SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------
Date of Report
(Date of earliest
event reported): October 14, 2003
A. O. Smith Corporation
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 1-475 39-0619790
- ---------------- --------- -----------------
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
P.O. Box 245008, Milwaukee, Wisconsin 53224-9508
------------------------------------------------
(Address of principal executive offices, including zip code)
(414) 359-4000
--------------
(Registrant's telephone number)
Item 7. Financial Statements and Exhibits
(a) Not applicable.
(b) Not applicable.
(c) Exhibits. The following exhibit is being filed herewith:
(99.1) Press Release of A. O. Smith Corporation, dated October 14, 2003.
(99.2) Script from the Third Quarter 2003 Earnings Conference Call held on
October 14, 2003 at 10:21 a.m. Eastern Time.
Item 12. Results of Operations and Financial Condition
On October 14, 2003, A. O. Smith Corporation ("the Company") issued a press
release announcing the Company's results for the quarter ended September 30,
2003 and its earnings outlook for 2003. A copy of the Company's press release is
attached as Exhibit 99.1 to this Current Report on Form 8-K (this "Current
Report") and is incorporated by reference herein.
On October 14, 2003, the Company held its Third Quarter 2003 Earnings Conference
call in connection with the announcement of the Company's results for the
quarter ended September 30, 2003. A copy of the Company's script for such
conference call is attached as Exhibit 99.2, to this Current Report and is
incorporated by reference herein.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
A. O. SMITH CORPORATION
Date: October 15, 2003 By: /s/ Kenneth W. Krueger
-----------------------------
Kenneth W. Krueger
Senior Vice President and
Chief Financial Officer
2
A. O. SMITH CORPORATION
Exhibit Index to Current Report on Form 8-K Dated October 14, 2003
Exhibit
Number Description
- ------ -----------
(99.1) Press Release of A. O. Smith Corporation, dated October 14, 2003.
(99.2) Script from the Third Quarter 2003 Earnings Conference Call held on
October 14, 2003 at 10:21 a.m. Eastern Time.
3
A. O. SMITH CORPORATON
NEWS RELEASE For further information contact:
- --------------------------------------------------------------------------------
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."
-more-
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,
-more-
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
--------------------------------- -------------------------------
2003 2002 2003 2002
-------------- ------------- ----------- ------------
Electrical Products $ 201.2 $ 197.5 $ 641.9 $ 612.9
Water Systems 155.2 154.9 520.0 497.7
-------------- ------------- ----------- ------------
Net sales 356.4 352.4 1,161.9 1,110.6
Cost of products sold 294.9 286.1 938.4 885.9
-------------- ------------- ----------- ------------
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
-------------- ------------- ----------- ------------
9.3 14.9 59.4 61.3
Tax provision 3.3 4.9 19.8 21.2
-------------- ------------- ----------- ------------
Net Earnings $ 6.0 $ 10.0 $ 39.6 $ 40.1
============== ============= =========== ============
Net Earnings Per Share of Common
Stock (Diluted) $ 0.20 $ 0.34 $ 1.33 $ 1.49
============== ============= =========== ============
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
--------------------- ---------------------
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
------------------ ------------------
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
------------------ ------------------
Total Assets $ 1,274.1 $ 1,224.9
================== ==================
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
------------------ ------------------
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
------------------ ------------------
Total Liabilities and Stockholders' Equity $ 1,274.1 $ 1,224.9
================== ==================
A. O. SMITH CORPORATION STATEMENT OF CASH FLOWS
(dollars in millions)
Nine Months ended
September 30
------------------------------------
2003 2002
-------------- --------------
Operating Activities
Continuing
- ----------
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)
-------------- --------------
Cash Provided by Operating Activities 26.1 98.4
-------------- --------------
Investing Activities
Capital expenditures (28.1) (25.8)
Acquisitions (3.1) (11.8)
-------------- --------------
Cash Used in Investing Activities (31.2) (37.6)
-------------- --------------
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)
-------------- --------------
Cash Provided by (Used in) Financing Activities 7.8 (52.3)
Discontinued
- ------------
Cash Provided by (Used in) Discontinued Operations (0.1) 3.7
-------------- --------------
Net increase in cash and cash equivalents 2.6 12.2
Cash and cash equivalents - beginning of period 32.8 20.7
-------------- --------------
Cash and Cash Equivalents - End of Period $ 35.4 $ 32.9
============== ==============
A. O. SMITH CORPORATION AND SUBSIDIARIES
Business Segments
(dollars in millions)
Three Months ended Nine Months ended
September 30 September 30
------------------------------ -------------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net sales
Electrical Products $ 201.2 $ 197.5 $ 641.9 $ 612.9
Water Systems 155.2 154.9 520.0 497.7
------------ ------------ ------------ ------------
$ 356.4 $ 352.4 $ 1,161.9 $ 1,110.6
============ ============ ============ ============
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
------------ ------------ ------------ ------------
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)
------------ ------------ ------------ ------------
Earnings before income taxes 9.3 14.9 59.4 61.3
Provision for income taxes (3.3) (4.9) (19.8) (21.2)
------------ ------------ ------------ ------------
Net earnings $ 6.0 $ 10.0 $ 39.6 $ 40.1
============ ============ ============ ============
A. O. Smith Corporation - Script
Third Quarter 2003 Earnings Conference Call
October 14, 2003 at 10:21 a.m. Eastern Time
Slide 1
A. O. Smith Corporation Logo
Third Quarter 2003
Conference Call
Introduction - Craig Watson
Good morning ladies and gentlemen and thank you for joining us on this
conference call. With me this morning participating in the call are Ken Krueger,
Chief Financial Officer; and John Kita; Treasurer and Controller.
