A. O. Smith (AOS) 10-K risk factor changes: FY2019 vs FY2018

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 actually occurs, 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.

The risks and uncertainties below are not the only risks facing our company.

| | • | The effects of a global economic downturn could have a material adverse effect on our business |

| --- | --- | --- |

Global economic growth remains uneven and could stall or reverse course.

If this was to occur it could adversely affect consumer confidence and spending patterns which could result in decreased demand for the products we sell, a delay in purchases, increased price competition, 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.

In addition, a deterioration in current economic conditions due to many factors or fears including public health crises, such as the current coronavirus concerns originating in China, 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.

| | • | A portion of our business could be affected by further weakening of the Chinese economy |

| --- | --- | --- |

Approximately 28 percent of our net sales in 2019 were attributable to China.

Our sales in China decreased in 2019 compared to 2018 and 2017.

We believe that decrease was due to weaker

end-market

demand as a result of a weakening Chinese economy, elevated channel inventory levels, and a higher mix of

mid-price

products versus premium price products.

We derive a substantial portion of our sales in China from premium-tier products.

Changes in consumer preferences, weakening consumer confidence and sentiment as well as economic uncertainty, including the unknown impact from the coronavirus, may prompt consumers there to postpone purchases, choose lower-priced products or different alternatives, or lengthen the cycle of replacement purchases.

Further deterioration in the Chinese economy may adversely affect our financial condition, results of operations and cash flows.

| | • | Because we participate in markets that are highly competitive, our revenues and earnings could decline as we respond to competition |

| --- | --- | --- |

We sell all of our products in highly competitive and evolving markets.

We compete in each of our targeted markets based on product design, reliability, quality of products and services, advanced technologies, product performance, maintenance costs and price.

Some of our competitors may have greater financial, marketing, manufacturing, research and development and distribution resources than we have; others may invest little in technology or product development but compete on price and the rapid replication of features, benefits, and technologies, and some are increasingly expanding beyond their existing manufacturing or geographic footprints.

In North America, the gas tankless portion of the water heating market has for many years increased as a percentage of the overall market.

While we have many gas tankless products, our market share for gas tankless products is lower than our market share for the remainder of the water heating market.

Further expansion of the gas tankless portion of the North America market, which we believe was approximately nine percent of the residential market segment in 2019, could have an impact on our operating results.

We cannot assure that our products will continue to compete successfully with those of our competitors.

There could be new market participants that change the dynamics of those markets and it is possible that we will not be able to retain our customer base or improve or maintain our profit margins on sales to our customers, all of which could materially and adversely affect our financial condition, results of operations and cash flows.

| | • | Our business could be adversely impacted by changes in consumer purchasing behavior, consumer preferences and technological changes |

| --- | --- | --- |

Consumer preferences for products and the methods in which they purchase products are constantly changing based on, among other factors, cost, convenience, environmental and social concerns and perceptions.

Consumer purchasing behavior may shift the product mix in the markets we participate in or result in a shift to new distribution channels, including

e-commerce,

which continues to expand.

For example, consumer preferences may shift toward more efficient gas products or electric powered products due to the increased attention on the impact of greenhouse gas emissions on the environment.

[removed: OVERVIEW][added: OVERVIEW]

Our Rest of World segment also manufactures and markets [removed: in-home air purification products in China.]

In our North America segment, we project our sales in the U.S. will grow [added: approximately six percent] in [removed: 2019] [added: 2020] compared to [removed: 2018] [added: 2019] due to higher [removed: residential] water heater and boiler volumes resulting from expected industry-wide new construction growth and expansion of replacement demand.

We expect sales of North America water treatment products to increase by [removed: 35] [added: 20] to [removed: 40] [added: 25] percent in [removed: 2019,] [added: 2020,] compared to [removed: 2018,] [added: 2019,] primarily due to volume growth and a full year of [removed: sales to Lowe’s.][added: Water-Right sales.]

In our Rest of World segment, we expect [added: 2020] China sales to [removed: decline in 2019 at a rate of between seven and 10] [added: grow by approximately one] percent in U.S. [removed: dollars] [added: dollar terms] and [removed: three to six] [added: approximately 2.5] percent in local [removed: currency,] [added: currency compared with 2019,] as we believe the Chinese economy will continue to be [removed: weak and the Chinese currency will depreciate compared to the U.S. dollar by approximately four percent in 2019 compared with 2018.][added: weak.]

In addition, we expect our sales in India to grow [removed: over 30] [added: between 15 and 20] percent in [removed: 2019] [added: 2020] from approximately [removed: $34] [added: $39] million in [removed: 2018.][added: 2019.]

Combining all of these factors, we expect our consolidated sales to grow [removed: one to 2.5 percent and between 2.5] [added: 4.5] to [removed: four] [added: 5.5] percent in [removed: local currency terms in 2019.][added: 2020.]

We will also continue to look for opportunities to add to our existing operations in high growth regions demonstrated by our introduction of water treatment products in India and Vietnam and air purification products [removed: in China] [added: as well as range hoods and cooktops] in [removed: 2015.][added: China.]

[removed: RESULTS] [added: RESULTS] OF [removed: OPERATIONS][added: OPERATIONS]

[removed: Sales] [added: Total sales] in China grew four percent in 2018.

Excluding the impact of the appreciation of the [removed: U.S. dollar] [added: Chinese currency] against the [removed: Chinese currency,] [added: U.S. dollar,] our sales in China increased almost two percent in 2018.

[removed: Selling, general and administrative (SG&A)] [added: SG&A] expenses were $31.0 million higher in 2018 than in 2017.

On March 21, 2018, we announced a plan to [removed: close our Renton, Washington plant and] transfer water heater, boiler and storage tank production [added: from our Renton, Washington plant] to our other U.S. plants.

The majority of the consolidation of operations occurred in the second quarter of [removed: 2018 and the Renton plant was fully closed in the third quarter of] 2018.

[removed: As a result of the relocation of production, we incurred pre-tax] restructuring and impairment expenses of $6.7 million in the first quarter of 2018, primarily related to employee severance and compensation-related costs, building lease exit costs and the impairment of assets.

[removed: We are providing non-GAAP] measures (adjusted earnings, adjusted earnings per share [removed: (EPS),] [added: (EPS)] and adjusted segment earnings) that exclude [removed: Renton related] restructuring and impairment expenses [added: in 2018] and [removed: one-time expenses associated with] the [removed: U.S. Tax Cuts & Jobs Act (U.S. Tax Reform).][added: impact of a]

Interest expense was [removed: $8.4] [added: $11.0] million in [removed: 2018] [added: 2019] compared to [removed: $10.1] [added: $8.4] million in [removed: 2017] [added: 2018] and [removed: $7.3] [added: $10.1] million in [removed: 2016.][added: 2017.]

[removed: Higher] [added: The decline in] interest [removed: rates] [added: expense] in 2018 [removed: were offset by] [added: compared to 2017 was a result of] lower debt levels, primarily due to the repatriation of approximately $312 million of cash from outside of the [removed: U.S.,] [added: U.S,] which was primarily used to pay down floating rate debt, as well [removed: as,] [added: as] to fund our share repurchase activity and dividend payments.

Other income was [removed: $21.2] [added: $18.0] million in [removed: 2018] [added: 2019] compared to [removed: $21.3] [added: $21.2] million in [removed: 2017] [added: 2018] and [removed: $18.1] [added: $21.3] million in [removed: 2016.][added: 2017.]

Pension income in [removed: 2018] [added: 2019] was [removed: $8.7] [added: $6.2] million compared to [removed: $9.1] [added: $8.7] million in [removed: 2017] [added: 2018] and [removed: $6.9] [added: $9.1] million in [removed: 2016.][added: 2017.]

Our effective income tax rate was [removed: 20.4] [added: 21.6] percent in [removed: 2018,] [added: 2019,] compared with [removed: 43.1] [added: 20.4] percent in [removed: 2017] [added: 2018] and [removed: 29.4] [added: 43.1] percent in [removed: 2016.][added: 2017.]

[removed: The significant increase in our effective income tax rate in 2017 compared to prior years was due to one-time] charges associated with U.S. Tax Reform of $81.8 million, primarily related to the mandatory repatriation tax on undistributed foreign earnings that we are required to pay over eight years.

[removed: Excluding the impact of the U.S. Tax Reform one-time] charges, our adjusted effective income tax rate was 27.4 percent in 2017.

Our effective income tax [removed: rate] [added: rates] in [added: 2019 and] 2018 [removed: was] [added: were] lower than our adjusted effective income tax rate in 2017 due to lower federal income taxes related to [added: the] U.S. Tax [removed: Reform.][added: Cuts and Jobs Act of 2017 (U.S. Tax Reform).]

We estimate our annual effective income tax rate for the full year [removed: 2019] [added: 2020] will be approximately 21.5 [added: to 22.0] percent.

[removed: _North America_][added: North America]

The increase in sales in 2018 compared to 2017 was primarily due to pricing actions related to higher steel costs and higher volumes of boilers and residential water heaters in the U.S. North America water treatment sales, including a full year of sales from [removed: Hague] [added: Hague, which we purchased in 2017,] and the launch of products at Lowe’s commencing in August 2018, incrementally added approximately $29 million of sales in 2018.

