated Filer
Non-accelerated filerSmaller 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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)Yes No
Class A Common Stock Outstanding as of April 26, 202324, 2024 - 25,903,73625,886,364 shares
Common Stock Outstanding as of April 26, 202324, 2024 - 124,537,812120,783,753 shares




Index
A. O. Smith Corporation
Page
7-18-17
1918-26-25
2625-27-26
2

Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(dollars in millions, except for per share data)
(unaudited)
Three Months Ended
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
2024
2024
2024
Net sales
Net sales
Net salesNet sales$966.4 $977.7 
Cost of products soldCost of products sold592.3 636.1 
Cost of products sold
Cost of products sold
Gross profit
Gross profit
Gross profitGross profit374.1 341.6 
Selling, general and administrative expensesSelling, general and administrative expenses187.2 179.8 
Selling, general and administrative expenses
Selling, general and administrative expenses
Impairment expense
Impairment expense
Impairment expenseImpairment expense15.6 — 
Interest expenseInterest expense4.0 1.5 
Other (income) expense, net(4.0)3.7 
Interest expense
Interest expense
Other income, net
Other income, net
Other income, net
Earnings before provision for income taxes
Earnings before provision for income taxes
Earnings before provision for income taxesEarnings before provision for income taxes171.3 156.6 
Provision for income taxesProvision for income taxes44.4 36.8 
Provision for income taxes
Provision for income taxes
Net Earnings
Net Earnings
Net EarningsNet Earnings$126.9 $119.8 
Basic Net Earnings Per Share of Common StockBasic Net Earnings Per Share of Common Stock$0.84 $0.76 
Basic Net Earnings Per Share of Common Stock
Basic Net Earnings Per Share of Common Stock
Diluted Net Earnings Per Share of Common Stock
Diluted Net Earnings Per Share of Common Stock
Diluted Net Earnings Per Share of Common StockDiluted Net Earnings Per Share of Common Stock$0.84 $0.76 
Dividends Per Share of Common StockDividends Per Share of Common Stock$0.30 $0.28 
Dividends Per Share of Common Stock
Dividends Per Share of Common Stock


A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(dollars in millions)
(unaudited)
Three Months Ended
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
2024
2024
2024
Net earnings
Net earnings
Net earningsNet earnings$126.9 $119.8 
Other comprehensive earnings (loss)Other comprehensive earnings (loss)
Other comprehensive earnings (loss)
Other comprehensive earnings (loss)
Foreign currency translation adjustmentsForeign currency translation adjustments2.5 0.6 
Unrealized losses on cash flow derivative instruments, less related income tax benefit of $0.0 in 2023 and $0.2 in 2022(0.1)(0.6)
Adjustment to pension liability, less related income tax provision of zero in 2023 and $(1.2) in 2022— 3.8 
Foreign currency translation adjustments
Foreign currency translation adjustments
Unrealized gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $(0.3) in 2024, and $0.0 in 2023
Unrealized gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $(0.3) in 2024, and $0.0 in 2023
Unrealized gains (losses) on cash flow derivative instruments, less related income tax (provision) benefit of $(0.3) in 2024, and $0.0 in 2023
Adjustment to pension liability, less related income tax provision of $0.0 in 2024, and $0.0 in 2023
Adjustment to pension liability, less related income tax provision of $0.0 in 2024, and $0.0 in 2023
Adjustment to pension liability, less related income tax provision of $0.0 in 2024, and $0.0 in 2023
Comprehensive EarningsComprehensive Earnings$129.3 $123.6 
Comprehensive Earnings
Comprehensive Earnings
See accompanying notes to unaudited condensed consolidated financial statements.
3

Table of Contents
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in millions)
(unaudited)
March 31,
2023
December 31,
2022
(unaudited)
March 31,
2024
(unaudited)
March 31,
2024
December 31,
2023
AssetsAssets
Current AssetsCurrent Assets
Current Assets
Current Assets
Cash and cash equivalents
Cash and cash equivalents
Cash and cash equivalentsCash and cash equivalents$406.2 $391.2 
Marketable securitiesMarketable securities89.8 90.6 
ReceivablesReceivables586.8 581.2 
InventoriesInventories503.7 516.4 
Other current assetsOther current assets57.3 54.3 
Total Current AssetsTotal Current Assets1,643.8 1,633.7 
Property, plant and equipmentProperty, plant and equipment1,375.9 1,364.8 
Less accumulated depreciationLess accumulated depreciation(790.4)(774.1)
Net property, plant and equipmentNet property, plant and equipment585.5 590.7 
GoodwillGoodwill619.9 619.7 
Other intangiblesOther intangibles344.8 347.9 
Operating lease assetsOperating lease assets32.3 29.8 
Other assetsOther assets110.0 110.5 
Total AssetsTotal Assets$3,336.3 $3,332.3 
LiabilitiesLiabilities
Current LiabilitiesCurrent Liabilities
Current Liabilities
Current Liabilities
Trade payables
Trade payables
Trade payablesTrade payables$550.4 $625.8 
Accrued payroll and benefitsAccrued payroll and benefits59.9 75.7 
Accrued liabilitiesAccrued liabilities213.6 159.1 
Product warrantiesProduct warranties61.8 63.6 
Debt due within one yearDebt due within one year10.0 10.0 
Total Current LiabilitiesTotal Current Liabilities895.7 934.2 
Long-term debtLong-term debt330.8 334.5 
Product warrantiesProduct warranties119.4 118.9 
Long-term operating lease liabilitiesLong-term operating lease liabilities25.1 22.4 
Other liabilitiesOther liabilities175.1 174.6 
Total LiabilitiesTotal Liabilities1,546.1 1,584.6 
Stockholders’ EquityStockholders’ Equity
Class A Common Stock (shares issued, 26,034,116 and 26,035,656 as of March 31, 2023 and December 31, 2022, respectively)130.2 130.2 
Common Stock (shares issued 164,673,478 and 164,671,938 as of March 31, 2023 and December 31, 2022, respectively)164.7 164.7 
Class A Common Stock (shares issued, 26,017,732 and 26,023,132 as of March 31, 2024 and December 31, 2023, respectively)
Class A Common Stock (shares issued, 26,017,732 and 26,023,132 as of March 31, 2024 and December 31, 2023, respectively)
Class A Common Stock (shares issued, 26,017,732 and 26,023,132 as of March 31, 2024 and December 31, 2023, respectively)
Common Stock (shares issued 164,689,862 and 164,684,460 as of March 31, 2024 and December 31, 2023, respectively)
Capital in excess of par valueCapital in excess of par value564.3 555.9 
Retained earningsRetained earnings2,966.5 2,885.0 
Accumulated other comprehensive lossAccumulated other comprehensive loss(80.0)(82.4)
Treasury stock at costTreasury stock at cost(1,955.5)(1,905.7)
Total Stockholders’ EquityTotal Stockholders’ Equity1,790.2 1,747.7 
Total Liabilities and Stockholders’ EquityTotal Liabilities and Stockholders’ Equity$3,336.3 $3,332.3 
See accompanying notes to unaudited condensed consolidated financial statements.
4

Table of Contents
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in millions)
(unaudited)
Three Months Ended
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
202420242023
Operating ActivitiesOperating Activities
Net earnings
Net earnings
Net earningsNet earnings$126.9 $119.8 
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortizationDepreciation and amortization19.2 20.3 
Depreciation and amortization
Depreciation and amortization
Stock based compensation expenseStock based compensation expense7.0 7.6 
Deferred income taxes
Non-cash impairmentNon-cash impairment15.6— 
Net changes in operating assets and liabilities:Net changes in operating assets and liabilities:
Net changes in operating assets and liabilities:
Net changes in operating assets and liabilities:
Current assets and liabilities
Current assets and liabilities
Current assets and liabilitiesCurrent assets and liabilities(50.6)(137.8)
Noncurrent assets and liabilitiesNoncurrent assets and liabilities1.8 6.6 
Cash Provided by Operating ActivitiesCash Provided by Operating Activities119.9 16.5 
Investing ActivitiesInvesting Activities
Capital expendituresCapital expenditures(10.7)(12.9)
Capital expenditures
Capital expenditures
Acquisition of business
Investments in marketable securitiesInvestments in marketable securities(14.7)(16.9)
Net proceeds from sale of marketable securitiesNet proceeds from sale of marketable securities15.6 31.9 
Cash (Used in) Provided by Investing Activities(9.8)2.1 
Cash Used in Investing Activities
Financing ActivitiesFinancing Activities
Long-term debt (repaid) incurred(3.7)98.7 
Long-term debt repaid
Long-term debt repaid
Long-term debt repaid
Common stock repurchasesCommon stock repurchases(53.1)(107.9)
Net proceeds (payments) from stock option activity4.7 (2.7)
Net proceeds from stock option activity
Net proceeds from stock option activity
Net proceeds from stock option activity
Dividends paidDividends paid(45.4)(44.2)
Cash Used in Financing ActivitiesCash Used in Financing Activities(97.5)(56.1)
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents2.4 — 
Net increase (decrease) in cash and cash equivalents15.0 (37.5)
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents - beginning of periodCash and cash equivalents - beginning of period391.2 443.3 
Cash and Cash Equivalents - End of PeriodCash and Cash Equivalents - End of Period$406.2 $405.8 
See accompanying notes to unaudited condensed consolidated financial statements.
5

