Clean-up Begins at Ashland City Plant; Water Heater Production Shifted

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May 10, 2010, 05:09 ET

MILWAUKEE, May 10 /PRNewswire-FirstCall/ -- With the flood waters of the nearby Cumberland River receded, clean-up work has begun on the A. O. Smith Water Products Company plant in Ashland City, Tenn.

Management employees and outside contractors gained access to the 1.5 million square foot residential water heater plant on May 6 and immediately began to assess the damage from the historic flood that swept through the manufacturing area, finished goods warehouse, and first-floor offices of the facility.

"With the help of outside experts, we have begun round-the-clock clean-up work throughout the facility," Ajita G. Rajendra, president, A. O. Smith Water Products Company said. "Our clean-up will focus first on those parts of the plant that are critical to our manufacturing processes. We expect to have those critical areas cleaned within the next couple of weeks."

"We will call back a select group of employees to begin the assessment and start-up of the equipment as the clean-up proceeds," Rajendra said. "Production will resume at the facility as soon as possible, and there is a plan to phase in production as portions of the plant are made ready."

In the meantime, the company has begun shifting residential water heater production temporarily to other A. O. Smith plants in North America. "We have already relocated a significant portion of Ashland City's production," Rajendra explained, "and are working hard to ensure we continue to satisfy the needs of all of our customers."

Immediately after the flood, the company announced that residential water heater lead times would increase to three weeks from two weeks. Commercial water heater production and distribution are unaffected by the flood.

The division's 200 salaried employees returned to work this morning. The company has relocated those employees to other A. O. Smith facilities that were not affected by the flooding in Ashland City and Franklin, Tenn.

The company is in the process of securing a warehouse facility near the Ashland City plant that would serve as a temporary water heater distribution center. The company expects to phase in production as the clean-up efforts proceed, with finished water heaters transported to the distribution center.

While crews are still assessing the damage in the adjoining warehouse, Rajendra believes a small portion of the finished goods inventory escaped damage from the flood. That inventory will be transferred to the new distribution center.

The company announced it would continue to provide pay and benefits to its displaced production employees for four weeks beginning May 3.

The company also announced it has partnered with The Community Foundation of Middle Tennessee to create the A. O. Smith Corporation Employee Care Fund to assist employees who sustained losses during the flood. "With the widespread flooding that hit the area, several A.O. Smith employees suffered damage to their homes -- most lost everything. Thankfully no employees lost their lives in the flood," Rajendra said.

A. O. Smith Corporation donated $100,000 to the fund, and company facilities throughout North America are planning fund-raising activities over the next several weeks.

A. O. Smith Corporation has flood insurance and business interruption insurance in place amounting to an aggregate of $30 million to cover the damages resulting from the flood. Additionally, the company continues to work with federal, state, and local government officials to determine what financial assistance is available to businesses impacted by the flood.

"Based upon what we know today, we do not believe the flood will have a material impact on our financial performance for the year," commented Paul Jones, chairman and chief executive officer. "Consequently, we have not modified our 2010 full-year earnings guidance of $3.20-$3.40 per share."

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. 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 ability to generate 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; 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 integrating the China acquisition, and realizing future growth and profit expectations or negative impacts on the company that the flooding of its Ashland City, Tenn., water heater manufacturing plant may have, including as a result of the ceasing of production in the plant and damages not covered by insurance. 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 2009 sales of $2.0 billion, is a global leader applying innovative technology and energy-efficient solutions to products marketed worldwide. The company is one of the world's leading manufacturers of residential and commercial water heating equipment, offering a comprehensive product line featuring the best-known brands in North America and China. A. O. Smith is also one of the largest manufacturers of electric motors for residential and commercial applications in North America.

SOURCE A. O. Smith Corporation