A. O. SMITH CORPORATON
NEWS RELEASE For further information contact:
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MEDIA INQUIRES: ANALYST/INVESTOR INQUIRES: A.O. Smith Corporation
Edward J. O' Connor Craig Watson P.O. Box 245008
414-359-4100 414-359-4009 Milwaukee, WI 53224-9508
414-359-4000
NYSE: AOS
FOR IMMEDIATE RELEASE
October 14, 2003
A. O. Smith announces third quarter earnings of $.20 per share
Milwaukee, Wis.--A. O. Smith Corporation (AOS-NYSE) today announced third
quarter net earnings of $6.0 million or $.20 per share, in line with the
estimate announced in September but lower than third quarter 2002 net earnings
of $10.0 million or $.34 per share.
Sales for the quarter ended Sept. 30 were $356.4 million, $4 million higher
than sales for the same period last year.
For the first nine months of 2003, net earnings for the Milwaukee-based
manufacturer of electric motors and water heaters were $39.6 million, compared
with $40.1 million earned during the same period of 2002. Revenues for the
nine-month period were $1.16 billion compared with 2002 nine-month revenues of
$1.11 billion.
As indicated in its Sept. 24 press release, the company incurred costs in
the third quarter due to timing delays and disruptions, as both of its
businesses undertook significant transitions. These transitions included the
transfer of electric motor production to lower-cost facilities in Mexico and
China, as well as the introduction of flammable vapor resistant water heaters.
According to Robert J. O'Toole, chairman and chief executive officer,
"While we are disappointed in our financial performance in the third quarter, we
are pleased in achieving major milestones in both businesses. We expect to begin
receiving the benefits of these efforts in the fourth quarter and to be fully on
track with our long-term strategic direction by year-end."
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A. O. Smith Earnings add 1
The company also announced that it has entered into a letter of intent to
acquire the assets of Taicang Special Motor Co., Ltd., near Shanghai. Taicang
will serve to expand the company's China manufacturing capability to include
hermetic motors. The transaction is expected to be completed in the fourth
quarter.
Electrical Products
Third quarter sales of $201.2 million were modestly higher than
third-quarter 2002 sales of $197.5 million. Operating earnings of $9.6 million
were $700,000 lower than the same period in 2002, due to expenses in relocating
production to lower-cost facilities, which adversely impacted manufacturing
costs and finished goods inventories.
Water Systems
Water Systems' sales of $155.2 million were flat compared with the third
quarter of 2002. Higher sales in China, coupled with price increases related to
steel costs and newly launched products, were offset by lower unit sales of
residential and commercial water heaters. Operating profit of $7.9 million was
approximately $5.5 million lower than the third quarter of 2002 as a result of
one-time manufacturing and freight costs due to the flammable vapor resistant
product launch.
Outlook
"As we indicated in our Sept. 24 press release, we expect earnings for 2003
to range between $1.75 and $1.80 per share. This reduction from our previous
forecast was due to the disruptions in the third quarter and efforts to reduce
electric motor inventory in the fourth quarter," O'Toole commented. "We expect
these implementation difficulties to be behind us as we enter 2004. Accordingly,
we expect earnings per share to be in line with our strategic plan, in a range
of $2.40 to $2.60 per share." A. O. Smith Corporation will broadcast a live
conference call beginning at 9:30 a.m. (Eastern Time) today. The call can be
heard on the company's web site,
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A. O. Smith Earnings add 2
www.aosmith.com. An audio replay of the call will be available on the company's
web site after the live event.
Forward-looking statements
This release contains statements that we believe are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements generally can be identified by the use of
words such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "continue," or words of similar meaning. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated as of the date of this
release. Factors that could cause such a variance include the following:
instability in the company's electric motor and water products markets;
inability to generate the synergistic cost savings from the acquisition of State
Industries; the inability to implement cost-reduction programs; adverse changes
in general economic conditions; significant increases in raw material prices;
competitive pressures on the company's businesses; and the potential that
assumptions on which the company based its expectations are inaccurate or will
prove to be incorrect.
Forward-looking statements included in this press release are made only as
of the date of this release, and the company is under no obligation to upgrade
these statements to reflect subsequent events or circumstances. All subsequent
written and oral forward-looking statements attributed to the company, or
persons acting on its behalf, are qualified entirely by these cautionary
statements.
A. O. Smith Corporation, headquartered in Milwaukee, Wis., is one of North
America's largest manufacturers of electric motors and a leading marketer and
manufacturer of commercial and residential water heating equipment. The company
employs approximately 17,000 people at facilities in the United States, Canada,
China, England, Hungary, Ireland, Mexico, and the Netherlands.
