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): October 17, 2006

 


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 2.02. Results of Operations and Financial Condition

On October 17, 2006, A. O. Smith Corporation (“the Company”) issued a news release announcing the Company’s third quarter earnings. A copy of the Company’s news release is attached as Exhibit 99.1 to this Current Report on Form 8-K (this “Current Report”) and is incorporated by reference herein.

Item 9.01. Financial Statements and Exhibits

The following exhibit is being filed herewith:

(99.1) News Release of A. O. Smith Corporation, dated October 17, 2006.

 

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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 17, 2006   By:  

/s/ Terry M. Murphy

 

Terry M. Murphy

Executive Vice President

and Chief Financial Officer

 

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A. O. SMITH CORPORATION

Exhibit Index to Current Report on Form 8-K Dated October 17, 2006.

 

Exhibit
Number
 

Description

99.1   News Release of A. O. Smith Corporation, dated October 17, 2006

 

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News Release

Exhibit 99.1

LOGO

FOR IMMEDIATE RELEASE

October 17, 2006

A. O. Smith announces third quarter earnings of $.55 per share

Milwaukee, Wis.—A. O. Smith Corporation (AOS-NYSE) today announced third quarter net earnings of $17.0 million or $.55 per share on sales of $564.0 million. Third quarter 2006 earnings represented a more than 70 percent increase over the $9.7 million, or $.32 per share reported in the same period last year.

Sales for the quarter ended Sept. 30 were $564.0 million, including sales of $118.0 million from the American Water Heater and GSW businesses acquired in April 2006, compared with $408.4 million in the third quarter of 2005.

For the first nine months of 2006, A. O. Smith reported net earnings of $57.6 million or $1.86 per share compared with net earnings of $30.5 million or $1.01 per share during the same period last year. Sales for the first nine months were $1.62 billion compared with $1.26 billion in 2005.

“We are pleased with our third quarter performance,” Paul W. Jones, chairman and chief executive officer, said. “Strong sales in our North American water heater business, as well as continued strength in our Chinese water heater operation more than offset lower sales volume in our Electrical Products business.”

Water Products

Sales in the Water Products business increased to $344.2 million compared with $199.0 million for the same period in 2005. Third quarter results included sales of $118.0 million from the American and GSW operations acquired in April of 2006. A. O. Smith’s legacy Water Products business reported a 14 percent increase in third quarter sales compared with last year as both its residential and commercial businesses recorded double-digit gains. In addition, sales increased 48 percent in China.

The company believes residential sales in the Water Products’ business were higher than normal as customers purchased product ahead of a September price increase implemented to offset higher costs for steel and freight. As a result, the company expects residential sales to slow for the balance of the year.

 

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Operating earnings in the third quarter increased to $29.2 million over the prior year’s third quarter earnings of $14.5 million. The higher operating earnings resulted from the stronger unit volumes and the addition of the American and GSW businesses.

Electrical Products

Third quarter sales in the company’s motor business of $220.7 million were five percent higher than in the third quarter of last year. The higher sales reflect the fourth quarter 2005 acquisition of the Yueyang Zhongmin commercial motor operation in China as well as increased pricing implemented to offset higher costs for raw materials, primarily the substantial year-over-year increase in the cost of copper. Excluding the sales from the Yueyang acquisition and the improved pricing, sales volumes were lower than in the third quarter of 2005.

Operating earnings decreased to $8.7 million from $11.6 million as a result of the lower unit volumes.

During the third quarter the company also announced that it will close its McMinnville, Tenn., motor fabrication plant by the end of the year and outsource or relocate production to existing operations in North America.

Outlook

“We expect continued strength in both our North American commercial and Chinese water heater businesses,” Jones observed.

“We are also pleased with the progress we are making with the integration of GSW and are enthused about the prospects for the combined business. However, because of near-term weakness in residential markets and continued pressure from raw material costs in both businesses, we are narrowing our 2006 forecast of earnings to between $2.30 and $2.40 per share.”

A. O. Smith will broadcast a live conference call at 10:00 a.m. (Eastern Daylight 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.

 

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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,” “continue,” or words of similar meaning and include earnings accretion and synergy forecasts. 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; instability in the company’s electric motor and water products markets; difficulties associated with integrating acquired businesses and attaining projected synergies; adverse changes in general economic conditions; and the potential that assumptions on which the company based its expectations, including those regarding the impact of purchase accounting, 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 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, with headquarters in Milwaukee, Wis., is a diversified manufacturer serving customers worldwide. The company is one of the world’s leading manufacturers and marketers of residential and commercial water heating equipment, offering a comprehensive line featuring the best-known brands in the industry. It is also one of North America’s largest manufacturers of electric motors, with an extensive line of hermetic, fractional horsepower, and integral horsepower motors for residential, commercial, and industrial applications. A. O. Smith employs approximately 19,500 people at facilities in the United States, Mexico, China, Canada, and Europe.

