Good day, ladies and gentlemen, and welcome to the A. O. Smith Corporation Fourth Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, the Vice President of Investor Relations and Treasurer, Patricia Ackerman. You may begin.

Thank you, Bruce. Good morning, ladies and gentlemen, and thank you for joining us on our 2016 results conference call. With me participating in the call are Ajita Rajendra, Chairman and Chief Executive Officer; and John Kita, Chief Financial Officer. Before we begin with Ajita's remarks, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in this morning's press release. Also, as a courtesy to others in the question queue, please limit yourself to one question and one follow-up per turn. If you have multiple questions, please rejoin the queue. I will now turn the call over to Ajita who will begin his remarks on slide three.

Thank you, Pat, and good morning, ladies and gentlemen. 2016 was another excellent year for A. O. Smith, setting records for sales and earnings. We continue to see healthy end markets for our consumer products in China and for boilers and commercial water heaters in the U.S. Here are a few highlights. Sales grew 6% to a record of $2.7 billion. Excluding the impact from the strengthening U.S. dollar against the Chinese currency, our sales grew 8% in 2016. China sales are up 19% in local currency. Among several revenue growth drivers, A. O. Smith branded water treatment sales grew over 40% in local currency. Our e-commerce sales in China reached nearly $200 million. Net earnings of $1.85 per share was 17% higher than our earnings per share in 2015. We welcomed the Aquasana team to A. O. Smith through our acquisition of the U.S.-based water treatment company in early August. A. O. Smith global sales of water treatment product totaled $194 million in 2016. We continue to review our capital allocation and dedicate a portion of our cash to return to shareholders. During 2016, we repurchased approximately 3.3 million shares for $135 million. We announced a 17% increase to our dividend last month. The five-year compound annual growth rate of our dividend is over 25%. We announced a 2-for-1 stock split which became effective on October 6. John will now describe our results in more detail, beginning with slide number four.

Thank you, Ajita. Sales for the year of nearly $2.7 billion were 6% higher than the previous year and 8% higher in local currency terms. Net earnings of $326.5 million improved 15% from 2015. Earnings per share of $1.85 improved 17% over last year. Sales in our North America segment of $1.74 billion increased 2% compared with 2015. The segment benefited from a full year pricing related to the U.S. regulatory change in April of 2015 as well as a price increase related to steel and other cost inflation in August 2016. Higher volumes of boilers and commercial water heaters in the U.S. also contributed to higher sales. Lower volumes of U.S. residential water heaters partially offset these benefits. The purchase of Aquasana in August added $18.4 million to our North America segment sales. Rest of world segment sales of $966 million increased 11% compared with 2015. China sales increased 19% in local currency, driven by higher demand for water heaters, water treatment and residential air purification products. A. O. Smith branded water treatment sales in China totaled nearly $148 million in 2016, compared with $110 million in 2015. Sales of in-home air purification systems almost tripled to $26 million in 2016 compared with $9 million in 2015. On slide six, North America operating earnings of $386 million were 14% higher than segment operating earnings in the previous year. And operating margin of 22% was 200 basis points higher than the 20% operating margin one year ago. Pricing actions, lower material costs in the first half of the year and higher boiler and commercial volumes in the U.S. were partially offset by lower residential water heater volumes in the U.S. These factors were the primary drivers of the improved North America segment financial performance. Rest of world operating earnings of…