Table of Contents
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(dollars in millions)
(unaudited)
Three Months Ended
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
2024
2024
2024
Class A Common Stock
Class A Common Stock
Class A Common StockClass A Common Stock
Balance at the beginning of periodBalance at the beginning of period$130.2 $130.5 
Balance at the beginning of period
Balance at the beginning of period
Conversion of Class A Common Stock
Conversion of Class A Common Stock
Conversion of Class A Common StockConversion of Class A Common Stock— — 
Balance at end of periodBalance at end of period$130.2 $130.5 
Balance at end of period
Balance at end of period
Common Stock
Common Stock
Common StockCommon Stock
Balance at the beginning of periodBalance at the beginning of period$164.7 $164.7 
Balance at the beginning of period
Balance at the beginning of period
Conversion of Class A Common Stock
Conversion of Class A Common Stock
Conversion of Class A Common StockConversion of Class A Common Stock— $— 
Balance at end of periodBalance at end of period$164.7 $164.7 
Balance at end of period
Balance at end of period
Capital in Excess of Par Value
Capital in Excess of Par Value
Capital in Excess of Par ValueCapital in Excess of Par Value
Balance at the beginning of periodBalance at the beginning of period$555.9 $545.2 
Balance at the beginning of period
Balance at the beginning of period
Issuance of share units
Issuance of share units
Issuance of share unitsIssuance of share units(10.1)(5.8)
Vesting of share unitsVesting of share units(3.1)(2.4)
Vesting of share units
Vesting of share units
Stock based compensation expense
Stock based compensation expense
Stock based compensation expenseStock based compensation expense6.8 7.7 
Exercises of stock optionsExercises of stock options4.7 0.4 
Exercises of stock options
Exercises of stock options
Issuance of share based compensation
Issuance of share based compensation
Issuance of share based compensationIssuance of share based compensation10.1 5.8 
Balance at end of periodBalance at end of period$564.3 $550.9 
Balance at end of period
Balance at end of period
Retained Earnings
Retained Earnings
Retained EarningsRetained Earnings
Balance at the beginning of periodBalance at the beginning of period$2,885.0 $2,826.6 
Balance at the beginning of period
Balance at the beginning of period
Net earnings
Net earnings
Net earningsNet earnings126.9 119.8 
Dividends on stockDividends on stock(45.4)(44.2)
Dividends on stock
Dividends on stock
Balance at end of periodBalance at end of period$2,966.5 $2,902.2 
Accumulated Other Comprehensive Loss (see Note 16)$(80.0)$(327.6)
Balance at end of period
Balance at end of period
Accumulated Other Comprehensive Loss (see Note 15)
Accumulated Other Comprehensive Loss (see Note 15)
Accumulated Other Comprehensive Loss (see Note 15)
Treasury Stock
Treasury Stock
Treasury StockTreasury Stock
Balance at the beginning of periodBalance at the beginning of period$(1,905.7)$(1,503.4)
Balance at the beginning of period
Balance at the beginning of period
Exercise of stock optionsExercise of stock options0.2 (2.9)
Exercise of stock options
Exercise of stock options
Shares repurchasedShares repurchased(53.1)(107.9)
Shares repurchased
Shares repurchased
Excise tax on repurchases of common stock
Excise tax on repurchases of common stock
Excise tax on repurchases of common stock
Vesting of share units
Vesting of share units
Vesting of share unitsVesting of share units3.1 2.4 
Balance at end of periodBalance at end of period$(1,955.5)$(1,611.8)
Balance at end of period
Balance at end of period
Total Stockholders’ EquityTotal Stockholders’ Equity$1,790.2 $1,808.9 
Total Stockholders’ Equity
Total Stockholders’ Equity
See accompanying notes to unaudited condensed consolidated financial statements.
6

Table of Contents
A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 20232024
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 20232024 are not necessarily indicative of the results expected for the full year. It is suggested the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 20222023 filed with the SEC on February 14, 2023.13, 2024.
Recent Accounting Pronouncements
No recent accounting pronouncementsIn December 2023, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 740, Income Taxes (issued under Accounting Standards Update (ASU) 2023-09, “Improvements to Income Tax Disclosures”). This ASU requires added disclosures related to the tax rate reconciliation and income taxes paid and includes other amendments intended to improve effectiveness and comparability. The amendment is effective for the Company beginning with its 2025 annual disclosures with early adoption permitted and should be applied on a prospective basis. The Company is currently evaluating the impact the adoption of ASU 2023-09 will have on its annual disclosures.
In November 2023, the FASB issued ASU 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures.” The update is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The ASU requires disclosures to include significant segment expenses that are expectedregularly provided to have an impact on our condensed consolidatedthe chief operating decision maker (CODM), a description of other segment items by reportable segment, and any additional measures of a segment's profit or loss used by the CODM when deciding how to allocate resources. The ASU also requires all annual disclosures currently required by Topic 280 to be included in interim periods. The update is effective for the Company beginning with its 2024 annual disclosures and interim periods beginning in 2025, with early adoption permitted and requires retrospective application to all prior periods presented in the financial statements. The Company is currently evaluating the impact the adoption of ASU 2023-07 will have on its annual and interim disclosures.
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.
Additionally, certain customers in China pay the Company prior to the shipment of products resulting in a customer deposits liability of $70.3$62.9 million and $85.7$59.7 million at March 31, 20232024 and December 31, 2022,2023, 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 $10.2$11.4 million and $10.1 million at March 31, 20232024 and $9.5 million at December 31, 2022.2023, respectively.
7

Table of Contents
2. Revenue Recognition (continued)
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.
7

Table of Contents
2. Revenue Recognition (continued)
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, the Company’s major customers purchase across the Company’s product 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 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 1,000900 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.heaters. 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.


8

Table of Contents
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:
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
20232022
(dollars in millions)
(dollars in millions)
2024
2024
2024
North America
North America
North AmericaNorth America
Water heaters and related partsWater heaters and related parts$637.3 $615.8 
Water heaters and related parts
Water heaters and related parts
Boilers and related partsBoilers and related parts58.4 57.5 
Water treatment products57.0 56.8 
Boilers and related parts
Boilers and related parts
Water treatment products and related parts
Water treatment products and related parts
Water treatment products and related parts
Total North America
Total North America
Total North AmericaTotal North America752.7 730.1 
Rest of WorldRest of World
Rest of World
Rest of World
China
China
ChinaChina$190.2 $228.3 
All other Rest of WorldAll other Rest of World28.9 27.7 
All other Rest of World
All other Rest of World
Total Rest of World
Total Rest of World
Total Rest of WorldTotal Rest of World219.1 256.0 
Inter-segment salesInter-segment sales(5.4)(8.4)
Inter-segment sales
Inter-segment sales
Total Net SalesTotal Net Sales$966.4 $977.7 
Total Net Sales
Total Net Sales