Before we begin with Ken'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, could 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.
I'd also like to point out that this conference call is accompanied by slides on
our website so please feel free to follow along while we conduct the call.
Ken ...
Thank you Craig.
Slide 2
Third Quarter Results
(in millions, except per share)
2003 2002 change
------ ------ ------
Sales $356.4 $352.4 $4.0
Net Earnings 6.0 10.0 (4.0)
EPS $0.20 $0.34 $(0.14)
====== ====== ======
Third Quarter Results - Ken Krueger
Third quarter earnings were 20 cents per share or approximately $6.0 million,
compared with 34 cents per share or $10 million earned in last year's third
quarter. Third quarter sales were $356 million compared with $352 million last
year. I will address comparisons to last year later under business unit
performance.
From a forecast perspective, on September 24th we announced an expected
shortfall in pretax earnings of approximately $11 million, compared with our
prior forecast of approximately $20 million. This shortfall was due to the costs
related to timing delays and disruptions caused by significant transitions in
both businesses. These transitions included the repositioning of electric motor
manufacturing to Mexico and China, and the launch of flammable vapor resistant
water heaters.
Slide 3
Earnings Forecast
Q4 03 $.42 - $.47
2003 $1.75 - $1.80
2004 $2.40 - $2.60
Earnings Forecast
Due to the lower third quarter results, as well as fourth quarter inventory
reduction initiatives in the motors business, we lowered the full year outlook
for 2003 to a range of between $1.75 and $1.80 per share.
We are disappointed in this earnings reduction, but expect to be back on track
as we move forward. In the fourth quarter, we believe our water heater business
will be generating double digit operating margins. And though our motors
business will experience some fixed cost absorption issues in the fourth
quarter, we expect to see significant cost advantages in 2004. As a result of
the efforts to reposition manufacturing, we believe the motors business should
generate incremental pretax earnings of at least fifteen million dollars in
2004. In Water Systems, the introduction of new regulation mandated product, as
well as product standardization efforts and plant rationalization programs, are
expected to generate in excess of twenty million pretax dollars. Accordingly, we
are projecting 2004 earnings to range between $2.40 and $2.60 per share,
compared with this year's estimate of $1.75 to $1.80.
Now I would like to go through a more detailed review of the third quarter.
Slide 4
Third Quarter Results
(in millions, except per share earnings)
2003 2002 change
------- ------- ------
Electrical Products $ 201.2 $ 197.5 $ 3.7
Water Systems 155.2 154.9 0.3
------- ------- ------
Total Sales $ 356.4 $ 352.4 $ 4.0
Net Earnings 6.0 10.0 (4.0)
EPS $ 0.20 $ .034 $(0.14)
======= ======== ======
Shares 29.8 29.5 0.3
Third quarter financials
Third quarter pretax earnings were approximately $11 million lower than our
forecast at the end of the second quarter. As you'll recall, in anticipation of
the launch of the flammable vapor resistant product in the third quarter,
customers purchased significant quantities of residential gas water heaters in
the second quarter. The resulting sales reduction in the third quarter, coupled
with the disruption in manufacturing schedules caused by the pre-buy activity
and the launch of the new product, negatively impacted forecasted profits by
approximately $6.5 million in the third quarter. We believe this disruption has
run its course and expect performance in the water heater business to be back on
track in the fourth quarter.
In the electric motor business, profits fell about $4.5 million below forecast
due to a combination of reasons. Sales volumes were below expectations,
generating operating profit that was $3 million less than forecasted. Previously
announced efforts to reposition U.S. production to lower cost Mexican facilities
were largely completed, although somewhat later in the quarter than we had
forecasted. As a result, savings from this transition came later than
anticipated generating a profit shortfall of $1.5 million in the quarter.