North America segment earnings were [removed: $464.1] [added: $488.9] million in [removed: 2018] [added: 2019] compared to segment earnings of [removed: $428.6] [added: $464.1] million and [removed: $385.9] [added: $428.6] million in [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively.

Segment margins were [removed: 22.7] [added: 23.5] percent, [removed: 22.5] [added: 22.7] percent and [removed: 22.1] [added: 22.5] percent in [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016,] [added: 2017,] respectively.

The higher adjusted segment earnings and adjusted segment margin in 2018 compared to 2017 were primarily due to the favorable impact from higher sales of residential water heaters and boilers and pricing actions in the U.S. that were partially offset by higher steel costs and [removed: one-time expenses associated with the launch of water treatment products at Lowe’s.]

We estimate our [removed: 2019] [added: 2020] North America segment margin will be between [removed: 23] [added: 23.25] and [removed: 23.5] [added: 24.25] percent.

[removed: _Rest] [added: Rest] of [removed: World_][added: World]

Sales in our Rest of World segment in [removed: 2018] [added: 2019] were [removed: $1,174] [added: $936] million or [removed: $58] [added: $238] million [removed: higher] [added: lower] than sales of [removed: $1,116] [added: $1,174] million in [removed: 2017.][added: 2018.]

Sales in China grew four percent in 2018 [added: compared to 2017] primarily due to higher sales of water treatment products, including consumables, which were partially offset by lower sales of electric water heaters and air purifiers.

The appreciation of the [removed: U.S. dollar against the] Chinese currency [added: against the U.S. dollar] contributed approximately $23 million to segment sales in 2018.

Excluding the benefit of the [removed: U.S. dollar] [added: Chinese currency] appreciation, sales in China increased 1.9 percent in 2018.

Rest of World segment earnings were [removed: $149.3] [added: $40.2] million in [removed: 2018] [added: 2019] compared to segment earnings of $149.3 million [removed: and $129.1 million] in [removed: 2017] [added: both 2018] and [removed: 2016, respectively.][added: 2017.]

Segment margins were [removed: 12.7] [added: 4.3] percent in [removed: 2018] [added: 2019] compared to [removed: 13.4] [added: 12.7] percent and 13.4 percent in [removed: 2017] [added: 2018] and [removed: 2016,] [added: 2017,] respectively.

Segment earnings in 2018 were flat compared to 2017 primarily due to higher water treatment product sales and improved performance in India that were offset by lower sales of electric water heaters and air purifiers [added: in China] as well as higher SG&A expenses.

We expect our [removed: 2019] [added: 2020] Rest of World segment margin will be approximately [removed: 12 to 12.5 percent due to lower sales and profitability in China.][added: five percent.]

in-home

air purification products in China.

We continued to expand our North America water treatment platform in 2019 by acquiring Water-Right, Inc. and its affiliated entities (Water-Right) in April 2019.

Our 2020 guidance introduced on January 28, 2020, excludes the potential impact to our businesses from the coronavirus originating in China.

As of the date of this filing, while not yet quantifiable, we now expect the coronavirus will have a material adverse impact on our operating results in the first quarter of 2020 and we continue to assess the financial impact for the remainder of 2020.

Our sales in 2019 were $2,993 million, a decline of 6.1 percent compared to our 2018 sales of $3,188 million.

The decrease in 2019 sales was primarily due to a 23 percent decline in China sales in U.S. dollar terms, which was largely a result of weaker

end-market

demand in the region, year over year channel inventory shifts, and a higher mix of sales of

mid-price

products versus premium price products than in the prior year.

Excluding the unfavorable impact from currency translation, China sales declined 19 percent in 2019.

The sales reduction in China more than offset the benefits of higher sales in North America, which were primarily a result of higher sales of water treatment products, including incremental sales from our acquisition, Water-Right, and water heater pricing actions related to steel and freight cost increases.

The increase in North America sales was partially offset by lower residential water heater volumes.

Our gross profit margin in 2019 of 39.5 percent declined compared to our gross profit margin of 41.0 percent in 2018 primarily due to the lower sales volumes in China and a higher mix of

mid-price

products, which have lower margins, in that region.

Selling, general and administrative (SG&A) expenses were $715.6 million in 2019 or $38.2 million lower than in 2018.

The decrease in SG&A expenses in 2019 was primarily due to lower advertising and selling expenses in China.

As a result of the relocation of production, we incurred

pre-tax

We are providing

non-U.S.

Generally Accepted Accounting Principles (GAAP) measures (adjusted earnings, adjusted earnings per share, and adjusted segment earnings) that exclude restructuring and impairment expenses.

The increase in interest expense in 2019 was primarily due to higher debt levels to fund the acquisition of Water-Right and share repurchase activity.

This decline was partially offset by higher interest rates in 2018.

The decrease in other income in 2019 compared to 2018 was primarily due to lower

non-service

cost related pension income and lower interest income.

Our effective income tax rate in 2019 was higher than 2018 primarily due to a change in geographic earnings mix.

The effective income tax rate in 2017 was significantly higher due to

one-time

Excluding the impact of the U.S. Tax Reform

one-time

Sales in our North America segment were $2,084 million in 2019 or $39 million higher than sales of $2,045 million in 2018.

The increase in segment sales was primarily due to the incremental Water-Right sales of $44 million, water heater pricing actions related to steel and freight cost increases, and higher sales of water treatment products, which were partially offset by lower residential water heater volumes.

The higher segment earnings and segment margin in 2019 compared to 2018 adjusted segment earnings and adjusted segment margin were primarily a result of pricing actions, lower steel costs, and higher sales of water treatment products, that included incremental volumes from our acquisition, Water-Right.

These increases were partially offset by the unfavorable impact from lower residential water heater volumes.

one-time

expenses associated with the launch of water treatment products at Lowe’s.

We expect the North America commercial water heater industry to be flat in 2019, after declining over five percent in 2018 following growth of 11 percent in 2017, partially due to an anticipated regulatory change.

Our sales of boilers grew nine percent in 2018, and we expect ten percent sales growth in 2019, driven by the continuing U.S. industry transition to higher efficiency products and our introduction of new products.

We continued to expand our North America water treatment platform in 2018 by being named exclusive supplier of water treatment products to Lowe’s, with sales commencing in August 2018.

Our sales in 2017 were higher than 2016 sales of $2,686 million by 11.6 percent, primarily due to higher sales in China as well as higher sales of water heaters and boilers in North America.

Our sales in China grew 15.9 percent in 2017 to over $1 billion, and excluding the impact of the appreciation of the U.S dollar against the Chinese currency, sales in China grew 17.9 percent in 2017 compared to 2016.

Our gross profit margin in 2017 decreased from 41.5 percent in 2016.

The slightly lower margin in 2017 compared to 2016 was due to significantly higher steel costs that more than offset pricing actions taken in 2017 in North America and China.

SG&A expenses were $60.3 million higher in 2017 than in 2016 primarily due to higher selling and advertising expenses to support increased volumes and brand building in our newer product categories.

##### [Table of Contents](#toc)

The higher interest expense in 2017 compared to 2016 was primarily related to higher interest rates as well as higher overall debt levels primarily due to increased share repurchases and acquisitions completed in 2016 and 2017.

The increase in other income in 2017 compared to 2016 was primarily due to higher non-service cost related pension income and higher interest income.

Our adjusted effective income tax rate in 2017 was lower than our effective income tax rate in 2016 primarily due to lower U.S. state income taxes and higher deductions for share-based compensation.

Sales in 2017 were $162 million higher than sales of $1,743 million in 2016.

The increase in sales in 2017 compared to 2016 was primarily due to higher volumes of water heaters and boilers, price increases in the U.S. for water heaters largely related to steel cost increases as well as our customers’ pre-buy of commercial water heaters in advance of an anticipated 2018 regulatory change.

North America water treatment sales, comprised of Hague, acquired in September 2017 and Aquasana, acquired in August 2016, incrementally added approximately $40 million of sales in 2017.

The higher segment earnings and segment margin in 2017 compared to 2016 were primarily due to higher water heater and boiler volumes and pricing actions which were partially offset by higher steel costs.

Sales in our Rest of World segment in 2017 were $150 million higher than sales of $966 million in 2016.

Sales in China grew 15.9 percent to over $1 billion in 2017 due to higher demand for our

consumer products, led by water treatment and air purification products and pricing actions primarily due to higher steel and installation costs.

Excluding the impact from the appreciation of the U.S. dollar in 2017, sales in China increased 17.9 percent.

Water heater and water treatment sales in India increased $8 million, over 40 percent, in 2017 compared to 2016.

Higher segment earnings in 2017 compared to 2016 were primarily due to higher sales in China, which included a price increase, partially offset by higher steel costs, higher fees paid to installers and increased SG&A expenses.

Higher SG&A expenses in China were primarily due to the expansion of water treatment and air purification product retail outlets in tier 2 and tier 3 cities, higher advertising expenses related to brand building in our newer product categories and higher water treatment product development engineering costs.

Cash generation in China and sales-related increases in accounts receivable, and inventory levels led to the majority of the increase in working capital in 2017.