8

Table of Contents
3. Impairment ExpenseAcquisition and Dispositions
InAcquisition
During the first quarter of 2024, the Company acquired a privately-held water treatment company. The Company paid an aggregate cash purchase price of $21.1 million, net of cash acquired. The Company also agreed to make contingent payments based on the amount by which sales of products increase over the next three years. The addition of the acquired company expands the Company's water treatment footprint in North America. The acquired company is included in the North America segment.
As required under ASC 805 Business Combinations, results of operations have been included in the Company’s consolidated financial statements from the date of acquisition.
Dispositions
During the second quarter of 2024, the Company exited its operations in Vietnam. The restructuring expense associated with the exit was recorded in the fourth quarter of 2023 and did not have a material impact on the Company's consolidated financial statements.
During the second quarter of 2023, the Company sold its business in Turkey (disposal group), which was included in the Company's Rest of World segment, for an amount that approximated the carrying value of the net assets.
During the first quarter of 2023, the Company entered into negotiationsdetermined that the disposal group met the criteria to sell its business in Turkey (disposal group), which is included in the Company's Rest of World segment. The Company determinedbe classified as held for sale and that the fair value of the disposal group, less cost to sell, was lower than its carrying amount. As a result, in the first quarter of 2023, the Company recorded an impairment expense of $15.6 million, of which $12.5 million was recorded in the Rest of World segment, and $3.1 million was recorded in Corporate Expense. The impairment was recorded as a net reduction of $4.5 million to the assets and liabilities and $11.1 million for the anticipated liquidation of the cumulative foreign currency translation adjustment associated with the disposal group. The accrual for the impairment is recorded in Accrued liabilities in the condensed consolidated balance sheet.
As of March 31, 2023, the disposal group did not meet the requirements to be classified as discontinued operations as the sale will not have a material effect on the Company's operations and does not represent a shift in the Company's strategy. Accordingly, the remaining carrying value of the disposal group as of March 31, 2023, was $0.6 million and classified as held for sale. The sale of the disposal group was completed in April 2023.
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 condensed 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 arrangements related to material residual value guarantees, restrictive covenants or material subleases. Cash flows associated with leases are materially consistent with the expense recorded in the condensed consolidated statement of earnings.
Supplemental balance sheet information related to leases is as follows:
(dollars in millions)March 31,
2023
December 31, 2022
Liabilities
Short term: Accrued liabilities$9.4 $9.9 
Long term: Operating lease liabilities25.1 22.4 
Total operating lease liabilities$34.5 $32.3 
Less: Rent incentives and deferrals(2.2)(2.5)
Assets
Operating lease assets$32.3 $29.8 
Lease Term and Discount RateMarch 31, 2023
Weighted-average remaining lease term7.4 years
Weighted-average discount rate3.71 %

9

Table of Contents
4. Leases (continued)
The components of lease expense were as follows:
(dollars in millions)Three months ended
March 31,
Lease ExpenseClassification
2023(1)
2022(2)
Operating lease expenseCost of products sold$1.3 $1.0 
Selling, general and administrative expenses4.1 3.9 
(1)2023 includes short-term and variable lease expenses of $1.1 million and $1.2 million, respectively.
(2)2022 includes short-term and variable lease expenses of $0.5 million and $0.8 million, respectively.
Maturities of lease liabilities were as follows:
(dollars in millions)March 31,
2023
2023$8.1 
20248.2 
20255.8 
20264.0 
20272.4 
After 202711.7 
Total lease payments40.2 
Less: Imputed interest(5.7)
Present value of operating lease liabilities$34.5 
5. Inventories
The following table presents the components of the Company’s inventory balances:
(dollars in millions)(dollars in millions)March 31,
2023
December 31, 2022(dollars in millions)March 31,
2024
December 31, 2023
Finished productsFinished products$175.5 $174.4 
Work in processWork in process44.4 42.1 
Raw materialsRaw materials331.0 349.2 
Inventories, at FIFO costInventories, at FIFO cost550.9 565.7 
LIFO reserveLIFO reserve(47.2)(49.3)
Inventories, at LIFO costInventories, at LIFO cost$503.7 $516.4 
6.5. Product Warranties
The Company offers warranties on the sales of certain of its products with terms that are consistent with the market and records an accrual for the estimated future claims. The following table presents the Company’s warranty liability activity:
(dollars in millions)Three Months Ended
March 31,
20232022
Balance at January 1,$182.5 $184.4 
Expense18.4 13.9 
Claims settled(19.7)(15.4)
Balance at March 31,$181.2 $182.9 
10
(dollars in millions)Three Months Ended
March 31,
20242023
Balance at January 1,$188.1 $182.5 
Expense19.7 18.4 
Claims settled(22.8)(19.7)
Balance at March 31,$185.0 $181.2 

Table of Contents
7.6. Debt
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 that 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 a $500 million revolving credit agreement. As a result of the long-term nature of this facility, the Company’s commercial paper and credit line borrowings are classified as long-term debt at March 31, 2023.2024. At its option, the Company either maintains cash balances or pays fees for bank credit and services. The facility requires the Company to maintain two financial covenants, a leverage ratio test and an interest coverage test. The Company was in compliance with the covenants as of March 31, 2023.2024.
8.7. Earnings per Share of Common Stock
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:
Three Months Ended
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
Three Months Ended
March 31,
2024
2024
2024
Denominator for basic earnings per share - weighted average shares
Denominator for basic earnings per share - weighted average shares
Denominator for basic earnings per share - weighted average sharesDenominator for basic earnings per share - weighted average shares150,897,302 157,018,566 
Effect of dilutive stock options and share unitsEffect of dilutive stock options and share units1,003,545 1,299,133 
Effect of dilutive stock options and share units
Effect of dilutive stock options and share units
Denominator for diluted earnings per shareDenominator for diluted earnings per share151,900,847 158,317,699 
Denominator for diluted earnings per share
Denominator for diluted earnings per share
9.8. Stock Based Compensation
The Company adopted the A. O. Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007. The2007, and 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 share units at March 31, 20232024 was 2,491,654.2,293,586. Upon stock option exercise or share unit
10

Table of Contents
8. Stock Based Compensation (continued)
vesting, shares are issued from treasury stock. Total stock based compensation expense recognized in the three months ended March 31, 2024 and 2023 and 2022 was $7.0$8.3 million and $7.6$7.0 million, respectively.
Stock Options
TheBeginning in 2023, the Company decided to no longer grantgrants stock options beginning with fiscal year 2023.options. Stock options previously granted have a three year pro rata vesting from the date of grant. Stock options were 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 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 for the three months ended March 31, 2022 was 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 in the three months ended March 31, 2024 and 2023 and 2022 was $0.3$0.2 million and $3.9$0.3 million, respectively.

Changes in options, all of which relate to the Company’s Common Stock, were as follows for the three months ended March 31, 2023:2024:
Weighted-
Avg. Per
Share
Exercise
Price
Number of
Options
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(dollars in
millions)
Outstanding at January 1, 2023$51.22 2,481,606 
Exercised45.47 (191,054)
Forfeited61.09 (3,605)
Outstanding at March 31, 202351.69 2,286,947 6 years$41.5 
Exercisable at March 31, 202348.72 1,952,622 6 years$40.4 
11

Table of Contents
9. Stock Based Compensation (continued)
There were no stock options granted in 2023. The weighted-average fair value per option at the date of grant during the three months ended March 31, 2022 using the Black-Scholes option-pricing model was $17.59. Assumptions were as follows:
Three Months Ended
March 31,
2022
Expected life (years)5.7
Risk-free interest rate1.9 %
Dividend yield1.5 %
Expected volatility26.8 %
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.
Weighted-
Avg. Per
Share
Exercise
Price
Number of
Options
Average
Remaining
Contractual
Life
Aggregate
Intrinsic
Value
(dollars in
millions)
Outstanding at January 1, 2024$52.93 1,872,553 
Exercised44.72 (242,687)
Forfeited74.27 (1,167)
Outstanding at March 31, 202454.14 1,628,699 6 years$57.5 
Exercisable at March 31, 202452.77 1,523,932 6 years$55.9 
Share Units
Participants ofin the Incentive Plan may also be awarded share units. Share units vest three years after the date of grant. The Company granted 165,686189,792 and 88,894165,686 share units under the Incentive Plan in the three months ended March 31, 20232024 and 2022,2023, respectively.
The share units were valued at $11.1$15.6 million and $6.6$11.1 million at the date of issuance in 20232024 and 2022,2023, 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 in the three months ended March 31, 20232024 and 20222023 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 $6.6$7.8 million and $3.7$6.6 million was recognized in the three months ended March 31, 20232024 and 2022,2023, 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 for the three months ended March 31, 2023:2024:
Number of UnitsWeighted-Average
Grant Date Value
Issued and unvested at January 1, 2023379,919 $52.92 
Number of UnitsNumber of UnitsWeighted-Average
Grant Date Value
Issued and unvested at January 1, 2024
GrantedGranted165,686 67.14 
VestedVested(156,173)49.42 
ForfeitedForfeited(2,449)64.50 
Issued and unvested at March 31, 2023386,983 63.16 
Issued and unvested at March 31, 2024

