A. O. Smith continuing operations achieve record sales and earnings for 2012 driven by acquisition and organic growth

 A. O. Smith continuing operations achieve record sales and earnings for 2012
                   driven by acquisition and organic growth

PR Newswire

MILWAUKEE, Jan. 24, 2013

MILWAUKEE, Jan. 24, 2013 /PRNewswire/ -- Water technology company A. O. Smith
Corporation (NYSE-AOS) today announced record sales of $1.94 billion and
earnings of $162.6 million, or $3.49 per share, from continuing operations for
2012.

Sales from continuing operations for 2012 grew 13 percent from $1.71 billion
recorded in 2011. The Lochinvar business, acquired in August 2011, added
$225.7 million to sales compared with $75.9 million in 2011, and sales of A.
O. Smith branded products in China grew 20 percent to approximately $448
million for the year.

Earnings from continuing operations for 2012 of $162.6 million, or $3.49 per
share, included an after-tax gain of $16.8 million, or $.36 per share, related
to the sale of shares of Regal Beloit Corporation which were received from the
2011 divestiture of the electric motor business. Earnings also included an
after-tax gain of $2.9 million, or $.06 per share, related to a settlement
with a component supplier in Canada and an after-tax gain of $2.0 million, or
$.04 per share, resulting from revisions to the company's estimate of the
Lochinvar earn-out. Earnings from continuing operations for 2011 of $111.2
million, or $2.39 per share, included an after-tax gain of $12.9 million, or
$.28 per share, related to shares of RBC hedged with an equity collar, a legal
settlement with a component supplier and an increase to a warranty reserve
associated with the Canadian component supplier. 

In the 2012 fourth quarter, the company earned $43.2 million or $.93 per share
from continuing operations on sales of $524.3 million. 2012 earnings included
an after-tax gain of $2.9 million, or $.06 per share, related to the
settlement with the Canadian component supplier and an after-tax expense of
$1.9 million, or $.04 per share, resulting from the final revision to the
company's estimate of the Lochinvar earn-out due to higher than previously
estimated sales. Earnings from continuing operations for the same three-month
period in 2011 were $31.5 million or $.68 per share on sales of $475.8
million.

"With a strong fourth quarter and solid performance for the full year, the A.
O. Smith team did an excellent job again in 2012 driving the company to
achieve record sales and net earnings," Ajita G. Rajendra, president and chief
executive officer, observed. "We are very pleased with Lochinvar's
performance, and our China business' growth was more than two and one-half
times that country's GDP growth last year. Although our North American new
construction business continued to be affected by the slow economic recovery,
we were able to take advantage of our strength in the replacement portion of
the water heater and boiler markets."

North America segment
Full-year sales for the North America segment, which includes U. S. and
Canadian water heaters and boilers, were $1.43 billion, an 11 percent increase
over 2011 sales of $1.29 billion. The business segment benefited from a full
year of sales from Lochinvar, as well as improved volumes for U. S.
residential and commercial water heaters, which were partially offset by lower
tankless and Canadian water heater volumes.

Operating profit of $199.8 million was $45.8 million higher than 2011
operating profit of $154.0 million. The unit benefited from full year
earnings contributed by Lochinvar and higher U. S. residential and commercial
water heater volumes. The 2012 segment operating profit included a pre-tax
$3.9 million settlement with a component supplier and income of $3.3 million
related to the adjustment to the company's estimate of the Lochinvar
earn-out. The 2011 segment operating profit includes a net gain of $3.0
million related to the legal settlement with a component supplier and an
increase to the warranty reserve associated with the Canadian component
supplier. Operating margin of 14.0 percent, which included the benefit from
the settlement and the Lochinvar earn-out adjustment, was higher than the 2011
margin of 11.9 percent.

Fourth quarter sales for the North American segment increased six percent over
the prior year's fourth quarter to $375.9 million. The segment benefited from
higher demand for U. S. residential water heaters, which was partially driven
by "SuperStorm Sandy" on the East Coast. Higher sales of Lochinvar boilers
also contributed to the increase in sales. Fourth quarter operating profit of
$55.7 million increased 19 percent over the $46.7 million earned in the fourth
quarter of the prior year primarily driven by higher U. S. residential water
heater volumes and an increase in boiler sales. Operating margin of 14.8
percent expanded over the 2011 fourth quarter margin of 13.2 percent.