A. O. SMITH CORPORATION AND SUBSIDIARIES
(condensed consolidated financial statements -
dollars in millions, except per share data)
Statement of Earnings
Three Months ended Nine Months ended
September 30 September 30
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2003 2002 2003 2002
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Electrical Products $ 201.2 $ 197.5 $ 641.9 $ 612.9
Water Systems 155.2 154.9 520.0 497.7
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Net sales 356.4 352.4 1,161.9 1,110.6
Cost of products sold 294.9 286.1 938.4 885.9
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Gross profit 61.5 66.3 223.5 224.7
Selling, general and administrative 48.8 48.3 154.5 151.7
Interest expense 3.1 3.2 9.0 11.1
Other (income) / expense 0.3 (0.1) 0.6 0.6
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9.3 14.9 59.4 61.3
Tax provision 3.3 4.9 19.8 21.2
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Net Earnings $ 6.0 $ 10.0 $ 39.6 $ 40.1
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Net Earnings Per Share of Common
Stock (Diluted) $ 0.20 $ 0.34 $ 1.33 $ 1.49
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Average Common Shares
Outstanding (000's omitted) 29,780 29,451 29,653 27,018
A. O. SMITH CORPORATION
Balance Sheet
(dollars in millions)
September 30 December 31
2003 2002
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ASSETS:
Cash and cash equivalents $ 35.4 $ 32.8
Receivables 225.7 215.5
Inventories 248.7 200.4
Deferred income taxes 21.9 26.7
Other current assets 14.0 12.9
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Total Current Assets 545.7 488.3
Net property, plant and equipment 352.2 362.7
Goodwill and other intangibles 309.0 309.2
Other assets 67.2 64.7
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Total Assets $ 1,274.1 $ 1,224.9
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Trade payables $ 148.1 $ 131.4
Accrued payroll and benefits 35.3 38.7
Product warranty 19.3 19.5
Long-term debt due within one year 8.6 11.7
Other current liabilities 45.7 60.4
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Total Current Liabilities 257.0 261.7
Long-term debt 259.8 239.1
Other liabilities 110.1 114.7
Pension liability 82.0 90.8
Deferred income taxes 17.0 7.5
Stockholders' equity 548.2 511.1
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Total Liabilities and Stockholders' Equity $ 1,274.1 $ 1,224.9
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A. O. SMITH CORPORATION STATEMENT OF CASH FLOWS
(dollars in millions)
Nine Months ended
September 30
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2003 2002
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Operating Activities
Continuing
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Net earnings $ 39.6 $ 40.1
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation & amortization 38.7 37.7
Net change in current assets and liabilities (49.0) 22.1
Net change in noncurrent assets and liabilities (2.5) (0.8)
Other (0.7) (0.7)
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Cash Provided by Operating Activities 26.1 98.4
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Investing Activities
Capital expenditures (28.1) (25.8)
Acquisitions (3.1) (11.8)
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Cash Used in Investing Activities (31.2) (37.6)
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Financing Activities
Debt incurred 50.0 -
Debt retired (32.3) (174.9)
Proceeds from common stock offering - 127.5
Other stock transactions 2.6 5.3
Dividends paid (12.5) (10.2)
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Cash Provided by (Used in) Financing Activities 7.8 (52.3)
Discontinued
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Cash Provided by (Used in) Discontinued Operations (0.1) 3.7
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Net increase in cash and cash equivalents 2.6 12.2
Cash and cash equivalents - beginning of period 32.8 20.7
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Cash and Cash Equivalents - End of Period $ 35.4 $ 32.9
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A. O. SMITH CORPORATION AND SUBSIDIARIES
Business Segments
(dollars in millions)
Three Months ended Nine Months ended
September 30 September 30
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2003 2002 2003 2002
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Net sales
Electrical Products $ 201.2 $ 197.5 $ 641.9 $ 612.9
Water Systems 155.2 154.9 520.0 497.7
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$ 356.4 $ 352.4 $ 1,161.9 $ 1,110.6
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Earnings before interest and taxes
Electrical Products $ 9.6 $ 10.3 $ 45.9 $ 46.0
Water Systems 7.9 13.4 37.7 43.6
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Business Segment Earnings 17.5 23.7 83.6 89.6
Corporate expenses (5.1) (5.6) (15.2) (17.2)
Interest expense (3.1) (3.2) (9.0) (11.1)
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Earnings before income taxes 9.3 14.9 59.4 61.3
Provision for income taxes (3.3) (4.9) (19.8) (21.2)
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Net earnings $ 6.0 $ 10.0 $ 39.6 $ 40.1
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