Included in 2016 capital expenditures were approximately $13 million related to capacity expansion in China as well as approximately $11 million related to the continuation of our enterprise resource planning (ERP) system implementation.

In November 2016, we issued $45 million of fixed rate term notes in two tranches to two insurance companies.

Principal payments commence in 2023 and 2028 and the notes mature in 2029 and 2034, respectively.

The notes carry interest rates of 2.87 and 3.10, respectively.

We used proceeds of the notes to pay down borrowings under our revolving credit facility.

| Long-term debt | | $ | 221.4 | | | $ | — | | | $ | 115.0 | | | $ | 16.9 | | | $ | 89.5 | |

| Fixed rate interest | | | 30.0 | | | | 4.0 | | | | 7.2 | | | | 6.3 | | | | 12.5 | |

| Operating leases | | | 69.1 | | | | 14.8 | | | | 20.0 | | | | 11.0 | | | | 23.3 | |

| Purchase obligations | | | 144.0 | | | | 143.6 | | | | 0.4 | | | | — | | | | — | |

| Pension and post-retirement obligations | | | 46.8 | | | | 4.7 | | | | 6.7 | | | | 2.1 | | | | 33.3 | |

| Total | | $ | 511.3 | | | $ | 167.1 | | | $ | 149.3 | | | $ | 36.3 | | | $ | 158.6 | |

We provide non-GAAP measures (adjusted earnings, adjusted earnings per share (EPS) and adjusted segment earnings) that exclude restructuring and impairment expenses in 2018 and the impact of a one-time charge associated with U.S. Tax Reform in 2017.

| | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- |

We project that sales in China will decline by seven to ten percent in U.S. dollar terms and three to six percent in local currency in 2019.

The decrease is due to our expectation of relatively flat consumer demand in China and without the increase of the channel inventory build in China that we experienced primarily in the first quarter of 2018 which we estimate was at least five percent of 2018 China sales.

##### [Table of Contents](#toc)

Our Rest of World segment also manufactures and markets [removed: in-home air purification products in China.]

[removed: _NORTH AMERICA_][added: NORTH AMERICA]

[removed: _Water heaters_.][added: Water heaters]

Our residential and commercial water heaters come in sizes ranging from 2.5 gallon [removed: (point-of-use) models to 4,000 gallon products with varying efficiency ranges.]

[removed: _Boilers._] Our residential and commercial boilers range in size from [removed: 40,000] [added: 45,000] British Thermal Units (BTUs) to 6.0 million BTUs.

Our [removed: commercial] boilers are primarily used in space heating applications for [added: residences,] hospitals, schools, hotels and other large commercial buildings.

[removed: _Water treatment products._] With the acquisition of Aquasana, Inc. (Aquasana) in 2016 [removed: and Hague Quality Water International (Hague) in 2017,] we entered the [removed: North American] water treatment market.

[removed: _Other._] In our North America segment, we also manufacture expansion tanks, commercial solar water heating systems, swimming pool and spa heaters, related products and parts.

We sell our Aquasana branded products primarily directly to consumers through [removed: e-commerce as well as on-line retailers including Amazon and through other retail chains.]

Our water softener products are [added: also] sold through [removed: water quality dealers and] home center retail chains.

Our A. O. Smith branded water treatment products are sold through [removed: Lowe’s.][added: Lowe’s and our wholesale distribution channels.]

Our [removed: energy efficient] [added: energy-efficient] product offerings continue to be a sales driver for our business.

We offer residential heat pump, condensing tank-type and tankless water heaters in North America, as well as other higher efficiency water heating solutions to round out our [removed: energy efficient] [added: energy-efficient] product offerings.

[removed: _REST] [added: REST] OF [removed: WORLD_][added: WORLD]

We also manufacture and market air purification products [added: as well as range hoods and cooktops] in China.

We sell water heaters in [removed: more than] [added: approximately] 9,000 retail outlets in China, of which over [removed: 2,800] [added: 2,600] exclusively sell our products.

Our water treatment products and air purification products are sold in over [removed: 7,500] [added: 8,100] and [removed: 3,500] [added: 3,300] retail outlets in China, respectively.

In addition, we sell water heaters in the European and Middle Eastern markets and water treatment products in Hong Kong, Turkey and Vietnam, all of which combined comprised less than [removed: six] [added: eight] percent of total Rest of World sales in [removed: 2018.][added: 2019.]

[removed: RAW MATERIALS][added: RAW MATERIALS]

[removed: RESEARCH] [added: RESEARCH] AND [removed: DEVELOPMENT][added: DEVELOPMENT]

To improve our competitiveness by generating new products and processes, we conduct research and development at our newly constructed Corporate Technology Center in Milwaukee, Wisconsin, [removed: at] our Global Engineering Center in Nanjing, China, and [removed: at] our operating locations.

Our total expenditures for research and development in [removed: 2018, 2017] [added: 2019, 2018] and [removed: 2016] [added: 2017] were [removed: $94.0] [added: $87.9] million, [removed: $86.4] [added: $94.0] million and [removed: $80.1] [added: $86.4] million, respectively.

[removed: PATENTS] [added: PATENTS] AND [removed: TRADEMARKS][added: TRADEMARKS]

[removed: EMPLOYEES][added: EMPLOYEES]

We employed approximately [removed: 16,300] [added: 15,100] employees as of December 31, [removed: 2018,] [added: 2019,] primarily [removed: non-union.]

[removed: BACKLOG][added: BACKLOG]

[removed: ENVIRONMENTAL LAWS][added: ENVIRONMENTAL LAWS]

[removed: AVAILABLE INFORMATION][added: AVAILABLE INFORMATION]

The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form [removed: 10-K.]

[removed: Other than an investor’s own internet access charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K] and amendments to these reports as soon as reasonably practical after we have electronically filed such material with, or furnished such material to, the Securities and Exchange Commission (SEC).

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 [removed: 10-K.]

Our CRS report is available on our [removed: website, www.aosmith.com.][added: website.]

To further demonstrate our commitment, [added: in 2019,] our company [removed: recently] appointed Patricia K.

Ackerman, [added: to the role of] Senior Vice President, Investor Relations, Treasurer, and Corporate Responsibility and Sustainability with specific responsibility for our CRS efforts.

\- BUSINESS

in-home

air purification products in China.

(point-of-use)

models to 4,000 gallon products with varying efficiency ranges.

Boilers.

Water treatment products.

We expanded our product offerings with the acquisitions of Hague Quality Water International (Hague) in 2017 and Water-Right, Inc. (Water-Right) in 2019.

Our water treatment products range from

point-of-entry

water softeners, solutions for problem well water, and whole-home water filtration products to

on-the-go

filtration bottles and

point-of-use

carbon and reverse osmosis products.

Other.

e-commerce

as well as

on-line

retailers including Amazon and through other retail chains.

Our water softener branded products and problem well water solutions, which include Hague, WaterBoss, Water-Right, WaterCare, and Evolve, are sold through water quality dealers.

non-union.

10-K.

Other than an investor’s own internet access charges, we make available free of charge through our website our Annual Report on Form

10-K,

quarterly reports on Form

10-Q,

current reports on Form

8-K

10-K.

The report is not included as part of, or incorporated by reference into, this Annual Report on Form

10-K.

Our water treatment products range from on-the-go filtration bottles and point-of-use carbon and reverse osmosis products to point-of-entry water softeners and whole-home water filtrations products.

##### [Table of Contents](#toc)

| ITEM 1A – | RISK FACTORS |

| --- | --- |

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 actually occurs, 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.

The risks and uncertainties below are not the only risks facing our company.

| | • | | _The effects of a global economic downturn could have a material adverse effect on our business_ |

| --- | --- | --- | --- |

Global economic growth remains uneven and could stall or reverse course.

If this were to occur it could adversely affect consumer confidence and spending patterns which could result in decreased demand for the products we sell, a delay in purchases, increased price competition, 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.

In addition, a deterioration in current economic conditions, including credit market conditions, 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.

| | • | | _We increasingly sell our products and operate outside the U.S., and to a lesser extent, rely on imports and exports, which may present additional risks to our business_ |

Approximately 43 percent of our net sales in 2018 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 10,000 of our 16,300 employees as of December 31, 2018 were located in China.

At December 31, 2018, approximately $644 million of cash was held by our foreign subsidiaries, substantially all of which was 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 imposition or increases in withholding and other taxes on remittances and other payments by foreign subsidiaries; labor relations problems; the imposition of environmental or employment laws, or other restrictions or actions by foreign governments; and differences in business practices.

Unfavorable changes in the political, regulatory, or trade climate, diplomatic relations, or government policies, particularly in relation to countries where we have a presence, including Canada, China, India and Mexico, could have a material adverse effect on our financial condition, results of operations and cash flows or our ability to repatriate funds to the U.S.

| | • | | _A portion of our business could be affected by further weakening of the Chinese economy_ |

Approximately 34 percent of our net sales in 2018 were attributable to China.

Our sales growth in China decreased in 2018.

We believe that decrease was due to weakness in the housing market in China, weakening consumer sentiment in part associated with concerns about the trade tensions between China and the U.S. and a weakening Chinese economy.