Rest of World segment
Sales of this segment, which includes China, India, and Europe, increased 19
percent in 2012 to $542.5 million. Sales of A. O. Smith branded products in
China grew more than 20 percent to approximately $448 million primarily due to
a higher priced product mix in the region as a result of product introductions
with more robust features and benefits, as well as pricing actions. Market
share gains and higher sales of water treatment products also drove China
sales higher. Water heater sales in India increased to more than $20 million,
despite a14 percent currency devaluation.

Operating profit for this segment increased 40 percent to $59.6 million
compared with $42.7 million earned in 2011. The profit increase was driven by
higher volumes of A. O. Smith branded products in China and reduced losses in
the non- A. O. Smith branded water treatment business, which were partially
offset by larger losses in India due to higher costs for new product
introductions and brand building in the region. Operating margin improved to
11.0 percent compared with 2011 margin of 9.4 percent.

Sales for the fourth quarter of the Rest of World segment of $157.2 million
were 21 percent higher than last year, driven by higher sales in China and
India. Operating profit of $20.4 million was significantly higher than the
$11.9 million recorded in the fourth quarter last year primarily due to higher
sales in China. Operating margin for the period was 13.0 percent compared with
9.2 percent for the fourth quarter of 2011.

Cash, Leverage, Share Buyback and Acquisitions
Long-term debt totaled $243.7 million at the end of December 2012, resulting
in leverage of 17 percent as measured by the ratio of total debt to total
capital. Cash and investments, located largely outside the United States,
totaled $462.9 million at the end of the year. A $13.5 million earn-out was
paid to the former owners of Lochinvar in December 2012.

During the fourth quarter, the company repurchased 208,101 shares of common
stock at an average price of $59.04 per share, representing a total of $12.3
million. For the entire year, repurchases totaled 426,490 shares at an
average price of $51.60 per share for a total of $22.0 million. A total of
approximately 462,000 shares remained in the existing repurchase authority at
the end of 2012.

"Our pipeline of possible acquisition candidates remains active," Paul W.
Jones, executive chairman, commented. "We continue to pursue water heating
and water related investments all over the world, but we will remain selective
and only make acquisitions that we believe will increase shareholder value.
With more than $400 million in cash and a meaningful amount of incremental
borrowing capacity, we are confident we have the resources available to take
advantage of global opportunities that add long-term value."

Discontinued Operations
In the fourth quarter of 2012, the company recorded non-cash expense of $3.9
million on the gain on sale of its Electrical Products Company discontinued
operations which occurred in the third quarter of 2011. The non-cash charge
was comprised of a $6.4 million correction primarily due to its calculation of
taxes due upon repatriation of undistributed earnings offset by a change in
the estimate related to other reserves associated with discontinued operations
of $2.5 million.

Introduction of new Non-GAAP measures for 2013
Significant declines in interest rates over the past several years have caused
an extraordinary increase in certain components of pension expense that the
company considers to be unrelated to its underlying operating performance. In
addition, the company has made changes to its pension plan, including closing
the plan to new entrants effective Jan. 1, 2010, and freezing the plan for the
majority of existing participants effective Jan. 1, 2015, which it believes
will significantly decrease pension expense beginning in 2015. In order to
provide improved transparency into the operating results of the company's
business, beginning in 2013, the company will provide non-GAAP earnings
measures, Adjusted Earnings and Adjusted Earnings Per Share (EPS), that
exclude non-operating pension costs consisting of interest cost, expected
return on plan assets, amortization of actuarial gains (losses) and
curtailments and other one-time charges. In addition, the company's segment
reporting will also present non-GAAP operating earnings which exclude
non-operating pension costs and be identified as Adjusted Segment Operating
Earnings. 2013 guidance is being provided for GAAP EPS and Adjusted EPS.

Adjusted Earnings, Adjusted EPS and Adjusted Segment Operating Earnings are
non-GAAP measures that are reconciled to GAAP measures in the financial
statements that accompany this release. Quarterly and annual reconciliations
of Adjusted Earnings, Adjusted EPS and Adjusted Segment Operating Earnings and
an annual schedule of components of pension expense for the years 2010 – 2012
are provided in the Supplemental Financial Data document posted on A. O.
Smith's website at www.aosmith.com/investorrelations.

