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Smith (A.O.): Rest Of World Segment

The following excerpt is from the company's SEC filing.

Sales of this segment, which is primarily comprised of China, Europe and India, increased over nine percent in the third quarter of 2015 to $217.1 million. China sales in the third quarter increased nearly 11 percent, while currency translation reduced sales by over two percentage points.

Operating earnings for this segment were $27.4 million compared with $30.0 million earned in the 2014 third quarter. The impact from higher sales in China and lower steel costs were more than offset by lower sales of highly profitable commercial water heaters in China and increased selling, general and administrative (SG&A) costs. Higher promotion costs in advance of Chinas one-week holiday in October, as well as higher development and advertising costs associated with the March 2015 launch of air purification in China and water treatment products in India contributed to higher segment SG&A costs. Earnings were reduced by almost $1 million due to currency translation. As a result of those factors, third quarter 2015 operating margin of 12.6 percent was lower than the 15.1 percent operating margin in 2014.

Share Repurchase and Other Items

During the third quarter of 2015, the company repurchased approximately 850,000 shares of common stock at a total cost of $57 million. Approximately 900,000 shares remained on the existing discretionary authority at the end of the quarter.

Total debt as of Sept. 30, 2015, was $260.8 million, resulting in leverage of 15 percent as measured by the ratio of total debt to total capital. Cash and investments, located outside the U. S., totaled $606.4 million at the end of the quarter.

The companys effective income tax rate for the first nine months of 2015 of 30.7 percent was higher than its effective income tax rate of 27.3 percent for the first nine months of 2014 primarily due to a change in geographic earnings mix.

2015 Outlook

Sales for the first nine months in China were up 15 percent in local currency, and we expect to maintain that growth rate for the full year, Rajendra observed.

As a result of our continued strong performance in North America, we are increasing our guidance for 2015. We believe A. O. Smith Corporation will...


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