Gabelli Pump, Motor and Valve Symposium

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• Gabelli Pump, Motor and Valve Symposium
• February 5, 2003

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Forward-Looking Statements
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Sales

1,469
1,248
1,151
1,070
( in millions)
801
Continuing operations only
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Earnings Forecast

2.05 - 2.25
1.86
.86
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Summary Results
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Cash Flow

( in millions)
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Debt-to-Capital
47
33
12/31/01
12/31/02
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Dividends
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Built Scale in two Platforms
Divested automotive and smaller businesses to
concentrate build scale in two segments

( in millions)
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A. O. Smith Markets Served
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Significant Replacement Business
Cyclical Swings are Tempered
80
50
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Electrical Products
Built critical mass in electric motors with four
acquisitions

• Motor Acquisitions
• UPPCO (1997)
• GE hermetic (1998)
• MagneTek (1999)
• Athens Products (2002)

( in millions)
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Electrical ProductsServed Markets
Other
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Pump Motors
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63
HVAC
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Electrical Products OEM Partnerships
Many strong, long-term relationships

• HVACR Pump Other
• Broan Hayward Pentair Carrier Sta-Rite Genie
• Copeland
• Trane
• York

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Industry Leaders
Top motor manufacturers - sales

( in millions)
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Water Systems
State Acquisition

Commercial
Residential Wholesale
Commercial
Residential Wholesale
Retail
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Water Systems

• Residential gas and electric
• Standard and specialty commercial
• High efficiency copper-tube boilers
• Water systems tanks

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Water Systems Served Markets
International Other
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21
63
U.S. Commercial
U.S. Residential
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Market Leadership
Top water heater manufacturers - sales

( in millions)
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China Water Heater Business
Full line of water heating equipment

• Opened facility in 1998
• Products designed for Chinese consumers
• Sales of 30 million in 2002
• Growing 15 annually

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Opportunities for Sales Earnings Growth
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Motor Growth Opportunities
Leverage product breadth
Product extension
International expansion
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Air Conditioning Inventories_at_ Nov. 30
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Electrical ProductsMargin Enhancement

• Cost Initiatives
• Salaried reductions
• Logistics consolidation
• Six U.S. Plants
• to be completed in the second half of 2003
• 19 million in savings in 2002
• Growing to over 25 million in 2003

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Low-Cost ManufacturingEfficiency of Foreign
Sourcing
Hourly wage and fringe benefits - Electrical
Products
Acquisitions Integration
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Low-Cost ManufacturingProduction Strategy
High
Full range of high quality manufacturing
capabilities
China
Mexico
Volume
U.S.
SKUs
High
Low
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More China Opportunities

• Shenzen
• December, 2001
• Subfractional horsepower motors
• Changheng Group
• December, 2002
• Fractional horse power motors
• Positioned to produce 10 of sales in China by
  2005

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Regulatory Changes
Regulatory changes are driving product
enhancements and re-pricing opportunities

• 2003 2004 2005
• Quarter when effective 1 2 3 4 1 2 3
  4 1 2 3 4
• Flammable vapor
• resistance
• New NAECA
• minimum efficiencies
• Revised NOX standards
• (California Texas)

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Water Systems Product Standardization

• Simplify product offerings
• Maximize production runs and efficiencies
• Optimize logistics

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Electrical ProductsEBIT Margin
Adjusted to eliminate goodwill amortization
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Water SystemsEBIT Margin
32
Performance Drivers
Significant near- and long-term opportunities
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