As used in this annual report on Form 10-K, references to the “Company,” “A. O. Smith,” “AOS,” “we,” “us,” and “our” refer to A. O. Smith and its consolidated subsidiaries. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto under “Item 8.8 Financial Statements and Supplementary Data” in this annual report on Form 10-K. Our company is comprised of two reporting segments: North America and Rest of World. 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, heat pumps, tanks and water treatment products. Both segments primarily manufacture and market in their respective regions of the world. Our Rest of World segment is primarily comprised of China, Europe and India.

We serveSales in our North America segment accounted for approximately 75 percent of our total sales in 2023. This segment serves residential and commercial end markets in North America with a broad range of products including:

A significant portion of our North America sales is derived from the replacement of existing products.

We believe we are the largest manufacturer and marketer of water heaters in North America with a leading share in both the residential and commercial portions of the market. We expanded our presence in North America with our acquisition of Giant Factories, Inc., (Giant) a Canada-based manufacturer of residential and commercial water heaters, which we acquired in late 2021. In the commercial portions of the market for both water heating and space heating, we believe our comprehensive product lines and our high-efficiency products give us a competitive advantage. Our wholesale distribution channel, where we sell our products primarily under the A. O. Smith and State brands, includes more than 1,100900 independent wholesale plumbing distributors serving residential and commercial end markets. We also sell our residential water heaters through the retail and maintenance, repair and operations (MRO) channels. In the retail channel, our customers include four of the six largest national hardware and home center chains, including a long-standing exclusive relationship with Lowe’s where we sell A. O. Smith branded products.

Our Lochinvar brand is one of the leading residential and commercial boiler brands in the U.S. Approximately 4540 percent of Lochinvar branded sales consist of residential and commercial water heaters while the remaining 5560 percent of Lochinvar branded sales consist primarily of boilers and related parts. Our commercial boiler distribution channel is primarily comprised of manufacturer representative firms with the remainder of our Lochinvar branded products arebeing distributed through wholesale channels.

We sell our A. O. Smith branded water treatment products through Lowe's Amazon, and our wholesale distribution channels.Amazon. Our Aquasana branded products are primarily sold directly to consumers through e-commerce as well as online retailers including Amazon and through other retail chains.channels. Our water softener branded products and problem well water solutions, which include the Hague, Water-Right, and Master Water, Atlantic Filter, and Water Tec brands are sold through water quality dealers.dealers and contractors. Our water softener products are also sold through home center retail chains.

Our energy-efficient product offerings continue to be a sales driver for our business. Our condensing commercial water heaters and boilers continue to be an option for commercial customers looking for high-efficiency water and space heating

We sell our products in highly competitive markets. We compete in each of our targeted market segments based on product design, reliability, quality of products and services, advanced technologies, energy efficiency, maintenance costs and price. Our principal water heating and boiler competitors in North America include Rheem, Bradford White, Rinnai, Aerco and Navien. Numerous other manufacturing companies also compete. Our principal water treatment competitors in the U.S. are Culligan, Kinetico, Pentair, Franklin Electric and Ecowater as well as numerous regional assemblers.

Sales in our Rest of World segment accounted for approximately 25 percent of our total sales in 2023, a majority of which was in China. We have operated in China for more than 25nearly 30 years. In that time, we have established A. O. Smith brand recognition in the residential and commercial markets. We manufacture and market residential water heater and water treatment products, primarily incorporating reverse osmosis technology, and commercial water treatment products. The Chinese water heater market is predominantly comprised of electric wall-hung, gas tankless, combi-boiler, heat pump and solar water heaters. We believe we are one of the leading suppliersmarket leaders of water heaters and reverse osmosis water treatment products to the residential market in China in dollar terms. We manufacture and market residential water treatment products, primarily incorporating reverse osmosis technology, and commercial water treatment products. We also design and market rangekitchen products (range hoods, cooktops, steam ovens, and cooktopsdishwashers) in China.

We sell our products in approximately 13,0009,900 points of sale in China, of which approximately 5,8004,600 are retail outlets in tier one through tier three cities and tier two cities of which over 2,000approximately 1,800 exclusively sell our products. We also sell our products through e-commerce channels. Our primary competitors in China in the water heater market segment are Haier, Midea, and Rinnai. Our principal competitors in the water treatment market are Angel, Midea, Truliva, and Xiaomi.

In 2008, we established a sales office in India and began importing products specifically designed for India. We began manufacturing water heaters in India in 2010 and water treatment products in 2015.

We also sell water heaters in the European and Middle and Far Eastern markets and water treatment products in Hong Kong, Turkey and Vietnam, all of which combined comprised less than 1113 percent of total Rest of World sales in 2021.2023.

Raw materials for our manufacturing operations, primarily consisting of steel, are generally available in adequate quantities, however, the global health pandemic and disruptionsquantities. A portion of our customers are contractually obligated to accept price changes based on fluctuations in the commercial transportation network have stressed the availability of certain raw materials.steel prices. There has been volatility in steel costs over the last several years, particularity in 2021 as the steel price index increased over 100 percent compared to the prior year. A portion of our customers have contractual pricing tied to a steel index.years.

To improve our competitiveness by generating new products and processes, we conduct research and development at our Corporate Technology Center in Milwaukee, Wisconsin, our Global Engineering Center in Nanjing, China, and our operating locations. Our total expenditures for research and development in 2023, 2022 and 2021 2020 and 2019 were $94.2$97.5 million, $80.7$89.0 million and $87.9$94.2 million, respectively.

We employed approximately 13,70012,000 employees as of December 31, 2021, primarily non-union.2023 with approximately 7,000 in North America and 5,000 in Rest of World. A small portion of our workforce in the U.S. is represented by a labor union, while outside the U.S., we have employees in certain countries that are represented by employee representative organizations, such as an employee association, union, or works council.

Due to the short-cycle nature of our businesses, none of our operations do not normally sustain significant backlogs.

Our operations, including the manufacture, packaging, labeling, storage, distribution, advertising and sale of our products, are subject to various federal, state, local and foreign laws and regulations. In the U.S., many of our products are regulated by the Department of Energy, the Consumer Product Safety Commission, and the Federal Trade Commission. State and local governments, through laws, regulations, and building codes, also regulate our water heating and water treatment products. Whether at the federal, state, or local level, these laws are intended to improve energy efficiency and product safety, and protect public health and the environment. In recent years, a number of states and local authorities have proposed or implemented bans on gas-fired products in new construction in an effort to address greenhouse gas emissions. Similar laws and regulations have been adopted by government authorities in other countries in which we manufacture, distribute, and sell our products. We offer a complete line of water and hydronic heating products, including electric-powered water heaters and boilers, and we believe that any reduction in fossil fuel-powered products would be counterbalanced by a corresponding increase in demand for our non-fossil fuel powered products. We are confident that our continued emphasis on product design and innovation will keep us well positioned to deliver products demanded by customers, regardless of fuel source.

