UNITED STATES
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): September 26, 2012
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.) |
11270 West Park, Milwaukee, Wisconsin 53224
(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 |
Attached and incorporated herein by reference as Exhibit 99.1 is a copy of A. O. Smith Corporation’s Analyst Day presentation scheduled on September 26, 2012.
| Item 9.01. | Financial Statements and Exhibits |
The following exhibit is being filed herewith:
(99.1) A. O. Smith Corporation’s Analyst Day presentation, September 26, 2012.
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: September 26, 2012 | By: | /s/ James F. Stern | ||||
| James F. Stern | ||||||
| Executive Vice President, General Counsel and Secretary | ||||||
2
A. O. SMITH CORPORATION
Exhibit Index to Current Report on Form 8-K dated September 26, 2012
| Exhibit |
Description | |
| 99.1 | A. O. Smith Corporation’s Analyst Day presentation, September 26, 2012. | |
3
 Analyst Day
September 26, 2012
Exhibit 99.1 |
 Agenda
9:00 a.m.
Welcome
Paul Jones, Chairman & CEO
Global Business
Ajita Rajendra, President & COO
Ashland City Plant Preview
Steve Anderson, SVP Manufacturing
& Supply Chain
9:55 a.m.
Break
10:00 a.m.
Ashland City tour
11:00 a.m.
Global Manufacturing
Steve Anderson
Strategic Aspirations & Acquisitions
Paul Jones
Financial Aspirations
John Kita, EVP & CFO
12:00 Noon
Lunch
12:30 p.m.
Depart for Lochinvar
1:30 p.m.
Introduction to Lochinvar
Bill Vallett, President, Lochinvar
Tour Lochinvar plant
3:15 p.m.
Wrap Up
Paul Jones
2 |
 3
Forward Looking Statements
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.
All statements regarding 2015 aspirations are forward-looking statements. 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
presentation. Important factors that could cause actual results to differ materially from
these expectations include, among other things, the following: difficulties in achieving the
disclosed accretion from the Lochinvar acquisition, cost synergies or global expansion
opportunities related to the acquisition; weakening in the high efficiency boiler segment in
the U.S.; 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 and commercial construction; timing of any recoveries in U. S. residential or
commercial construction; a slowdown in the Chinese economy; foreign currency fluctuations and
adverse general economic conditions and capital market deterioration.
Forward-looking statements included in this presentation 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.
|
 Investment Case
Leader in water heaters In North America
and China, platform to become leader in
India
Stable North American replacement market;
operating leverage when new construction
recovers
Strong balance sheet and cash flow to
support future growth
Strength of our China distribution,
manufacturing and brand provide clear
market advantage in Asia
Energy efficient products and new
geographies are drivers for growth
4 |
 A. O.
Smith History Founded in Milwaukee,
Wisconsin (1874)
A legacy of engineering
excellence
Commitment to integrity
and ethical business
conduct
5 |
 6
A. O. Smith History
For over 134 years, A. O. Smith Corporation has
grown through diversity, innovation and its steadfast
commitment to the customer
1936 –
Company patents process for glass lining
water heater tanks
1950 –
AOS introduces cathode protection for water
heater tanks
1995 –
AOS enters China
1997 –
AOS sold automotive company for $775
million
•
Consolidator in water heaters; bought State and
American
•
Consolidator in electric motors; bought five motor
companies
2011 –
AOS sold electric motor company for $890
million
2011 –
AOS purchased Lochinvar for $418 million –
the largest acquisition in company history |
 Global Business Strategy
Ajita Rajendra, President and COO |
 Segment Revenue
ROW
China/India = 91%
Europe/Middle East = 9%
NA
2012 Second Quarter
North
America
74%
Rest of
World
26%
Largely stable
replacement
Lochinvar 10+%
growth in 2012 |
 North
America Residential 9 |
 U.
