aos-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________________________________________

FORM 10-Q

______________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023.


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission File Number 1-475

________________________________

A. O. Smith Corporation

(Exact name of registrant as specified in its charter)

________________________________

Delaware

(State of Incorporation)

11270 West Park Place, Milwaukee, Wisconsin

(Address of Principal Executive Office)

39-0619790

(I.R.S. Employer

Identification No.)

53224-9508

(Zip Code)

(414) 359-4000

(Registrant’s telephone number, including area code)

_________________________________________________

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

Title of Each Class

Trading
Symbol

Name of Each Exchange
on Which Registered

Common Stock (par value $1.00 per share)

AOS

New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated Filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

Class A Common Stock Outstanding as of July 26, 2023 - 25,900,304 shares

Common Stock Outstanding as of July 26, 2023 - 124,590,266 shares

Index

A. O. Smith Corporation


		Page
Part I.	FINANCIAL INFORMATION

	Condensed Consolidated Statements of Earnings - Three and Six Months Ended June 30 , 2023 and 2022	3

	Condensed Consolidated Statements of Comprehensive Earnings - Three and Six Months Ended June 30 , 2023 and 2022	3

	Condensed Consolidated Balance Sheets - June 30 , 2023 and December 31, 2022	4

	Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30 , 2023 and 2022	5

	Condensed Consolidated Statements of Stockholders’ Equity - Three and Six Months Ended June 30 , 2023 and 2022	6

	Notes to Condensed Consolidated Financial Statements - June 30 , 2023	7-19

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20-28

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	28

Item 4.	Controls and Procedures	28-29

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	29

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29

Item 5.	Other Information	29

Item 6.	Exhibits	29

Index to Exhibits		30

Signatures		31

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(dollars in millions, except for per share data)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net sales	$	960.8	$	965.9	$	1,927.2	$	1,943.6
Cost of products sold	576.1		631.5		1,168.4		1,267.6
Gross profit	384.7		334.4		758.8		676.0
Selling, general and administrative expenses	180.3		166.7		367.5		346.5
Impairment expense	—		—		15.6		—
Interest expense	4.5		2.1		8.5		3.6
Other (income) expense, net	(9.0)		0.3		(13.0)		4.0
Earnings before provision for income taxes	208.9		165.3		380.2		321.9
Provision for income taxes	51.9		39.1		96.3		75.9
Net Earnings	$	157.0	$	126.2	$	283.9	$	246.0
Basic Net Earnings Per Share of Common Stock(1)	$	1.04	$	0.81	$	1.88	$	1.57
Diluted Net Earnings Per Share of Common Stock(1)	$	1.04	$	0.81	$	1.87	$	1.56
Dividends Per Share of Common Stock	$	0.30	$	0.28	$	0.60	$	0.56

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

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(dollars in millions)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net earnings	$	157.0	$	126.2	$	283.9	$	246.0
Other comprehensive earnings (loss)
Foreign currency translation adjustments	(1.0)		(24.6)		1.5		(24.0)
Unrealized (losses) gains on cash flow derivative instruments, less related income tax benefit (provision) of $0.5 and $0.5 in 2023, $(0.7) and $(0.5) in 2022	(1.5)		2.1		(1.6)		1.5
Adjustment to pension liability, less related income tax provision of $0.1 and $0.1 in 2023, $(1.3) and $(2.5) in 2022	0.1		3.7		0.1		7.5
Comprehensive Earnings	$	154.6	$	107.4	$	283.9	$	231.0

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(dollars in millions)


