Form 8-K

 

 

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): November 10, 2009

 

 

A. O. Smith Corporation

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   1-475   39-0619790

(State or other jurisdiction

of incorporation)

  (Commission File Number)  

(IRS Employer

Identification No.)

P.O. Box 245008, Milwaukee, Wisconsin 53224-9508

(Address of principal executive offices, including zip code)

(414) 359-4000

(Registrant’s telephone number)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 204.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13-e4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 7.01. Regulation FD Disclosure

On November 10, 2009, A. O. Smith Corporation (the “Company”) will be making a presentation to investors at the Robert W. Baird & Co. 2009 Industrial Conference. Exhibit 99.1 is a copy of the slides that will be presented as part of, and posted on the Company’s website in connection with, the presentation. The slides are being furnished pursuant to Item 7.01, and the information contained therein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference into any document filed under the Securities Act of 1933 or the Securities Exchange Act of 1934 except as shall be expressly set forth by specific reference in such filing.

This Current Report on Form 8-K (including the Exhibit hereto) contains statements that the Company believes are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. 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 report. Factors that could cause such a variance include the following: significant volatility in raw material prices; competitive pressures on the Company’s businesses; inability to implement pricing actions; negative impact of future pension contributions on the Company’s cash flow; instability in the Company’s electric motor and water products markets; further weakening in housing construction; further weakening in commercial construction; timing of any recoveries in housing or commercial construction; a slowdown in the Chinese economy; expected restructuring savings realized; further adverse changes in customer liquidity and general economic and capital market conditions; the impact of acquisition accounting or non-GAAP financial measures on the Company’s financial statements or difficulties in closing on and integrating the proposed China acquisition, and realizing future growth and profit expectations.

Forward-looking statements included in this report are made only as of the date of this report, and the Company is under no obligation to update these statements to reflect subsequent events or circumstances.

 

Item 9.01. Financial Statements and Exhibits

The following exhibit is being furnished herewith:

(99.1) A. O. Smith Corporation Robert W. Baird & Co. 2009 Industrial Conference Presentation Slides, dated November 10, 2009.

 

2


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: November 10, 2009   By:  

/S/    JAMES F. STERN        

    James F. Stern
    Executive Vice President, General Counsel and Secretary

 

3


A. O. SMITH CORPORATION

Exhibit Index to Current Report on Form 8-K Dated November 10, 2009

 

Exhibit
Number

  

Description

99.1    A. O. Smith Corporation Robert W. Baird & Co. 2009 Industrial Conference Presentation Slides, dated November 10, 2009.

 

4

Conference Slides
Baird 2009 Industrial Conference
Exhibit 99.1


2
This presentation 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,” “guidance”, 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:
significant volatility in raw material prices; competitive pressures on the company’s businesses; inability to implement pricing
actions; negative impact of future pension contributions on the company’s cash flow; instability in the company’s electric motor
and water products markets; further weakening in housing construction; further weakening in commercial construction; timing
of any recoveries in housing or commercial construction; a slowdown in the Chinese economy; expected restructuring savings
realized; further adverse changes in customer liquidity and general economic and capital market conditions; the impact of
acquisition accounting or non-GAAP financial measures on the company’s financial statements or difficulties in closing on and
integrating the proposed China acquisition, and realizing future growth and profit expectations.
Forward-looking statements included in this press release are made only as of the date of this presentation, and the
company is under no obligation to update 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.
This presentation contains certain non-GAAP financial measures as that term is defined by the SEC.  Non-GAAP
financial measures are generally identified by “Adjusted” (Adj.), “Non-GAAP” or “Before Restructuring”.  
Forward Looking Statements


3
Investment Case
Leader in Commercial and
Residential Water Heaters
2009 Margin Expansion, in
spite of Significant Volume
Declines
Strong Balance Sheet and
Cash Flow
China/Asia
Energy Efficient Products


4
$1.00
$1.25
$1.50
$1.75
$2.00
$2.25
$2.50
$2.75
$3.00
$3.25
2007
2008
2009 GAAP
Forecast
2009 Non-
GAAP forecast
2009 EPS Forecast
$2.70
$2.85
$.15 Range
$2.60 -
$2.75
$2.95 -
$3.13
$.18 Range


5
Sales
1,481.9
1,796.3
(314.4)
$
-18%
Net Earnings
67.0
$     
75.2
$     
(8.2)
$    
-11%
EPS
2.21
$     
2.48
$     
(0.27)
$  
-11%
(in millions, except per share)
2009
2008
change
% chg.
Financial
Results
9
months
YTD
Earnings and EPS are Non-GAAP


