Company: AOS
Filing Date: 2025-04-29
Form Type: 10-Q
Source: 0000091142-25-000075
Chunk: 24

Company: SMITH A O CORP
Filing Date: 2025-04-29
Form: 10-Q
Item: Part I, Item 8
Chunk 24
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$6.4 

15

Table of Contents11. Derivative Instruments (continued)

The amounts recognized within the condensed consolidated statements of earnings related to the Company's foreign exchange contracts are set forth below.Three Months Ended March 31 (dollars in millions):Derivatives not designated as hedging instruments:Location of expense within the condensed consolidated statements of earnings20252024Foreign exchange contractsOther expense, net$— $4.0 

12. Income Taxes

The Company’s effective income tax rate for the three months ended March 31, 2025 was 24.6 percent. The Company estimates that its annual effective income tax rate for the full year 2025 will be approximately between 24 and 24.5 percent. The effective income tax rate for the three months ended March 31, 2024 was 23.4 percent. The change in the effective income tax rate for the three months ended March 31, 2025 compared to the effective income tax rate for the three months ended March 31, 2024 was primarily due to the geographical earnings mix.As of March 31, 2025, the Company had $16.2 million of unrecognized tax benefits of which $4.3 million would affect its effective income tax rate if recognized. The Company recognizes potential interest and penalties related to unrecognized tax benefits as a component of income tax expense. The Company’s U.S. federal income tax returns and its U.S. state and local income tax returns are subject to audit for the years 2018-2025 and 2006-2025, respectively. The Company is subject to examinations in foreign tax jurisdictions for the years 2019-2025.

13. Commitments and Contingencies

The Company maintains a commercial relationship with a supply-chain service provider (the Provider) in connection with the Company’s business in China. In this capacity, the Provider offers order-entry, warehousing and logistics support. The Provider also offers asset-backed financing to certain of the Company’s distributors in China to facilitate their working capital needs. To facilitate its financing support business, the Provider has collateralized lending facilities in place with multiple Chinese banks under which the Company has agreed to repurchase inventory if both requested by the banks and certain defined conditions are met, primarily related to the aging of the distributors’ notes.

The Provider is required to indemnify the Company for any losses the Company would incur in the event of an inventory repurchase under these arrangements. Potential losses under the repurchase arrangements represent