 

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A. O. SMITH CORPORATION AND SUBSIDIARIES

(condensed consolidated financial statements - dollars in millions, except per share data)

Statement of Earnings

(unaudited)

 

     Three Months ended
September 30
   Nine Months ended
September 30
     2006    2005    2006    2005

Net sales

   $ 564.0    $ 408.4    $ 1,617.7    $ 1,255.2

Cost of products sold

     448.6      327.4      1,276.8      1,002.0
                           

Gross profit

     115.4      81.0      340.9      253.2

Selling, general and administrative

     82.8      59.7      237.2      182.5

Restructuring and other charges

     2.8      3.0      6.1      12.5

Interest expense

     7.3      3.2      17.8      10.0

Other expense

     0.4      0.7      —        1.5
                           
     22.1      14.4      79.8      46.7

Tax provision

     5.5      4.7      22.8      16.2
                           

Earnings from continuing operations

     16.6      9.7      57.0      30.5

Discontinued operations after tax

     0.4      —        0.6      —  
                           

Net Earnings

   $ 17.0    $ 9.7    $ 57.6    $ 30.5

Diluted Earnings Per Common Share of Stock

           

Continuing Operations

     0.54      0.32      1.84      1.01

Discontinued Operations *

     0.01      —        0.02      —  
                           

Net

   $ 0.55    $ 0.32    $ 1.86    $ 1.01

Average Common Shares Outstanding (000’s omitted)

     31,034      30,295      31,007      30,145

* GSW Building Products held for sale

 

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A. O. SMITH CORPORATION

Balance Sheet

(dollars in millions)

 

     (unaudited)
September 30
2006
   December 31
2005

ASSETS:

     

Cash and cash equivalents

   $ 32.4    $ 24.0

Receivables

     411.0      278.8

Inventories

     299.6      225.4

Deferred income taxes

     6.9      9.9

Other current assets

     62.7      37.9

Current assets held for sale *

     18.8      —  
             

Total Current Assets

     831.4      576.0

Net property, plant and equipment

     415.9      356.9

Goodwill and other intangibles

     572.4      323.5

Deferred income taxes

     11.0      3.4

Other assets

     65.3      32.9
             

Total Assets

   $ 1,896.0    $ 1,292.7
             

LIABILITIES AND STOCKHOLDERS’ EQUITY:

     

Trade payables

   $ 302.5    $ 205.1

Accrued payroll and benefits

     41.2      33.5

Product warranty

     32.0      17.3

Long-term debt due within one year

     6.9      6.9

Other current liabilities

     61.9      44.8

Current liabilities held for sale *

     3.8      —  
             

Total Current Liabilities

     448.3      307.6

Long-term debt

     492.1      162.4

Other liabilities

     164.2      99.4

Pension liability

     123.3      110.4

Stockholders’ equity

     668.1      612.9
             

Total Liabilities and Stockholders’ Equity

   $ 1,896.0    $ 1,292.7
             

* GSW Building Products held for sale

 

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A. O. SMITH CORPORATION

STATEMENT OF CASH FLOWS

(dollars in millions)

(unaudited)

 

     Nine Months ended
September 30
 
     2006     2005  

Continuing

    

Operating Activities

    

Earnings from continuing operations

   $ 57.0     $ 30.5  

Adjustments to reconcile net earnings to net cash provided by (used in) operating activities:

    

Depreciation & amortization

     44.3       38.9  

Net change in current assets and liabilities

     (41.0 )     59.5  

Net change in noncurrent assets and liabilities

     1.5       5.7  

Other

     1.9       3.3  
                

Cash Provided by Operating Activities

     63.7       137.9  
                

Investing Activities

    

Acquisition of businesses

     (342.3 )     —    

Capital expenditures

     (41.1 )     (31.1 )

Proceeds from sale of investments

     53.3       —    

Purchase of investments

     (41.0 )     —    
                

Cash Used in Investing Activities

     (371.1 )     (31.1 )
                

Financing Activities

    

Long-term debt incurred

     328.1       —    

Long-term debt retired

     (4.4 )     (72.8 )

Other stock transactions

     7.3       7.7  

Dividends paid

     (14.9 )     (14.2 )
                

Cash Provided by (Used in) Financing Activities

     316.1       (79.3 )
                

Discontinued

    

Cash Used by Operating Activities

     (0.3 )     —    
                

Net increase in cash and cash equivalents

     8.4       27.5  

Cash and cash equivalents - beginning of period

     24.0       25.1  
                

Cash and Cash Equivalents - End of Period

   $ 32.4     $ 52.6  
                

 

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A. O. SMITH CORPORATION AND SUBSIDIARIES

Business Segments

(dollars in millions)

(unaudited)

 

     Three Months ended
September 30
    Nine Months ended
September 30
 
     2006     2005     2006     2005  

Net sales

        

Water Products

   $ 344.2     $ 199.0     $ 918.4     $ 605.5  

Electrical Products

     220.7       211.0       704.0       652.5  

Inter-Segment Sales

     (0.9 )     (1.6 )     (4.7 )     (2.8 )
                                
   $ 564.0     $ 408.4     $ 1,617.7     $ 1,255.2  
                                

Operating earnings

        

Water Products

   $ 29.2     $ 14.5     $ 88.3     $ 54.1  

Electrical Products (1)

     8.7       11.6       38.8       30.1  

Inter-Segment earnings

     —         —         (0.1 )     —    
                                
     37.9       26.1       127.0       84.2  

Corporate expenses (2)

     (8.5 )     (8.5 )     (29.4 )     (27.5 )

Interest expense

     (7.3 )     (3.2 )     (17.8 )     (10.0 )
                                

Earnings before income taxes

     22.1       14.4       79.8       46.7  

Tax provision

     5.5       4.7       22.8       16.2  
                                

Earnings from continuing operations

   $ 16.6     $ 9.7     $ 57.0     $ 30.5  
                                

                    

        

(1)      includes pretax restructuring and other charges of:

   $ 2.8     $ 3.0     $ 5.8     $ 11.3  

(2)      includes pretax restructuring and other charges of:

   $ —       $ —       $ 0.3     $ 1.2  

 

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