S. Water Heater Market Segment Residential Market
0%
10%
20%
30%
40%
50%
Includes
Lochinvar
pro forma
AHRI data:
AOS actual shipments
and AOS estimates
of competitors’
shipments
10 |
 11
U.S. Residential Water Heater Market Segment
2011 –
8.1 mm Units
Wholesale
channel is
“50%”
of the
market
Retail
channel is
“50%”
of the
market
A. O. Smith’s
Customers
Retail
Wholesale |
 12
Water Heaters
Strong Replacement Sales
North American Residential Water Heaters
Note:
Includes tankless
0
2,000
4,000
6,000
8,000
10,000
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
New
Construction
Replacement
Peak housing
starts: 2.1 million |
 13
North America Residential Strategic Priorities
2012 to 2015
Influence decision makers
Nurture Key customer
Enhance digital marketing
Continue to emphasize lean manufacturing and
continuous improvement programs |
 14
Brand Building –
Sustained Investment
New High Efficiency Products
National Advertising
Public Relations |
 15
Web Strategy
Dominant visibility in search engines
for our brands and downstream
channel partners
Cultivate positively impactful
recommendations
Inspire and facilitate visitor goals
Drive measurable downstream value
“Very Sleek Model &
has great features”
Discover New Products
Find a Spec Sheet
Drive leads to contractors |
 16
Social Media Strategy
Retail -
Reduce complaints, increase praise
•
Engage publicly. Resolve privately. Confirm publicly.
•
Cultivate and showcase positive reviews
Goal: Improve published sentiment on Lowes.com &
Google
Wholesale -
Increase awareness and
preference
•
Publish blog on hotwater.com, syndicate to Facebook and
Twitter
•
Post and Tweet about marketplace events
•
Goal: Encourage engagement, improve search engine
rankings
•
Engage publicly. Resolve privately. Confirm publicly.
|
 17
North America Commercial |
 18
U. S. Water Heater Market Segment
Commercial Market*
AHRI data:
AOS actual shipments
and AOS estimates
of competitors’
shipments
Includes
Lochinvar
pro forma
*Commercial
water
heater
segment
as
defined
by
AHRI,
total
2011
commercial
units
as
reported
by
AHRI
=
145,000 |
 Energy Efficient Cyclone
Game changing energy efficient
commercial product launched in 1997 and
upgraded frequently
Up to 96% thermal efficiency dramatically
lowers operating costs offering short
payback
Achieved 13% CAGR since its launch
Represents 18% of AOS commercial units
19
Innovation, training and 24/7 National account customer
service drive market leadership |
 20
North America Commercial Strategic Priorities
2012 to 2015
Sustain investment in high efficiency products and
innovation leadership
Develop delivery of hot water solutions
Improve inventory and delivery programs
Maintain technical and applications expertise |
 Lochinvar |
 Lochinvar
22 |
 Acquisition Fits Squarely within
Strategic Objectives
Core product expansion
~
Lochinvar: Complementary product line up to
3.5 million BTUs
~
Lochinvar: approximately 50% hydronic heating
application and 50% other hot water
applications
Higher growth, energy efficient
products
~
Leader in high efficiency condensing boilers
~
Trend to condensing technology underway in
North America
Geographic expansion
Opportunities
~
China first on the list
Geographic
Expansion
Core Product
Expansion
Adjacencies
New
Technologies
23 |
 24
Combination Creates Compelling Value
Purchase price of $418 million plus earnout, paid in cash
•
7.5 times adjusted EBITDA including tax benefits
Lochinvar’s complementary product offerings are a logical expansion of
AOS global water heating platform
•
One of the leading North American manufacturers of higher growth, higher
efficiency, condensing boilers
Synergies expected to be $10 to 15 million in the next few years:
•
Purchasing economies
•
Logistical economies
•
Global expansion opportunities
Accretive and exceeded cost of capital in year 1
•
$.07 per share in fourth quarter 2011, including one-time purchase accounting
charges and professional fees
•
Expect incremental $.40 to $.50 per share in 2012
Global expansion opportunities; China first on the list
|
 Lochinvar End Markets
2/3 commercial end markets; 1/3 residential end markets
25 |
 Trend to Higher Efficiency, Condensing Boilers
Source: BRG
North American Commercial Boiler Volume (Units)
26 |
 27
High Efficiency Portfolio Lifecycle
U.S. Conversion to
Condensing Technology
Other Emerging Markets
Time
China
High Efficiency Boilers
x |
 28
Lochinvar Strategic Priorities
2012 to 2015
Sustain investment in innovation and technology
leadership
Further leverage training
Continue to invest in new product development
Maximize China boiler opportunity |
 China Water Heating
29 |
 30
China/Asia now 24% of Sales & Growing
China sales have grown over 25% (CAGR) over the last 9 years
0
50
100
150
200
250
300
350
400
450
2003
2004
2005
2006
2007
2008
2009
2010
2011
China
India |
 31
Nanjing, China
Since 1995
Products designed for Chinese
consumers
Experienced Chinese managers
Strong retail presence
Consistently strong growth
Second manufacturing site
will increase capacity to 3
million units in 2014 (50%
increase) |
 Leading residential brands measured in currency; Tier One Market:
GFK -
CMM data sampling several thousand largest retail stores
Ten-Year Market Share Trend
32 |
 Data Source: CMM Retail Survey January 2012 -150 Best Selling Models
Market Share by Price Category
Electric Market Share
Gas Market Share
33 |
 We are selling currently in 5,400 stores
and plan to add 600 retail stores in 2012,
largely in tier 2 cities.
