A. O. Smith reports higher sales and earnings from continuing operations

   A. O. Smith reports higher sales and earnings from continuing operations

PR Newswire

MILWAUKEE, Oct. 17, 2012

MILWAUKEE, Oct. 17, 2012 /PRNewswire/ -- Water technology company A. O. Smith
Corporation(NYSE: AOS)reported third quarter earnings from continuing
operations of $37.0 million or $.79 per share on a 12.2 percent increase in
revenue.

The company's 2012 third quarter performance included a full quarter of
Lochinvar's results, which was acquired in late August last year, as well as a
non-cash, pre-tax gain of $6.4 million or $.08 per share resulting from a
change to the company's estimate of the Lochinvar earn-out, which is based on
revenue targets.

Prior-year third quarter earnings from continuing operations of $26.9 million
or $.58 per share included a net pre-tax gain of $16.4 million related to
shares of Regal Beloit Corporationand an equity collar, as well as pre-tax
professional fees and expenses totaling $4.4 million related to the purchase
of Lochinvar. The net favorable impact to earnings from these items in last
year's third quarter was $.19 per share.

Sales for the three-month period ended Sept. 30 were $462.2 million, more than
$50 million higher than third quarter 2011 sales of $412.0 million, driven by
incremental Lochinvar sales and strong organic growth in China.

"The factors that have been influencing our business throughout 2012 continued
during the third quarter," Chairman and Chief Executive Officer Paul W. Jones
commented. "Our A. O. Smith branded sales in China grew over 20 percent in
the quarter driven by new distribution, market share gains and new products,
despite the slowdown in that country's economy."

"The Lochinvar acquisition continues to meet the high end of our profit
expectations," he observed. "Lochinvar's new line of CREST ® high-efficiency,
higher BTU input condensing boilers, which was introduced last year, has
received excellent market acceptance; and we plan to launch new, larger input
models of this product later this year."

North America segment
Third quarter sales of the North America segment, which includes U. S. and
Canadian water heaters and boilers, increased to $335.7 million compared with
third quarter 2011 sales of $310.2 million. The company benefited from sales
of $60.1 million of Lochinvar products, compared with last year's partial
quarter contribution of $20.8 million. Additionally, higher commercial water
heater volumes were more than offset by lower residential water heater and
tankless volumes.

Operating earnings from the segment of $50.7 million included a gain of $6.4
million related to the adjustment to the company's estimate of the Lochinvar
earn-out, compared with $30.9 million earned during the third quarter of
2011. Profits from the Lochinvar acquisition contributed $14.9 million to
quarterly earnings compared with $3.0 million last year. In addition, the
segment benefited from higher commercial volumes and material costs that were
lower than their relatively high levels last year. These benefits more than
offset the volume decline in residential water heaters. As a result, third
quarter operating margin of 15.1 percent was higher than third quarter 2011
margin of 10.0 percent.

Under the terms of the Lochinvar purchase agreement, Lochinvar's shareholders
could earn up to an additional $35 million if certain revenue objectives are
achieved from Dec. 1, 2011, to Nov. 30, 2012. At the time of the closing, the
company projected the earn-out to be $16.8 million due to an estimated 16
percent increase in sales. Based on the current estimate of a 12 percent
increase in sales, the earn-out is projected to be $10.4 million resulting in
a pre-tax gain of $6.4 million that has been recorded in the third quarter.

Rest of World segment
Third quarter sales of this segment, which includes China, India, and Europe,
increased more than $23 million to $133.8 million compared with sales of
$110.5 million in the third quarter of 2011. Sales of A. O. Smith branded
products in China increased approximately 22 percent in the quarter due to
continued distribution expansion into Tier 2 and Tier 3 cities, greater
acceptance of gas tankless and water treatment systems, and continued market
share gains.

Third quarter operating profit increased approximately 41 percent to $12.7
million compared with $9.0 million earned in the prior year's quarter.
Increased sales of A. O. Smith branded products in China and reduced losses
from the company's China water treatment business contributed to the improved
third quarter earnings. Operating margin of 9.5 percent improved compared
with the third quarter 2011 operating margin of 8.1 percent.

Leverage and Cash
Long-term debt totaled $279.6 million at the end of September 2012, resulting
in leverage of 19.0 percent, measured by the ratio of total debt to total
capital. Cash and investments, located largely outside the United States,
totaled $482.2 million at the end of the 2012 third quarter.