In addition, our operations are subject to federal, state and local environmental laws. We are subject to regulations of the U.S. Environmental Protection Agency and the Occupational Health and Safety Administration and their counterpart state agencies. Compliance with government regulations and environmental laws has not had and is not expected to have a material effect upon the capital expenditures, earnings, or competitive position of our company. See Item 3.

We maintain a website with the address www.aosmith.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet access charges, weWe make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practical after we have electronically filed such material with, or furnished such material to, the Securities and Exchange Commission (SEC). All reports we file with the SEC are also available free of charge via EDGAR through the SEC’s website at www.sec.gov.

We are committed to sound corporate governance and have documented our corporate governance practices by adopting the A. O. Smith Corporate Governance Guidelines. The Corporate Governance Guidelines, Criteria for Selection of Directors, Financial Code of Ethics, the A. O. Smith Guiding Principles, as well as the charters for the Audit, Personnel and Compensation, Nominating and Governance and the Investment Policy Committees of the Board of Directors and other corporate governance materials, may be viewed on the Company’s website. Any waiver of or amendments to the Financial Code of Conduct or the A. O. Smith Guiding Principles also would be posted on this website; to date there have been none. Copies of these documents will be sent to stockholders free of charge upon written request of the corporate secretary at the address shown on the cover page of this Annual Report on Form 10-K.

We are also committed to growing our business in a sustainable and socially responsible manner consistent with our Guiding Principles. This commitment has driven us to design, engineer and manufacture highly innovative and efficient products in an environmentally responsible manner that helphelps reduce energy consumption, conserve water and improve drinking water quality and public health. Consistent with this commitment, we issuedissue our 2020 Corporate Responsibility & Sustainability (CRS)sustainability report biennially detailing our company’s historicalhistoric and current CRS efforts. We issued our third report, the 2022 Environmental, Social and Governance ("ESG") Report in December 2022, documenting our ESG activities over the past two years. This report details the positive impact of our highly efficient products, highlights our company’s commitment to employees and the communities in which we operate, and reports on our progress toward our greenhouse gas emissions reduction goal of 10 percent by 2025. We have made significant progress toward our ESG emission reduction goal and prevented almost 500,000 metric tons of carbon emissions in 2021 through the sale of our high efficiency water heaters and boilers. Our CRS reportscorecard reflecting our progress is available on our website. TheOur scorecard also provides information on our employee diversity, product stewardship, and recordable incident rate, among other items. We have also achieved WAVE water stewardship verification and achieved our fourth consecutive Energy Star Partner of the Year Award. Our ESG report isand ESG scorecard are available on our website and not included as part of, or incorporated by reference into, this Annual Report on Form 10-K.

In the ordinary course of our business, we face various strategic, operating, compliance and financial risks. These risks could have an impact on our business, financial condition, operating results and cash flows. The risks set forth below are not an exhaustive list of potential risks but reflect those that we believe to be material. You should carefully consider the risk factors set forth below and all other information contained in this Annual Report on Form 10-K, including the documents incorporated by reference, before making an investment decision regarding our common stock. If any of the events contemplated by the following risks were to actually occur, then our business, financial condition, or results of operations could be materially adversely affected. As a result, the trading price of our common stock could decline, and you may lose all or part of your investment.

A decline in economic activity, such as a recession or economic downturn, in the U.S. and other regions in the world in which we do business, could further adversely affect consumer confidence and spending patterns which could result in decreased demand for the products we sell, a delay in purchases, increased price competition, or slower adoption of energy-efficient water heaters and boilers, or high-quality water treatment products, which could negatively impact our profitability and cash flows. Such deterioration in economic conditions could arise from many factors or fears including public health crises, political instability or political instability.risk of government default. In addition, an increase in price levels generally or in particular industries (such as the recent inflation in steel prices in 2021 and the recent inflation in other material and logistics costs), could result in a consumer shift away from the products we offer, which could adversely affect our revenues and, at the same time, increase our costs. A deterioration in economic conditions also could negatively impact our vendors and customers, which could result in an increase in bad debt expense, customer and vendor bankruptcies, interruption or delay in supply of materials, or increased material prices, which could negatively impact our ability to distribute, market and sell our products and our financial condition, results of operations and cash flows.

As a global company with a large international footprint, we are subject to increased risk of damage or disruption to us and our employees, facilities, suppliers, distributors, or customers. Extraordinary events, including natural disasters, resulting from but not limited to climate change, political disruptions, terrorist attacks, public health issues, such as the COVID-19 pandemic, and acts of war may disrupt our business and operations and impact our supply chain and access to necessary raw materials or could adversely affect the economy generally, resulting in a loss of sales and customers. Any of these disruptions or other extraordinary events outside of our net salescontrol that impact our operations or the operations of our suppliers and key distributors could affect our business negatively, harming operating results.

Consumer preferences for products and the methods in which they purchase products are constantly changing based on, among other factors, cost, performance, convenience, environmental and social concerns and perceptions. Consumer purchasing behavior may shift the product mix in the markets in which we participate or result in a shift to other distribution channels, for example e-commerce. Consumer preferences and broader trends, such as decarbonization and electrification efforts in response to climate change, may result in reduced demand for gas or fossil fuel-powered products and increased demand for higher efficiency products and/or more electric powered products. In addition, technologies are ever changing. Our sales in China increased 24 percent in local currency in 2021 comparedability to 2020. respond to these trends, timely transition our product portfolio, develop new and innovative products, and acquire and protect the necessary intellectual property rights is essential to our continued success, but cannot reasonably be assured. It is possible that we will not be able to develop new technologies, products or distribution channels, or do so on a timely basis, to align with consumer purchasing behavior and consumer preferences, which could materially and adversely affect our financial condition, results of operations and cash flows.

The market prices for certain materials and components we purchase, primarily steel, have been volatile. In recent years we have also experienced inflation-related increases in our transportation and other costs. Significant increases in the potential future impactcost of any of the COVID-19 pandemic, may prompt Chinese consumerskey materials and components we purchase would increase our cost of doing business and ultimately could lead to postpone purchases, choose lower-priced products or different alternatives, or lengthenlower operating earnings if we are not able to recover these cost increases through price increases to our customers. Historically, there has been a lag in our ability to recover increased material costs from customers, and that lag, could negatively impact our profitability. In some cases, we are dependent on a limited number of suppliers for some of the cycle of replacement purchases. Further deteriorationraw materials and components we require in the Chinese economy may adversely affectmanufacturing of our products. A significant disruption or termination of the supply from one of these suppliers could delay sales or increase costs which could result in a material adverse effect on our financial condition, results of operations and cash flows.