6
Water Products
1,012.8
$
1,105.0
$
(92.2)
$  
-8%
Electrical Products
472.0
     
694.9
     
(222.9)
  
-32%
Intersegment
(2.9)
       
(3.6)
       
0.7
       
Total Sales
1,481.9
$
1,796.3
$
(314.4)
-18%
Segment
Sales
9
months
YTD
2009
2008
change
% chg.
(in millions)


7
Water Products
104.3
$   
105.1
$   
(0.8)
$    
-1%
Electrical Products
27.4
      
44.3
      
(16.9)
    
-38%
Corporate
(35.8)
     
(36.9)
     
1.1
       
3%
Total Operating Profit
95.9
$    
112.5
$   
(16.6)
$  
-15%
Margin
Water Products
10.3%
9.5%
Electrical Products
5.8%
6.4%
Operating
Profit
9
months
YTD
2009
2008
change
% chg.
(in millions, except margins)


8
Operating cash flow of
$198 million
Expect operating cash
flow of approximately
$190 to $200 million in
2009
Balance Sheet remains
strong
Debt to Capital ratio of
24%
197. 8
75.0
0
20
40
60
80
100
120
140
160
180
200
Nine Month Cash Flow from Operations
9/30/08
9/30/09


9
A. O. Smith
*EBITDA Excludes $8.7M for restructuring
$1.4B
$.9B
Water Products
Electrical Products*
Sales
EBITDA
31%
69%


10
0
200
400
600
800
1000
1200
1400
1600
2004
2005
2006
2007
2008
2009 thru
Sept
0%
2%
4%
6%
8%
10%
12%
Sales
EBIT Margin
Water Products –
Sales & Earnings


11
U. S. Water Heater Market Segment
0%
10%
20%
30%
40%
50%
Tankless
Residential Market
Commercial Market
0%
10%
20%
30%
40%
50%
60%
Standard Commercial


12
NA Commercial
11%
NA Residential
74%
China
15%
Water Products
End Markets


13
0
100
200
300
400
500
600
700
800
900
1000
2004
2005
2006
2007
2008
2009 thru
Septmber
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
Sales
EBIT Margin
Electrical Products–Sales & Earnings
EBIT Margin shown is Non-GAAP


14
HVAC & R
17%
Pump
16%
Distribution
23%
General
Industries
  10%
China/Asia
9%
Hermetic
25%
Trane
Carrier
Scroll Tech
York
Copeland
Pentair
Waterway
Hayward
Broan
Grainger
Johnstone
SCP
Major Customers
Electrical Products
Market Segments Served


15
Electrical Products
End Markets
China
9%
NA Residential
61%
NA Commercial
30%


16
China/Asia now 13% of Sales and Growing
0
50
100
150
200
250
300
2003
2004
2005
2006
2007
2008
Electrical Products
Water Products
Sales have grown 35% (CAGR) over the last 5 years


17
Mega Trends -
China
Data: (The Value of China's Emerging Middle Class)
Share of Chinese Urban Households, %


18
China Motor Manufacturing
Commercial hermetic motors for air conditioning & refrigeration
$0
$20
$40
$60
$80
$100
$120
2004
2005
2006
2007
2008
Suzhou
Yueyang


19
Since 1995
Products designed for Chinese
consumers
Experienced Chinese managers
Double digit margin
Strong retail presence
Consistent strong growth
Doubled capacity to 2M units -
2010
Nanjing, China


20
A. O. Smith 20%
Haier 19%
Makro 7%
Wanhe 7%
Ariston 6%
Rinnai 5%
Noritz 4%
Siemens 2%
> 100 Others 30%
> 100  Others
30%
Leading
Electric
Brands:
A.O. Smith, Haier, Ariston, Siemens
Leading
Gas
Instantaneous
Brands:
Makro,  Wanhe, Rinnai, Noritz
Source: GFK-2009 (by Value)
Leading residential brands measured in currency; Tier One Market
China Residential Share


21
Retail channel Expansion
2008 to 2010
900
800
500
721
335
777
1100
750
0
200
400
600
800
1000
1200
1400
2008
2009P
2010P
Distribution Channel Expansion
Suning currently has 800
stores and plans to reach
900 stores by year end
Guomei is down sizing for
store efficiencies
We have been assisting
distributors opening
specialty stores, and
developing service
oriented dealers network