We have been assisting distributors to
open A. O. Smith specialty stores. We
plan to add 200 new stores each year,
reaching 1,700 A. O. Smith stores at the
end of 2014.
Three Year Plan (AOS Presence)
2011 to 2014
Distribution Channel Expansion
AOS selling
in 5,400
outlets! |
 A.
O. Smith customer
demographic
expected to
continue to
grow rapidly
Mega Trends -
China
Significant growth in AOS target demographic
35 |
 China’s Megatrends and Company Specific
Factors Driving AOS Growth
Urbanization and Growing Middle Class
Expect Tier 2 and Tier 3 market and cities to further develop
Green and Safe (more money for cleaning up environment, saving
energy, health)
Strong A. O. Smith
brand, capable local
managers, key
distribution
relationships and
engineering
innovation expected
to propel
A. O. Smith growth
to at least 2 times
China GDP rate
36 |
 Wall-hung Electric
Good/Better/Best
•
Mechanical / Electronic Controls
•
Steel / Plastic Jacket
•
Single / Dual heating elements
•
Single / Dual power input 1.5/2.0/3.0KW/5.0KW
•
Solar and gas auto-switch
•
Dual tank slim model
Dual tank slim model
Solar and gas auto-switch
37 |
 Good/Better/Best (Natural gas)
•
8L/10L/11L/12L/13L/16L/20L/28L
•
Non-modulating / Modulating
•
Non-condensing / condensing
•
Power venting / Balance Flue
•
Indoor/Outdoor
•
CO Sensor interlock
Gas Tankless
38 |
 60L/80L integrated Wall-hung
150L/200L Split/integrated Floor-standing
240L/300L Split/Integrated floor-standing
2KW/3KW compressor
$50 dollar per unit savings
compared with using copper coils.
Heat Pump
39
Launched aluminum “micro-channel” cost-down
split floor-standing heat pump.
|
 Solar-Assist Electric
60L/80L/100L/120L/150L/200L
Roof-top / balcony mount
Pressurized tank
Cost reduction in 2012
40 |
 41
AOS China Brand Strategic Priorities
2012 to 2015
Continue to build brand and expand distribution
Grow commercial markets, including hydronic
Continue cost reduction processes
Develop web based sales and marketing
strategy
Improve tankless and heat pump capabilities
Exploit developing replacement/upgrade market |
 42
Leverage the A.O. Smith
brand in our existing water
heater channels
•
1,100 retail stores at the
end of 2011
RO main focus
Product development
focused at customer needs
and technical improvements
Highly fragmented, $300
million market
A. O. Smith Branded Water Treatment Systems:
Retail Channel Display |
 400 GPD tankless;
power and pump;
USB interface for
monitoring filter;
Leakage detector
75 and 50 GPD
with tank, power
and pump;
USB interface for
monitoring filter;
Leakage detector
125 GPD with tank;
No pump and thus no power
needed!