We sell all of our products in highly competitive and evolving markets. We compete in each of our targeted markets based on product design, reliability, quality of products and services, advanced technologies, product performance, maintenance costs and price. Some of our competitors may have greater financial, marketing, manufacturing, research and development and distribution resources than we have; others may invest little in technology or product development but compete on price and the rapid replication of features, benefits, and technologies, and some are increasingly expanding beyond their existing manufacturing or geographic footprints. In North America, theNew technologies and new competitors have developed and continue to develop in certain markets in which we participate, such as gas tankless portion of the water heating market has for many years increased as a percentage of the overall market.and heat pump technologies in North America. While we have many gas tanklessdesign and manufacture these and other products, our market share for gas tankless products is lower than our market share for the remainder of the water heating market. Further expansion of the gas tankless portion of the North America market, which we believe was approximately 12 percent of the residential market segment in 2021, could have an impact on our operating results. We cannot assure that our products will continue to compete successfully with those of our competitors. There could becurrent competitors and new market participants that change the dynamics of those markets and it is possible that we will not be able to retain our customer base or improve or maintain our profit margins on sales to our customers, allcustomers. There is also increasing use of data analytics, machine learning, and artificial intelligence software, which could materially and adversely affect our financial condition, results of operations and cash flows.

Our sales in China increased four percent in local currency in 2023 compared to necessary raw materials or could adversely affect the economy generally, resulting2022. Our 2022 sales in China were impacted by lower consumer demand driven by COVID-19 related disruptions. We derive a loss of sales and customers. Twosubstantial portion of our manufacturing plants are located within a floodplain that has experienced past flooding events. We also have other manufacturing facilities locatedsales in hurricaneChina from premium-tier products. Changes in consumer preferences and earthquake zones. Anypurchasing behaviors including preferences for e-commerce and manufacturer emphasis on brand ecosystems and connectivity, weakening consumer confidence and sentiment, as well as economic uncertainty, sociopolitical and demographic risks, and increased competition from Chinese-based companies may prompt Chinese consumers to postpone purchases, choose lower-priced products or different alternatives, or lengthen the cycle of these disruptions or other extraordinary events outside of our control that impact our operations or the operations of our suppliers and key distributors could affect our business negatively, harming operating results. In addition, these types of events also could negatively impact consumer spendingreplacement purchases. Further deterioration in the impacted regions or depending on the severity, globally, which could materially andChinese economy may adversely affect our financial condition, results of operations and cash flows.

Approximately 3633 percent of our net sales in 20212023 were attributable to products sold outside of the U.S., primarily in China and Canada, and to a lesser extent in Europe and India. We also have operations and business relationships outside the U.S. that comprise a portion of our manufacturing, supply, and distribution. Approximately 6,8005,000 of our 13,70012,000 employees as of December 31, 20212023 were located in China. At December 31, 2021,2023, approximately $608$292 million of cash and marketable securities were held by our foreign subsidiaries, substantially all of which were located in China. International operations generally are subject to various risks, including: political, religious, and economic instability; local labor market conditions; new or increased tariffs or other trade restrictions, or changes to trade agreements; the impact of foreign government regulations, actions or policies; the effects of income taxes; governmental expropriation; the changes or imposition of statutory restrictions which prohibit repatriation of cash; the imposition or increases in withholding and other taxes on remittances and other payments by foreign subsidiaries; labor relations problems; the imposition of environmental or employment laws, or other restrictions or actions by foreign governments; and differences in business practices. Unfavorable changes in the political, regulatory, or trade climate, diplomatic relations, or government policies, particularly in relation to countries where we have a presence, including Canada, China, India and Mexico, could have a material adverse effect on our financial condition, results of operations and cash flows or our ability to repatriate funds to the U.S.

Net salesSales to our five largest customers represented approximately 4142 percent of our sales in 2021.2023. We expect that our customer concentration will continue for the foreseeable future. Our concentration of sales to a relatively small number of customers makes our relationships with each of these customers important to our business. We cannot assure that we will be able to retain our largest customers. Some of our customers may shift their purchases to our competitors in the future. Our customers may experience financial instability, affecting their ability to make or pay or makefor future purchases. Further, a customer may be acquired by a customer of a competitor which could result in our loss of that customer. The loss of one or more of our largest customers, any material reduction or delay in sales to these customers, or our inability to successfully develop

Residential new construction activity in North America and industry-wide replacement-related volume of water heaters have shownhad growth which couldin 2023 after a decline in 2022. New residential housing starts in the future.U.S. are projected to be approximately flat in 2024 compared to 2023. Commercial construction activity in North America grew in 2021 after declining in 2020.2023, although at a slower rate than 2022. We believe that the significant majority of the markets we serve are for the replacement of existing products, and residential water heater replacement volume was stronghave been strong. As a result of the COVID-19 pandemic, businesses and commercial spaces have experienced and may experience in 2021.the future, fluctuation in demand and in occupancy that may reduce demand for our products, and commercial sectors, such as the restaurant and hospitality industries in which we have customers, may experience long-term shifts in consumer behavior which could negatively impact demand or capacity and may not return to pre-pandemic levels. In addition, the acceptance of remote work arrangements could negatively impact demand for commercial construction. Changes in the replacement volume and in the construction market in North America could negatively affect us.

In the ordinary course of business, we utilize information systems for day-to-day operations, to collect and store sensitive data and information, including our proprietary and regulated business information and personally identifiable information of our customers, suppliers and business partners, as well as personally identifiable information about our employees. Our information systems are susceptible to outages due to system failures, cybersecurity threats, failures on the part of third-party information system providers, natural disasters, power loss, telecommunications failures, viruses, fraud, theft, malicious actors or breaches of security. Like many companies, we, and some third parties upon which we rely, have experienced cybersecurity incidents and attacks on information technology networks and systems, products and services in the past but, to date, none have resulted in anya material breach or had a material adverse impact toon our financial condition, results of operations, or cash flows. We may experience themsuch incidents and attacks in the future, potentially with increasing frequency

from increasingly sophisticated cyber threats that couldthreats. In addition, as a result in operations failure or breach of security that could leadthe COVID-19 pandemic, remote work and remote access to disruptionsour systems have increased, which may heighten these risks. Use of our business activities, the loss orartificial intelligence software may also create risks from unintentional disclosure of both our and our customers’ financial, product and otherproprietary, confidential, information and could result in regulatory actions, litigation and have a material adverse effect on our financial condition, results of operations and cash flows and our reputation. Wepersonal or otherwise sensitive information. Although we have a response plan in place in the event of a data breach and we continue to take stepshave an active program to maintain and improve data security and address these risks and uncertainties by implementing and improving internal controls, security technologies, insurance programs, network and data center resiliency and recovery processes.processes, a successful attack in the future could result in operations failure or breach of security that could lead to disruptions of our business activities and the loss or disclosure of both our and our customers’ financial, product and other confidential information and could result in regulatory actions, significant expense and litigation and have a material adverse effect on our financial condition, results of operations and cash flows and our reputation.

