AOS
#No, I guess what we're saying, <UNK>, is we will be about $19 million or $20 million this year.
And it was flatlined ---+ somewhat flatlined at $5 million a quarter, let's say.
Last year, the first half of the year, it was $14 million.
It was only about $4 million.
Okay.
So the $10 million versus $4 million is ---+ it affected us $6 million compared to the prior year.
This year, the last half of the year, it's going to be roughly $10 million of ERP in 2015 compared to $10 million of ERP in 2014.
I don't know if that clarifies for your question, but it won't have an impact on margins over the prior year.
And volumes.
So when you look at volumes for the water heater industry, it's normally about 52% or so in the first half of the year, 48% the last half of the year.
Commercial is very similar.
So volumes second half of the year will be a little bit less than the first half of the year, which has an impact.
There's a lot of questions there.
So promotion-wise, certainly we are spending more on promotion on air purifiers, water treatment, and also online.
So that's a fact.
We are spending more on those areas, as they are relatively new areas.
So we are spending more promotion dollars there.
As we have talked about in the past, that SG&A spend can be very volatile.
Last year it was very volatile.
And we ended up at about 13.8% or so for rest-of-world, which was driven by China.
But there was wide differences by quarter to quarter.
This year we're thinking it's going to be more leveled out.
And we have talked about being about 13.5% to 13.75%, let's say, for the full year.
And that drop is driven by a couple things: it's driven by our investment in air purification.
It's driven by our investment in water treatment in India.
And also, we started selling water treatment in Vietnam, and that's having a negative effect on those margins.
So we're very comfortable with where the margins are.
They're pretty much what we had talked about.
And again, what differentiates us from a lot of people in China is our growth model isn't dependent on only one item.
We have those three buckets, and that gives us some comfort going forward.
We will continue to build the brand and invest in the brand.
I don't know if that answers your question.
No, we don't.
Like we've always said, we are always going to ---+ there are going to be quarterly ups and downs in the marketplace in China.
And we are very comfortable ---+ or anywhere ---+ and we are very comfortable with the longer-term guidance that we have given.
And we manage the ups and downs as best we can, as we see them coming.
Specifically in terms of the stock market, like I said, we are not concerned about the impact of it in terms of looking at the number of people it impacts, and all the reasons I gave ---+ and the fact that it's up 70% from last year, anyway, even with this recent drop.
So we don't see that as having a long-term impact on our type of customer.
And I think as <UNK> has alluded to, in 2008 the market dropped much more significantly than what it did.
And it didn't have a significant effect on consumer spending.
So we've looked at a lot of economists' work, and there's no empirical evidence that ties to stock market move to consumer spending.
And again, we also say ---+.
Or household formation.
Or household formation.
So time will tell if this is something different, but there's nothing from a historical standpoint that supports that.
I wish I could answer that.
We haven't done a great job of estimating the commercial market.
We continue ---+ you know, we talk to our salespeople, and they are seeing it in a lot of different components.
You know, gas, high-efficiency is becoming a bigger piece in the last three years.
And that certainly is in one of our areas of strength.
The hotel and the restaurant business is doing fairly well.
So we are seeing construction there as well as retrofit work.
We're also seeing for redundancy work being done.
That's on kind of the commercial water heater.
And then the verticals that Lochinvar works with are the educational side.
And they are starting to see some potential in the healthcare side, etc.
So there's been a lot of talk about commercial coming back, and it hasn't.
But it has, for our businesses, come back pretty well.
So we certainly cross our fingers and hope it will continue for the next several years.
Not much change in the industry.
It's relatively flat year-over-year.
But obviously, because of the currency, it's been affected.
I mean, three of the four players on manufacture in the US.
So there's been impact there ---+ three of the four major players, I should say ---+ impacted there.
We had some currency translation, adjustment of our top line, obviously, as the currency has devalued.
But as I said, there's been price increases that have gone in there.
Well, it's anecdotal replacement, and it's anecdotal surveys that we do of people that buy water heaters.
And it really is kind of the Tier 1 ---+ where I alluded to earlier.
It's gone from 35% to 45% and 50%.
So it truly is anecdotal.
But it also makes sense, right, because of the high penetration rate for some time.
Water heaters don't last forever, so they are going to be replaced.
Water treatment <UNK> alluded to: CMM has estimated a 35% to 40% growth rate over the next four or five years.
We are comfortable with that growth rate.
We have the right product in the right market with our reverse osmosis and our tankless product.
We feel we have the best product on the marketplace.
So we are comfortable with those types of growth rates as we look at it.
It's fairly flat, I think.
Yes.
In terms of pricing in China as we go on ---+ first of all, for obvious reasons we can't talk about pricing.
But in China in the environment is ---+ we rarely ---+ our pricing comes from new products with new features, and benefits, and different value propositions that we are able to then get higher prices in the marketplace.
Being a consumer appliance, that's essentially the way we improve unit price in the marketplace in China.
The environment for pricing is ---+ you know, it's a very tough environment.
If you look at the CPI and PPI in China, they are actually headed downward.
But in terms of tying to inventory levels, like I said, we are watching it.
We are aware of it.
But at this point we are comfortable with the guidance for the year.
Thank you all for joining us today.
We have posted a slide deck from our analyst day in May and a new video showcasing our China business on our website, aosmith.com.
We welcome your questions, and please do not hesitate to contact me.
Have a wonderful day.
Thank you.