Thank you, John. We project revenue growth to be between 9.5% and 11% in local currency terms in 2017 and 8% to 9.5% in U.S. dollar terms. We expect Aquasana sales to be almost $60 million this year, an incremental $40 million in sales over last year and slightly accretive to earnings. With a full year of Aquasana sales as part of A. O. Smith, we expect our global water treatment product sales to be nearly $300 million in 2017. We predict the Chinese currency will remain at current levels against the U.S. dollar, resulting in a 5% or $40 million sales headwind compared with the average rate in 2016. We expect steel prices to continue to be volatile and decline slightly from current prices. This assumption is significantly higher than the average price in 2016 and results in the most difficult comparisons for the year in the first and second quarters. Specific to our North America segment, we project U.S. residential water heater volumes will increase approximately 200,000 units in 2017 due to new construction and expansion of replacement demand. We project U.S. commercial volumes will be up modestly with little growth in small electric units after the category grew significantly in 2016. Fourth quarter 2016 sales of U.S. commercial boilers were strong, up double-digits due to the introduction of new Lochinvar products and the continued transition to higher efficiency boilers. We expect the total portfolio of Lochinvar branded products to grow over 8% in 2017 which includes slower growing Lochinvar branded water heaters. These factors lead us to expect our North America segment operating margin to be between 21.5% and 22.25%, despite the headwind from lower Aquasana EBIT margin of almost 50 basis points. Specific to our rest of world segment. We are a consumer products company in…

And our first question comes from Robert McCarthy from Stifel. Your line is now open. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Good morning, everyone. Just the first question, I mean I think, John, Ajita and Pat, could you just expand upon your comments around the steel pricing and the volatility and the compare for 1Q and Q2 in terms of how you're thinking about how that plays out in terms of growth and profitability for the company in the first half as we get some texture around kind of the first half versus the second half dynamic for your guidance?

Well, so I can tell you it began in 2015 cold rolled steel was about $535 a ton or $550 a ton, I think. So we're now at $830 a ton. And so the first two quarters are certainly as we talked about on the call, are going to have negative steel costs compared to the prior year. And as you move to the end of the year, you'll be more equal to what we were paying in late 2016. It's, obviously, been extremely volatile. We have – we talked to many experts. I think their forecast is for it to go down from here, but there's a lot of variables. Capacity is at 70%, but cold rolled is higher than that. Some of the input costs have been coming down, but then you have some of the potential tariffs and duties that could take it the other way. But clearly, steel will be a negative comparison first half of the year of 2017 compared to 2016. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: You laid out a very impressive outlook for organic growth as you always do. And obviously, there's a lot of teeth and underlying assumptions that kind of support the organic growth. I guess my question is you do have this outsized exposure to China sales as everyone is well aware of. Is there anything – and you talked about border adjustability as well, so you – and then net export position, taxes, so you've given a lot of detail. But in terms of the potential for, I guess, trade war or tariff adventure in association with the Trump administration, how do you think about kind of your headline risk there with respect to your business because you are well entrenched locally in China? But is there anything on the fundamental basis you're concerned about, certain policies or certain regulations, certain actions that could happen in global trade between China and the U.S. that could really cause fundamental problems from you aside from a headline risk?

So I'll take a shot at it, and then Ajita can add. The China entity is basically vertically integrated and sources and sells everything in China. From the U.S., we import very little from China. So, from that standpoint, we shouldn't have too much impact. And the other thing is both countries' trade is very intertwined. And our assumption is that ultimately it gets resolved reasonably. But with respect to China imports or exports, we really don't have much of either way going on.

And just to reinforce that, I think the key is – because you're right that we do have a lot of revenue exposure there which we like. The growth has been fantastic and we have very strong fundamentals in China with a strong brand and strong distribution, a great team. At the same time, we do worry about it, nothing new now on an ongoing basis. And that's why we have, in fact, not just for the three of us and our team to be looking at it, but we hire outside experts to give us advice in terms of what's happening. And we've talked about it before. We have the Eurasia Group on retainer and we work with them in terms of understanding the risk out there. They're experts at this. And we've consulted with them. And we are very comfortable in terms of where we are and from a risk perspective and even in these economic times. And as John said, at the end of the day, the two economies are very intertwined and we feel that cooler heads will prevail as time goes on if there is anything. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Thanks. I'll get back in queue.

And our next question comes from Jeff Hammond from KeyBanc Capital. Your line is now open.

Hey, good morning, guys.

Good morning.

Good morning.

So I really wanted to dig in on the res data. Looks like through November, it was up kind of 7% if you adjust for some of the NAECA III shift from res to commercial kind of low single-digits. Can you just talk about how you did relative to that? And what you see as kind of holding back the residential water heater business through 2016. And then kind of how you're framing it for 2017, I guess particularly where you can gain share or mix and price to kind of grow that unit number?