We have a significant presence outside of the U.S., primarily in China and Canada and to a lesser extent Europe, Mexico, and India, and therefore, hold assets, including $492$197 million of cash and marketable securities denominated in Chinese renminbi, incur liabilities, earn revenues and pay expenses in a variety of currencies other than the U.S. dollar. The financial statements of our foreign subsidiaries are translated into U.S. dollars in our consolidated financial statements. Furthermore, typically our products are priced in foreign countries in local currencies. As a result, we are subject to risks associated with operating in foreign countries, including fluctuations in currency exchange rates and interest rates, hyperinflation in some foreign countries or global exchange rate instability or volatility that strengthens the U.S. dollar against foreign currencies. As a result, anAn increase in the value of the U.S. dollar relative to the local currencies of our foreign markets, particularly in China, has hadnegatively affected our sales, profitability, and cash and cash equivalents balances and could have a negative effect onsuch effects in the future. In 2023, the change in foreign currencies negatively impacted our profitability.sales and cash and cash equivalents by approximately $56 million and $13 million, respectively. In addition to currency translation risks, we incur a currency transaction risk whenever one of our subsidiaries enters into either a purchase or sale transaction using a currency different from the operating subsidiaries’ functional currency. The majority of our foreign currency transaction risk results from sales of our products in Canada, a portion of which we manufacture in the U.S,U.S., and to a lesser extent from component purchases in Europe and India and payroll in Mexico. These risks may hurtadversely impact our reported sales and profits in the future or negatively impact revenues and earnings translated from foreign currencies into U.S. dollars.

Product defects can occur through our own product development, design and manufacturing processes or through our reliance on third parties for component design and manufacturing activities. We may incur various expenses related to product defects, including product warranty costs, product liability and recall or retrofit costs. While we maintain a reserve for product warranty costs based on certain estimates and our knowledge of current events and actions, our actual warranty costs may exceed our reserve, resulting in current period expenses and a need to increase our reserves for warranty charges. In addition, product defects and recalls may diminish the reputation of our brand. Further, our inability to cure a product defect could result in the failure of a product line or the temporary or permanent withdrawal from a product or market. Any of these events may have a material adverse impact on our financial condition, results of operations and cash flows.

We acquired Giant, a Canada-based manufacturer of residential and commercial water heaters, on October 19, 2021, for $199 million subject to customary adjustments using a combination of cash and debt. We will continue to evaluate potential acquisitions, and we could use a significant portion of our available capital to fund future acquisitions. We may not be able to successfully integrate Giant or any future acquired businesses or operate them profitably or accomplish our strategic objectives for those acquisitions. If we complete any future acquisitions in new geographies, our unfamiliarity with relevant regulations and market conditions may impact our ability to operate them profitably or achieve our strategic objectives for those acquisitions. Our level of indebtedness may increase in the future if we finance acquisitions with debt, which would cause us to incur additional interest expense and could increase our vulnerability to general adverse economic and industry conditions and limit our ability to service our debt or obtain additional financing. The impact of future acquisitions may have a material adverse effect on our financial condition, results of operations and cash flows.

Our products are subject to a wide variety of statutory, regulatory, codes and industry standards and requirements related to, among other items, energy and water efficiency, environmental emissions, labeling and safety. While we believeFor example, the Department of Energy (DOE) has adopted a new efficiency rule for commercial water heaters that will take effect in 2026. In addition, there are proposed federal rule makings that would require our productsresidential water heater product line to be more energy efficient as well as the establishment of a national drinking water standard regulating per- and poly-fluoroalkyl substances (PFAS), which could affect the demand for our water filtration products. There are currently efficient, safe and environment-friendly,also a number of federal, foreign, state and local governments may adoptadopting laws, regulations and codes in response to climate change that will require a transition to non-fossil fuel based sources of energy production as well as significantly reducing or eliminating the on-site combustion of fossil fuels in the building sector, such as limiting or prohibiting the delivery of natural gas in new construction. AWe believe our products are currently efficient, safe and environment-friendly. However, a significant change to regulatory or code requirements that promote a transition to alternative energy sources as a replacement for gas, or a significant shift in industry standards, could substantially increase manufacturing costs, capital expenditures, transportation costs and raw material costs, alter distribution channels, attract new competitors, impact the size and timing of demand for our products, affect the types of products we are able to offer or put us at a competitive disadvantage, any of which could harm our business and have a material adverse effect on our financial condition, results of operations and cash flow.

Due to our global operations, we are subject to many laws governing international relations, including those that prohibit improper payments to government officials and restrict where we can do business, what information or products we can supply to certain countries and what information we can provide to a non-U.S. government, including but not limited to the Foreign Corrupt Practices Act and the U.S. Export Administration Act. Violations of these laws may result in criminal penalties or sanctions that could have a material adverse effect on our financial condition, results of operations and cash flows.

Our products expose us to potential product liability risks that are inherent in the design, manufacture, sale and use of our products. While we currently maintain what we believe to be suitable product liability insurance, we cannot be certain that we will be able to maintain this insurance on acceptable terms, that this insurance will provide adequate protection against potential liabilities or that our insurance providers will be able to ultimately pay all insured losses. In addition, we self-insure a portion of product liability claims. A series of successful claims against us could materially and adversely affect our reputation and our financial condition, results of operations and cash flows.

Our total assets include significant goodwill and indefinite-lived intangible assets. Our goodwill results from our acquisitions, representing the excess of the purchase prices we paid over the fair value of the net tangible and intangible assets we acquired. We assess whether there have been impairments in the value of our goodwill or indefinite-lived intangible assets during the fourth quarter of each calendar year or sooner if triggering events warrant. If future operating performance at our businesses does not meet expectations, we may be required to reflect non-cash charges to operating results for goodwill or

indefinite-lived intangible asset impairments. The recognition of an impairment of a significant portion of goodwill or indefinite-lived intangible assets would negatively affect our results of operations and total capitalization, the effect of which could be material. A significant reduction in our stockholders’ equity due to an impairment of goodwill or indefinite-lived intangible assets may affect our ability to maintain the debt-to-capital ratio required under our existing debt arrangements.