We derive a substantial portion of our sales in China from premium-tier products and weakening consumer confidence and sentiment as well as economic uncertainty may prompt consumers there to choose lower-priced alternatives or lengthen the cycle of replacement purchases.

Further deterioration in the Chinese economy could adversely affect our financial condition, results of operations and cash flows.

| | • | | _A material loss, cancellation, reduction, or delay in purchases by one or more of our largest customers could harm our business_ |

Net sales to our five largest customers represented approximately 39 percent of our sales in 2018.

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 relationship 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.

The loss of one or more of our largest customers, any material reduction or delay in sales to these customers, or our inability to successfully develop relationships with additional customers could have a material adverse effect on our financial position, results of operations and cash flows.

| | • | | _Our international operations are subject to risks related to foreign currencies_ |

We have significant operations outside of the U.S., primarily in China and Canada and to a lesser extent Europe and India, and therefore, hold assets, including $539 million of cash denominated in local currency in China, 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.

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.

Furthermore, typically our products are priced in foreign countries in local currencies.

As a result, an increase in the value of the U.S. dollar relative to the local currencies of our foreign markets has had and would continue to have a negative effect on our profitability.

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.

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 15 of Notes to Consolidated Financial Statements.

[removed: 10-K 1 d678397d10k.htm] FORM [removed: 10-K]

[removed: ##### [Table] [added: Table] of [removed: Contents](#toc)][added: Contents]

[removed: UNITED STATES][added: UNITED STATES]

[removed: SECURITIES] [added: SECURITIES] AND EXCHANGE [removed: COMMISSION][added: COMMISSION]

[removed: Washington,] [added: Washington,] D.C. [removed: 20549][added: 20549]

[removed: FORM 10-K][added: Index to Form]

| ☒ | [removed: ANNUAL] [added: ANNUAL] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the fiscal year ended December 31, [removed: 2018][added: 2019]

| ☐ | [removed: TRANSITION] [added: TRANSITION] REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF [removed: 1934] [added: 1934] |

[removed: For] [added: For] the transition period from [removed: to]

[removed: Commission] [added: Commission] File Number [removed: 1-475]

[removed: A.] [added: A.] O. Smith [removed: Corporation][added: Corporation]

[removed: (Exact] [added: (Exact] name of registrant as specified in its [removed: charter)][added: charter)]

| [removed: Delaware] [added: Delaware] | | [removed: 39-0619790] [added: 39-0619790] |

| [removed: (State] [added: (State] of [removed: Incorporation)] [added: Incorporation)] | | [removed: (I.R.S. Employer Identification No.)] [added: (I.R.S. Employer Identification No.)] |

| [removed: 11270] [added: 11270] West Park Place, Milwaukee, [removed: Wisconsin] [added: Wisconsin] | | [removed: 53224-9508] [added: 53224-9508] |

| [removed: (Address] [added: (Address] of Principal Executive [removed: Office)] [added: Office)] | | [removed: (Zip Code)] [added: (Zip Code)] |

[removed: | (414) 359-4000 | | |][added: 359-4000]

[removed: | Registrant’s] [added: Registrant’s] telephone number, including area [removed: code | | |][added: code]

[removed: Securities] [added: Securities] registered pursuant to Section 12(b) of the [removed: Act:][added: Act:]

| [removed: Title] [added: Title] of Each [removed: Class] [added: Class] | | [removed: Shares] [added: Shares] of Stock [removed: Outstanding January] [added: Outstanding January] 31, [removed: 2019] [added: 2020] | | [removed: Name] [added: Name] of Each Exchange [removed: on Which Registered] [added: on Which Registered] |

| [removed: Class] [added: Class] A Common [removed: Stock (par] [added: Stock (par] value $5.00 per [removed: share)] [added: share)] | | [removed: 26,059,903] [added: 26,044,733] | | [removed: Not listed] [added: Not listed] |

| [removed: Common Stock (par] [added: Common Stock (par] value $1.00 per [removed: share)] [added: share)] | | [removed: 141,852,744] [added: 135,926,301] | | [removed: New] [added: New] York Stock [removed: Exchange] [added: Exchange] |

[removed: Securities] [added: Securities] registered pursuant to Section 12(g) of the Act: [removed: None.][added: None.]

[removed: ☒] Yes [removed: ☐ No]

[removed: ☐] Yes [removed: ☒ No]

[removed: ☒] Yes [removed: ☐ No.]

Indicate by check mark whether the registrant has submitted every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation [removed: 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).]

[removed: Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K] (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form [removed: 10-K or any amendment to this Form 10-K.]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a [removed: non-accelerated filer or a smaller reporting company, or emerging growth company.]

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule [removed: 12b-2 of the Exchange Act.]

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

[removed: DOCUMENTS] [added: DOCUMENTS] INCORPORATED BY [removed: REFERENCE][added: REFERENCE]

| | 1. | Portions of the company’s definitive Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission under Regulation 14A within 120 days after the end of the registrant’s fiscal year and, upon such filing, to be incorporated by reference in Part III). |

[removed: Year] [added: Year] Ended December 31, [removed: 2018][added: 2019]

| | | | | [removed: Page] [added: Page] | | |

[removed: | [Part I](#tx678397_1) | | | | | | |][added: PART 1]

| Item 1. | | [removed: [Business](#tx678397_2)] [added: [Business](#tx846284_2)] | | | [removed: 3] [added: 1] | |

| Item 1A. | | [Risk [removed: Factors](#tx678397_3)] [added: Factors](#tx846284_3)] | | | [removed: 6] [added: 4] | |

| Item 1B. | | [Unresolved Staff [removed: Comments](#tx678397_4)] [added: Comments](#tx846284_4)] | | | [removed: 11] [added: 9] | |

10-K

OR

to

1-475

(414)

No

No

No.

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

No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation

S-K

10-K

or any amendment to this Form

10-K.

non-accelerated

filer or a smaller reporting company, or emerging growth company.

12b-2

of the Exchange Act.

12b-2

of the Act.)

Yes

No

The aggregate market value of voting stock held by

non-affiliates

of the registrant was $42,999,781 for Class A Common Stock and $6,432,921,438 for Common Stock as of June 30, 2019.

A. O. Smith Corporation

10-K

| [Part II](#tx846284_8) | | | | | | |

| [Part IV](#tx846284_23) | | | | | | |

OR

| | | |

The aggregate market value of voting stock held by non-affiliates of the registrant was $54,612,426 for Class A Common Stock and $8,368,308,653 for Common Stock as of June 30, 2018.

Table of Contents

Index to Form 10-K

| [Part II](#tx678397_8) | | | | | | |

| [Part IV](#tx678397_23) | | | | | | |

| (a) | Market [removed: Information.] [added: Information .] Our Common Stock is listed on the New York Stock Exchange under the symbol AOS. Our Class A Common Stock is not listed. EQ Shareowner Services, P.O. Box 64874, St. Paul, Minnesota, 55164-0874 serves as the registrar, stock transfer agent and the dividend reinvestment agent for our Common Stock and Class A Common Stock. |

| (b) | [removed: Holders.] [added: Holders .] As of January 31, [removed: 2019,] [added: 2020,] the approximate number of stockholders of record of Common Stock and Class A Common Stock were [removed: 613] [added: 592] and [removed: 171,] [added: 160,] respectively. The actual number of stockholders is greater than this number of holders of record, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of stockholders of record also does not include stockholders whose shares may be held in trust by other entities. |

| (c) | [removed: Dividends.] Dividends [added: . Dividends] declared on the common stock are shown in Note [removed: 17] [added: 18] of Notes to Consolidated Financial Statements appearing elsewhere herein. |

| (d) | Stock [removed: Repurchases.] [added: Repurchases .] In the second quarter of [removed: 2018,] [added: 2019,] our Board of Directors [removed: authorized] [added: approved] adding [removed: 2,500,000] [added: three million] shares of Common Stock [removed: an existing discretionary share repurchase authority. In the fourth quarter of 2018, our Board of Directors authorized adding] [added: to] an [removed: additional 5,000,000 shares of Common Stock the] existing discretionary share repurchase authority. Under the share repurchase program, we may purchase [removed: the] [added: our] Common Stock 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 [removed: 2018,] [added: 2019,] we repurchased [removed: 3,797,800] [added: 6,113,038] shares at an average price of [removed: $53.34] [added: $47.06] per share and at a total cost of [removed: $202.6] [added: $287.7] million. As of December 31, [removed: 2018,] [added: 2019,] there were [removed: 6,075,253] [added: 2,962,215] shares remaining on the existing repurchase authorization. |

The following table sets forth the number of shares of common stock we repurchased during the fourth quarter of [removed: 2018:][added: 2019:]

| (e) | Performance [removed: Graph.] [added: Graph .] The following information in this Item 5 of this Annual Report on Form 10-K is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate it by reference into such a filing. |

[removed: ][added: ]

| Company/Index | | [removed: 12/31/13 | | | |] 12/31/14 | | | | 12/31/15 | | | | 12/31/16 | | | | 12/31/17 | | | | 12/31/18 | | | [added: | 12/31/19 | | |]