Well, you're right. The industry was up the first two months of the year, probably about 80,000 units. We were during that same time period down about 20,000 units and there was really two reasons for that. One is SAP went in at our wholesale plant, and our lead times extended a little bit there. So we didn't pick up as much on the wholesale side as we should have. And then number two, our largest retail customer dropped their inventory from September to December to more normal levels, consistent with where they were at the end of last year. And so we didn't participate as much on the retail side either. But those were, in our mind, kind of two one-time events, if you will.

And they were approximately half and half...

Yes, half-and-half.

...in terms of the impact.

What we're looking at in 2017 and we've done a lot of modeling, obviously, trying to forecast the industry. It's been difficult over the last three years. Our forecast base level kind of assumes that the industry is going to go up about 200,000 units, and that's 100,000 in completions and 100,000 in replacements. We think that's a reasonable assumption now that we think the inventory has kind of cleaned out of the system from all the activity that happened with NAECA between the combination of price increases and the elimination of some products. So that's our base assumption going forward.

Okay. So if I – it looks like – so your guide, all in, is 8% to 9.5% which it looks like FX can offset the Aquasana. Is that sort of a fair...

Right, right.

So the China one's easy. I'm just trying to bridge your 8% long-term target versus your 8% to 9.5%. Like what's kind of the upside scenario? Because it seems like China, you're saying plus 15%, Lochinvar plus 8%. And so...

Yeah, I think what we have is a little bit of pricing carryover from 2016. So, on the high end, that certainly helps us. If the industry is a little bit higher than we expected, that gets us to the high end. To get to the low end, if the industry doesn't do as well as what we expect. So that's kind of the bridge. You're correct that essentially Aquasana and what we're assuming for currency effect on China in 2017 pretty much offset each other.

Okay, helpful. Thanks, guys.

And our next question comes from Bhupender Bohra from Jefferies. Your line is now open.

Good morning.

Good morning.

John, just wanted to – on North America margins, you have the guidance out as 21.5% to 22.25%. And I believe in the prior calls, I think you had capped the high end at 22%. What makes you a little bit more comfortable like extending that guide by 25 bps here at the high end, especially with the steel cost and some of the headwinds you've been talking about?

Sure. Well, as I had spoken, I said our starting point was 21.5% to 22%, and we hadn't done our estimate. I think on the high end, if volumes come in at the 200,000 to 300,000 range, those come in at a very attractive incremental margin. If steel does recede more than kind of a little bit, that would obviously help our margins. So it's a combination of those things. I think the high and low end of the margins will be driven primarily by the volumes in North America residential and commercial. I mean I think we're pretty comfortable on the Lochinvar of 8% to 10%. And then where steel goes, plus or minus.

Okay. And any other – we have been talking about SAP cost and some of the synergies which you had – we had, not officially, but as we talked about you will be getting from the SAP implementation over the next two years. Is that built in the guidance too, like the North America margin guidance?

No, I would tell you that the savings that I think we talked about on the last call that we would expect to start generating savings in 2018 were not completely installed yet. We'll finish that in North America this year. We'll make some improvements to the system. And then I think our focus will be on things like shared services, looking at our supply chain and the benefits we can get from consolidated spend and some of those things. So we would start seeing that, we think, in the 2018 range. I mean, one of the benefits to margin is we've said we spent about $25 million in 2016, and we're forecasting $17.5 million in 2017. So that does help the margins out.

And this is – Bhupender, this is very consistent with what we've said in the past, so it's not any change. It's that 2017 is going to be a year where we really stabilize the system, really get to understanding how we use it. And then 2018 is when we really start – and setting plans to reap benefits. And 2018 is when we really think that's going to begin and 2018 into 2019 onward which, again, from talking to other people who put in systems like SAP, pretty consistent.