We have two classes of common equity: our Common Stock and our Class A Common Stock. The holders of Common Stock currently are entitled, as a class, to elect only one-third of our Board of Directors. The holders of Class A Common Stock are entitled, as a class, to elect the remaining directors. Certain members of the founding family of our company and trusts for their benefit (Smith Family) have entered into a voting trust agreement with respect to shares of our Class A Common Stock and shares of our Common Stock they own. As of December 31, 2021,2023, through the voting trust, these members of the Smith Family own approximately 64.566.2 percent of the total voting power of our outstanding shares of Class A Common Stock and Common Stock, taken together as a single class, and approximately 96.896.9 percent of the voting power of the outstanding shares of our Class A Common Stock, as a separate class. Due to the differences in the voting rights between shares of our Common Stock (one-tenth of one vote per share) and shares of our Class A Common Stock (one vote per share), the Smith Family voting trust is in a position to control to a large extent the outcome of matters requiring a stockholder vote, including the adoption of amendments to our certificate of incorporation or bylaws or approval of transactions involving a change of control. This ownership position may increase if other members of the Smith Family enter into the voting trust agreement, and the voting power relating to this ownership position may increase if shares of our Class A Common Stock held by stockholders who are not parties to the voting trust agreement are converted into shares of our Common Stock. The voting trust agreement provides that, in the event one of the parties to the voting trust agreement wants to withdraw from the trust or transfer any of its shares of our Class A Common Stock, such shares of our Class A Common Stock are automatically exchanged for shares of our Common Stock held by the trust to the extent available in the trust. In addition, the trust will have the right to purchase the shares of our Class A Common Stock and our Common Stock proposed to be withdrawn or transferred from the trust. As a result, the Smith Family members that are parties to the voting trust agreement have the ability to maintain their collective voting rights in our company even if certain members of the Smith Family decide to transfer their shares.

None.

Properties utilized by us at December 31, 20212023 were as follows:

In this segment, we have 1922 manufacturing plants located in nine12 states and two non-U.S. countries, of which 1718 are owned directly by us or our subsidiaries and twofour are leased from outside parties. The terms of leases in effect at December 31, 2021,2023, expire between 20232025 and 2025.2028.

In this segment, we have sixfive manufacturing plants located in fourthree non-U.S. countries, of which four are owned directly by us or our subsidiaries and two areone is leased from outside parties. The terms of leases in effect at December 31, 2021,2023, expire between 2022 and 2025.in 2035.

We consider our plants and other physical properties to be suitable, adequate, and of sufficient productive capacity to meet the requirements of our business. TheOur manufacturing plants operate at varying levels of utilization depending on the type of operation and market conditions. The executive offices of the Company, which are leased, are located in Milwaukee, Wisconsin.

We are involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of our business involving product liability, property damage, insurance coverage, exposure to asbestos and other substances, patents and environmental matters, including the disposal of hazardous waste. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss or recovery, we believe, based on past experience, adequate reserves and insurance availability, that these unresolved legal actions will not have a material effect on our financial position or results of operations. A more detailed discussion of certain of these matters appears in Note 16, “Commitments and Contingencies” of Notes to the Consolidated Financial Statements.

Not applicable.

Pursuant to General Instruction of G(3) of Form 10-K, the following is a list of our executive officers which is included as an unnumbered Item in Part I of this report in lieu of being included in our Proxy Statement for our 20222024 Annual Meeting of Stockholders.

The graph below shows a five-year comparison of the cumulative shareholder return on our Common Stock with the cumulative total return of the Standard & Poor’s (S&P) 500 Index, S&P 500 Select Industrials Index, which are published indices.

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.

In January 2020, an outbreak of a novel coronavirus (COVID-19) surfacedWe saw improvement in Wuhan, China, which by March 2020 had spread throughoutour supply chain during 2022, particularly in the world and was declared a global pandemic. Since March 2020 and continuing into 2021, we experienced impacts to our business and other markets worldwide. As a resultsecond half of the COVID-19 pandemic and in support of continuing our manufacturing efforts, we have undertaken numerous and meaningful steps to protect our employees, suppliers, and customers. As we continue to receive guidance from governmental authorities, we adjust our safety measures to meet or exceed those guidelines.

In our North America segment, we saw resilient demand in the residential water heater industry in 2023 after approximately eight percentthree years of uneven growth, each yearprimarily related to the impacts of COVID-19-related supply chain constraints. Proactive replacement remained above historical levels in 20212023 and 2020,we project that will continue in 2024. We believe that new home construction remains in a deficit and we expect it will be flat in 2024 compared to 2023. Considering these factors, we project 2024 industry residential industry water heaterunit volumes will be down approximately twoflat after approximately six percent growth in 2022 compared with 2021 as we believe that industry demand will normalize to more historical growth rates.2023. We believe that commercial water heater industry volumes will be flat to slightly downgrow low single digits in 20222024 compared to 20212023 as new constructiondemand for commercial electric water heaters greater than 55 gallon continues a positive trend toward pre-2022 levels. Sales of our boilers and replacement installations level off.water treatment products were negatively impacted by elevated channel inventories in 2023. We expect sales in 2022 will benefit from our 2021 price increases, which had a cumulative effect on our water heater pricesbelieve that channel inventories were at near normal levels at the end of approximately 50 percent.2023 for both product categories. We expect to see aan eight to ten percent increase in our sales of boilers in 20222024 compared to 2021 due2023 as we continue to industry growth of three to four percent, our expectation thatbenefit from the transition to higher-efficiency boilers will continue as well as our new product introductions.higher efficiency boilers. We anticipate sales of our North America water treatment products will increase 13approximately ten to 1412 percent in 2022,2024, compared to 2021, primarily driven by consumer demand for2023, as we expect our point of use and point of entry water treatment systems.sales to grow at approximately two times the market.

In our Rest of World segment, after strongwe saw a return to growth in 2021, we expect 2022China as our sales in China to increase approximately fiveincreased four percent in local currency in 2023. We project our sales in China will grow three to five percent in 2024 in local currency compared with 2021to 2023 driven by innovative new products and resilient demand for our residential and commercial water treatment products, including our replacement filters, as well as rangehoods and cooktops. We assume Chinacore products. Our guidance assumes that the currency ratestranslation impact on sales will stay at levels similar to 2021.be minimal in 2024.

