Letter to Shareholders

Dear Shareholders:

A. O. Smith’s 2022 record-setting performance in revenue is a direct result of our global strategy and the ability to execute against improved but lingering headwinds in supply chain, persistent cost inflation and a significant downward volume reset in the U.S. residential water heater market. Following two years of significant growth in the U.S. residential industry, we entered 2022 with a continued resilient residential market outlook. However, partially due to improved delivery lead-times, we experienced a larger than anticipated channel inventory destocking of residential water heaters. I commend the A. O. Smith team for taking the necessary steps to right-size our production and meet current demands to improve efficiencies going forward.

We delivered record sales of $3.8 billion, largely driven by inflation-related pricing and higher volumes of boilers. We have seen continued improvement in the market for condensing boilers, and Lochinvar’s CREST® Condensing Boiler with Hellcat™ Combustion Technology has done exceptionally well.

Kevin Wheeler, Chairman, President and Chief Executive Officer

Performance in our China operations in 2022 was consistently resilient, driving Rest of World operating margins to 10% against a very challenging economic environment. Since early 2020, the team in China has persevered amid COVID disruptions and proactively restructured improving our cost position to deliver near double-digit margins on lower volumes. In addition, the team continues to introduce new products within our core product categories aligned with our strategy to continue to innovate and invest in our premium market position.

Our India operations experienced double-digit growth of 28% in local currency coming out of the pandemic amid strong demand for our water heating and water treatment products across each of our channels. We view India as a long-term growth opportunity given its attractive growth characteristics and changes in demographics.

Inflation-related pricing and higher volumes within our U.S. boiler market more than offset adjustments in the residential water heater industry and led to adjusted earnings of $488.7 million or $3.14 per share, which is a 6% increase compared to last year.

For more than 30 consecutive years, we have increased our dividend to shareholders, and in October, we announced a 7% increase in the dividend rate that resulted in a five-year compound annual dividend growth rate of 15%. We also repurchased approximately 6.6 million shares of common stock for a total of $404 million in 2022.

In December 2022, we released our third Environmental, Social and Governance (ESG) report, which documents our ESG activities, progress and performance over the past two years. This includes preventing almost 500,000 metric tons of carbon emissions in 2021 through sales of our highly efficient water heaters and boilers. We also received WAVE verification from The Water Council as our initial step in creating a public strategy to improve our water stewardship performance. ESG concepts are embedded within the foundation of our 149-year history, and the ESG report demonstrates our commitment to the A. O. Smith values: being a good citizen, being a good place to work, emphasizing innovation, preserving our good name and achieving profitable growth.

As we look to 2023, we are confident in our ability to execute our strategy to innovate and expand our portfolio of energy-efficient products, including heat pump technology. In 2022, we launched our best-in-class Voltex® AL residential heat pump water heater with industry-leading energy efficiency and new integrated leak protection technology. We believe the new Voltex AL heat pump water heater is a market-leading product that supports consumer and legislative desires to reduce carbonization and move toward cleaner and greener practices.

The Aquasana Clean Water Machine was also updated in 2022, making it the first powered countertop water filtration appliance to combine a no-install design with four different methods of advanced filtration technology. The Clean Water Machine was recognized with an Eco Excellence Award, marking the seventh consecutive year one of our products has won this award.

We continued the geographic expansion of our North America Water Treatment business with the addition of Atlantic Filter, a manufacturer and dealer of quality water treatment equipment for residential, commercial, institutional and industrial use located in West Palm Beach, Florida. As consumers remain focused on the importance of reliable, clean drinking water, we continue to seek opportunities to further expand our presence in this segment.

We see opportunities for organic growth, innovation and new product development across all our product lines and geographies in the coming year. Our strong balance sheet allows us to pursue strategic acquisitions even in times of economic uncertainties and enables us to maintain our exceptional track record of delivering returns to shareholders.

As we remain focused on meeting the needs of our customers, our portfolio of strong brands, combined with our investment in technology to drive innovation and new product development, will further enhance our market leadership. We are excited for the year ahead and are proud of the work we do every day to bring value to our employees, customers, partners and shareholders. We thank you for your continued trust, confidence and motivation to be part of our journey.

Sincerely,

Kevin J. Wheeler Chairman, President & Chief Executive Officer

2022 ESG Report

Sustainability is ingrained in who we are as an organization and what we do every day at A. O. Smith. In 2022, we proudly released our third Environmental, Social and Governance (ESG) report. Focusing on ESG is good for the bottom line, beneficial to our shareholders, critical to our customers and meaningful to our employees. Most importantly, it has a positive impact on society and the planet.