Okay, okay. And my last question, on Lochinvar China growth strategy. I mean, we have – since your acquisition in 2011, I think the China strategy has been – it seems like it's delayed by a couple of years over the last several years now. And could you just update us like how big China is for Lochinvar in terms of potential? And we saw – I think you guys talked about some new product introduction in China in the third quarter last year, how the traction is coming along for that particular product.

Let me take a stab, and then you jump in. So, Bhupender, you're right. When we made the acquisition, we anticipated at the time that the Chinese market would become, would open up for – the timing would be that the Chinese market was opening up for this high efficiency condensing products that Lochinvar makes, obviously, world-class products. And we were wrong in the sense that that commercial – that condensing market hasn't quite opened up at the speed that we anticipated. But in the meantime, we did see the opportunity for high BTU input non-condensing products. And Lochinvar developed some products which we started shipping to China end of last year. And we also manufacture that product in China. So from a strategic viewpoint, we are doing what we said we would. It's been pushed out more, and it's a different type of product because the market for condensing product has not really developed at the speed we thought. We know it will. The indications are it's coming, but we just don't quite see it there yet. However, the non-condensing part, the high BTU non-condensing part, where the technology from Lochinvar really helps us, we've developed products. We are manufacturing some of them in China. We are exporting some of them. And the growth of that segment is going, actually, very well. Anything to add, John?

No.

Okay. Thanks a lot, guys.

And our next question comes from Matt Summerville of Alembic Global Advisors. Your line is now open.

Thanks. Good morning. With respect to China, you've sort of disclosed kind of revenue numbers and year-over-year growth numbers for the treatment portion as well as purification on the air side. What did your legacy water heater business do in China in local currency in 2016? And then I guess moving to 2017, the bridge to that 15% number that you're calibrating everyone around and you, obviously, had that number for a long time, what growth expectations do you have for those three pieces in 2017 that gets you to that 15%? Thank you.

Yeah, when we look at the model compared to 2016, phase water heater, which is about 70% of the business, grew at 6% or 7%. Okay. So a little bit more than – contributed a little bit more growth than what we expected. Pricing was 4% to 5%. Pricing, market share was 4% to 5% as we expected. And then, obviously, the ancillary product lines added about 8%. So that's kind of the math on how you get to the 19%, if you will. And obviously, two prior years, we averaged about 17%. So, from a growth standpoint, 2016 was a very good year. Now, when we look into 2017, we're pretty much following our model, saying that we expect to get 5% from our legacy businesses, i.e., our electric and instantaneous gas. We expect to get 5% from either pricing, market share. And then we expect to get 5% from continued growth in water treatment, air purification, et cetera. So the model is tracking very well for what we thought, a little bit better the last couple years. And we're comfortable with the 15% growth.

And I think the individual pieces of the model, long-term, we're very comfortable. Short-term, they're going to vary. But overall, we are very comfortable with the average.

Got it. And then just as a follow-up, you talked about your ERP implementation costs and what they're doing from 2016 to 2017. I guess, long-term, what does that $17.5 million number go to? Does it eventually go to zero? Are you done? Is there a reason you're not migrating your SAP platform to your international operations? Can you just sort of give a picture on your ERP please?

Sure. So, as I said, we're about $17.5 million next year – I'm sorry, this year, 2017. We would expect a run rate is probably about $15 million. And the pieces of that are the amortization of what we capitalized is almost $6 million. So that's going on for the next 10 years or so. Then you have the services, the external services, the hosting services, the SAP support services which are $3 million to $4 million. And then you have the license fees that you pay these guys going on, whether it's SAP, whether it's SuccessFactors. So I think we think $15 million is probably a reasonable number. And then you have the COE which is people that are supporting the system, et cetera. So we're saying $15 million is a reasonable number. Now Ajita and I have had a lot of discussions on taking it internationally. And we're not saying we're not going to at some point. But right now, China, when we sold EPC in 2011, we put QAD, a very good system, into China. And it can handle their growth for quite some time. India, we think SAP at this time would be overkill for them. So we'll continue to evaluate. And again, our focus is, starting towards 2018, is starting to get savings in North America from the system. And that's where we're focusing on.