AOS Branded Point of Use Products
2011: 900 stores in tier 1 cities and 200 in tier 2 cities;
2012: adding 200 tier 1 and 200 tier 2 retail outlets
43 |
 44
SWT Strategic Priorities
2012 to 2015
Expand customer base and drive sales growth
Invest in AOS brand
Improve profitability
Achieve best in class quality and delivery
Maximize replacement filter opportunity |
 45
INDIA |
 46
Products Designed for India Market |
 India Geographic Expansion
+800 outlets in 2012, totaling
1,700
at
year
end
(AOS
brand
water heaters)
+100 Jaquar dealers in 2012,
totaling 1,100 at year end
(co-branded water heaters)
$0
$5
$10
$15
$20
2009
2010
2011
Millions
Sales
47 |
 48
India Strategic Priorities
2012 to 2015
Build brand
Establish manufacturing
center of excellence
Introduce new products
Expand distribution
Enter water treatment
market
Explore commercial
opportunity |
 49
Energy Efficiency/Clean Water |
 50
A. O. Smith’s Vision
To be a leading, globally diversified provider of
innovative, energy efficient products used to heat and
clean water, providing extraordinary value to customers
and maximizing returns to our shareholders. |
 Achieving Our Vision
450+ Engineers
•
North America
•
China
•
India
•
Europe
10 Engineering Centers
•
Specific Product Engineering
•
Global Engineering
•
Corporate Technology
Focused Innovation Center
51 |
 Global Engineering Centers
Fergus, Canada
Veldhoven,
Netherlands
Shanghai, China
Nanjing, China
Bangalore, India
McBee, SC
Johnson City, TN
Lebanon, TN
Milwaukee, WI
Lishui, China
52 |
 53
Technological Capabilities
Electric tank-type
Gas tank-type
Gas tankless
Heat pumps
Solar
Boilers and industrial water
heaters
Water treatment
Enabling electronics
Materials
Simulation |
 54
Innovative Products
Awards
Appliance DESIGN Magazine
•
2011 Excellence in Design Award
•
Silver Medal -
Next Hybrid
®
•
Bronze Medal -
Cirrex
®
Green Builder Magazine
•
Hot 50 Products of 2011
•
Next Hybrid
®
Building Products Magazine
•
2010 Green Product Award
•
Voltex
®
Company Confidential |
 55 |
 56 |
 57
New Products
Voltex
Effex
NEXT Hybrid
Cirrex
Tankless
TM
TM
TM
TM |
 2015 Strategic Aspirations and
Acquisitions
Paul Jones, Chairman and CEO |
 59
Vision
Performance
Aspiration
A. O. Smith
Grow faster than the market and achieve greater
than $3 billion in sales, with more than $1
billion from emerging regions and,
with a
return of 14% EBIT in 2015.
To be a leading, globally diversified provider of
innovative, energy efficient products used to heat and
clean
water,
providing
extraordinary
value
to
customers
and
maximizing
returns
to
our
shareholders.
To simultaneously reposition A. O. Smith as a portfolio of
global water based businesses with higher returns
(EBIT and ROIC) and a greater share of revenue in
high growth regions and businesses. |
 Values
A. O. Smith Enterprise Strategy Framework
Conduct
business
with
integrity-
Live
our
Values
every
day
Build our brand reputation and deliver our brand promise.
Emphasize high growth markets worldwide.
Leading market share position for every segment of our business.
Bring to market a continuous flow of innovative, energy efficient and reliable
products that have a compelling value proposition to our customers.
Operate
world
class
facilities
and
highly
efficient
processes
to
manufacture
and
distribute technologically superior products / services.
Earn customer loyalty by providing best in class value and outstanding customer
service and responsiveness.
Develop a high performance environment that attracts, develops and retains
top talent around the world.
Operations
Products
Markets
Talent
Brand
60 |
 61
Our Geographic Environment
North America
•
Slow GDP growth
•
Large but mature market
•
2015 Regulatory changes –
electric
product
•
Strong brands
•
Boiler industry transition to
55% condensing by 2016
China
•
GDP projected at 7-8% range
•
Sluggish economy at present /
transitional
issues
•
Middle and affluent classes growing
•
AOS brand is the market leader
•
Very bullish on long term growth
India
•
GDP growth projected at 6-7%
range
•
Volatile currency
•
An evolving water heater market
•
AOS brand gaining recognition
China
India
North America
Mega trends-
Global political and governmental fiscal issues are major headwinds to economic
expansion. E
commerce
and
digital
marketplaces
are
rapidly
expanding
and
could
change
the
purchase
decision
dynamics.
Global
procurement
programs
–
China
is
becoming
less
attractive,
Mexico
is
becoming
more
attractive. |
 A.