Combining all of these factors, we expect our 2024 consolidated sales to increase between 16three and 18five percent in 2022.compared to 2023. Our guidance excludes the potential impacts from potential future acquisitions and assumes the recent surge of the Omicron variant subsides during the first quarter of 2022 and does not have a significant impact on our productivity or significantly impact the end markets that we serve.acquisitions.

In this section, we discuss the results of our operations for 20212023 compared with 2020.2022. We discuss our cash flows and current financial condition under “Liquidity and Capital Resources.” For a discussion related to 20202022 compared with 2019,2021, please refer to Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the Year Ended December 31, 2020,2022, which was filed with the United States Securities and Exchange Commission (SEC) on February 12, 2021,14, 2023, and is available on the SEC's website at www.sec.gov.

Our sales in 20212023 were $3,538.9$3,852.8 million, or 22.22.6 percent higher than 20202022 sales of $2,895.3$3,753.9 million. Compared to 2020, which was negatively impacted by the COVID-19 pandemic, ourHigher sales increase in 2021 was primarily2023 were driven by inflation-relatedhigher volumes of residential and commercial water heaters, which more than offset unfavorable foreign currency impacts of approximately $56 million, lower boiler sales and unfavorable pricing actions and higher water heater, boiler, and water treatment volumes in our North America as well as higher sales in China. Our acquisition of Giant added $22.9 million of sales in 2021. In addition, our sales in China were favorably impacted by approximately $58 million in 2021 compared to 2020, due to the appreciation of the Chinese currency compared to the U.S. dollar.segment.

Our gross profit margin in 20212023 of 37.038.5 percent declinedincreased compared to 38.335.4 percent in 2020.2022. The lowerhigher gross profit margin in 20212023 was primarily due to higher steel and otherlower material costs which outpaced our pricing actions.costs.

Selling, general, and administrative (SG&A) expenses were $701.4$727.4 million in 20212023, or $41.1$56.5 million higher than 2020.in 2022. The increase in SG&A expenses in 2021 was primarily due to higher advertising, engineering and selling expenses and higheremployee costs, which includes management incentive expenses related to higher earnings, comparedand compensation increases. In 2022 SG&A included the recognition of an $11.5 million favorable judgment against a competitor related to 2020. Higherits infringement of one of our patents, which reduced SG&A expenses, in 2021 wereand was partially offset by lower spending in Chinaa $4.3 million expense associated with headcount reductions, store closuresa terminated acquisition.

Restructuring and other cost-saving measures implemented during 2020.

Interest expense was $4.3$12.0 million in 2021,2023, compared to $7.3$9.4 million in 2020.2022. The decreaseincrease in interest expense in 2021 was primarily due to lower average debt levels.

PensionOther (income) expense, net was income of $6.9 million in 2021 was $12.0 million2023 compared to $5.1expense of $425.6 million in 2020.2022. The change in Other (income) expense, net was primarily due to a reduction in pension expenses and pension settlement expense associated with the termination of our defined benefit pension plan (the Plan). In 2022, we recorded a $417.3 million pension settlement expense related to the termination of the Plan which represented over 95 percent of our pension plan liability. The service cost component of our pension incomeexpense is reflected in cost of products sold and SG&A expenses. All other components of our pension incomeexpense (income) are reflected in other income.(income) expense-net.

Our effective income tax rate in 2023 was 22.1 percent in 2021, compared with 22.3 percent in 2020. Our lowerhigher than our effective income tax rate in 2021 was2022 primarily due to the tax effects of the pension settlement expense associated with the termination of the Plan and a change in geographic earnings mix as well as a favorable tax impact related to amending a previously filed tax return.mix. We estimate that our annual effective income tax rate for the full year of 20222024 will be between 23.5approximately 24 to 24.5 percent.

We are providing non-U.S. Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted earnings per share (EPS), total segment earnings, adjusted segment earnings, and 24 percent.adjusted corporate expense) that exclude the impact of restructuring and impairment expenses, pension settlement income and expenses, non-operating pension expenses, income from a legal judgment and expenses associated with a terminated acquisition. Reconciliations from GAAP measures

Sales in our North America segment were $2,529.5$2,922.9 million in 20212023, or $411.2$103.8 million higher than sales of $2,118.3$2,819.1 million in 2020.2022. The increased sales in 20212023 compared to the prior year were driven primarily by price increases, largely on water heaters, which were implemented in response to rising material and transportation costs. Higher sales were also driven by increasedhigher residential and commercial water heater volumes, across all product lines, including $22.9 millionpartially offset by lower volumes of incremental sales from Giant.boilers and unfavorable pricing.

North America segment earnings were $590.8$726.7 million in 2021, an increase of 17 percent compared to2023, or $460.7 million higher than segment earnings of $503.5$266.0 million in 2020.2022. Segment margins were 23.424.9 percent and 23.89.4 percent in 20212023 and 2020,2022, respectively. Higher segment earnings and margins in 20212023 were primarily due to inflation-related price increaseshigher volumes of residential and higher volumes,commercial water heaters and lower material costs that were partially offset by higher material and logistics costs. Segment margin was lowerSG&A expenses. Additionally in 2021 primarily due to the rise in costs outpacing pricing actions. In 20202022, we realized pre-tax pension settlement expense of $346.8 million.

Adjusted segment earnings and adjusted segment margin in 2023 were adversely impacted by certain costs related to$726.0 million and 24.8 percent, respectively which exclude $0.7 million of pension settlement income. Adjusted segment earnings and adjusted segment margin in 2022 were $611.0 million and 21.7 percent, respectively and exclude pension settlement expense of $346.8 million, pension expense of $9.7 million and the pandemic. Those costs included temporarily moving production from Mexico torecognition of the U.S., paying employees during temporary plant shutdowns, proactively deep cleaning facilities, paying benefits during employee furloughs, and other costs, which were approximately $6.6$11.5 million in 2020.patent infringement judgment. We estimate our 20222024 North America segment margin will be between 22.25 and 22.75approximately 24.5 to 25 percent.