Yeah. And just to reinforce, QAD is a very good system and is working extremely well for us. And also, what we – we did do some – maybe this is more detail than you want. But we did do some customization with QAD so that it handles not only the manufacturing, but also giving us really good data on the retail side of the business which, as you know, is growing very well. So that's working really well for us. And we don't think that putting SAP in there today is the right thing from a long-term – from a consolidation perspective because it's working for us.

Understood. Good color. Thank you, guys.

And our next question comes from Charley Brady with SunTrust. Your line is now open.

Hi, this is actually Patrick Wu standing in for Charley. Thanks for taking my question. I'm looking at China, up 24% excluding FX. What was the number including FX, all in? And then what is the – sort of how would you attribute or maybe parse out some of the buildup normal seasonal demand leading up to the Chinese New Year versus the large customer orders that you talked about a little bit? Because I think versus last year ex-currency, it was up 19%. There was a 5% delta there, just wanted to bridge that gap.

Well, the first one, so I think we said that currency affected 2016 by about $50 million. And that was all China essentially.

What about at the fourth quarter? Sorry.

The fourth quarter, it took it from what, $20 million?

(41:28)

$19 million, it was $19 million down to what?

Yeah, down. The impact was about $17 million. Yeah.

So we have – I can tell you the fourth quarter impact for sales was about $17 million. So, in local currency, it was 24%, and in U.S. dollars, it was about 16%. So that was the fourth quarter impact. And we also talked about that it affected the profits by about $2.5 million. Does that answer that question?

Right. Yeah, the first portion, definitely. But I was more looking at in terms of normal seasonality. You generally have a buildup leading up to Chinese New Year in the fourth quarter. I think last year, ex-currency, it was up 19%. And the fourth quarter of this year, it's up 24%. How would you parse out the seasonality versus maybe some of the larger orders that you mentioned during your prepared remarks?

Well, I wouldn't expect much change from the prior year. And what we were trying to allude to is that the first quarter is always their weakest of the four quarters, just because of the 10- to 12-day China holiday. We did get some orders, but those came in late in the year versus – and last year, they would have came in early in the year. So that was part of the timing, et cetera. But what we're trying to get across is first quarter is clearly China's weakest quarter. But we would still expect to see nice year-over-year growth.

Okay. When I'm looking at the water treatment sales for the year, I think if you ex out Aquasana and then ex out your China numbers, I think it leaves around $28 million in terms of water treatment. Is that mostly India? And then also can you frame a little bit about how you guys view the losses in 2017? I think you guys said that there will be smaller losses in 2017 than 2016. But can you maybe give a little bit more granular color on that?

Sure. So, in 2016, you're right. Branded was about $148 million. The legacy business we bought in China was about $18 million. Turkey was about $5 million. India was a couple million. Vietnam was about $4 million. And U.S., Aquasana, the $18 million we talked about. So that's how you kind of get to the $194 million for water treatment product sales. So that's the first question. The second one was with respect to India?

Right. How should we think about the framework for sort of losses into 2017 versus 2016?

You're fading. The last part of your question didn't come through.

I think he said losses.

Just thinking about how to frame the losses in terms – in 2017 for India versus 2016 and how we think about that?

Sure. So, in 2016, we lost almost $10 million. That was the high end of the range. And we would say that the fourth quarter was impacted by the demonetization, I think, the elimination of large bills which you probably read about. So that had a negative effect. So we lost – our loss was towards the high end of the range. Our forecast when we look into 2017 is that sales will grow, we think, over 30% and the losses will reduce to, let's say, around $8 million.

Great. Thank you.

And our next question comes from Scott Graham from BMO Capital Markets. Your line is now open.

Hey, good morning.

Morning.

Good morning.

So really two questions. The one is the easier one. M&A, any type of update you can give us, Ajita, obviously, with the share repurchase upping in December. Is that any type of a signal that you're maybe not seeing a lot in the M&A pipe, or is that just sort of a just in case something doesn't happen?

