Conflict Minerals /web: August 2013

Conflict Minerals A new federal law imposes requirements related to “Conflict Minerals.” The law imposes reporting requirements on publicly - traded U.S. companies to identify the source of all Conflict Minerals in their products and report in an annual Conflict Minerals Report. Like “blood diamonds”, Conflict Minerals are being used to fund armed conflict in the Congo. Background 2

Conflict Minerals Reduce exploitation and trade in Conflict Minerals by requiring affected U.S. companies to review their entire supply chain and disclose use of conflict minerals Law does not prohibit use of Conflict Minerals “Name and Shame” legislation – requires companies to publicly disclose if they use “conflict minerals” Purpose of Legislation 3

Conflict Minerals August 22, 2012 – Final Rules adopted January 1, 2013 – Rules apply to conflict minerals used after this date May 31, 2014 – First Conflict Minerals Report must be filed based on Conflict Minerals used in 2013 May 31, 2016 – Conflict Minerals Report must be audited Conflict Minerals Timetable 4

Conflict Minerals All U.S. companies whose stock is traded on a stock exchange (“public companies”). Affects suppliers throughout the supply chain, even if suppliers are not public companies or located in the U.S. Companies Covered by Law 5

Conflict Minerals Cassiterite – (Tin) Example: solder Columbite – Tantalite (Tantalum) Example: electronics Wolframite – (Tungsten) Example: electrodes Gold – Example: electronics Surprise! Components may contain minerals that you would never suspect (some plastics contain tin). Conflict Minerals Covered by Law 6

Conflict Minerals The Democratic Republic of the Congo (“DRC”) Angola Burundi Central African Republic Republic of Congo Rwanda South Sudan Tanzania Uganda Zambia Covered Countries 7

Conflict Minerals Report Conflict Minerals if necessary for the functionality of a product manufactured or contracted to be manufactured by the Company For AOS, direct spend suppliers covered; indirect spend are not Basic Obligation 8

Conflict Minerals Determine applicability Conduct “reasonable country of origin inquiry” Exercise due diligence on supply chain and file an audited Conflict Minerals Report Three Step Process 9

Conflict Minerals Applies to products manufactured by a U.S. Company even if production is overseas. (Examples – China suppliers to Nanjing plant) No exception for small amounts of Conflict Minerals Products must “actually contain” Conflict Minerals. Minerals used as a catalyst that does not remain in the product, or in tools or equipment excluded. Requires a company to make a reasonable good faith effort to inquire as to source of conflict minerals Guidance on How to Apply This Law 10

Conflict Minerals Step 1 – Survey our supply base utilizing the reporting template of the Electronic Industry Citizenship Coalition (“EICC”) (see following slide) Free web based system allows users to download, complete Excel spreadsheet with information and send to AOS Step 2 – Track and create reports Step 3 – Self Assessment of Supplier information Step 4 – Supplier Audits (to be completed at later date) A. O. Smith Plans for Compliance 11

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Resources Dedicated Web Portal (in development) accessible through the Supplier Quality Web Site: – 13