Sales in our Rest of World segment were $1,036.5$956.9 million in 20212023, or $236.2$8.9 million higherlower than sales of $800.3$965.8 million in 2020. Sales2022. The decrease in sales in 2023 was primarily driven by the approximately $44 million unfavorable impact of foreign currency translation, partially offset by favorable volumes in China, increased by 32 percent in U.S. dollar terms and 24 percent in local currency in 2021 compared to 2020. In addition, our sales in China were favorably impacted by approximately $58 million in 2021 compared to 2020, due to the appreciation of the Chinese currency compared to the U.S. dollar. The increase in 2021 sales was primarily due to growthparticularly in our major product categories in China, including electric and gas tankless water heaters, and residential and commercial water treatment products, including replacement filters. Sales in China were also positively impacted by lower channel inventory reductions in 2021 compared to 2020. Channel inventory levels in China at the end of 2021 were at their lowest level in the last five years. Products with higher selling prices, including super-quiet gas tankless water heaters and water treatment products that deliver filtered water at a faster flow rate, contributed to sales gains. Sales in India increased approximately 31% compared to 2020, which was significantly impacted by the pandemic.kitchen products.

Rest of World segment earnings in 2023 were $91.4$83.4 million compared to $96.3 million in 2021 compared to breakeven in 2020.2022. Segment margin was 8.8margins were 8.7 percent and 10.0 percent in 2021. Compared to 2020, which was significantly impacted by the pandemic,2023 and 2022, respectively. Lower segment earnings in 2021 increased primarily due to higher volumes in China, which was partially offset by higher employee incentives and brand-building-related advertising costs, as well as the absence of the social insurance waivers received in 2020 that did not repeat in 2021. Higher segment operating margin of 8.8% was primarily a result of increased operating leverage from higher volumes. We expect full-year segment margin toin 2023 were primarily driven by restructuring and impairment expenses of $15.7 million, of which $12.5 million was associated with the sale of our business in Turkey.

Adjusted segment earnings and adjusted segment margin in 2023 were $99.1 million and 10.4 percent, respectively. Adjusted segment earnings and adjusted segment margin in 2023 exclude restructuring and impairment expenses. We estimate our 2024 Rest of World segment margin will be approximately 10 percent in 2022.

Our working capital was $633.8$555.0 million at December 31, 20212023 compared with $731.7$699.5 million at December 31, 2020. A majority of the change to2022. Movements in working capital was driven by higher accounts payable, payroll related accrualsconsisted of lower Cash and lowercash equivalents, and Marketable securities due to the paydown of our Long-term debt and Trade payables. In addition, as of December 31, 2023, cash balances than 2020, which were partially offsetnegatively impacted by higher inventory$12.8 million due to changes in foreign currency. Cash and sales related accounts receivable balances.cash equivalents used to fund our operations are primarily generated through operating activities and provided by our existing credit facilities. We repatriated approximately $168 million of foreignbelieve our available cash and marketable securities in 2021existing credit facilities are sufficient to cover our cash needs for the foreseeable future. We use a global cash pooling arrangement, intercompany borrowing, and utilized itsome local credit lines to repurchase shares of our common stock.meet funding needs and allocate capital resources among various entities. We expecthave historically made and anticipate future cash repatriations to repatriatethe United States from certain foreign subsidiaries. In 2023, we repatriated approximately $100 million in 2022of cash from our foreign subsidiaries through dividends and useapproximately $200 million through our global cash pooling arrangement. We used the proceeds for common stock repurchases.to pay down outstanding debt balances.

Our capital expenditures were $75.1$72.6 million in 20212023 and $56.8$70.3 million in 2020. Included in 2021 capital expenditures was approximately $11 million related to the purchase of our previously leased Lloyd R. Smith Corporate Technology Center in Milwaukee, WI.2022. We project our 20222024 capital expenditures will be between $75$105 and $80$115 million and expect depreciation and amortization will be approximately $80$70 million.

During the second quarter ofIn 2021, we renewed and amended our $500 million revolving credit facility, which now expires on April 1, 2026. The renewed and amended facility, with a group of nine banks, has an accordion provision that allows it to be increased up to $850 million if certain conditions (including lender approval) are satisfied. Borrowing rates under the facility are determined by our leverage ratio. The facility requires us to maintain two financial covenants, a leverage ratio test and an interest coverage test, and we were in compliance with the covenants as of December 31, 20212023, and expect to be in compliance for the foreseeable future.

Our total debt increaseddecreased by $83.5$217.2 million from $113.2 million at December 31, 2020 to $196.7 million at December 31, 2021. The increase in debt balances was2023 primarily due to our acquisitionthe use of Giant and repurchases of our common stock.operating cash flows to pay down debt. Our leverage, as measured by the ratio of total debt to total capitalization, calculated excluding operating lease liabilities, was 9.76.5 percent at December 31, 2021,2023, compared with 5.816.5 percent at December 31, 2020.2022.

Our remaining U.S. pension plan continues to meet all funding requirements under ERISA regulations. We were not required to make a contribution to our pension plan in 2021.2023. We forecast that we will not be required to make a contribution to the plan in 2022,2024, and we do not plan to make any voluntary contributions in 2022.2024. For further information on our pension plans, see the Critical Accounting Policies belowNote 13, “Pension and Note 13Other Post-retirement Benefits” of Notes to the Consolidated Financial Statements.

In 2021,2023, our Board of Directors approved adding 7,000,0007,500,000 shares of common stock to our existing discretionary share repurchase authority. Under our share repurchase program, we may purchase our common stock through a combination of a Rule 10b5-1 automatic trading plan and discretionary purchases in accordance with applicable securities laws. The stock repurchase authorization remains effective until terminated by our Board of Directors, which may occur at any time, subject to the parameters of any Rule 10b5-1 automatic trading plan that we may then have in effect. During 2021,2023, we repurchased 5,087,4674,377,000 shares of our stock at a total cost of $366.5$306.5 million. As of December 31, 2021,2023, we had 3,526,3573,501,462 shares remaining on the share repurchase authority. After a blackout period on share repurchase activity in the third quarter related to the Giant acquisition, we resumed our repurchases in early November. On January 25, 2022,26, 2024, the Board of Directors approved adding 3,500,0002,000,000 shares of common stock to the existing discretionary share repurchase authority. Including the additional shares, we have approximately 6.8 million5,202,462 shares available for repurchase as of the date of the Board of Directors' approval. We intend to repurchase approximately $300 million of our common stock in 2024 through a combination of 10b5-1 plans and open-market purchases.

Our accounting policies are described in Note 1, “Organization and Significant Accounting Policies” of Notes to the Consolidated Financial Statements. Also as disclosed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the U.S. requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the evaluation of the impairment of goodwill and indefinite-lived intangible assets as well asand significant estimates used in the determination of liabilitiesthe liability related to warranty activity, product liability and pensions.warranties. Various assumptions and other factors underlie the determination of these significant estimates. The process of determining significant estimates is fact-specific and takes into account factors such as historical experience and trends, and in some cases, actuarial techniques. We monitor these significant factors and adjustments are made as facts and circumstances dictate. Historically, actual results have not significantly deviated from those determined using the estimates described above.