	(unaudited) June 30, 2023		December 31, 2022
Assets
Current Assets
Cash and cash equivalents	$	378.9	$	391.2
Marketable securities	30.8		90.6
Receivables	588.9		581.2
Inventories	508.5		516.4
Other current assets	54.2		54.3
Total Current Assets	1,561.3		1,633.7
Property, plant and equipment	1,371.7		1,364.8
Less accumulated depreciation	(794.9)		(774.1)
Net property, plant and equipment	576.8		590.7
Goodwill	622.1		619.7
Other intangibles	342.8		347.9
Operating lease assets	32.6		29.8
Other assets	113.2		110.5
Total Assets	$	3,248.8	$	3,332.3
Liabilities
Current Liabilities
Trade payables	$	545.1	$	625.8
Accrued payroll and benefits	74.1		75.7
Accrued liabilities	169.8		159.1
Product warranties	61.7		63.6
Debt due within one year	10.0		10.0
Total Current Liabilities	860.7		934.2
Long-term debt	196.0		334.5
Product warranties	119.0		118.9
Long-term operating lease liabilities	26.0		22.4
Other liabilities	158.7		174.6
Total Liabilities	1,360.4		1,584.6
Stockholders’ Equity
Class A Common Stock (shares issued, 26,034,044 and 26,035,656 as of June 30, 2023 and December 31, 2022, respectively)	130.2		130.2
Common Stock (shares issued 164,673,550 and 164,671,938 as of June 30, 2023 and December 31, 2022, respectively)	164.7		164.7
Capital in excess of par value	568.3		555.9
Retained earnings	3,078.4		2,885.0
Accumulated other comprehensive loss	(82.4)		(82.4)
Treasury stock at cost	(1,970.8)		(1,905.7)
Total Stockholders’ Equity	1,888.4		1,747.7
Total Liabilities and Stockholders’ Equity	$	3,248.8	$	3,332.3

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(dollars in millions)

(unaudited)


	Six Months Ended June 30,
	2023		2022
Operating Activities
Net earnings	$	283.9	$	246.0
Adjustments to reconcile net earnings to cash provided by (used in) operating activities:
Depreciation and amortization	38.1		38.3
Stock based compensation expense	8.6		9.0
Non-cash impairment	15.6		—
Pension settlement income	(6.0)		—
Pension settlement income non-cash taxes	1.5		—
Net changes in operating assets and liabilities:
Current assets and liabilities	(66.4)		(233.9)
Noncurrent assets and liabilities	(15.1)		(5.0)
Cash Provided by Operating Activities	260.2		54.4
Investing Activities
Capital expenditures	(24.2)		(30.7)
Acquisitions of businesses	—		(8.0)
Investments in marketable securities	(14.7)		(16.9)
Net proceeds from sale of marketable securities	72.7		96.5
Cash Provided by Investing Activities	33.8		40.9
Financing Activities
Long-term debt (repaid) incurred	(139.3)		101.7
Common stock repurchases	(69.6)		(190.4)

Net proceeds (payments) from stock option activity	8.3		(2.6)
Dividends paid	(90.6)		(87.9)
Cash Used in Financing Activities	(291.2)		(179.2)
Effect of exchange rate changes on cash and cash equivalents	(15.1)		—
Net decrease in cash and cash equivalents	(12.3)		(83.9)
Cash and cash equivalents - beginning of period	391.2		443.3
Cash and Cash Equivalents - End of Period	$	378.9	$	359.4

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

A. O. SMITH CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in millions)

(unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Class A Common Stock
Balance at the beginning of period	$	130.2	$	130.5	$	130.2	$	130.5
Conversion of Class A Common Stock	—		—		—		—
Balance at end of period	$	130.2	$	130.5	$	130.2	$	130.5
Common Stock
Balance at the beginning of period	$	164.7	$	164.7	$	164.7	$	164.7
Conversion of Class A Common Stock	—		$	—	—		$	—
Balance at end of period	$	164.7	$	164.7	$	164.7	$	164.7
Capital in Excess of Par Value
Balance at the beginning of period	$	564.3	$	550.9	$	555.9	$	545.2

Issuance of share units	(0.2)		(0.2)		(10.3)		(6.0)
Vesting of share units	—		—		(3.1)		(2.4)
Stock based compensation expense	1.3		1.2		8.1		8.9
Exercises of stock options	1.8		—		6.5		0.4
Issuance of share based compensation	1.1		1.2		11.2		7.0
Balance at end of period	$	568.3	$	553.1	$	568.3	$	553.1
Retained Earnings
Balance at the beginning of period	$	2,966.5	$	2,902.2	$	2,885.0	$	2,826.6
Net earnings	157.0		126.2		283.9		246.0
Dividends on stock	(45.1)		(43.8)		(90.5)		(88.0)
Balance at end of period	$	3,078.4	$	2,984.6	$	3,078.4	$	2,984.6
Accumulated Other Comprehensive Loss (see Note 16)	$	(82.4)	$	(346.4)	$	(82.4)	$	(346.4)
Treasury Stock
Balance at the beginning of period	$	(

SEC Form 10-Q filed by A.O. Smith Corporation