Outlook for 2013
"With our strong North American replacement water heater business, growing
Lochinvar boiler platform, and expanding global presence particularly in
China, A. O. Smith is well positioned entering 2013," Rajendra observed.
"Business conditions are continuing to improve modestly in the U. S., and we
remain optimistic the growth exhibited by the housing market last year will
carry over into this year as well."

"With a talented, disciplined team focused on serving our customers, we look
forward to what we believe will be another strong year based on our earnings
guidance. For 2013, we expect A. O. Smith Corporation to achieve full-year
GAAP earnings of between $3.00 and $3.20 per share and Adjusted Earnings of
between $3.25 and $3.45 per share, neither of which includes the potential
impact from future acquisitions. "

A. O. Smith will broadcast a live conference call at 10:00 a.m. (Eastern
Standard Time) today. The call can be heard on the company's web site,
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 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    Year Ended
                                      December 31           December 31
                                      2012        2011      2012       2011
Net sales                           $ 524.3     $ 475.8   $ 1,939.3  $ 1,710.5
Cost of products sold                 338.7       320.8     1,287.3    1,197.9
 Gross profit                       185.6       155.0     652.0      512.6
Selling, general and administrative   124.8       106.2     450.5      372.8
Contingent consideration adjustment   3.1         -         (3.3)      -
Settlement income                     (3.9)       -         (3.9)      (11.2)
Interest expense                     2.1         2.9       9.2        9.3
Other income - net                    (1.8)       (1.1)     (34.3)     (19.8)
                                      61.3        47.0      233.8      161.5
Provision for income taxes            18.1        15.5      71.2       50.3
Earnings from continuing operations   43.2        31.5      162.6      111.2
(Loss) / earnings from discontinued   -           (0.6)     -          43.0
EPC operations, net of tax
(Loss) / gain on sale of
discontinued EPC operations, net of   (3.9)       1.2       (3.9)      151.5
tax
Net earnings                        $ 39.3      $ 32.1    $ 158.7    $ 305.7
Diluted earnings (loss) per share
of common stock
    Continuing operations           $ 0.93      $ 0.68    $ 3.49     $ 2.39
    Discontinued operations          (0.08)      0.01      (0.08)     4.18
    Net                             $ 0.85      $ 0.69    $ 3.41     $ 6.57
    Average common diluted shares     46,585      46,467    46,554     46,575
    outstanding (000's omitted)



A. O. SMITH CORPORATION
Balance Sheet
(dollars in millions)
                                                     (unaudited)
                                                     December 31  December 31
                                                     2012         2011
ASSETS:
 Cash and cash equivalents                           $  266.9     $  463.4
 Marketable securities                                  196.0        -
 Receivables                                            425.4        368.4
 Inventories                                            163.4        168.4
 Deferred income taxes                                  33.2         24.6
 Investments                                            -            162.4
 Other current assets                                   22.3         21.5
 Total Current Assets                                   1,107.2      1,208.7
 Net property, plant and equipment                      345.7        315.3
 Goodwill and other intangibles                         774.1        786.5
 Other assets                                           38.2         38.5
 Total Assets                                        $  2,265.2   $  2,349.0
LIABILITIES AND STOCKHOLDERS' EQUITY:
 Trade payables                                      $  328.9     $  302.5
 Accrued payroll and benefits                           46.5         41.9
 Accrued liabilities                                    58.7         74.1
 Product warranties                                     43.2         43.7
 Long-term debt due within one year                     18.6         18.6
 Current liabilities - discontinued EPC operations      3.1          31.5
 Total Current Liabilities                              499.0        512.3
 Long-term debt                                         225.1        443.0
 Pension liabilities                                    190.1        139.5
 Other liabilities                                      149.1        159.7
 Long-term liabilities - discontinued EPC operations    7.8          8.7
 Stockholders' equity                                   1,194.1      1,085.8
 Total Liabilities and Stockholders' Equity          $  2,265.2   $  2,349.0