11

Table of Contents
8. Stock Based Compensation (continued)
Performance Stock Units
Beginning in 2023, certain executives may also be awarded performance stock units under the Incentive Plan. Performance stock units vest over three years following the date of the grant. Performance stock units vest under a set of measurement criteria which are based upon achievement of certain Environmental, Social, and Governance targets. Potential payouts range from zero to 150% of the target awards and changes from target amounts are reflected as performance adjustments. The Company granted 28,390 and 24,580 performance stock units under the Incentive Plan in the three months ended March 31, 2023.2024 and 2023, respectively.
The performance stock units were valued at $2.3 million and $1.7 million at the date of issuance in 2024 and 2023, respectively, based on the price of the Company’s Common Stock at the date of grant. The weighted average grant date value for the units granted was $67.14. The performance stock units are recognized as compensation expense ratably over the three-year vesting period. Stock based compensation expense attributable to performance stock units of $0.3 million and $0.1 million was recognized in the three months ended March 31, 2023.2024 and 2023, respectively. Certain non-U.S.-based executives 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 performance stock unit activity under the Incentive Plan is as follows for the three months ended March 31, 2024:
12
Number of UnitsWeighted-Average
Grant Date Value
Issued and unvested at January 1, 202434,758 $67.14 
Granted28,390 82.04 
Performance adjustments1,550 67.14 
Issued and unvested at March 31, 202464,698 73.68 

Table of Contents
10.9. Pensions
The following table presents the components of the Company’s net pension expense:
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
20232022
(dollars in millions)
(dollars in millions)
2024
2024
2024
Service cost
Service cost
Service costService cost$0.3 $0.4 
Interest costInterest cost0.3 3.6 
Interest cost
Interest cost
Expected return on plan assets
Expected return on plan assets
Expected return on plan assetsExpected return on plan assets(0.3)(5.4)
Amortization of unrecognized lossAmortization of unrecognized loss— 5.1 
Amortization of prior service cost— (0.1)
Defined benefit plan expense$0.3 $3.6 
Amortization of unrecognized loss
Amortization of unrecognized loss
Total pension expense
Total pension expense
Total pension expense
The service cost component of net periodic benefit cost is presented within cost of products sold and selling, general and administrative expenses within the condensed consolidated statements of earnings while the other components of pension expense are reflected in other expense.(income) expense, net. The Company was not required to and did not make a contribution to its U.S. pension plan in 2022.2023. The Company is not required to make a contribution in 2023.
In 2021, the Company's Board of Directors approved the termination of the Company's largest 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 fourth quarter of 2022, the Company settled Plan liabilities through lump-sum payments from existing plan assets to eligible participants who elected to receive them and through the purchase of annuities from Mass Mutual Life Insurance Company (MML). As of March 1, 2023, MML assumed the future annuity payments for those eligible active and former employees and their beneficiaries. Remaining pension assets associated with the Plan at March 31, 2023 are $21.5 million. The Company intends to use the remaining assets to fund future non-elective contributions to the Company’s defined contribution plan. For additional information regarding the termination of the Plan and the Company’s defined contribution plan, refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 14, 2023.2024.
1312

Table of Contents

11.10. Segment Results
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 following table presents the Company’s segment results:
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
20232022
(dollars in millions)
(dollars in millions)
2024
2024
2024
Net sales
Net sales
Net salesNet sales
North AmericaNorth America$752.7 $730.1 
North America
North America
Rest of World
Rest of World
Rest of WorldRest of World219.1 256.0 
Inter-segmentInter-segment(5.4)(8.4)
$966.4 $977.7 
Inter-segment
Inter-segment
$
$
$
Segment earningsSegment earnings
North America(1)
$188.6 $151.8 
Rest of World(2)
5.3 24.8 
Segment earnings
Segment earnings
North America
North America
North America
Rest of World(1)
Rest of World(1)
Rest of World(1)
Inter-segment earnings eliminationInter-segment earnings elimination— (0.1)
193.9 176.5 
Corporate expense(3)
(18.6)(18.4)
Inter-segment earnings elimination
Inter-segment earnings elimination
215.6
215.6
215.6
Corporate expense(2)
Corporate expense(2)
Corporate expense(2)
Interest expense
Interest expense
Interest expenseInterest expense(4.0)(1.5)
Earnings before income taxesEarnings before income taxes171.3 156.6 
Earnings before income taxes
Earnings before income taxes
Provision for income taxesProvision for income taxes44.4 36.8 
Provision for income taxes
Provision for income taxes
Net earnings
Net earnings
Net earningsNet earnings$126.9 $119.8 
Additional InformationAdditional Information
(1) Adjustments: North America
includes pension expense of:$— $2.6 
(2) Adjustments: Rest of World
Additional Information
Additional Information
(1) Adjustments: Rest of World
(1) Adjustments: Rest of World
(1) Adjustments: Rest of World
includes impairment expense of:includes impairment expense of:$12.5 $— 
(3) Adjustments: Corporate expense
includes impairment expense of:includes impairment expense of:$3.1 $— 
includes pension expense of:$— $0.3 
includes impairment expense of:
(2) Adjustments: Corporate expense
(2) Adjustments: Corporate expense
(2) Adjustments: Corporate expense
includes impairment expense of:
includes impairment expense of:
includes impairment expense of:
12.11. 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.

14

Table of Contents
12. Fair Value Measurements (continued)
Assets (liabilities) measured at fair value on a recurring basis are as follows (dollars in millions):
Fair Value Measurement UsingFair Value Measurement UsingBalance Sheet LocationMarch 31,
2023
December 31, 2022Fair Value Measurement UsingBalance Sheet LocationMarch 31,
2024
December 31, 2023
Quoted prices in active markets for identical assets (Level 1)Quoted prices in active markets for identical assets (Level 1)Marketable Securities$89.8 $90.6 
Significant other observable inputs (Level 2)Significant other observable inputs (Level 2)Other current assets7.0 6.5 
13

Table of Contents
11. Fair Value Measurements (continued)
Items measured at fair value were comprised of the Company’s marketable securities (Level 1) and derivative instruments (Level 2). There were no changes in the Company's valuation techniques used to measure fair values on a recurring basis during the three months ended March 31, 2023.2024.
13.12. Derivative Instruments
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 from time to time 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 majority of the amounts in accumulated other comprehensive loss for cash flow hedges are expected to be reclassified into earnings within one year. The combined fair value of the foreign currency forward contracts was an asset balance of $2.3 million as of March 31, 2024 which was recorded in Other current assets within the consolidated balance sheet. The combined fair value of the foreign currency forward contracts was an asset balance of $0.9 million as of December 31, 2023 which was recorded in Other current assets within the consolidated balance sheet.
The following table summarizes, by currency, the contractual amounts of the Company’s foreign currency forward contracts as of the dates indicated that arewere designated as cash flow hedges:
(dollars in millions)(dollars in millions)March 31, 2023December 31, 2022(dollars in millions)March 31, 2024December 31, 2023
BuyBuySellBuySell
BuySellBuySell
British pound$— $1.2 $— $— 
Canadian dollar
Canadian dollar
Canadian dollarCanadian dollar— 57.6 — 76.8 
EuroEuro22.7 1.8 30.2 — 
Mexican pesoMexican peso15.5 — 15.7 — 
TotalTotal$38.2 $60.6 $45.9 $76.8 


14

Table of Contents
12. 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,
15

Table of Contents
13. Derivative Instruments (continued)
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 $4.0 million and $0.5 million of after-tax gains associated with hedges of net investments in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended March 31, 2023. The Company recognized $0.3 million of after-tax losses associated with hedges of a net investment in non-U.S. subsidiaries in currency translation adjustment in other comprehensive loss in the three months ended2024 and March 31, 2022.2023, respectively. The contractual amount of the Company's foreign currency forward contracts that are designated as net investment hedges was $25.0$204.0 million as of March 31, 2023.
2024. The following tables present the impact of derivative contracts on the Company’s financial statements.
Faircombined fair value of derivatives designatedthe net investment hedges was an asset balance of $1.1 million as hedging instruments under ASC 815:
(dollars in millions)Balance Sheet LocationMarch 31,
2023
December 31,
2022
Foreign currency contractsOther current assets$7.0 $6.4 
Accrued liabilities— — 
Total derivatives designated as hedging instruments$7.0 $6.4 
of March 31, 2024 which was recorded in Other current assets within the consolidated balance sheet. The combined fair value of the net investment hedges was a liability balance of $(4.2) million as of December 31, 2023 which was recorded in Accrued liabilities within the consolidated balance sheet.