\-

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

| October 1 – October 31, 2019 | | | 414,700 | | | $ | 48.17 | | | | 414,700 | | | | 3,739,015 | |

| November 1 – November 30, 2019 | | | 370,800 | | | | 50.20 | | | | 370,800 | | | | 3,368,215 | |

| December 1 – December 31, 2019 | | | 406,000 | | | | 47.02 | | | | 406,000 | | | | 2,962,215 | |

From December 31, 2014 to December 31, 2019

| A. O. Smith Corporation | | | 100.0 | | | | 137.3 | | | | 171.6 | | | | 224.5 | | | | 158.5 | | | | 180.1 | |

| S&P 500 Index | | | 100.0 | | | | 101.4 | | | | 113.5 | | | | 138.3 | | | | 132.2 | | | | 173.8 | |

| S&P 500 Select Industrial Index | | | 100.0 | | | | 95.8 | | | | 115.1 | | | | 142.8 | | | | 123.8 | | | | 160.2 | |

| October 1 – October 31, 2018 | | | 276,300 | | | $ | 48.75 | | | | 276,300 | | | | 7,881,253 | |

| November 1 – November 30, 2018 | | | 1,257,200 | | | | 46.53 | | | | 1,257,200 | | | | 6,624,053 | |

| December 1 – December 31, 2018 | | | 548,800 | | | | 45.09 | | | | 548,800 | | | | 6,075,253 | |

##### [Table of Contents](#toc)

From December 31, 2013 to December 31, 2018

| A. O. Smith Corporation | | | 100.0 | | | | 105.9 | | | | 145.4 | | | | 181.8 | | | | 237.7 | | | | 167.9 | |

| S&P 500 Index | | | 100.0 | | | | 113.7 | | | | 115.3 | | | | 129.0 | | | | 157.2 | | | | 150.3 | |

| S&P 500 Select Industrial Index | | | 100.0 | | | | 110.7 | | | | 106.1 | | | | 127.4 | | | | 158.1 | | | | 137.1 | |

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017(1)] [added: 2018] | | | | [removed: 2016(2)] [added: 2017 (1)] | | | | [removed: 2015] [added: 2016 (2)] | | | | [removed: 2014] [added: 2015] | | |

| Net sales | | $ | [removed: 3,187.9] [added: 2,992.7] | | | $ | [removed: 2,996.7] [added: 3,187.9] | | | $ | [removed: 2,685.9] [added: 2,996.7] | | | $ | [removed: 2,536.5] [added: 2,685.9] | | | $ | [removed: 2,356.0] [added: 2,536.5] | |

| Net [removed: earnings(1)] [added: earnings (1)] | | $ | [removed: 444.2] [added: 370.0] | | | $ | [removed: 296.5] [added: 444.2] | | | $ | [removed: 326.5] [added: 296.5] | | | $ | [removed: 282.9] [added: 326.5] | | | $ | [removed: 207.8] [added: 282.9] | |

| Basic earnings per share of common [removed: stock(1,2)] [added: stock (1,2)] | | | | | | | | | | | | | | | | | | | | |

| Net earnings | | $ | [removed: 2.60] [added: 2.24] | | | $ | [removed: 1.72] [added: 2.60] | | | $ | [removed: 1.87] [added: 1.72] | | | $ | [removed: 1.59] [added: 1.87] | | | $ | [removed: 1.15] [added: 1.59] | |

| Diluted earnings per share of common [removed: stock(1,2)] [added: stock (1,2)] | | | | | | | | | | | | | | | | | | | | |

| Net earnings | | $ | [removed: 2.58] [added: 2.22] | | | $ | [removed: 1.70] [added: 2.58] | | | $ | [removed: 1.85] [added: 1.70] | | | $ | [removed: 1.58] [added: 1.85] | | | $ | [removed: 1.14] [added: 1.58] | |

| Cash dividends per common [removed: share(2)] [added: share (2)] | | $ | [removed: 0.76] [added: 0.90] | | | $ | [removed: 0.56] [added: 0.76] | | | $ | [removed: 0.48] [added: 0.56] | | | $ | [removed: 0.38] [added: 0.48] | | | $ | [removed: 0.30] [added: 0.38] | |

| | | Years ended December [removed: 31] [added: 31,] | | | | | | | | | | | | | | | | | | |

| | | [removed: 2018] [added: 2019] | | | | [removed: 2017] [added: 2018] | | | | [removed: 2016] [added: 2017] | | | | [removed: 2015] [added: 2016] | | | | [removed: 2014] [added: 2015] | | |

| Total assets | | $ | [removed: 3,071.5] [added: 3,058.0] | | | $ | [removed: 3,197.4] [added: 3,071.5] | | | $ | [removed: 2,891.0] [added: 3,197.4] | | | $ | [removed: 2,629.2] [added: 2,891.0] | | | $ | [removed: 2,498.1] [added: 2,629.2] | |

| Long-term [removed: debt(3)] [added: debt (3)] | | | [removed: 221.4] [added: 277.2] | | | | [removed: 402.9] [added: 221.4] | | | | [removed: 316.4] [added: 402.9] | | | | [removed: 236.1] [added: 316.4] | | | | [removed: 210.1] [added: 236.1] | |

| Total stockholders’ equity | | | [removed: 1,717.0] [added: 1,666.8] | | | | [removed: 1,644.9] [added: 1,717.0] | | | | [removed: 1,511.4] [added: 1,644.9] | | | | [removed: 1,442.3] [added: 1,511.4] | | | | [removed: 1,381.3] [added: 1,442.3] | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

##### [Table of Contents](#toc)

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on the Financial [removed: Statements][added: Statements]

We have audited the accompanying consolidated balance sheets of A. O. Smith Corporation (the Company) as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] the related consolidated statements of earnings, comprehensive earnings, stockholders’ [removed: equity] [added: equity,] and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the index at Item 15(a) (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the results of its operations and its cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] 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, [removed: 2018,] [added: 2019,] 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 [removed: 15, 2019] [added: 24, 2020] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

| | | [added: 2019 | | | |] 2018 | | | | 2017 | | |

| [removed: Assets] [added: Assets] | | | | | | | | |

| [removed: Current Assets] [added: Current Assets] | | | | | | | | |

| Cash and cash equivalents | | $ | [removed: 259.7] [added: 374.0] | | | $ | [removed: 346.6] [added: 259.7] | |

| Marketable securities | | | [removed: 385.3] [added: 177.4] | | | | [removed: 473.4] [added: 385.3] | |

| Receivables | | | [removed: 647.3] [added: 589.5] | | | | [removed: 592.7] [added: 647.3] | |

| Inventories | | | [removed: 304.7] [added: 303.0] | | | | [removed: 297.0] [added: 304.7] | |

| Other current assets | | | [removed: 41.5] [added: 56.5] | | | | [removed: 57.2] [added: 41.5] | |

| [removed: Total] [added: Total] Current [removed: Assets] [added: Assets] | | | [removed: 1,638.5] [added: 1,500.4] | | | | [removed: 1,766.9] [added: 1,638.5] | |

| Net property, plant and equipment | | | [removed: 540.0] [added: 545.4] | | | | [removed: 528.9] [added: 540.0] | |

| Goodwill | | | [removed: 513.0] [added: 546.0] | | | | [removed: 516.7] [added: 513.0] | |

| Other intangibles | | | [removed: 293.1] [added: 338.4] | | | | [removed: 308.7] [added: 293.1] | |

| Other assets | | | [removed: 86.9] [added: 80.9] | | | | [removed: 76.2] [added: 86.9] | |

| [removed: Total Assets] [added: Total Assets] | | $ | [removed: 3,071.5] [added: 3,058.0] | | | $ | [removed: 3,197.4] [added: 3,071.5] | |

| [removed: Liabilities] [added: Liabilities] | | | | | | | | |

| [removed: Current Liabilities] [added: Current Liabilities] | | | | | | | | |

| Trade payables | | $ | [removed: 543.8] [added: 509.6] | | | $ | [removed: 535.0] [added: 543.8] | |

| Accrued payroll and benefits | | | [removed: 79.4] [added: 64.6] | | | | [removed: 90.8] [added: 79.4] | |

| Accrued liabilities | | | [removed: 120.4] [added: 143.7] | | | | [removed: 116.0] [added: 120.4] | |

| Product warranties | | | [removed: 41.7] [added: 41.8] | | | | [removed: 44.5] [added: 41.7] | |

| Long-term debt due within one year | | | [removed: —] [added: 6.8] | | | | [removed: 7.5] [added: —] | |

| [removed: Total] [added: Total] Current [removed: Liabilities] [added: Liabilities] | | | [removed: 785.3] [added: 766.5] | | | | [removed: 793.8] [added: 785.3] | |

| Long-term debt | | | [removed: 221.4] [added: 277.2] | | | | [removed: 402.9] [added: 221.4] | |

| Product warranties | | | [removed: 97.7] [added: 92.4] | | | | [removed: 97.9] [added: 97.7] | |

| Pension liabilities | | | [removed: 49.4] [added: 27.8] | | | | [removed: 48.1] [added: 49.4] | |

| Other liabilities | | | [removed: 200.7] [added: 188.6] | | | | [removed: 209.8] [added: 200.7] | |

| [removed: Total Liabilities] [added: Total Liabilities] | | | [removed: 1,354.5] [added: 1,391.2] | | | | [removed: 1,552.5] [added: 1,354.5] | |

| [removed: Stockholders’ Equity] [added: Stockholders’ Equity] | | | | | | | | |

| Class A Common Stock (shares issued [removed: 26,191,327] [added: 26,180,885] and [removed: 26,239,559)] [added: 26,191,327)] | | | [removed: 131.0] [added: 130.9] | | | | [removed: 131.2] [added: 131.0] | |

| Common Stock (shares issued [removed: 164,516,267] [added: 164,526,709] and [removed: 164,468,033)] [added: 164,516,267)] | | | 164.5 | | | | 164.5 | |

| Capital in excess of par value | | | [removed: 496.7] [added: 509.0] | | | | [removed: 486.5] [added: 496.7] | |

| Retained earnings | | | [removed: 2,102.8] [added: 2,323.4] | | | | [removed: 1,788.7] [added: 2,102.8] | |

| Accumulated other comprehensive loss | | | [removed: (350.8] [added: (348.3] | ) | | | [removed: (299.5] [added: (350.8] | ) |