A. O. SMITH CORPORATION
Statement of Cash Flows
(dollars in millions)
(unaudited)
                                                            Year Ended
                                                            December 31
                                                            2012       2011
Operating Activities
 Net earnings                                             $ 158.7    $ 305.7
 Loss / (earnings) from discontinued operations             3.9        (194.5)
 Adjustments to reconcile net earnings
 to net cash provided by (used in) operating activities:
  Depreciation & amortization                               54.6       47.0
  Loss on disposal of assets                                1.1        1.0
  Gain on investments                                       (27.2)     (19.8)
  Net changes in operating assets and liabilities, net of
  acquisitions:
  Current assets and liabilities                       (36.7)     0.4
  Noncurrent assets and liabilities                    16.8       (78.8)
Cash Provided by Operating Activities - continuing          171.2      61.0
operations
Cash Used in Operating Activities - discontinued            (27.4)     (2.3)
operations
Cash Provided by Operating Activities                       143.8      58.7
Investing Activities
 Capital expenditures                                       (69.9)     (53.5)
 Acquisition of business                                    (13.5)     (421.1)
 Investment in marketable securities                        (311.4)    -
 Net proceeds from sale of securities                       308.0      -
Cash Used in Investing Activities - continuing operations   (86.8)     (474.6)
Cash Provided by Investing Activities - discontinued        -          600.2
operations
Cash (Used In) Provided by Investing Activities             (86.8)     125.6
Financing Activities
 Long-term debt (retired) incurred                          (218.8)    200.2
 Common stock repurchase                                    (22.0)     (23.5)
 Net proceeds from stock option activity                    20.5       11.2
 Dividends paid                                             (33.2)     (27.7)
Cash (Used in) Provided by Financing Activities -           (253.5)    160.2
continuing operations
Cash Provided by Financing Activities - discontinued        -          -
operations
Cash (Used in) Provided by Financing Activities             (253.5)    160.2
 Net (decrease) increase in cash and cash equivalents       (196.5)    344.5
 Cash and cash equivalents - beginning of period            463.4      118.9
Cash and Cash Equivalents - End of Period                 $ 266.9    $ 463.4



A. O. SMITH CORPORATION
Business Segments
(dollars in millions)
(unaudited)
                                       Three Months Ended    Year Ended
                                       December 31           December 31
                                       2012        2011      2012      2011
Net sales
     North America                   $ 375.9    $  354.0   $ 1,430.8 $ 1,289.5
     Rest of World                     157.2       129.5     542.5     455.6
     Inter-segment                     (8.8)       (7.7)     (34.0)    (34.6)
                                     $ 524.3    $  475.8   $ 1,939.3 $ 1,710.5
Earnings
     North America ^(1)(2)(3)        $ 55.7     $  46.7    $ 199.8   $ 154.0
     Rest of World                     20.4        11.9      59.6      42.7
     Inter-segment                     -           (0.2)     -         (0.2)
                                       76.1        58.4      259.4     196.5
Corporate expense ^(4)                 (12.7)      (8.5)     (16.4)    (25.7)
Interest expense                       (2.1)       (2.9)     (9.2)     (9.3)
Earnings before income taxes           61.3        47.0      233.8     161.5
Tax provision                          18.1        15.5      71.2      50.3
Earnings from continuing operations  $ 43.2     $  31.5    $ 162.6   $ 111.2
^(1) includes settlement income of:  $ 3.9      $  -       $ 3.9     $ 11.2
^(2) includes Canadian warranty      $ -        $  -       $ -       $ (8.2)
     expense of:
     includes contingent
^(3) consideration (income) expense  $ (3.1)    $  -       $ 3.3     $ -
     of:
^(4) includes net (loss) gain on     $ -        $  (0.3)   $ 27.2    $ 19.8
     investments of:



A. O. SMITH CORPORATION
Financial Measures That Supplement GAAP

The company's earnings release contains financial information and earnings
guidance regarding Adjusted Earnings, Adjusted Earnings Per Share (EPS) and
Adjusted Segment Operating Earnings, which is information derived from
consolidated financial information but not presented in the financial
statements prepared in accordance with U.S. generally accepted accounting
principles (GAAP). In addition, this data is considered "non-GAAP financial
measures" under the U.S. Securities and Exchange Commission rules. These
non-GAAP financial measures supplement the company's GAAP disclosures and
should not be considered an alternative to the GAAP measure. The
reconciliation of Adjusted Earnings, Adjusted EPS and Adjusted Segment
Operating Earnings to the most comparable GAAP measures follow.