The effect of cash flow hedges on the condensed consolidated statement of earnings:
Three Months Ended March 31 (dollars in millions):
Derivatives in ASC 815 cash flow hedging relationshipsDerivatives in ASC 815 cash flow hedging relationshipsAmount of gain (loss) recognized in other
comprehensive
loss on derivatives
Location of gain
reclassified from
accumulated other
comprehensive loss
into earnings
Amount of gain
reclassified from
accumulated other
comprehensive
loss into earnings
Derivatives in ASC 815 cash flow hedging relationshipsAmount of gain recognized in other
comprehensive
loss on derivatives
Location of gain
reclassified from
accumulated other
comprehensive loss
into earnings
Amount of gain
reclassified from
accumulated other
comprehensive
loss into earnings
2023202220232022
20242024202320242023
Foreign currency contractsForeign currency contracts$1.7 $(0.7)Cost of products sold$1.9 $0.1 
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 zeroa liability balance of $(0.3) million as of March 31, 2023.2024 which was recorded in Accrued liabilities within the consolidated balance sheet. The fair value of the foreign exchange contracts was an asseta liability balance of $0.1$(0.8) million as of December 31, 2022 and2023 which was recorded in Other current assetsAccrued 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:
(dollars in millions)(dollars in millions)March 31, 2023December 31, 2022(dollars in millions)March 31, 2024December 31, 2023
BuySellBuySell
BuyBuySellBuySell
Canadian dollarCanadian dollar$— $76.4 $— $81.5 
Chinese yuan
Total

The amounts recognized within the consolidated statements of earnings related to the Company's foreign exchange contracts are set forth below.
Three Months Ended March 31 (dollars in millions):
Derivatives not designated as hedging instruments:Derivatives not designated as hedging instruments:Location of loss within the consolidated statements of earnings20232022Derivatives not designated as hedging instruments:Location within the consolidated statements of earnings20242023
Foreign exchange contractsForeign exchange contractsOther (income) expense - net$(0.1)$1.3 
1615

Table of Contents

14.13. Income Taxes
The Company’s effective income tax rate for the three months ended March 31, 20232024 was 25.9 percent compared to 23.5 percent for the three months ended March 31, 2022.23.4 percent. The Company estimates that its annual effective income tax rate for the full year 20232024 will be approximately 24.0between 24 and 24.5 percent. The effective income tax rate for the three months ended March 31, 2023 was 25.9 percent. The change in the effective income tax rate for the three months ended March 31, 20232024 compared to the effective income tax rate for the three months ended March 31, 20222023 was primarily due to a change in geographical earnings mix as well as a $15.6 million impairment expense recorded in the prior year period with no associated tax benefit. Refer to Note 3 - Acquisition and Dispositions for additional information regarding the impairment expense.
As of March 31, 2023,2024, the Company had $15.0$17.2 million of unrecognized tax benefits of which $2.9$3.5 million would affect its effective income tax rate if recognized. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. 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 2017-20232017-2024 and 2009-2023,2007-2024, respectively. The Company is subject to examinations in foreign tax jurisdictions for the years 2017-2023.2018-2024.
15.14. Commitments and Contingencies
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 the product plus costs incurred in the process, less related distributor rebates.
Before considering any reduction of distributor rebate accruals of $1.2 million and $1.1 million as of March 31, 2023 and December 31, 2022, 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 $2.3 million as of March 31, 2023 and $2.4 million as of December 31, 2022. The Company’s reserves for estimated losses under these repurchase arrangements were immaterial as of March 31, 20232024 and December 31, 2022.2023.
1716

Table of Contents


16.15. Changes in Accumulated Other Comprehensive Loss by Component
Changes to accumulated other comprehensive loss by component are as follows:
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
20232022
2024
2024
2024
Cumulative foreign currency translation
Cumulative foreign currency translation
Cumulative foreign currency translationCumulative foreign currency translation
Balance at beginning of periodBalance at beginning of period$(84.1)$(44.7)
Balance at beginning of period
Balance at beginning of period
Other comprehensive loss before reclassifications
Other comprehensive loss before reclassifications
Other comprehensive loss before reclassifications
Balance at end of period
Balance at end of period
Balance at end of period
Unrealized net gain on cash flow derivatives
Unrealized net gain on cash flow derivatives
Unrealized net gain on cash flow derivatives
Balance at beginning of period
Balance at beginning of period
Balance at beginning of period
Other comprehensive gain before reclassificationsOther comprehensive gain before reclassifications2.5 0.6 
Other comprehensive gain before reclassifications
Other comprehensive gain before reclassifications
Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $0.1 and $0.5 in 2024 and 2023, respectively)
Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $0.1 and $0.5 in 2024 and 2023, respectively)
Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $0.1 and $0.5 in 2024 and 2023, respectively)
Balance at end of periodBalance at end of period(81.6)(44.1)
Unrealized net gain (loss) on cash flow derivatives
Balance at beginning of period4.9 0.6 
Other comprehensive gain (loss) before reclassifications1.3 (0.5)
Realized gains on derivatives reclassified to cost of products sold (net of income tax provision of $0.5 and $— in 2023 and 2022, respectively)(1.4)(0.1)
Balance at end of period
Balance at end of periodBalance at end of period4.8 — 
Pension liabilityPension liability
Pension liability
Pension liability
Balance at beginning of period
Balance at beginning of period
Balance at beginning of periodBalance at beginning of period(3.2)(287.3)
Amounts reclassified from accumulated other comprehensive loss:(1)
Amounts reclassified from accumulated other comprehensive loss:(1)
— 3.8 
Amounts reclassified from accumulated other comprehensive loss:(1)
Amounts reclassified from accumulated other comprehensive loss:(1)
Balance at end of periodBalance at end of period(3.2)(283.5)
Balance at end of period
Balance at end of period
Accumulated other comprehensive loss, end of period
Accumulated other comprehensive loss, end of period
Accumulated other comprehensive loss, end of periodAccumulated other comprehensive loss, end of period$(80.0)$(327.6)
(1) Amortization of pension items:
(1) Amortization of pension items:
(1) Amortization of pension items:
(1) Amortization of pension items:
Actuarial lossesActuarial losses$— $5.1 (2)
Prior year service cost— (0.1)(2)
Actuarial losses
Actuarial losses$0.1 $— (2)
— 5.0 
Income tax benefit— (1.2)
Reclassification net of income tax benefitReclassification net of income tax benefit$— $3.8 
Reclassification net of income tax benefit
Reclassification net of income tax benefit
(2)These accumulated other comprehensive loss components are included in the computation of net periodic pension cost. See Note 109 - Pensions for additional details.

1817

Table of Contents
ITEM 2 - 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.
We saw improvement in ourOur supply chain during 2022, particularly in the second halfhas been relatively stable. However, we continue to monitor potential disruptions and increase our safety stock of the year and remained relatively stable through the first quarter of 2023.key components when we believe it is warranted. 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. In the first quarter of 2024, we acquired Impact Water Products, a California-based water treatment company. The acquisition supports our growth strategy by expanding the West Coast presence of our water treatment business. We will also continue to look for opportunities to add to our existing operationsproduct portfolio in high growth regions demonstrated by our previous introductions of water treatmentkitchen products in IndiaChina. We also recently introduced our internally designed and range hoods and cooktopsmanufactured gas tankless water heaters in China.
North America. In addition, we are expanding our commercial water heater capacity in preparation for the first quarternew efficiency rule for commercial water heaters that the Department of 2023, we committed to a plan to sell our businessEnergy (DOE) has adopted that will take effect in Turkey. We recognized a non-cash impairment charge in the first quarter of $15.6 million, primarily in anticipation of the liquidation of the cumulative foreign currency translation adjustment. While the more project based business model in Turkey did not fit well in our strategy, we remain committed to our global water treatment business and will continue to invest in other regions.2026.
In our North America segment, we saw resilientstrong water heater demand in the residential water heater industry in the first quarter. We continue to monitor proactive replacement and new home completions.quarter that benefited from increased orders ahead of our March 1st price increases. We project 20232024 industry residential unit volumes will be flat after approximately flat to 2022. Demandsix percent growth in 2023. Proactive replacement has been above historical levels for commercial electric water heaters was strongthe last several years and we project that will continue in the first quarter of 20232024. We believe that new home construction remains in a deficit and will be flat compared to the first quarter of 2022 and our orders remain strong in April. Therefore, we expect2023. We anticipate that commercial water heater industry volumes will increase mid-singlegrow low single digits in 2024 compared to 2022.2023 as demand for commercial electric water heaters greater than 55 gallon continues a positive trend toward pre-2022 levels. Sales of our boilers and water treatment products were negatively impacted by elevated channel inventories in 2023. We believe that channel inventories returned to near normal levels at the beginning of 2024 for both product categories. We expect to see a mid-single digitan eight to ten percent increase in our sales of boilers in 20232024 compared to 2022, driven by pricing and demand for our high2023 as we continue to benefit from the transition to higher efficiency commercial boilers. We anticipate sales of our North America water treatment products will increase approximately fiveeight to seventen percent in 2023,2024, compared to 2022, primarily driven by pricing and consumer demand.2023, as we continue our geographic expansion.
In our Rest of World segment, ourwe saw local currency third-party sales growth in China business performed as we expectedof six percent in the first quarter and we saw sequential month over month improvement in sales. We believe it will take time for consumer confidence to strengthen and for the economy to improve.quarter. We project our third-party sales in China will growbe flat to up three to five percent in 20232024 in local currency compared to 2022.2023 driven by innovative new products and resilient demand for our core products. Our guidance assumes volume will improve sequentially throughout the year. We assume thatan unfavorable currency translation will negatively impact on sales byof approximately two percent.one percent in 2024.
Combining all of these factors, we expect our 20232024 consolidated sales to be approximately flatincrease between three and five percent compared to 2022 with a range of plus or minus two percent.2023. Our guidance excludes the impacts from potential future acquisitions.