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

| | | |

| --- | --- | --- |

| | | Product Warranty Liability Valuation |

| | | |

| Description of the Matter | | At December 31, 2019, the Company’s product warranty liability was $134.3 million. As discussed in Note 1 of the consolidated financial statements, the Company records a liability for the expected cost of warranty-related claims at the time of sale. The product warranty liability is estimated based upon warranty loss experience using actual historical failure rates and estimated cost of product replacement. Products generally carry warranties from one to ten years. The Company performs separate warranty calculations based on the product type and the warranty term and aggregates them. Auditing the product warranty liability was complex due to the judgmental nature of the warranty loss experience assumptions, including the estimated product failure rate and the estimated cost of product replacement. In particular, it is possible that future product failure rates may not be reflective of historical product failure rates, or that a product quality issue has not yet been identified as of the financial statement date. Additionally, the cost of product replacement could differ from estimates due to fluctuations in the replacement cost of the product. |

| | | |

| --- | --- | --- |

| How We Addressed the Matter in our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s product warranty liability calculation. For example, we tested controls over management’s review of the product warranty liability calculation, including the significant assumptions and the data inputs to the calculation. To test the Company’s calculation of the product warranty liability, our audit procedures included, among others, evaluating the methodology used, and testing the significant assumptions discussed above and the underlying data used by the Company in its analysis. We tested the validity and categorization of claims by product type and warranty period within the calculation and tested the completeness of the claims data against the Company’s claim log. We recalculated the historical failure rates using actual claims data. We compared the estimated cost of replacement included in the product warranty liability with the current costs to manufacture a comparable product. We also analyzed subsequent claims data to identify changes in failure trends and assessed the historical accuracy of the prior year liability. Further, we inquired of operational and quality control personnel regarding quality issues and trends. |

| | | |

| | | Accounting for Acquisitions – Valuation of Water-Right, Inc. Intangible Assets |

| | | |

| Description of the Matter | | During 2019, the Company completed its acquisition of Water-Right, Inc. for consideration of $107.0 million, net of cash acquired, as discussed in Note 3 to the consolidated financial statements. The transaction was accounted for using the purchase method of accounting. Auditing the Company’s accounting for its acquisition of Water-Right, Inc. was complex due to the significant estimation uncertainty in the Company’s determination of the fair value of identified intangible assets of $60.4 million, which principally consisted of customer relationships and trademarks. The significant estimation uncertainty was primarily due to the sensitivity of the respective fair values to underlying assumptions about the future performance of the acquired business. The significant assumptions used to estimate the value of the intangible assets included discount rates and certain assumptions that form the basis of the forecasted results (including revenue growth rates, attrition rates and royalty rates). These significant assumptions are forward looking and could be affected by future economic and market conditions. |

| | | |

| How We Addressed the Matter in our Audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over its accounting for acquisitions. For example, we tested controls over the estimation process supporting the measurement of customer relationships and trademark intangible assets, including management’s review of the significant assumptions used in the valuation models. To test the estimated fair value of the customer relationship and trademark intangible assets, our audit procedures included, among others, evaluating the Company’s valuation methodology, and testing the significant assumptions discussed above including the completeness and accuracy of the underlying data supporting the significant assumptions and estimates. We compared the revenue growth rates to third-party industry projections for the water treatment and purification market and to the historical performance of the acquired business. We involved our valuation specialists to assist with our evaluation of the methodology used by the Company and significant assumptions included in the fair value estimates. For example, we evaluated the discount rates by comparing them to discount rate ranges that were independently developed using publicly available market data for comparable peers. We also compared the customer attrition rates to historical customer retention rates and the royalty rate to relevant comparable licensing agreements. |

February 24, 2020

| Operating lease assets | | | 46.9 | | | | — | |

| Long-term operating lease liabilities | | | 38.7 | | | | — | |

| Payment of contingent consideration | | | (1.0 | ) | | | (2.3 | ) | | | (1.7 | ) |

1.

Organization.

in-home

air purification products in China.

Consolidation.

Fair value of financial instruments.

The fair value of term notes with insurance companies was approximately

122.1

million as of December 31, 2019 compared with the carrying

amount of

120.0

million

for the same date.

non-operating

companies in the Netherlands, the Company uses the local currency as the functional currency.

year-end

exchange rates, and revenues and expenses were translated at weighted-average exchange rates.

Inventory valuation.

Cost is determined on the

February 15, 2019

##### [Table of Contents](#toc)

| | | | | | | | | |

| | | | | | | | | | | | | |

| Acquisition related contingent payments | | | (2.3 | ) | | | (1.7 | ) | | | — | |

1.

The fair value was estimated based on current rates offered for debt with similar maturities.

The Company records a liability for the expected cost of warranty-related claims at the time of sale.

Revenue recognition. The Company adopted ASC 606-10 as of January 1, 2018.

On April 11, 2016, the Company’s stockholders approved a proposal to increase the Company’s authorized shares of Common Stock and on September 7, 2016, the Company’s Board of Directors declared a two-for-one stock split of the Company’s Class A Common Stock and Common Stock (including treasury shares) in the form of a 100 percent stock dividend to stockholders of record on September 21, 2016 and payable on October 5, 2016.

All references in the financial statements and footnotes to the number of shares outstanding, price per share, per share amounts and stock based compensation data have been recast to reflect the stock split for all periods presented.

Reclassifications. Certain amounts from prior years have been reclassified to conform with current year presentation.

In August 2017, the Financial Accounting Standards Board (FASB) amended Accounting Standards Codification (ASC) 815, _Derivatives and Hedging_ (issued under Accounting Standards Update (ASU) 2017-12, “Targeted Improvements to Accounting for Hedging Activities”).

Under this amendment, more hedging strategies are eligible for hedge accounting treatment.

ASU 2017-12 also amends the presentation and disclosure requirements regarding derivatives and hedging and changes how companies assess effectiveness.

In May 2017, the FASB amended ASC 718, _Compensation – Stock Compensation_ (issued under ASU 2017-09, “Scope of Modification Accounting”).

This amendment clarifies when changes to the terms or conditions of share-based payment awards must be accounted for as a modification.

Under this amendment, modification accounting must be used if three conditions are met: the fair value changes, the vesting conditions change, or the classification of the award changes due to the changes in terms or conditions.

In March 2017, the FASB amended ASC 715, _Compensation – Retirement Benefits_ (issued under ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”).

This amendment changes the way net periodic benefit cost associated with employer-sponsored defined benefit plans is presented in the statement of earnings.

Under the amendment, the service cost component of net periodic benefit cost is included in the same lines in the statement of earnings as other employee compensation costs and the other components of net periodic benefit cost must be presented separately outside of income from operations.

The Company adopted the amendment on January 1, 2018.

As a result of this adoption, for the year ended December 31, 2017 the Company retrospectively reclassified $6.3 million and $4.6 million of non-service cost pension income from cost of products sold and selling, general and administrative expenses, respectively, to other income in the consolidated statement of earnings.

The for the year ended December 31, 2016, the Company retrospectively reclassified $5.1 million and $3.6 million of non-service cost pension income from cost of products sold and selling, general and administrative expenses, respectively, to other income in the consolidated statement of earnings.

In January 2017, the FASB amended ASC 350, _Intangibles – Goodwill and Other_ (issued under ASU 2017-04, “Simplifying the Test for Goodwill Impairment”).

The Company does not expect that the adoption of ASU 2017-04 will have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.

In October 2016, the FASB amended ASC 740, _Income Taxes_ (issued under ASU 2016-16).

This amendment requires that the income tax consequences of an intra-entity transfer of an asset other than inventory be recognized when the transfer occurs.

The Company adopted this amendment on January 1, 2018 and the adoption of amended ASU 2016-16 did not have a material impact on its consolidated balance sheets, statement of earnings or statements of cash flows.

This amendment is effective for periods beginning January 1, 2019.

In 2018, the Company completed a comprehensive analysis of its lease population.

The impact of adoption will result in the recognition of lease liabilities and corresponding right-of-use assets of approximately $55 million each.

The adoption of ASU 2016-02 will not have a material impact on its consolidated balance sheets, statements of earnings or statements of cash flows.