A. O. Smith Corporation
Adjusted Earnings and Adjusted EPS
(dollars in millions, except per share data)
(unaudited)

Adjusted Earnings and Adjusted EPS exclude non-operating related pension costs
of the company's pension plan comprised of interest cost, expected return on
plan assets, amortization of actuarial gains (losses) and curtailment and
other one-time charges. The service cost and amortization of prior service
cost components of our pension plan are included in Adjusted Earnings and
Adjusted EPS. The company believes that these components of pension cost
better reflect ongoing operating related costs of providing pension benefits
to the company's employees. As such, the company believes that the measures
of Adjusted Earnings and Adjusted EPS provide management and investors with a
useful measure of the operational results of the company. Other components of
GAAP pension cost are mainly driven by market performance, and the company
manages these separately from the operational performance of its businesses.
Neither GAAP nor operating pension costs are necessarily indicative of the
current or future cash flow requirements related to the company's pension
plan.

The following is a reconciliation of earnings from continuing operations and
diluted EPS from continuing operations to Adjusted Earnings from continuing
operations (non-GAAP) and Adjusted EPS from continuing operations (non-GAAP):



                                 2013           Year Ended December 31
                                 Guidance       2012       2011       2010
Earnings from continuing                        $ 162.6   $ 111.2   $ 57.1
operations (GAAP)
 Non-operating pension costs                   6.8        (3.8)      4.8
(income)
 Tax effect of non-operating                   (2.6)      1.5        (1.8)
pension costs
Adjusted Earnings from                          $ 166.8   $ 108.9   $ 60.1
continuing operations
Diluted EPS from continuing      $3.00 - $3.20  $  3.49  $  2.39  $  1.24
operations (GAAP)
Non-operating pension costs      0.41           0.15       (0.08)     0.10
(income) per diluted share
Tax effect of non-operating      (0.16)         (0.06)     0.03       (0.04)
pension costs per diluted share
Adjusted EPS from continuing     $3.25 - $3.45  $  3.58  $  2.34  $  1.30
operations



A. O. SMITH CORPORATION
Adjusted Segment Operating Earnings
(in millions)
(unaudited)

Beginning in 2013, the company is defining Adjusted Segment Operating Earnings
to exclude non-operating pension costs comprising interest cost, expected
return on plan assets, amortization of actuarial gains (losses) and
curtailment and other one-time charges. The company will continue to include
service cost and amortization of prior service cost in the business segment
that incurred the expense.

The following is a reconciliation of reported segment earnings to Adjusted
Segment Operating Earnings (non-GAAP):



                                          Year Ended December 31
                                          2012        2011        2010
Segment Operating Earnings (GAAP)
 North America                          $ 199.8    $ 154.0     $ 91.2
 Rest of World                          59.6        42.7        42.4
 Inter-segment                          -           (0.2)       (0.7)
Total Segment Operating Earnings (GAAP)   $ 259.4    $196.5      $132.9
Adjustments: non-operating pension costs (income)
 North America                          $   4.4  $  (1.8)  $  4.4
 Rest of World                          -           -           -
 Inter-segment                          -           -           -
Total Adjustments                         $   4.4  $  (1.8)  $  4.4
Adjusted Segment Operating Earnings
 North America                          $ 204.2    $ 152.2     $ 95.6
 Rest of World                          59.6        42.7        42.4
 Inter-segment                          -           (0.2)       (0.7)
Total Adjusted Segment Operating Earnings $ 263.8    $194.7      $137.3



Additional information:

                                              Year Ended December 31
                                              2012        2011        2010
Adjustment: non-operating pension costs
(income)
 North America                              $   4.4  $  (1.8)  $  4.4
 Rest of World                              -           -           -
 Corporate                                  2.4         (2.0)       0.4
Total Company Adjustments                     $   6.8  $  (3.8)  $  4.8



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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