No. There's no signal at all, no change in strategy. The market out there is active and we are looking with a wide net as we have talked in the past.

Okay. I would attribute the, certainly in part, the performance or lack thereof of the stock during this Trump rally on concerns over China backlash, China consumer backlash on the US. So if you could walk us through again why you think the fact that you're landlocked, we all get that, but why wouldn't a U.S. brand as strong as A. O. Smith maybe not get any type of backlash? Certainly, we understand that you're kind of like the only game in town at your price point or what have you. But still, I think there is still a concern out there about that. If you can maybe address that more fully?

I'll give it a shot. In terms of – a lot of the rally has been around infrastructure related types of stocks that have really done very well. But I can't judge what's happening in the market. But from our perspective, like we said before, we are pretty much vertically integrated in China. We export a little bit from here to China, glass and a few components, very little. And we hardly – I don't think we export anything from China -- we export very little, very little from China to the US. So we are pretty much self-contained in China. So that's number one. And then also at the end of the day, the two economies are very intertwined. And what the experts are telling us, okay, because this is not something that Pat and John and I sit around the table and say here's what we think will happen because we are certainly not the experts. But what the experts are telling us is that as you look at all the pluses and minuses, that if there is anything, it'll be short-lived and is going to be impact more the cross-border type traffic and is not going to impact the companies that are self-contained in either place, okay. And we are comfortable with that. We don't see any evidence of anything happening. And so, from a risk perspective, we are comfortable in terms of where we are.

So what I think I hear you saying is that ultimately cooler heads prevail. In other words, you have a powerful brand, everyone knows it's a U.S. brand. You've talked ad nauseum over the years about how the power of a non-China brand works so well in the customer segment that you're targeting. So it sounds to me like you're saying that if there is an impact, it will be short-lived because people will realize that everything you sell in China, you make in China. But I guess – and, look, it's impossible to handicap this at this point. But I think the greater, larger concern is not about necessarily being landlocked, but just about U.S. brands in China in general. And what the new president's – with the potential for renegotiating trade agreements, what that could mean. And I'm sure your experts probably have an opinion on this, but that was really the nature of my...

Yeah, but – so let me address that. There are two issues, okay. One is in terms of renegotiating trade agreements which is what will impact the cross-border type traffic, of which, we have virtually none, okay. So that's one. The second is the secondary impact of what that would do in terms of the relationship and impact on U.S. brands in China. I think that's what you're saying, okay. In terms of the latter, like we said, we – from talking to the expert, we aren't concerned. And also, if you go back and look at what's been happening historically in China, not with the U.S., but very, very similar circumstances with a country that there's been constant ups and downs, and that's Japan. Japanese brands continue to do very well in China. We compete with Japanese brands in China as you know. And when these issues flare up, and with Japan it flares up at least once a year, okay, with the visit to the shrine that happens in Japan every year, things flare up for a short while and then it goes back down. This is in terms of the rhetoric and all the newspapers and all the rest of it. We see no impact in the marketplace and it's business as usual. So we put it all together and we say the best we know and the best we are hearing from the experts, we are not concerned.

Understood. That's a comprehensive answer, Ajita. Thank you. Here's just my last one, if I may. The transitory issues or quote-unquote transitory issues you talked about, hitting the North American volumes. It sounds like from the guidance that you are assuming that that is, in fact, a transitory issue. But I was wondering if you could bring to bear what you're seeing in January as sort of proof that they are transitory issues. Are you seeing sort of a return to normal trade volume in the – did you see that in January?

Yeah, we've seen – but in the two areas, first of all, our lead times are coming down because – there were – John said, he used the word two one-time issues, okay, which are there, which explain about half and half, which explains the gap. So our lead times are coming down. Is it down to where I want it to be right now? No, but it's coming down very nicely. That's number one. And number two, we see our customer building back inventories and the order rate is up. So we are comfortable as to where we are.

And we've lost no customers.

Right, , yeah, we haven't lost any customers. The lead time being down, but not a loss of customer. That's a good important point.