In May 2014, the FASB issued ASC 606-10, _Revenue from Contracts with Customers_ (issued under ASU 2014-09).

ASU 2014-09 replaces all previously existing revenue recognition guidance.

The Company adopted ASU 2014-09 on January 1, 2018 using the full retrospective method and therefore applied the standard to all contracts commencing on or after January 1, 2016.

The Company recognized a net after-tax reduction to opening retained earnings of $3.9 million as of January 1, 2016 in connection with the adoption of ASU 2014-09.

The adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated balance sheets, statements of earnings or statements of cash flows.

See Note 2 “Revenue Recognition” for further discussion.

2.

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as [removed: such term is] defined in [removed: Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (“the Exchange Act”) as of the end of the period covered by this report.][added: Rule]

Based on [removed: such evaluations,] [added: the evaluation,] our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period our disclosure controls and procedures are effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by us in the reports that we file or submit under the Exchange Act, and that information is accumulated and communicated to the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

[removed: Management] [added: Management] Report on Internal Control Over Financial [removed: Reporting][added: Reporting]

Our management is responsible for establishing and maintaining adequate internal control over financial [removed: reporting, as such term is] [added: reporting (as] defined in Exchange Act Rule [removed: 13a-15(f).]

Based on this evaluation, our management has concluded that, as of December 31, [removed: 2018,] [added: 2019,] our internal control over financial reporting was effective.

Ernst & Young LLP, an independent registered public accounting firm, has audited our consolidated financial statements and the effectiveness of internal controls over financial reporting as of December 31, [removed: 2018] [added: 2019] as stated in their report which is included herein.

[removed: Changes] [added: Changes] in Internal Control Over Financial [removed: Reporting][added: Reporting]

[removed: There have not been any change in the company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act)] during the year ended December 31, [removed: 2018] [added: 2019] that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

13a-15(e)

under the Securities Exchange Act of 1934, as amended (“the Exchange Act”)) as of the end of the period covered by this report.

13a-15(f)).

As allowed by Securities and Exchange Commission guidance, management excluded from its assessment Water-Right, which was acquired in 2019 and constituted 3.6 percent and 6.3 percent of total assets and net assets, respectively, as of December 31, 2019 and 1.5 percent and 1.4 percent of net sales and net earnings, respectively, for the year then ended.

There have been no changes in the company’s internal control over financial reporting (as defined in Exchange Act Rule

13a-15(f))

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on Internal Control over Financial [removed: Reporting][added: Reporting]

We have audited A. O. Smith Corporation’s internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, A. O. Smith Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2018,] [added: 2019,] based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of A. O. Smith Corporation as of December 31, [removed: 2018] [added: 2019] and [removed: 2017,] [added: 2018,] and the related consolidated statements of earnings, comprehensive earnings, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, [removed: 2018,] [added: 2019,] and the related notes and financial statement schedule listed in the index at Item 15(a) and our report dated February [removed: 15, 2019] [added: 24, 2020] expressed an unqualified opinion thereon.

[removed: Basis] [added: Basis] for [removed: Opinion][added: Opinion]

[removed: Definition] [added: Definition] and Limitations of Internal Control Over Financial [removed: Reporting][added: Reporting]

[added: |] /s/ Ernst & Young LLP [added: |]

[added: |] Milwaukee, Wisconsin [added: |]

[removed: PART III][added: PART III]

None.

As indicated in the accompanying Management Report on Internal Control Over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Water-Right, Inc., which is included in the 2019 consolidated financial statements of the Company and constituted 3.6 percent and 6.3 percent of total assets and net assets, respectively, as of December 31, 2019 and 1.5 percent and 1.4 percent of net sales and net earnings, respectively, for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Water-Right, Inc.

| |

| --- |

| |

| February 24, 2020 |

ITEM

10—DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The information included under the headings “Election of Directors” and “Board Committees” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission (SEC) under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

The information required regarding Executive Officers of the company is included in Part I of this Annual Report on Form

10-K

under the caption “Executive Officers of the Company.”

We have a separately designated Audit Committee on which Gene C.

Wulf, Dr. Ilham Kadri, Mark D.

Smith and Idelle K.

Wolf serve, with Mr. Wulf, as Chairperson.

All members are independent under applicable SEC and New York Stock Exchange rules; the Board of Directors of the company has concluded that Ms. Wolf and Mr. Wulf are “audit committee financial experts” in accordance with SEC rules.

We have adopted a Financial Code of Ethics applicable to our principal executive officer, principal financial officer and principal accounting officer.

As a best practice, this code has been executed by key financial and accounting personnel as well.

In addition, we have adopted a general code of business conduct for our directors, officers and all employees, which is known as the A. O. Smith Guiding Principles.

The Financial Code of Ethics, the A. O. Smith Guiding Principles and other company corporate governance matters are available on our website at

www.aosmith.com

We are not including the information contained on our website as a part of or incorporating it by reference into, this Form

10-K.

We intend to disclose on this website any amendments to, or waivers from, the Financial Code of Ethics or the A. O. Smith Guiding Principles that are required to be disclosed pursuant to SEC rules.

There have been no waivers of the Financial Code of Ethics or the A. O. Smith Guiding Principles.

Stockholders may obtain copies of any of these corporate governance documents free of charge by writing to the Corporate Secretary at the address on the cover page of this Form

10-K.

The information included under the heading “Compliance with Section 16(a) of the Securities Exchange Act” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

ITEM

11—EXECUTIVE COMPENSATION

The information included under the headings “Executive Compensation,” “Director Compensation,” “Report of the Personnel and Compensation Committee” and “Compensation Committee Interlocks and Insider Participation” in the company’s definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

None

##### [Table of Contents](#toc)

February 15, 2019

The information included under the headings “Principal Stockholders” and “Security Ownership of Directors and Management” in our definitive Proxy Statement for the [removed: 2019] [added: 2020] Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

[removed: Equity] [added: Equity] Compensation Plan [removed: Information][added: Information]

The following table provides information about our equity compensation plans as of December 31, [removed: 2018.][added: 2019.]

| (1) | Consists of [removed: 2,432,689] [added: 2,728,350] shares subject to stock options, [removed: 325,778] [added: 313,763] shares subject to employee share units and [removed: 284,598] [added: 279,359] shares subject to director share units. |

STOCKHOLDER MATTERS

| Equity compensation plans approved by security holders | | | 3,321,472 | (1) | | $ | 37.64 | (2) | | | 1,855,560 | (3) |

| Total | | | 3,321,472 | | | $ | 37.64 | | | | 1,855,560 | |

ITEM

13 – CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information included under the headings “Director Independence and Financial Literacy”, “Compensation Committee Interlocks and Insider Participation” and “Procedure for Review of Related Party Transactions” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

ITEM

14 – PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information included under the heading “Report of the Audit Committee” in our definitive Proxy Statement for the 2020 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) required by this Item 14 is incorporated herein by reference.

PART IV

ITEM

\- EXHIBITS, FINANCIAL STATEMENT SCHEDULES

| | (a) | The following documents are filed as part of this Annual Report on Form 10-K: |

| --- | --- | --- |

| | 1. | Financial Statements of the Company |

| --- | --- | --- |

| | | | | |

| --- | --- | --- | --- | --- |

| | | Form 10-K Page Number | | |

| The following consolidated financial statements of A. O. Smith Corporation are included in Item 8: | | | | |

| | | | | |

| [Consolidated Balance Sheets at December 31, 2019 and 2018](#tx846284_25) | | | 26 | |

| | | | | |

| For each of the three years in the period ended December 31, 2019: | | | | |

| [\- Consolidated Statement of Earnings](#tx846284_26) | | | 27 | |

| [\- Consolidated Statement of Comprehensive Earnings](#tx846284_27) | | | 27 | |

| [\- Consolidated Statement of Cash Flows](#tx846284_28) | | | 28 | |

| [\- Consolidated Statement of Stockholders’ Equity](#tx846284_29) | | | 29 | |

| | | | | |

| [Notes to Consolidated Financial Statements](#tx846284_30) | | | 30 - 56 | |

| | 2. | Financial Statement Schedules |

| --- | --- | --- |

| | | | | |

| --- | --- | --- | --- | --- |

| [Schedule II—Valuation and Qualifying Accounts](#tx846284_31) | | | 65 | |

Schedules not included have been omitted because they are not applicable.

| | 3. | Exhibits - see the Index to Exhibits on pages 64—65 of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K are listed as Exhibits 10(a) through 10(m) in the Index to Exhibits. |

| --- | --- | --- |

Pursuant to the requirements of Rule

14a-3(b)(10)

##### [Table of Contents](#toc)

| Equity compensation plans approved by security holders | | | 3,043,065 | (1) | | $ | 33.05 | (2) | | | 2,490,644 | (3) |

| Total | | | 3,043,065 | | | $ | 33.05 | | | | 2,490,644 | |

None.

Properties utilized by us at December 31, 2018 were as follows:

North America

In this segment, we have 14 manufacturing plants located in six states and two non-U.S. countries, of which 12 are owned directly by us or our subsidiaries and two are leased from outside parties.

The terms of leases in effect at December 31, 2018 expire between 2019 and 2025.