Outlook for 2012
"A. O. Smith continues to make progress as it pursues its strategy to become a
global water technology company," Jones said. "The integration of the
Lochinvar acquisition is essentially complete, and our pipeline of possible
acquisition candidates remains active. We continue to pursue water heater and
water treatment investments all over the world, and we are committed to
investments that increase shareholder value. With more than $400 million in
cash and an additional $400 million in borrowing capacity, we believe we have
more than enough resources to take advantage of the right opportunities when
they come along."

"Our businesses continue to perform well in a challenging global economy," he
said. "Our focus on customers, combined with disciplined cost management, is
paying off throughout the organization. We expect this strong performance to
carry through to the end of the year. Consequently, we are raising our
earnings guidance for the full year to between $2.85 and $2.95 per share.
This does not include the potential impact from any future acquisitions, the
first quarter gain from the sale of the RBC shares, or adjustments to the
estimate of the calculation of the Lochinvar earn-out."

Forward-looking statements
This release contains statements that the company believes 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," "forecast," "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. Important factors that could
cause actual results to differ materially from these expectations include,
among other things, the following: difficulties in achieving the disclosed
global expansion opportunities related to the Lochinvar acquisition; weakening
in the high efficiency boiler segment in the United States; the ability to
execute our acquisition strategy; significant volatility in raw material
prices; competitive pressures on the company's businesses; inability to
implement pricing actions; instability in the company's replacement markets;
further weakening in U. S. residential or commercial construction; timing of
any recoveries in U. S. residential or commercial construction; a further
slowdown in the Chinese economy; foreign currency fluctuations; and adverse
general economic conditions and capital market deterioration. 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 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.

A. O. Smith Corporation is one of the world's leading manufacturers of
residential and commercial water heating equipment and boilers, offering a
comprehensive line featuring the best-known brands in North America and China,
as well as water purification products for residential and light commercial
applications. A. O. Smith, headquartered in Milwaukee, Wis., employs
approximately 10,500 people at operations in the U. S., Canada, Mexico, India,
China, and the Netherlands.



A. O. SMITH CORPORATION
(condensed consolidated financial statements -
dollars in millions, except per share data)
Statement of Earnings
(unaudited)
                                      Three Months Ended    Nine Months Ended
                                      September 30          September 30
                                      2012        2011      2012       2011
Net sales                           $ 462.2     $ 412.0   $ 1,415.0  $ 1,234.7
Cost of products sold                 305.4       293.3     948.6      877.1
 Gross profit                       156.8       118.7     466.4      357.6
Selling, general and administrative   111.5       92.2      325.7      266.6
Contingent consideration adjustment   (6.4)       -         (6.4)      -
Settlement income                     -           -         -          (11.2)
Interest expense                     1.9         2.5       7.1        6.4
Other income - net                    (2.2)       (15.8)    (32.5)     (18.7)
                                      52.0        39.8      172.5      114.5
Provision for income taxes            15.0        12.9      53.1       34.8
Earnings from continuing operations   37.0        26.9      119.4      79.7
Earnings from discontinued EPC        -           5.1       -          43.6
operations, net of tax
Gain on sale of discontinued EPC      -           150.3     -          150.3
operations, net of tax
Net earnings                        $ 37.0      $ 182.3   $ 119.4    $ 273.6
Diluted earnings per share of
common stock
    Continuing operations           $ 0.79      $ 0.58    $ 2.57     $ 1.71
    Discontinued operations          -           3.33      -          4.16
    Net                             $ 0.79      $ 3.91    $ 2.57     $ 5.87
    Average common shares             46,569      46,643    46,544     46,611
    outstanding (000's omitted)



A. O. SMITH CORPORATION
Balance Sheet
(dollars in millions)
                                                     (unaudited)
                                                     September 30  December 31
                                                     2012          2011
ASSETS:
 Cash and cash equivalents                           $   279.6     $  463.4
 Marketable securities                                   202.6        -
 Receivables                                             369.1        368.4
 Inventories                                             178.2        168.4
 Deferred income taxes                                   32.5         24.6
 Investments                                             -            162.4
 Other current assets                                    26.4         21.5
  Total Current Assets                                 1,088.4      1,208.7
 Net property, plant and equipment                       331.1        315.3
 Goodwill and other intangibles                          778.5        786.5
 Other assets                                            37.3         38.5
 Total Assets                                        $   2,235.3   $  2,349.0
LIABILITIES AND STOCKHOLDERS' EQUITY:
 Trade payables                                      $   289.4     $  302.5
 Accrued payroll and benefits                            44.1         41.9
 Accrued liabilities                                     62.5         74.1
 Product warranties                                      43.9         43.7
 Long-term debt due within one year                      18.6         18.6
 Current liabilities - discontinued EPC operations       4.3          31.5
  Total Current Liabilities                            462.8        512.3
 Long-term debt                                          261.0        443.0
 Pension liabilities                                     153.7        139.5
 Other liabilities                                       157.5        159.7
 Long-term liabilities - discontinued EPC operations     8.9          8.7
 Stockholders' equity                                    1,191.4      1,085.8
 Total Liabilities and Stockholders' Equity          $   2,235.3   $  2,349.0