1918

Table of Contents
Results of Operations
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
20232022
(dollars in millions)
(dollars in millions)
2024
2024
2024
Net sales
Net sales
Net salesNet sales$966.4 $977.7 
Cost of products soldCost of products sold592.3 636.1 
Cost of products sold
Cost of products sold
Gross profit
Gross profit
Gross profitGross profit374.1 341.6 
Gross profit margin %Gross profit margin %38.7 %34.9 %
Gross profit margin %
Gross profit margin %
Selling, general and administrative expenses
Selling, general and administrative expenses
Selling, general and administrative expensesSelling, general and administrative expenses187.2 179.8 
Impairment expenseImpairment expense15.6 — 
Impairment expense
Impairment expense
Interest expenseInterest expense4.0 1.5 
Other (income) expense - net(4.0)3.7 
Interest expense
Interest expense
Other income, net
Other income, net
Other income, net
Earnings before provision for income taxes
Earnings before provision for income taxes
Earnings before provision for income taxesEarnings before provision for income taxes171.3 156.6 
Provision for income taxesProvision for income taxes44.4 36.8 
Provision for income taxes
Provision for income taxes
Net EarningsNet Earnings$126.9 $119.8 
Net Earnings
Net Earnings
Our sales in the first quarter of 20232024 were $966.4$978.8 million, or 1.21.3 percent lowerhigher than the first quarter 20222023 sales of $977.7$966.4 million. Compared to the prior year quarter, our change inthe increased sales waswere primarily driven by highera positive mix shift towards high efficiency commercial water heater volumes in North America, partially offset by lower sales in China.heaters including heat pumps. In addition, our sales in our Restthe first quarter of World segment2024 were unfavorably impacted by approximately $17$9 million in the first quarter of 2023 due to the deprecationdepreciation of foreign currencies compared to the U.S. dollar.
Our gross profit margin in the first quarter of 20232024 was 38.739.3 percent and increased compared to 34.938.7 percent in the first quarter of 2022.2023. The higher gross profit margin in the first quarter of 20232024 compared to the same period last year was primarily due to lower steel and other material costs.
Selling, general, and administrative (SG&A) expenses were $187.2 million in the first quarter of 2023 or $7.42024 increased by $5.0 million higher thancompared to the first quarter of 2022. Higher selling expenses were primarily driven by higher selling2023. The increase in SG&A expenses in North America onthe first quarter of 2024 compared to the prior year period was primarily due to higher volumes, partially offset by lower sellingresearch and development expenses in China on lower sales.and higher employee costs from increased wages and management incentives.
Impairment expense in the first quarter of 2023 was $15.6 million which is related to our commitment to sellthe sale of our business in Turkey. Of the $15.6 million impairment, $12.5 million was recorded in the Rest of World segment and $3.1 million in Corporate Expense. There was no impairment expense recorded in Corporate Expense.the first quarter of 2024.
Interest expense in the first quarter of 20232024 was $1.0 million compared to $4.0 million and higherin the same period last year. The decrease in interest expense in the first quarter of 2024 compared to $1.5the same period last year was primarily due to lower debt levels.
Other income, net was $1.2 million in the first quarter of 2022 primarily due2024 compared to higher debt levels and interest rates.
Other (income) expense-net was ($4.0)$4.0 million in the first quarter of 20232023. The decrease in Other income, net was primarily due to higher foreign currency translation losses and lower interest income compared to expense of $3.7 million in the first quarter of 2022. Pension expense in the first quarter of 2023 was $0.3 million compared to $3.6 million in the first quarter of 2022. In 2021, the Company's Board of Directors approved the termination of the Company's largest defined benefit pension plan (the Plan) with a termination date of December 31, 2021. same period last year.
The Plan represented over 95 percent of the Company's pension plan liability. In the fourth quarter of 2022, the Company settled Plan liabilities through lump-sum payments from existing plan assets to eligible participants who elected to receive them and through the purchase of annuities.
OurCompany’s effective income tax rate for the three months ended March 31, 2024 was 23.4 percent. The effective income tax rate for the three months ended March 31, 2023 was 25.9 percent in the first quarter of 2023, compared with 23.5 percent in the first quarter of 2022.percent. The change in the effective income tax rate for the three months ended March 31, 20232024 compared to the effective income tax rate for the three months ended March 31, 20222023 was primarily due to a change in geographical earnings mix as well as the $15.6 million impairment expense recorded in the prior year period with no associated tax benefit. We estimate that our annual effective income tax rate for the full year of 20232024 will be 24.0approximately between 24 and 24.5 percent.
We are providing non-U.S. Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense) that exclude the impact of the 2023 impairment expense and 2022 non-operating pension expenses.expense. Reconciliations from GAAP measures to non-GAAP measures are provided in the Non-GAAP Measures section below. We believe that the measures of adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense provide useful information to investors about our performance and allow management and our investors to better understand our performance between periods without regard to items that we do not consider to be a component of our core operating performance.

2019

Table of Contents
North America Segment
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
20232022
(dollars in millions)
(dollars in millions)
2024
2024
2024
Net Sales
Net Sales
Net SalesNet Sales$752.7 $730.1 
Segment EarningsSegment Earnings188.6 151.8 
Segment Earnings
Segment Earnings
Segment marginSegment margin25.1 %20.8 %
Segment margin
Segment margin
Sales in our North America segment were $766.3 million in the first quarter of 2024, or $13.6 million higher than sales of $752.7 million in the first quarter of 2023 or $22.6 million higher than sales of $730.1 million in the first quarter of 2022.2023. Higher sales in the first quarter of 20232024 were primarily driven by higher residential andvolumes of commercial water heater volumes, partially offset by lower pricing.heaters and a positive product mix shift towards high efficiency water heaters, including heat pumps.
North America segment earnings were $198.7 million in the first quarter of 2024, an increase of approximately 5.4 percent compared to segment earnings of $188.6 million in the first quarter of 2023, an increase of approximately 24.2 percent compared to segment earnings of $151.8 million in the first quarter of 2022.2023. Segment margins were 25.125.9 percent and 20.825.1 percent in the first quarter of 2024 and 2023, and 2022, respectively.
Higher segment earnings and margins in the first quarter of 20232024 compared to the first quarter of 2022prior year were primarily due to the benefits of the positive product mix shift toward high efficiency products, higher volumes of commercial and residential water heatersheater volumes, and lower steel costs.costs that were partially offset by higher selling and advertising expenses. We estimate our 20232024 North America segment margin will be approximately between 23 and 23.525 percent.
AdjustedRest of World Segment
(dollars in millions)Three Months Ended
March 31,
20242023
Net Sales$226.9 $219.1 
Segment Earnings17.2 5.3 
Segment margin7.6 %2.4 %
Sales in the Rest of World segment earnings and adjusted segment marginwere $226.9 million in the first quarter of 2022 were $154.42024, or $7.8 million and 21.1 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first quarter of 2022 exclude $2.6 million of pension expense.
Rest of World Segment
(dollars in millions)Three Months Ended
March 31,
20232022
Net Sales$219.1 $256.0 
Segment Earnings5.3 24.8 
Segment margin2.4 %9.7 %
Rest of Worldhigher than sales of $219.1 million in the first quarter of 2023 decreased 14 percent compared to the first quarter of 2022, including an unfavorable currency translation impact of $17 million. In local currency, segment sales decreased by approximately eight percent compared to last year.2023. The decrease inincreased sales in the first quarter of 2024 compared to 2023 was driven primarily by lower consumer demanddue to higher volumes of kitchen products in China dueand increased inter-segment sales of approximately $8 million related to COVID-19. Salesour recently introduced tankless water heaters manufactured in India increased 28% in local currency in the first quarter of 2023 on strong demand for our water heaterChina and water treatment products comparedshipped to the prior year quarter.U.S. market, partially offset by unfavorable foreign currency translation of approximately $9 million.
Rest of World segment earnings were $17.2 million in the first quarter of 2024, compared to $5.3 million in the first quarter of 2023, compared to $24.8 million in the first quarter of 2022.2023. Segment margins were 2.47.6 percent and 9.72.4 percent in the first quarter of 2024 and 2023, and 2022, respectively. LowerHigher segment earnings and segment margin in the first quarter of 2023,2024 were primarily driven by the absence of the nonrecurring impairment expense of $12.5 million associated with our commitment to sellthe sale of our business in Turkey and lower salesrecorded in China.the first quarter of 2023. We estimate our 2024 Rest of World segment margin will be approximately ten percent.
Adjusted segment earnings and adjusted segment margin in the first quarter of 2023 were $17.8 million and 8.1 percent, respectively. Adjusted segment earnings and adjusted segment margin in the first quarter of 2023 exclude the $12.5 million of impairment expense. We estimate our 2023 Rest of World adjusted segment margin will be approximately 10 percent, excluding the impairment expense.
Outlook
We expect our consolidated sales to increase in 2023 to be flat to 2022 with a range of plus or minus two2024 between three and five percent. Our sales projection is driven by expected flat industry residential unit volumescontinued end-market demand in North America, increased commercial water heater volumes, higherheating and the rebound that we expect in boiler and water treatment salesvolumes after 2023 corrections in North America,end-market inventories. In our Rest of the World segment, we expect overall growth in China driven by new products and higher sales in China.resilient demand for core product offerings. We assume that currency translation will negatively impact sales by approximately two percent. As a result, we expect to achieve full-year earnings of between $3.20$3.90 and $3.40 per share and adjusted earnings of between $3.30 and $3.50$4.15 per share. Our guidance excludes the impacts from potential future acquisitions.
2120