O. Smith’s Capital Allocation Options 62
Organic growth (capital expenditures)
Acquisitions
Return cash to shareholders
•
Dividends
•
Share repurchase
|
 Water-Themed Adjacencies
Acquire new platforms for
growth
A. O. Smith Growth Strategy
Adjacencies
Geography
Expand/ Grow the Core
New Products & New
Technologies
Water Heating
Water Treatment
Geographic Growth
China
India
Other High Growth GDP markets
Core
63 |
 64
Geographic Expansion: Higher Growth Regions
Source:
World
Bank,
Economist
US 2012 GDP Growth |
 65
Investment Criteria
Value creation opportunities
ROIC in excess of cost of capital by second or third year
Meet risk adjusted IRR hurdle rates
Margin accretion with growth rates higher than US GDP
Accretive to earnings in the first year |
 66
Alignment and Execution
Alignment
Clearly defined strategy and goals
Clear definition of what we will and will not do
Clearly identified priorities
Disciplined process
•
Clear financial metrics
•
Continuously challenge assumptions
•
Develop/monitor execution ability (People)
•
Continuously monitor performance
•
Develop/deploy counter measures early |
 67
Total Stock Return
Cumulative returns*, period ending 6/30/12
*
includes
dividends
17%
126%
101%
5.45%
58%
1%
1%
72%
10%
0%
30%
60%
90%
120%
150%
1 year
3 year
5 year
AOS
S&P 500
S&P 600 |
 2015 Financial Aspirations
John Kita, Executive Vice President and CFO |
 69
Path to Achieve 2015 Revenue Growth
Aspirations
$1,835*
$215
$375
$2,425
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2011
NA Organic
ROW Organic
2015
*
Includes full year Lochinvar (proforma)
This suggests annual organic revenue growth in excess of 7 percent
|
 70
North America Organic Revenue Growth
US housing starts to1.2 million
by 2015
Commercial Industry units
to 150,000 by 2015
Grow approximately
10 percent per year
North America Water Heaters
$1.1 billion to $1.2 billion
Lochinvar
$200 million to $290 million
$1,835*
$215
$375
$2,425
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2011
NA Organic
ROW
Organic
2015
*
Includes full year Lochinvar (proforma)
•
•
• |
 Rest
of World Organic Revenue Growth AOS Branded Sales
$372 million to $650 million
India
$18 million to $85 million
2015 Global Water Treatment
revenues over $100 million
•
15% (2X China GDP)
•
Grow > 30 percent per year
•
Enter water treatment
Grow at least 25 percent
per year
SWT
$16 million to $40 million
71
* Includes full year Lochinvar (proforma)
• |
 China/India 24% of Sales in 2011 & Growing
to 32% by 2015
6%
7%
10%
9%
10%
13%
16%
22%
24%
32%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2015
China/India
NA
72
$775 million
Organic Growth |
 73
Organic Growth Provides Premium Returns
$-
$500
$1,000
$1,500
$2,000
$2,500
$3,000
2006
2007
2008
2009
2010**
2011
2015
Aspiration
0%
2%
4%
6%
8%
10%
12%
14%
16%
Sales
EBIT Margin
**
2010 EBIT excludes $35.4 million in flood costs
*
excludes corporate expenses |
 74
Organic 2015 EBIT Aspirations
14.5%
13%
14%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
North America
Rest of World
Total excl
Corporate |
 75
Acquisitions
Dry Powder for acquisitions*:
Appr $400 million cash offshore
Appr
$400
million
borrowing
capacity
Appr $800 million available for acquisitions
Assumptions for acquisitions:
Purchase Price of $800mm = 1.25 Revenue,
or approximately $640 million
Purchase
Price
=
EBITDA
multiple
of
approximately 8.5 times and EBIT multiple
of
10
times
$2,425
$640
$3,065
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
2015 Organic
Growth
Acquisitions
2015
* Excludes over $300 million organic cash generation
(estimate for 2013 to 2015 timeframe) |
 76
Emerging Regions over 33% of Revenues in 2015
> $2 Billion
Developed Regions
> $1 Billion
Emerging Regions
Including acquisitions, achieve greater than $3 Billion in sales,
with over $1 Billion from emerging regions
Composition of revenues based on organic growth and acquisition aspirations
|
 77
Reaffirming 2012 EPS Guidance;
Introducing 2015 EPS Aspirations
2008, 2009 and 2010 are Non-GAAP, EPS all periods is Continuing Operations
Only 2011 excludes the impact from the second quarter one-time settlement
and increase to the warranty reserve and the hedged RBC shares. 2012
excludes the impact from future acquisitions and the gain on the sale of RBC
shares. $5.00
$2.80
2015 assumes 46.5 million shares outstanding and pension expense
is unchanged from 2012
Acquisitions |
 Thank you! |