A. O. SMITH CORPORATION
Statement of Cash Flows
(dollars in millions)
(unaudited)
                                                            Nine Months Ended
                                                            September 30
                                                            2012       2011
Operating Activities
     Net earnings                                         $ 119.4    $ 273.6
     Less earnings from discontinued operations             -          (193.9)
     Adjustments to reconcile net earnings
      to net cash provided by (used in) operating
     activities:
             Depreciation & amortization                    40.4       33.2
             Loss on disposal of assets                     0.8        0.7
             Gain on investments                            (27.2)     (20.1)
             Net changes in operating assets and
             liabilities,
              net of acquisitions:
              Current assets and liabilities       (45.3)     (65.8)
              Noncurrent assets and liabilities    12.6       (95.6)
Cash Provided by (Used in) Operating Activities -           100.7      (67.9)
continuing operations
Cash Used in Operating Activities - discontinued            (27.0)     (1.5)
operations
Cash Provided by (Used in) Operating Activities             73.7       (69.4)
Investing Activities
     Capital expenditures                                   (44.5)     (36.7)
     Acquisition of businesses                              -          (418.1)
     Investment in marketable securities                    (237.8)    -
     Net proceeds from sale of securities                   227.8      -
Cash Used in Investing Activities - continuing operations   (54.5)     (454.8)
Cash Provided by Investing Activities - discontinued        -          727.8
operations
Cash (Used In) Provided by Investing Activities             (54.5)     273.0
Financing Activities
     Long-term debt (retired) incurred                      (183.1)    134.4
     Common stock repurchase                                (9.7)      (5.7)
     Net proceeds from stock option activity                13.8       9.8
     Dividends paid                                         (24.0)     (20.3)
Cash (Used in) Provided by Financing Activities -           (203.0)    118.1
continuing operations
Cash Provided by Financing Activities - discontinued        -          -
operations
Cash (Used in) Provided by Financing Activities             (203.0)    118.1
     Net (decrease) increase in cash and cash equivalents   (183.8)    321.7
     Cash and cash equivalents - beginning of period        463.4      118.9
Cash and Cash Equivalents - End of Period                 $ 279.6    $ 440.6



A. O. SMITH CORPORATION
Business Segments
(dollars in millions)
(unaudited)
                                       Three Months Ended    Nine Months Ended
                                       September 30          September 30
                                       2012        2011      2012      2011
Net sales
     North America                   $ 335.7   $   310.2   $ 1,054.9 $ 935.5
     Rest of World                     133.8       110.5     385.3     326.1
     Inter-segment sales               (7.3)       (8.7)     (25.2)    (26.9)
                                     $ 462.2   $   412.0   $ 1,415.0 $ 1,234.7
Earnings
     North America ^(1)(2)(3)        $ 50.7    $   30.9    $ 144.1   $ 107.3
     Rest of World                     12.7        9.0       39.2      30.8
                                       63.4        39.9      183.3     138.1
Corporate (expense) income ^(4)        (9.5)       2.4       (3.7)     (17.2)
Interest expense                       (1.9)       (2.5)     (7.1)     (6.4)
Earnings before income taxes           52.0        39.8      172.5     114.5
Tax provision                          15.0        12.9      53.1      34.8
Earnings from continuing operations  $ 37.0    $   26.9    $ 119.4   $ 79.7
^(1) includes settlement income of:  $ -       $   -       $ -       $ 11.2
^(2) includes Canadian warranty      $ -       $   -       $ -       $ 8.2
     expense of:
^(3) includes contingent             $ 6.4     $   -       $ 6.4     $ -
     consideration adjustment of:
^(4) includes net gain on            $ -       $   16.4    $ 27.2    $ 20.1
     investments of:



SOURCE A. O. Smith Corporation

Website: http://www.aosmith.com
Contact: Media, Mark A. Petrarca, +1-414-359-4100, mpetrarca@aosmith.com, or
Analysts/Investors, Patricia K. Ackerman, +1-414-359-4130,
packerman@aosmith.com, both of A. O. Smith Corporation
 
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