Manufacturing costs were higher than expected during the final stages of the
transition, also negatively impacting third quarter profitability by
approximately $2.5 million.
As you may recall from last quarter, motor inventory levels have grown in order
to assure customer deliveries during the shift in production. Inventories are
also higher due to manufacturing schedules that anticipated higher sales levels.
Motor inventory levels increased during the quarter, causing an improvement in
fixed cost absorption of approximately $2.5 million. As we reduce production to
rebalance inventory in the fourth quarter, we will under-absorb fixed costs.
This under-absorption will adversely affect fourth quarter operating profit.
Slide 5
2003 Cash Flow
Cash Flow from Operations
($ in millions)
Q1 (11)
Q2 5
Q3 32
Cash Flow
Operating cash flow for the first nine months of the year was $26 million
dollars. During the third quarter, the company generated $32 million in
operating cash flow. Cash flow is typically weighted to the second half of the
year due to the seasonality of motor sales to the HVAC and pump markets in the
first half of the year, which tends to build up receivables at June 30.
In addition to this seasonality, two other factors had pronounced impacts,
causing increases in receivables and inventory. Electrical Products
repositioning to Mexico and China required increased inventory levels to
minimize customer service disruption through the transition. The launch of
flammable vapor resistant water heaters on July 1 caused pressure on both
receivables and inventories at Water Systems at the end of the second quarter.
During the third quarter, receivables declined $47 million while inventories
increased $16 million.
For the full year, we are projecting operating cash flow of approximately $60 to
$70 million, as working capital returns to normalized levels, coupled with
specific efforts to reduce motor inventory.
Year to date, capital spending is $28 million compared with depreciation of $39
million. For the full year, we are projecting capital spending of approximately
$40 to $45 million and depreciation of about $50 million.
Slide 6
Debt-to-Capital
12/31/02 33%
6/30/03 34%
9/30/03 33%
Debt to Capital
As a result of the positive cash flow in the third quarter, our debt to capital
ratio declined to 33% from 34% at the end of June.
Now I'd like to move on to a discussion of the operating performance in our
Electrical Products and Water Systems businesses compared to last year.
Slide 7
Electrical Products
(in millions)
Q3 03 Q3 02 change %
----- ----- ------ -------
Sales 197.2 197.5 (0.3) 0%
China 4.0 - 4.0
----- ----- ------
Total 201.2 197.5 3.7 2%
EBIT 9.6 10.3 (0.7) -7%
EBIT Margin 4.8% 5.2%
Electrical Products
Sales of $201 million in our Electrical Products business were slightly higher
compared with last year's third quarter. Sales from last year's China
acquisition and increased sales of air conditioning motors and motors sold
through the distribution channel, offset lower sales of motors for pump,
subfractional and general industry applications.
Operating profit at Electrical Products declined to $9.6 million from $10.3
million last year. Third quarter EBIT margin was 4.8% of sales. The decline in
operating margin was due to the repositioning disruptions as well as last year's
acquisitions, whose sales do not yet contribute to profitability.
Slide 8
EPC Plant & Production
Repositionings
o 3 plants closed in 2003
- Monticello - closed Q1
- Athens - closed Q2
- Ripley - closed Q3
o Significant production from 4 other plants
o Shenzhen - capacity for 30,000 motors per day
o Changzhou - production start-up in fourth quarter
o Taicang hermetic motor manufacturing
EPC Repositioning
Though we are disappointed with the earnings shortfall related to the
repositioning activities at Electrical Products, we also believe we have
achieved significant results considering the number of simultaneous relocation
activities. During 2003, three facilities were closed: Monticello, Indiana;
Athens, Tennessee and Ripley, Tennessee. Additionally, we have moved significant
amounts of production from four other U.S. facilities.
In China, we are producing 25,000 motors a day at our Shenzhen facility and have
begun to qualify product for manufacture in our newly acquired facilities
outside of Shanghai.
On a related note, we are happy to announce the pending acquisition of Taicang
Special Motor Co., Ltd. We have a letter of intent in place, and expect to close
this transaction in the next several weeks. This addition expands our motor
manufacturing capability in China, by adding hermetic motor manufacturing
capacity.
Slide 9
Water Systems
(in millions)
Q3 03 Q3 02 change %
----- ----- ------ ------
Sales 155.2 154.9 0.3 0%
EBIT 7.9 13.4 (5.5) -41%
EBIT Margin 5.1% 8.6%
Water Systems
Water Systems third quarter sales of $155 million were flat compared with the
third quarter of last year. Higher sales driven by the price increase introduced
earlier in the year to offset higher steel costs, as well as higher prices for
flammable vapor product, and a more than 40 percent increase in sales at our
Chinese operation offset lower unit sales of both residential and commercial
water heaters.
