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Stock Based Compensation | 12 Months Ended
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Dec. 31, 2024
Share-Based Payment Arrangement [Abstract] |
Stock Based Compensation | Stock Based Compensation The Company adopted the A. O. Smith Combined Incentive Compensation Plan (the Incentive Plan) effective January 1, 2007, and the Incentive Plan was most recently reapproved by stockholders on April 15, 2020. The Incentive Plan is a continuation of the A. O. Smith Combined Executive Incentive Compensation Plan which was originally approved by stockholders in 2002. The number of shares available for granting of options or share units at December 31, 2024, was 2,291,099 which includes 2,400,000 additional shares that were authorized on April 15, 2020 at the Company's annual meeting of stockholders. Upon stock option exercise or share unit vesting, shares are issued from treasury stock. Total stock based compensation expense recognized in 2024, 2023 and 2022 was $14.9 million, $11.5 million and $11.1 million, respectively. Stock Options Beginning in 2023, the Company no longer grants stock options. The stock options previously granted in 2022 have three year pro rata vesting from the date of grant. Stock options were issued at exercise prices equal to the fair value of the Company’s Common Stock on the date of grant. For active employees, all options granted in 2022 expire ten years after the date of grant. The Company’s stock options are expensed ratably over the three year vesting period; however, included in the stock option expense recognized in 2022 is expense associated with the accelerated vesting of stock option awards for certain employees who either are retirement eligible or become retirement eligible during the vesting period. Stock based compensation expense attributable to stock options for 2024, 2023 and 2022 was $0.6 million, $1.2 million and $5.5 million, respectively. Changes in options, all of which relate to the Company’s Common Stock, were as follows:
Years Ended December 31 | 2024 |  | 2023 |  | 2022
| Number of Options |  | Weighted Avg. Per Share Exercise Price |  | Number of Options |  | Weighted Avg. Per Share Exercise Price |  | Number of Options |  | Weighted Avg. Per Share Exercise Price
Number of shares under options: |  |  |  |  |  |  |  |  |  |  |
Outstanding at beginning of year | 1,872,553 |  |  | $ | 52.93 |  |  | 2,481,606 |  |  | $ | 51.22 |  |  | 2,252,498 |  |  | $ | 47.73 |
Granted | — |  |  | — |  |  | — |  |  | — |  |  | 322,460 |  |  | 74.11 |
Exercised(1) | (473,452) |  |  | 46.46 |  |  | (600,344) |  |  | 45.68 |  |  | (66,697) |  |  | 39.77 |
Forfeited | (3,260) |  |  | 74.27 |  |  | (8,709) |  |  | 66.96 |  |  | (26,655) |  |  | 61.46 |
Outstanding at end of year(2) | 1,395,841 |  |  | 55.07 |  |  | 1,872,553 |  |  | 52.93 |  |  | 2,481,606 |  |  | 51.22 |
Exercisable at end of year(3) | 1,295,061 |  |  | 53.59 |  |  | 1,549,749 |  |  | 49.51 |  |  | 1,675,552 |  |  | 46.88 |
(1)The total intrinsic value of options exercised in 2024, 2023 and 2022 was $18.0 million, $15.0 million and $1.6 million, respectively. (2)The weighted average remaining contractual life of options outstanding was 6 years at December 31, 2024, and 7 years at December 31, 2023 and December 31, 2022, respectively. The aggregate intrinsic value of options outstanding at December 31, 2024 was $20.0 million. (3)The weighted average remaining contractual life of options exercisable was 6 years at December 31, 2024, December 31, 2023, and December 31, 2022, respectively. The aggregate intrinsic value of options exercisable at December 31, 2024 was $20.0 million.
| Number of Options |  | Weighted Avg. Per Share Exercise Price
Nonvested options at beginning of year | 322,804 |  |  | $ | 69.33 |
Vested | (219,931) |  |  | 67.09 |
Forfeited | (2,093) |  |  | 74.27 |
Nonvested options at end of year | 100,780 |  |  | 74.10 |
The weighted-average fair value per option at the date of grant during 2022, using the Black-Scholes option-pricing model, was $17.57. Assumptions were as follows:
|  |  |  |  | 2022
Expected life (years) |  |  |  |  | 5.7
Risk-free interest rate |  |  |  |  | 1.9 | %
Dividend yield |  |  |  |  | 1.5 | %
Expected volatility |  |  |  |  | 26.8 | %
The expected lives of options for purposes of these models are based on historical exercise behavior. The risk-free interest rates for purposes of these models are based on the U.S. Treasury yield in effect on the date of grant for the respective expected lives of the option. The expected dividend yields for purposes of these models are based on the dividends paid in the preceding four quarters divided by the grant date market value of the Common Stock. The expected volatility for purposes of these models is based on the historical volatility of the Common Stock. Share Units Participants in the Incentive Plan may also be awarded share units. Share units vest three years after the date of grant. The Company granted 195,497, 168,807 and 94,731 share units under the Incentive Plan in 2024, 2023 and 2022, respectively. The share units were valued at $16.1 million, $11.3 million and $7.0 million at the date of issuance in 2024, 2023 and 2022, respectively, based on the price of the Company’s Common Stock at the date of grant. The share units are recognized as compensation expense ratably over the three-year vesting period; however, included in share unit expense was expense associated with accelerated vesting of share unit awards for certain employees who are retirement eligible or will become retirement eligible during the vesting period. Stock based compensation expense attributable to share units of $12.5 million, $9.6 million and $5.6 million was recognized in 2024, 2023 and 2022, respectively. Certain non-U.S.-based employees receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at each reporting period. A summary of share unit activity under the Incentive Plan is as follows:
| Number of Units |  | Weighted-Average Grant Date Value
Issued and unvested at January 1, 2024 | 381,189 |  |  | $ | 63.33 |
Granted | 195,497 |  |  | 82.31 |
Vested | (98,216) |  |  | 60.32 |
Forfeited | (9,201) |  |  | 73.49 |
Issued and unvested at December 31, 2024 | 469,269 |  |  | 71.50 |
Performance Stock Units Beginning in 2023, certain executives may be awarded performance stock units under the Incentive Plan. Performance stock units vest over three years following the date of the grant. Performance stock units vest under a set of measurement criteria which are based upon achievement of certain sustainability targets. Potential payouts range from zero to 150 percent of the target awards and changes from target amounts are reflected as performance adjustments. The Company granted 29,475 and 24,580 performance stock units under the Incentive Plan in 2024 and 2023, respectively. The performance stock units were valued at $2.4 million and $1.7 million at the date of issuance in 2024 and 2023, respectively, based on the price of the Company’s Common Stock at the date of grant. The performance stock units are recognized as compensation expense ratably over the three-year vesting period. Stock based compensation expense attributable to performance stock units of $1.8 million and $0.7 million was recognized in 2024 and 2023, respectively. Certain non-U.S.-based executives receive the cash value of the share price at the vesting date in lieu of shares. Unvested cash-settled awards are remeasured at each reporting period. A summary of stock unit activity under the Incentive Plan is as follows:
| Number of Units |  | Weighted-Average Grant Date Value
Issued and unvested at January 1, 2024 | 34,758 |  |  | $ | 67.14 |
Granted | 29,475 |  |  | 82.19 |
Forfeited | (6,124) |  |  | 75.48 |
Performance adjustments | 16,289 |  |  | 80.76 |
Issued and unvested at December 31, 2024 | 74,398 |  |  | 75.40 |

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