Table of Contents
Liquidity & Capital Resources
Our working capital was $748.1$578.1 million at March 31, 2023, and higher2024, compared with $699.5$555.0 million at December 31, 2022.2023. The increase in working capital was primarily driven byrelated to higher inventory balances, lower accounts payable and payroll-related accruals and inventory balances than at December 31, 2022, which were partially offset by higher accrued liabilities. In addition,lower cash balances asbalances. As of March 31, 20232024, cash balances were positivelynegatively impacted by $2.4$3.1 million due to the effects of changes in foreign currency during the year. Cash and cash equivalents used to fund our operations are primarily generated through operating activities and provided by our existing credit facilities. We believe our available cash and existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We use a global cash pooling arrangement, intercompany borrowing, and some local credit lines to meet funding needs and allocate capital resources among various entities. We have historically made and anticipate future cash repatriations to the United States from certain foreign subsidiaries.
(dollars in millions)(dollars in millions)Three Months Ended
March 31,
(dollars in millions)Three Months Ended
March 31,
20232022
202420242023
Cash provided by operating activitiesCash provided by operating activities$119.9 $16.5 
Cash (used in) provided by investing activities(9.8)2.1 
Cash used in investing activities
Cash used in financing activitiesCash used in financing activities(97.5)(56.1)
Cash provided by operating activitiesoperations was $106.6 million in the first three months of 2023 was2024 compared to $119.9 million compared with $16.5 million in the same period last year. Cash provided by higher earnings in the first three months of 2023 compared with the prior year was also positively impacted by lowerperiod, which decreased primarily as a result of higher incentive payments associated with record sales and profits earned in 2023 and lowerhigher inventory levels.levels that more than offset higher earnings and accounts payable balances. Our free cash flow in the first three monthsquarter of 2024 and 2023 and 2022 was $109.2$84.6 million and $3.6$109.2 million, respectively. We expect cash provided by operating activities to be between $650$640 million and $700$690 million in 2023.2024. We expect free cash flow to be between $525 million and $575 million and $625 million in 2023.2024. Free cash flow is a non-GAAP measure and is described in more detail in the Non-GAAP Measures section below.
Capital expenditures totaled $10.7$22.0 million in the first three monthsquarter of 20232024 compared with $12.9$10.7 million in the same period last year. We project 20232024 capital expenditures will be between $70$105 million and $75$115 million and full-year depreciation and amortization expense will be approximately $70$80 million.
In 2021, we renewed and amended ourWe have a $500 million revolving credit facility which now expires on April 1, 2026. The renewed and amended facility is with a group of nine banks and 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 March 31, 2023,2024, and expect to be in compliance for the foreseeable future. The facility backs up commercial paper and credit line borrowings. At March 31, 2023,2024, we had $211.1 millionno borrowings outstanding under the facility and an available borrowing capacity of $288.9$500 million. We believe the combination of available borrowing capacity and operating cash flows will provide sufficient funds to finance our existing operations for the foreseeable future.
Our total debt decreased by $3.7$7.6 million in the first three monthsquarter of 2023 which was2024 primarily due to the payment of debt.debt repayments. Our leverage, as measured by the ratio of total debt to total capitalization, was 16.06.0 percent at March 31, 2023,2024, compared with 16.56.5 percent at December 31, 2022.2023.
In the first quarter of 2023,2024, our Board of Directors approved adding 7,500,0002,000,000 shares of common stock to our existing discretionary share repurchase authority. Under our share repurchase program, we may purchase our common stock through a combination of a Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The stock repurchase authorization remains effective until terminated by our Board of Directors, which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. During the first three months of 2023,2024, we repurchased 821,000906,000 shares of our stock at a total cost of $53.1$74.5 million. At March 31, 2023,2024, we had 7,057,4624,595,462 shares remaining on the share repurchase authority. Depending on factors such as stock price, working capital requirements, and alternative investment opportunities, we expect to spend approximately $300 million on stock repurchases in 20232024 through a combination of ourany renewed Rule 10b5-1 automatic trading plan and open market repurchases.
On April 10, 2023,9, 2024, our Board of Directors declared a regular quarterly cash dividend of $0.30$0.32 per share on our Common Stock and Class A common stock. The dividend is payable on May 15, 2023,2024, to shareholders of record on April 28, 2023.30, 2024.
2221

Table of Contents
Non-GAAP Financial Information
We provide non-GAAP measures of free cash flow, adjusted earnings, adjusted EPS, total segment earnings, adjusted segment earnings, and adjusted corporate expense. We define free cash flow as cash provided by operating activities less capital expenditures. Our adjusted earnings, adjusted EPS, adjusted segment earnings, and adjusted corporate expenses exclude the impact of the 2023 impairment expense and 2022 non-operating pension expenses.expense.
We believe that free cash flow provides useful additional information concerning cash flow available to meet future debt service obligations and working capital requirements. We believe that the measure of adjusted earnings, adjusted EPS, adjusted segment earnings and adjusted corporate expense provides useful information to investors about our performance and allows management and our investors to better understand our performance between periods without regard to items we do not consider to be a component of our core operating performance.
A. O. SMITH CORPORATION
Adjusted Earnings and Adjusted Earnings Per Share
(dollars in millions, except per share data)
(unaudited)
The following is a reconciliation of net earnings and diluted earnings per share to adjusted earnings (non-GAAP) and adjusted earnings per share (non-GAAP):
 
Three Months Ended
March 31,
 20232022
Net Earnings (GAAP)$126.9 $119.8 
Impairment expense, before tax15.6 — 
Pension expense, before tax— 2.9 
Tax effect on above items— (0.7)
Adjusted Earnings (non-GAAP)$142.5 $122.0 
Diluted Earnings Per Share (GAAP)$0.84 $0.76 
Impairment expense per diluted share, before tax0.10 — 
Pension expense per diluted share, before tax— 0.01 
Tax effect on above items per diluted share— — 
Adjusted Earnings Per Share (non-GAAP)$0.94 $0.77 


Three Months Ended
March 31,
 20242023
Net Earnings (GAAP)$147.6 $126.9 
Impairment expense, before tax— 15.6 
Tax effect on above items— — 
Adjusted Earnings (non-GAAP)$147.6 $142.5 
Diluted Earnings Per Share (GAAP)$1.00 $0.84 
Impairment expense per diluted share, before tax— 0.10 
Tax effect on above items per diluted share— — 
Adjusted Earnings Per Share (non-GAAP)$1.00 $0.94 


2322

Table of Contents
A. O. SMITH CORPORATION
Adjusted Segment Earnings
(dollars in millions)
(unaudited)
The following is a reconciliation of reported earnings before provision for income taxes to total segment earnings (non-GAAP)     and adjusted segment earnings (non-GAAP):
 