Operating profit of 7.9 million dollars was 5.5 million lower than last year due
to the disruptions related to the flammable vapor resistant product launch
discussed earlier.
Slide 10
Water Systems
Regulatory Changes & New Products
o Flammable Vapor
- All 30, 40 and 50 gallon gas water heaters; manufacturing began July 1
- All other gas heaters in 2004
o NAECA efficiency mandate - Jan. 2004
Regulatory Product Introductions
The wholesaler inventory levels related to the flammable vapor resistant product
pre-buy have diminished and we believe production and deliveries will return to
normal in the fourth quarter. Right now, the flammable vapor resistant product
line consists of all gas units in the 30, 40 and 50-gallon capacities. In 2004,
the balance of the residential gas product line will be subject to the mandate.
NAECA, the National Appliance and Energy Conservation Act will require an
efficiency improvement of four percentage points for electric water heaters and
five percentage points for gas water heaters, beginning in January 2004.
Slide 11
Water Systems
Standardization Program
o Leverage flammable vapor & new efficiency products to standardize the
residential product line
o Facility rationalization
- Ashland City - residential product
- McBee - commercial product
- Juarez
o $5 million in pretax savings in 2004
Product Standardization
In connection with the introduction of the new products, we have launched a
program to "standardize and customize" the Water Systems product line. This
program will benefit our business in three ways: first, standardizing the basic
design will allow us to build product in plants closest to their end market,
maximizing logistics and shipping efficiencies. Secondly, these products, while
having a standard "chassis", will allow for customized configuration further
along in the assembly process, minimizing the cost of product variation. And
third, this "standardize and customize" program allows us to streamline our
manufacturing operation while enhancing customer service.
In connection with product standardization, we recently announced plans to
consolidate the North American manufacture of residential water heaters at our
Ashland City, Tenn., and Juarez, Mexico, facilities. The initiative, which will
involve transferring residential production from the McBee, S. C. plant, will be
complete by the first quarter of 2004. At the same time, we are consolidating
most of our commercial manufacturing in our McBee facility, which involves the
transfer of production from Ashland City, Tennessee and El Paso, Texas. We
expect the product standardization and plant rationalization programs to
generate approximately $5 million in incremental savings in 2004.
Slide 12
2003 Earnings Forecast
2003 est. 2002
--------- ----
Fourth Quarter $.42 - .47 $ 0.38
Full Year $1.75 - 1.80 $ 1.86
Outlook
Now I'd like to talk about the outlook.
As I said earlier, we are committed to inventory reduction in our motors
business, which will cause underabsorption of fixed costs and margin compression
in the fourth quarter.
On the other hand, we expect strong margin performance in the water heater
business, as the costs and disruption due to the new product launch are now
behind us.
In summary, we expect full year earnings of between $1.75 and $1.80 per share.
Slide 13
2004
2004 Earnings Forecast
$2.40 - $2.60
o Incremental pretax earnings
- EPC - reduced conversion costs: $15 million
- WPC regulatory changes, new product: $15 million
- WPC/State standardization: $5 million
As we look ahead to 2004, we have a strong base for performance. The year 2003
has been one of both challenge and accomplishment. During the year we have
transferred half of our domestic motor manufacturing operations to lower cost
facilities in Mexico and China. In the water heater business we have undergone
the most significant product line transformation in our history. These
transformations will be largely behind us by year-end, and we expect to be on
track with our long-term strategic direction. Accordingly, we expect financial
performance in 2004 to be in line with our strategic plan, in a range of $2.40
to $2.60 per share.
This profit improvement will be driven largely by the efforts completed in 2003.
In the motors business, we expect that a full year's impact of the transition to
Mexico, as well as the ramp-up in China, will generate pretax earnings of $15
million.
In the water heater business, a full year's sales of flammable vapor resistant
product, as well as the introduction of NAECA compliant product will generate
$15 million pre-tax. The focusing of commercial water heater production in our
McBee, South Carolina plant, with residential product transitioned to Ashland
City, Tennessee is expected to provide $5 million in pre-tax impact.
These three items will generate a collective $35 million pre-tax improvement and
serve as the underlying drivers for the projection of $2.40 to $2.60 per share
earnings in 2004.
Slide 14
A. O. Smith Corporation Logo
Q&A
(Craig speaks)
That completes our opening remarks and we are now ready for your questions. As a
reminder please limit your inquiries to one or two questions at a time so that
everyone interested has an opportunity to participate. Operator ....
(Ken speaks)
Conclusion
While we are not happy about our financial results in the third quarter, we are
confident that the programs in place will significantly enhance our operating
margins In the long run. We look forward to updating you again next quarter.