Very good. Okay. Thanks.

And our next question comes from Alvaro Lacayo from Gabelli & Company. Your line is now open. Alvaro Lacayo - Gabelli & Company: Good morning.

Good morning.

Good morning. Alvaro Lacayo - Gabelli & Company: My question is in regards with, I guess, the comments around sort of the way volume went in the fourth quarter and tying it into sort of the August price increase. Can you just maybe talk about market acceptance on that price increase versus what you've seen in the past? And you mentioned those two one-time issues. Did rising price have anything to with the volume issues that you had in the fourth quarter?

Absolutely not, on the second one. No, no. The two reasons were we put SAP into our three major wholesale plants. Two of them are residential and our lead times extended a little bit associated with SAP. Number two is our largest retail customer from September 30 to December 31 adjusted their inventory levels down, putting them to more normal levels and very comparable to the prior year. So, no, it had nothing to do in our mind associated with price. Alvaro Lacayo - Gabelli & Company: Okay, great. And then I guess around just high level thinking on the M&A strategy and with everything that we've been talking about with regards to trade tensions, repatriation, tax reform. In terms of how you're developing the pipeline and how you think about what the strategic pieces are going forward, how do you see sort of any differences or potential opportunities, given all the changes that you're seeing in the market today?

I'll take a shot at it. I don't think our strategy has changed. I mean, (54:20)...

No, our strategy certainly hasn't changed.

... (54:21) segments in areas we've talked about for the last couple years on where we're focused.

Our strategy has not changed, no. And also in terms of – there's a lot of speculation in terms of what's going to happen. We don't know what's going to happen. When things do happen, if that's going to impact our strategy or open up more opportunities because of repatriation, et cetera, then we – or differences in the tax impact, then that would certainly go into impacting our strategy and tweaking our strategy or changing our strategy. But right now, we are very consistent with our strategy in terms of where the opportunities are and where we want to grow. Alvaro Lacayo - Gabelli & Company: Okay, got it. And then in China, you talked about the better profitability. You mentioned better mix and better profitability in water treatment. If you could just provide more color on what the mix improvement drivers were, and then what was making water treatment more profitable? Was it just price increases or is something else going on?

It wasn't price increases. It was just kind of scale and much higher, so we're starting to get more contribution, et cetera. And they have very – their water treatment has very attractive gross margins.

Yeah. So, just to add a little more to what John said, we've always said when we get into a new business segment, okay, obviously, there's going to be an initial investment in terms of getting into the segment. We're going to lose money for a while until we build up the scale. But also, remember, we are a consumer products business in China. So, in addition to building up scale like we would do with a normal manufacturing business, we're also investing in the brand and investing behind making sure the consumer knows that the A. O. Smith brand is in that category. And what our features and benefits are, I mean, typical marketing, okay. So it's that combination that makes that investment period and getting us to breakeven longer than a typical industrial type business, okay. But at the same time, whenever we get into a category, we make sure that our gross margins are high and that we have a plan and a can-see path to get us to the right level of profitability. And we make sure that the teams are working towards getting up there. So we are along that path. And as the volume grows, the scale grows and the contribution grows, and also we can appropriately scale our investment behind the brand in that category to make sure that we are reaching our profit targets at the right pace. So it's all of that. I know that's a mouthful, but that's all of that that's impacting us. And it's on track in terms of us getting the water treatment profitability to the levels we want them to be at. Alvaro Lacayo - Gabelli & Company: Okay. Thank you very much.

And our next question comes from Sam Eisner from Goldman Sachs. Your line is now open. Samuel H. Eisner - Goldman Sachs & Co.: Yeah, good morning, everyone. I think actually most of my questions have been answered. Thanks.

Okay.

And our next question comes from David MacGregor from Longbow Research. Your line is now open. Brandon Rollé - Longbow Research LLC: This is Brandon Rollé on for David MacGregor. I was going to ask you if you could talk quickly about your 2016 growth in commercial water heaters and to the extent that you may have gained share. And then also if you could just talk about what might change competitively, if anything, in 2017 with a possibly stronger U.S. dollar environment. Thank you.