Three Months Ended
March 31,
 20232022
Earnings Before Provision for Income Taxes (GAAP)$171.3 $156.6 
Add: Corporate expense(1)
18.6 18.4 
Add: Interest expense4.0 1.5 
Total Segment Earnings (non-GAAP)$193.9 $176.5 
North America(2)
$188.6 $151.8 
Rest of World(3)
5.3 24.8 
Inter-segment earnings elimination— (0.1)
Total Segment Earnings (non-GAAP)$193.9 $176.5 
Additional Information
(1)Corporate expense
$(18.6)$(18.4)
Impairment expense, before tax3.1 — 
Pension expense, before tax— 0.3 
Adjusted Corporate expense (non-GAAP)$(15.5)$(18.1)
(2)North America
$188.6 $151.8 
Pension expense, before tax— 2.6 
Adjusted North America (non-GAAP)$188.6 $154.4 
(3)Rest of World
$5.3 $24.8 
Impairment expense, before tax12.5 — 
Adjusted Rest of World (non-GAAP)$17.8 $24.8 

Three Months Ended
March 31,
 20242023
Earnings Before Provision for Income Taxes (GAAP)$192.7 $171.3 
Add: Corporate expense(1)
21.9 18.6 
Add: Interest expense1.0 4.0 
Total Segment Earnings (non-GAAP)$215.6 $193.9 
North America$198.7 $188.6 
Rest of World(2)
17.2 5.3 
Inter-segment earnings elimination(0.3)— 
Total Segment Earnings (non-GAAP)$215.6 $193.9 
Additional Information
(1)Corporate expense
$(21.9)$(18.6)
Impairment expense, before tax— 3.1 
Adjusted Corporate expense (non-GAAP)$(21.9)$(15.5)
(2)Rest of World
$17.2 $5.3 
Impairment expense, before tax— 12.5 
Adjusted Rest of World (non-GAAP)$17.2 $17.8 
2423

Table of Contents
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):

Three Months Ended,
March 31,
20232022
Three Months Ended
March 31,
Three Months Ended
March 31,
202420242023
Cash provided by operating activities (GAAP)Cash provided by operating activities (GAAP)$119.9 $16.5 
Less: Capital expendituresLess: Capital expenditures(10.7)(12.9)
Free cash flow (non-GAAP)Free cash flow (non-GAAP)$109.2 $3.6 

A. O. SMITH CORPORATION
20232024 Adjusted EPS Guidance and 20222023 Adjusted EPS
(unaudited)

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

2023 Guidance2022
Diluted EPS (GAAP)$ 3.20 - 3.40$1.51 
Impairment expense0.10 (1)— 
Pension settlement charges— 1.60 (2)
Pension expense— 0.06 (3)
Legal judgment income— (0.05)
Terminated acquisition-related expenses— 0.02 
Adjusted EPS (non-GAAP)$ 3.30 - 3.50$3.14 
2024
Guidance
2023
Diluted EPS (GAAP)$3.90 - 4.15$3.69 
Restructuring and impairment expense— 0.12 (1)
Adjusted EPS (non-GAAP)$3.90 - 4.15$3.81 
(1)Includes pre-tax restructuring and impairment expenseexpenses of $12.5$15.7 million and $3.1 million, within the Rest of World segment and Corporate expenses, respectively.
(2)Includes pre-tax pension settlement charges of $346.8 million and $70.5 million, within the North America segment and Corporate expenses, respectively.
(3)Includes pre-tax pension expense of $9.7 million and $2.0 million, within the North America segment and Corporate expenses, respectively.
2524

Table of Contents
Critical Accounting Policies
Our consolidated financial statements are prepared in conformity with accounting principles generally accepted in the U.S., which requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements. The critical accounting policies that we believe could have the most significant effect on our reported results or require complex judgment by management are contained in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2022.2023. We believe that at March 31, 2023,2024, there was no material change to this information.
Recent Accounting Pronouncements
Refer to Recent Accounting Pronouncements in Note 1 – Basis of Presentation in the notes to our condensed consolidated financial statements included in Part 1 Financial Information.
Forward Looking Statements
This filing contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “continue,” “guidance”,“guidance,” “outlook” or words of similar meaning. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this filing. Important factors that could cause actual results to differ materially from these expectations include, among other things, the following: 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 ofchanges in commercial property usage that followed the COVID-19 pandemic; further weakening in U.S. residential or commercial construction or instability in the Company's replacement markets; inability of the Company to implement or maintain pricing actions; inconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housing sales in China; negative impact to the Company’s business in China as a result of future COVID-19 related disruptions there; negative impact to the Company's businesses from international tariffs, trade disputes and geopolitical differences, including the conflictconflicts in Ukraine;Ukraine,the Middle East and attacks on commercial shipping vessels in the Red Sea; potential further weakening in the high-efficiency gas boiler segment in the U.S.; substantial defaults in payment by, material reduction in purchases by or the loss, bankruptcy or insolvency of a major customer; foreign currency fluctuations; the Company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; competitive pressures on the Company’s businesses; including new technologies and new competitors; the impact of potential information technology or data security breaches; changes in government regulations or regulatory requirements; the inability to respond to secular trends toward decarbonization and energy efficiency and adverse developments in general economic, political and business conditions in key regions of the world. Forward-looking statements included in this filing are made only as of the date of this filing, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to the Company, or persons acting on its behalf, are qualified entirely by these cautionary statements.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As is more fully described in our Annual Report on Form 10-K for the year ended December 31, 2022,2023, we are exposed to various types of market risks, including currency and certain commodity risks. Our quantitative and qualitative disclosures about market risk have not materially changed since that report was filed. We monitor our currency and commodity risks on a continuous basis and generally enter into forward and futures contracts to minimize these exposures. The majority of the contracts are for periods of less than one year. Our Company does not engage in speculation in our derivative strategies. It is important to note that gains and losses from our forward and futures contract activities are offset by changes in the underlying costs of the transactions being hedged.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon this evaluation of these disclosure controls and procedures, our principal executive officer and principal financial officer concluded that the disclosure controls and procedures were effective as of March 31, 20232024 to ensure that information required to be
2625

Table of Contents
disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding disclosure.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting during the quarter ended March 31, 20232024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There have been no material changes in the legal and environmental matters discussed in Part 1, Item 3 and Note 16 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2022.2023.
ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES, AND USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES
In the first quarter of 2023,2024, our Board of Directors approved adding 7,500,0002,000,000 shares of common stock to the existing discretionary share repurchase authority. Under the share repurchase program, the Common Stock may be purchased through a combination of Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The number of shares purchased and the timing of the purchases will depend on a number of factors, including share price, trading volume and general market conditions, as well as working capital requirements, general business conditions and other factors, including alternative investment opportunities. The stock repurchase authorization remains effective until terminated by our Board of Directors which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. In the first quarter of 2023,2024, we repurchased 821,000906,000 shares at an average price of $64.63$82.22 per share and at a total cost of $53.1$74.5 million. As of March 31, 2023,2024, there were 7,057,4624,595,462 shares remaining on the existing repurchase authorization.
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that may yet be Purchased Under the Plans or Programs
January 1 - January 31, 2023315,000 $60.14 315,000 7,563,462 
February 1 - February 28, 2023230,000 67.29 230,000 7,333,462 
March 1 - March 31, 2023276,000 67.52 276,000 7,057,462 
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or ProgramsMaximum Number of Shares that may yet be Purchased Under the Plans or Programs
January 1 - January 31, 2024344,000 $80.84 344,000 5,157,462 
February 1 - February 29, 2024277,000 79.98 277,000 4,880,462 
March 1 - March 31, 2024285,000 86.05 285,000 4,595,462 
The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. All dollar amounts presented exclude such excise taxes, as applicable.
ITEM 5 - OTHER INFORMATION
During the three months ended March 31, 2024, none of our directors or Section 16 officers adopted or terminated a “Rule 10b5-1trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
ITEM 6 - EXHIBITS
Refer to the Exhibit Index on page 2827 of this report.
2726

Table of Contents
INDEX TO EXHIBITS
Exhibit
Number
Description
31.1
31.2
32.1
32.2
101The following materials from A. O. Smith Corporation’s Quarterly Report on Form 10-Q for the quarter ended March 31, 20232024 are filed herewith, formatted in XBRL (Extensive Business Reporting Language): (i) the Condensed Consolidated Statement of Earnings for the three months ended March 31, 20232024 and 2022,2023, (ii) the Condensed Consolidated Statement of Comprehensive Earnings for the three months ended March 31, 20232024 and 2022,2023, (iii) the Condensed Consolidated Balance Sheets as of March 31, 2023,2024, and December 31, 20222023 (iv) the Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 20232024 and 20222023 (v) the Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 20232024 and 20222023 (vi) the Notes to Condensed Consolidated Financial Statements.
2827

Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has authorized this report to be signed on its behalf by the undersigned.
A. O. SMITH CORPORATION
April 28, 202326, 2024/s/ Benjamin A. Otchere
Benjamin A. Otchere
Vice President and Controller
/s/ Charles T. Lauber
Charles T. Lauber
Executive Vice President and Chief Financial Officer
2928