22
Specialty Stores


23
Hierarchy of Global Drinking Water Needs
Source:
AO Smith/MBK/2008
Availability
Desalinization, Well drilling, Pumping, Point-of-Egress
Security, Health, Hygiene
Chlorination, Heating/Boiling, Point of Entry
Access
Infrastructure, Home Plumbing
Taste/Convenience
Filtration, Bottled water, POU
Africa,
Middle East,
(Water Scarcity)
Sustainability
water recycling, bottled alternatives
Aesthetics
soft, carbonated, flavored
China, Eastern
Europe, India
(Water Quality/Health)
North America
W. Europe
(Custom Water)


24
China Water Purification Landscape
Economic Growth
GDP growth of 8-10%
Retail and appliance sales +20% YOY
Water Purification sales +10-15%/year
Reverse Osmosis and Point of Use sales forecasted at +30%
Improvement of Living Standards
“Feature rich”
apartment options
Growing awareness of water health and quality
In home product –
10% market penetration
Declining Water Quality
70% of source water unsafe to drink
Fragmented market


25
Chinese Water Purification Terminology
Water Dispenser
free standing unit, dispenses purchased
water from jugs, may dispense either hot or cold
Drinking
Machines
free
standing
units
that
filters
tap
water and may dispense either hot or cold
Water Jugs
carafe units, typically counter top, that allow
gravity filtration of tap water
Water Purifiers/Cleaners
stand alone, or multi-
component filtration.  Purifiers typically includes RO, typically
piped-in and under sink.


26
Tianlong Acquisition
Acquire leading product in China water purification
market
Leverage A. O. Smith brand and water heater
presence in appliance stores and building centers
Other benefits:
Existing parallel channels and brands for distribution sales
in China
Existing quality manufacturing base for export sales (India)


27
Tianlong Profile
Leading supplier of RO systems to the China market
Domestic market share leader
Exports to 30 countries
Market channels
3200 franchise shops
8000 mom and pop stores
Product Types
Residential RO machines, RO membranes, filters, water softeners,
Commercial/Industrial
equipment,
Components
of
residential
RO
machines
Profitability
Accretive day 1
ROIC greater than cost of capital in first full year under AOS ownership
2010 Preliminary Look
Revenues greater than $75 million
Operating margins in upper teens
Accretion: $.10 to $.15 per share


28
Bangalore
Establish brand & position
product
Develop manufacturing
capability
Greenfield manufacturing facility
Indian management team
Focus on storage electric
water heaters
Focus on top metropolitan
cities
India: Currently “Made in China”


29
Energy Efficiency


30
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
CAGR = 20.8%
Cyclone Sales Growth
20% of commercial revenues in 2008


31
A. O. Smith Tankless Gas Water Heaters
A comprehensive line of tankless water heaters
Residential and Commercial designs
Indoor and Outdoor installation options
Available in Natural Gas or Propane
Energy Efficient –
up to 84% thermal efficiency


32
Heat Pump Water Heating
Acquisition of AERS –
Specialty commercial
manufacturer
Additional, new distribution
channel
Introducing heat pump 
water heater in China


33
Solar Water Heating
Balcony mount system for
China
Commercial system for
Europe
Residential water heater
for North America


34
New Centurion Pro Pump Motor
Single-Speed, Two-Speed, Three Phase
Improved cooling
longer life
Better bearing protection
longer life
Better wiring access
easier installation
Business
Won 12,000 units ($1.2M) at Hayward
Working with Pentair and Jandy for 2010 season


35
Energy Efficiency Strategy
* Average Selling Price
Premium 2 Speed
Efficiency Gains of 12%
running longer on Low
Speeds
Operating Savings of
30~65% over Single
Speed Motors
Variable Speed
90%
over Single Speed
Flexible
Can
be
run
at
Optimum Speed
Efficiency range 80%
Operating Savings of 30-
Motors
$70*
$125*
$425*
Traditional Single Speed
Single Speed
Avg. Efficiency = 68%


36
AOS Comfort Series


37
Residential Hermetic Variable Speed
59 frame IPM for Bristol
Completed
in
just
3
weeks
and
delivered
March
2
Seeking IP protection on design
Preliminary tests found 2 SEER point improvement
nd


38
Energy Efficient Products
40% of China water heater sales are highest energy
efficiency rating!
25% of water products sales exceed minimum
energy efficiency standards
9% of electrical products sales exceed minimum
energy efficiency standards


39
Investment Case
Leader in Commercial and
Residential Water Heaters
Margin Expansion, in spite of
Significant Volume Declines
Strong Balance Sheet and
Cash Flow
China/Asia
Energy Efficient Products


Thank you!


41
Investor Contact
Patricia Ackerman
Vice President, Investor Relations and Treasurer
414-359-4130
packerman@aosmith.com