Rest of World

In this segment, we have six manufacturing plants located in four non-U.S. countries, of which four are owned directly by us or our subsidiaries and two are leased from outside parties.

The terms of leases in effect at December 31, 2018 expire between 2020 and 2022.

Corporate and General

We consider our plants and other physical properties to be suitable, adequate, and of sufficient productive capacity to meet the requirements of our business.

The 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.

Not applicable.

##### [Table of Contents](#toc)

EXECUTIVE OFFICERS OF THE COMPANY

Pursuant to General Instruction of G(3) of Form 10-K, the following is a list of our executive officers which is included as an unnumbered Item in Part I of this report in lieu of being included in our Proxy Statement for our 2019 Annual Meeting of Stockholders.

| | | | | |

| --- | --- | --- | --- | --- |

| Name (Age) | | Positions Held | | Period Position Was Held |

| Patricia K. Ackerman (58) | | Senior Vice President – Investor Relations, Treasurer and Corporate Responsibility and Sustainability | | 2019 to Present |

| | | | | |

| | | Vice President – Investor Relations & Treasurer | | 2008 to 2018 |

| | | | | |

| | | Vice President and Treasurer | | 2006 to 2008 |

| | | | | |

| | | Assistant Treasurer | | 1995 to 2006 |

| | | | | |

| Paul R. Dana (56) | | Senior Vice President – Global Operations | | 2019 to Present |

| | | | | |

| | | Senior Vice President – Global Manufacturing | | 2016 to 2018 |

| | | | | |

| | | Vice President – Global Manufacturing | | 2015 |

| | | | | |

| | | President – APCOM, a division of State Industries, LLC, a subsidiary of the Company | | 2011 to 2017 |

| | | | | |

| | | Vice President – Product Engineering | | 2006 to 2010 |

| | | | | |

| | | Plant Manager – Productos de Agua, S. de R.L. de C.V. | | 1998 to 2005 |

| | | | | |

| Anindadeb V. DasGupta (52) | | Senior Vice President | | 2018 to Present |

| | | | | |

| | | President – A. O. Smith Holdings (Barbados) SRL | | 2018 to Present |

| | | | | |

| | | Vice President, Global Head Strategic Marketing; Global Head e-commerce; Global GM Flex & Signage Business Lines – OSRAM GmbH, Munich and Hong Kong | | 2014 to 2018 |

| | | | | |

| Wei Ding (56) | | Senior Vice President | | 2013 to Present |

| | | | | |

| | | President – A. O. Smith China | | 2017 to Present |

| | | | | |

| | | President – A. O. Smith (China) Investment Co., Ltd.; General Manager – A. O. Smith (China) Water Heater Co., Ltd. and A. O. Smith (Nanjing) Water Treatment Products Co. Ltd. | | 2013 to 2017 |

| | | | | |

| | | President and General Manager – A. O. Smith (China) Water Heater Co., Ltd. | | 2013 |

The information included under the headings “Election of Directors” and “Board Committees” in our definitive Proxy Statement for the 2019 Annual Meeting of Stockholders (to be filed with the Securities and Exchange Commission (SEC) under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

The information required regarding Executive Officers of the company is included in Part I of this Annual Report on Form 10-K under the caption “Executive Officers of the Company.”

We have a separately designated Audit Committee on which Gene C.

Wulf, Dr. Ilham Kadri, Mark D.

Smith and Idelle K.

Wolf serve, with Mr. Wulf, as Chairperson.

All members are independent under applicable SEC and New York Stock Exchange rules; the Board of Directors of the company has concluded that Ms. Wolf and Mr. Wulf are “audit committee financial experts” in accordance with SEC rules.

We have adopted a Financial Code of Ethics applicable to our principal executive officer, principal financial officer and principal accounting officer.

As a best practice, this code has been executed by key financial and accounting personnel as well.

In addition, we have adopted a general code of business conduct for our directors, officers and all employees, which is known as the A. O. Smith Guiding Principles.

The Financial Code of Ethics, the A. O. Smith Guiding Principles and other company corporate governance matters are available on our website at www.aosmith.com.

We are not including the information contained on our website as a part of or incorporating it by reference into, this Form 10-K.

We intend to disclose on this website any amendments to, or waivers from, the Financial Code of Ethics or the A. O. Smith Guiding Principles that are required to be disclosed pursuant to SEC rules.

There have been no waivers of the Financial Code of Ethics or the A. O. Smith Guiding Principles.

Stockholders may obtain copies of any of these corporate governance documents free of charge by writing to the Corporate Secretary at the address on the cover page of this Form 10-K.

The information included under the heading “Compliance with Section 16(a) of the Securities Exchange Act” in our definitive Proxy Statement for the 2019 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

The information included under the headings “Executive Compensation,” “Director Compensation,” “Report of the Personnel and Compensation Committee” and “Compensation Committee Interlocks and Insider Participation” in the company’s definitive Proxy Statement for the 2019 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

The information included under the headings “Director Independence and Financial Literacy”, “Compensation Committee Interlocks and Insider Participation” and “Procedure for Review of Related Party Transactions” in our definitive Proxy Statement for the 2019 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) is incorporated herein by reference.

The information included under the heading “Report of the Audit Committee” in our definitive Proxy Statement for the 2019 Annual Meeting of Stockholders (to be filed with the SEC under Regulation 14A within 120 days after the end of the registrant’s fiscal year) required by this Item 14 is incorporated herein by reference.

##### [Table of Contents](#toc)

PART IV

| (a) | The following documents are filed as part of this Annual Report on Form 10-K: |

| --- | --- |

1.

Financial Statements of the Company

Form 10-K

Page Number

The following consolidated financial statements of A. O. Smith Corporation are included in Item 8:

| | | | | |

| --- | --- | --- | --- | --- |

| | | [Consolidated Balance Sheets at December 31, 2018 and 2017](#tx678397_25) | | 27 |

| | | [For each of the three years in the period ended December 31, 2018: - Consolidated Statement of Earnings](#tx678397_26) | | 28 |

| | | [\- Consolidated Statement of Comprehensive Earnings](#tx678397_27) | | 28 |

| | | [\- Consolidated Statement of Cash Flows](#tx678397_28) | | 29 |

| | | [\- Consolidated Statement of Stockholders’ Equity](#tx678397_29) | | 30 |

| | | | | |

| | | [Notes to Consolidated Financial Statements](#tx678397_30) | | 31 - 57 |

| | | | | |

| 2. | | Financial Statement Schedules | | |

| | | | | |

| | | [Schedule II - Valuation and Qualifying Accounts](#tx678397_31) | | 66 |

| | | | | |

| | | Schedules not included have been omitted because they are not applicable. | | |

| 3. | Exhibits - see the Index to Exhibits on pages 63 - 64 of this report. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report on Form 10-K are listed as Exhibits 10(a) through 10(m) in the Index to Exhibits. |

| --- | --- |

Pursuant to the requirements of Rule 14a-3(b)(10) of the Securities Exchange Act of 1934, as amended, we will, upon request and upon payment of a reasonable fee not to exceed the rate at which such copies are available from the SEC, furnish copies to our security holders of any exhibits listed in the Index to Exhibits.

##### [Table of Contents](#toc)

INDEX TO EXHIBITS

| | | |

| --- | --- | --- |

| Exhibit Number | | Description |

| | | |

| (3)(i) | | [Restated Certificate of Incorporation of A. O. Smith Corporation as amended through April 11, 2016, incorporated by reference to Exhibit 3i(b) in the quarterly report on Form 10-Q for the quarter ended March 31, 2016.](http://www.sec.gov/Archives/edgar/data/91142/000119312516583538/d156476dex3ib.htm) |

| | | |

| (3)(ii) | | [By-laws of A. O. Smith Corporation as amended October 13, 2015, incorporated by reference to Exhibit 3.1 in the current report on Form 8-K dated October 16, 2015.](http://www.sec.gov/Archives/edgar/data/91142/000119312515345565/d27877dex31.htm) |

| | | |

| (4) | | (a) [Restated Certificate of Incorporation of A. O. Smith Corporation as amended through April 11, 2016, incorporated by reference to Exhibit 3i(b) in the quarterly report on Form 10-Q for the quarter ended March 31, 2016.](http://www.sec.gov/Archives/edgar/data/91142/000119312516583538/d156476dex3ib.htm) |

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| | | (b) [Amended and Restated Credit Agreement, dated as of December 12, 2012, among A. O. Smith Corporation, A. O. Smith Enterprises Ltd., A. O. Smith International Holdings B.V., and the financial institutions and agents party thereto, incorporated by reference to Exhibit 4.1 in the current report on Form 8-K dated December 12, 2012.](http://www.sec.gov/Archives/edgar/data/91142/000119312512501762/d452855dex41.htm) |

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| | | (c) [Amendment No. 1 dated as of December 15, 2016, to the Amended and Restated Credit Agreement, dated as of December 12, 2012, among A. O. Smith Corporation, A. O Smith Enterprises Ltd., A. O. Smith International Holdings B.V., and the financial institutions and agents party thereto, incorporated by reference to Exhibit 4(c) in the annual report on Form 10-K for the fiscal year ended December 31, 2016.](http://www.sec.gov/Archives/edgar/data/91142/000119312517047795/d280399dex4c.htm) |