I think share – well, the whole industry grew about 20%. And I think we talked about the major reason for that being the 55-gallon and up electric which was eliminated under NAECA from a residential standpoint. So, if you look at the 20% growth, I think about 17% of the growth was specific to that. And then small electrics under 55-gallon were the majority of the reminder, the 3%. We really, from a share standpoint, it was pretty constant except we did talk about the fact that we didn't have equivalent share in the 55-gallon and up electric. We brought out a product to compete in that late in the first quarter, and the product has been doing fairly nicely. But clearly, that had an impact on our overall share. So the industry, except for that specific, was pretty level for the year. Does that answer your question? Brandon Rollé - Longbow Research LLC: Yes, that answered my question. And also I was going to see if you could just comment on if you think there will be a shift in competitive dynamics with a stronger U.S. dollar in 2017?

Well, the good news for us is it's very hard to ship in water heaters from the outside. So the stronger dollar we're not concerned about – that's going to make imports better positioned. So we're not concerned about what the effect is here. The stronger U.S. dollar could have an impact on the Canada market a little bit. I don't (01:00:08).

Yeah, and we have some – we have some Canadian competitors in the U.S. market too. But they are seeing the advantage today. And we're not concerned about it. Brandon Rollé - Longbow Research LLC: Okay. Thank you.

And our next question comes from Robert McCarthy from Stifel. Your line is now open. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Well, looks like we're drawing to a close here, guys. But maybe you just – have you provided any kind of implicit assumption for price in your outlook for 2017?

No. As you know, we can't speculate on price. And we talk about price only once something happens in the marketplace. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: All right. And then just in terms of thinking about ERP spend, how do we think about it beyond this year in terms of incremental spend over the next two or three years from a long-term modeling standpoint? Are we done or where are we in terms of a certain base level of spending?

Yeah, I think what we tried to say is that was $25 million in 2016, about $17.5 million in 2017. And we would say probably the run rate is $15 million going forward. And it's those components I talked about which is the amortization of what we capitalized, the outside services, the license fees, et cetera. So I think the run rate after this, our best guess is $15 million going forward. Robert McCarthy - Stifel, Nicolaus & Co., Inc.: Thanks for your time.

Sure.

Thank you. And the question comes from Bhupender Bohra from Jefferies. Your line is now open.

Hey. Just one more question here, which I forgot, was on the Aquasana. You have some cross-selling synergies over the next two years which you gave last year. Could you just update us on that and how the cross-selling between China and the U.S., keeping in mind the border adjustment tax, which we think will play or not play, I don't know, but has anything changed along with your strategy, keeping that in mind? Thank you.

No, I think at this time, nothing's changed. We expect their core business to grow over 20% this year, and then we will start to see some of the synergies associated with the cross-selling this year. We said it would be back end loaded, but we would expect that to be in the area of $5 million of cross-selling this year with the ultimate objective after a three-year period to be in the 25% to 30%, I think is what we've talked about. So I'd say Aquasana is on track, no surprises. And we're not going to change our strategy until there's something firm out there on...

On the cross-border.

Yeah, that's (01:03:01).

And also, Bhupender, I think the overall question, if I can take a step back on your question, in terms of – and not to put words in your mouth, but how that Aquasana are doing. I think from our perspective, it's right on track. Strategically, we are absolutely convinced this is the right thing to do which is why we did the acquisition. And from a synergy perspective, one of the things we didn't talk about are the cost side of the synergies. It's going well. In fact, if anything, even a little better.

Okay. Got it. Thank you.

At this time, I'm showing no further questions. I would now like to turn the call back over to Ms. Patricia Ackerman for closing remarks.

Thank you all for joining us today. Please take note that we will participate in a couple conferences during the first quarter. The first is the Alembic conference in Salt Lake City on March 1, and the second is the Boenning & Scattergood conference in London on March 23. Have a great day.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now all disconnect. Everyone, have a great day.