In conformity with GAAP, goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. We perform impairment reviews for our reporting units using a fair-value method based on management’s judgments and assumptions. The fair value represents the estimated amount at which a reporting unit could be bought or sold in a current transaction between willing parties on an arms-length basis. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. We are subject to financial statement risk to the extent that goodwill and indefinite-lived intangible assets become impaired. Any impairment review is, by its nature, highly judgmental as estimates of future sales, earnings and cash flows are utilized to determine fair values. However, we believe that we conduct a thorough and competent annual quantitative analysis of goodwill and indefinite-lived intangible assets. Based on the annual goodwill impairment test, we determined there was no impairment of our goodwill as of December 31, 2021.2023. The fair value of each of our reporting units significantly exceeded its carrying value and a 10%20 percent decrease in the estimated fair value of our reporting units would not have resulted in a different conclusion. Based on the annual indefinite-lived assets impairment test, we determined there was no impairment of our indefinite-lived assets as of December 31, 2021.2023.

Our products carry warranties that generally range from one to ten12 years and are based on terms that are generally accepted in the market. We provide for the estimated cost of product warranty at the time of sale. The product warranty provision is estimated based uponon warranty loss experience using actual historical failure rates and estimated costs of product replacement. The variables used in the calculation of the provision are reviewed at least annually. At times, warranty issues may arise which are beyond the scope of our historical experience. We provide for any such warranty issues as they become known and estimable. While our warranty costs have historically been within calculated estimates, it is possible that future warranty costs could differ significantly from those estimates. The allocation of the warranty liability between current and long-term is based on the expected warranty liability to be paid in the next year as determined by historical product failure rates. At December 31, 20212023 and 2020,2022, our reserve for product warranties was $184.4$188.1 million and $142.3$182.5 million, respectively.

We have significant pension benefit costs that are developed from actuarial valuations. The valuations reflect key assumptions regarding, among other things, discount rates, expected return on plan assets, retirement ages, and years of service. Consideration is given to current market conditions, including changes in interest rates in making these assumptions. Our assumption for the expected return on plan assets was 6.25 and 6.75 percent in 2021 and 2020, respectively. The discount rate used to determine net periodic pension costs decreased to 2.47 percent in 2021 from 3.18 percent in 2020. For 2022, our expected return on plan assets is 3.00 percent and our discount rate is 2.72 percent.

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 measuremeasures of adjusted earnings, adjusted EPS, providesadjusted segment earnings and adjusted corporate expense provide useful information to investors about our performance and allowsallow 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.performance or recurring in nature.

Our operations are governed by a number of federal, foreign, state, local and environmental laws concerning the generation and management of hazardous materials, the discharge of pollutants into the environment and remediation of sites owned by the Company or third parties. We have expended financial and managerial resources complying with such laws. Expenditures related to environmental matters were not material in 20212023 and we do not expect them to be material in any single year. We have reserves associated with environmental obligations at various facilities and we believe these reserves together with available insurance coverage are sufficient to cover reasonably anticipated remediation costs. Although we believe that our operations are substantially in compliance with such laws and maintain procedures designed to maintain compliance, there are no assurances that substantial additional costs for compliance will not be incurred in the future. However, since the same laws govern our competitors, we should not be placed at a competitive disadvantage.

A team of senior executives prioritizes identified risks, including decarbonization, disruptivenew technologies and cyber threats among others, and assigns an executive to address each major identified risk area and lead action plans to manage risks. Our Board of Directors provides oversight of the ERM process and reviews significant identified risks. The Audit Committee of the Board of Directors also reviews significant financial risk exposures and the steps management has taken to monitor and manage them. Our other Board committees also play a role in risk management, as set forth in their respective charters.

Our goal is to proactively manage risks using a structured approach in conjunction with strategic planning, with the intent to preserve and enhance shareholder value. However, the risks set forth in Item 1A - Risk Factors and elsewhere in this Annual Report on Form 10-K and other risks and uncertainties could adversely affect us and cause our results to vary materially from recent results or from our anticipated future results.

We are exposed to various types of market risks, primarily currency. We monitor our risks in such areas on a continuous basis and generally enter into forward contracts to minimize such exposures. We do not engage in speculation in our derivatives strategies. Further discussion regarding derivative instruments is contained in Note 1, “Organization and Significant Accounting Policies” of Notes to Consolidated Financial Statements.

We enter into foreign currency forward contracts to minimize the effect of fluctuating foreign currencies. At December 31, 2021,2023, we had net foreign currency contracts outstanding with notional values of $186.3$118.8 million. Assuming a hypothetical ten percent movement in the respective currencies, the potential foreign exchange gain or loss associated with the change in exchange rates would amount to $18.6$11.9 million. However, gains and losses from our forward contracts will be offset by gains and losses in the underlying transactions being hedged.

This filing contains statements that we believethe Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “continue,” “guidance,” "outlook,"“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: oursoftening 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 ourthe Company’s products, particularly commercial products, and its operations and workforce as a result of the severity and duration ofchanges in commercial property usage that followed the COVID-19 pandemic; ourfurther weakening in U.S. residential or commercial construction or instability in the Company's replacement markets; inability of the Company to implement or maintain pricing actions; an uneveninconsistent recovery of the Chinese economy or a further decline in the growth rate of consumer spending or housing sales in China; negative impact to ourthe Company’s businesses from international tariffs, trade disputes and geopolitical differences;differences, including the conflicts in 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; a weakening in U.S. residential or commercial construction or instability in our replacement markets; foreign currency fluctuations; ourthe Company’s inability to successfully integrate or achieve its strategic objectives resulting from acquisitions; competitive pressures on our businesses;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 we arethe 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 us,the Company, or persons acting on ourits behalf, are qualified entirely by these cautionary statements.

See “Market Risk” above.

TheTo the Stockholders and the Board of Directors and Stockholders

We have audited the accompanying consolidated balance sheets of A. O. Smith Corporation (the Company) as of December 31, 20212023 and 2020,2022, the related consolidated statements of earnings, comprehensive earnings, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2021,2023, and the related notes and financial statement schedule listed in the indexIndex at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20212023 and 2020,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021,2023, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021,2023, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 11, 202213, 2024 expressed an unqualified opinion thereon.

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includeincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

We have served as A. O. Smith Corporation’sthe Company’s auditor since 1917.

Milwaukee, Wisconsin

at the time of sale and is estimated based on the warranty period, product type and loss experience using actual historical failure

The following table presents the Company’s product warranty liability activity in 20212023 and 2020:2022: