SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _______________
Commission File Number 1-475
A.O. SMITH CORPORATION
Delaware 39-0619790
(State of Incorporation) (IRS Employer ID Number)
P. O. Box 245008, Milwaukee, Wisconsin 53224-9508
Telephone: (414) 359-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ___
Class A Common Stock Outstanding as of July 30, 1999: 8,701,711 shares
Common Stock Outstanding as of July 30, 1999: 14,519,366 shares
Exhibit Index Page 16
<PAGE>
Index
A. O. Smith Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings and Retained Earnings
- Three and six months ended June 30, 1999 and 1998 3
Condensed Consolidated Balance Sheet
- June 30, 1999 and December 31, 1998 4
Condensed Consolidated Statement of Cash Flows
- Six months ended June 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements
- June 30, 1999 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 11
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Index to Exhibits 16
2
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Three and Six Months ended June 30, 1999 and 1998
(000 omitted except for per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Electric Motor Technologies $156,664 $113,765 $304,539 $225,604
Water Systems Technologies 78,751 74,295 160,739 148,849
Other 27,355 38,620 54,828 75,182
-------- -------- -------- -------
NET SALES 262,770 226,680 520,106 449,635
Cost of products sold 208,844 178,827 415,847 356,013
-------- -------- -------- -------
Gross profit 53,926 47,853 104,259 93,622
Selling, general and administrative expenses 28,456 26,381 56,966 54,281
Interest expense 2,168 1,593 4,499 3,217
Interest income (214) (1,309) (554) (3,021)
Other expense - net 1,584 692 3,539 1,414
-------- -------- -------- --------
21,932 20,496 39,809 37,731
Provision for income taxes 8,017 7,193 14,492 13,231
-------- -------- -------- --------
Earnings before equity in loss of joint ventures 13,915 13,303 25,317 24,500
Equity in loss of joint ventures - (674) - (1,693)
-------- -------- -------- --------
NET EARNINGS 13,915 12,629 25,317 22,807
RETAINED EARNINGS
- - ------------------
Balance at beginning of period 508,561 473,941 499,954 466,514
Cash dividends on common shares (2,783) (2,674) (5,578) (5,425)
-------- -------- -------- --------
BALANCE AT END OF PERIOD $519,693 $483,896 $519,693 $483,896
======== ======== ======== ========
EARNINGS PER COMMON SHARE (note 6)
Basic $ 0.60 $ 0.54 $ 1.09 $ 0.96
Diluted $ 0.59 $ 0.52 $ 1.07 $ 0.93
DIVIDENDS PER COMMON SHARE $ 0.12 $ 0.11 $ 0.24 $ 0.23
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
3
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 1999 and December 31, 1998
(000 omitted)
<TABLE>
<CAPTION>
(unaudited)
June 30, 1999 December 31, 1998
------------- -----------------
<S> <C> <C>
ASSETS
- - ------
CURRENT ASSETS
Cash and cash equivalents (note 2) $ 31,703 $ 37,666
Receivables 165,335 133,764
Inventories (note 3) 102,392 99,984
Deferred income taxes 10,343 11,376
Other current assets 5,932 4,599
--------- ----------
TOTAL CURRENT ASSETS 315,705 287,389
Property, plant and equipment 525,509 507,033
Less accumulated depreciation 271,027 258,263
--------- ----------
Net property, plant and equipment 254,482 248,770
Goodwill 145,551 146,901
Other assets 92,250 84,372
--------- ----------
TOTAL ASSETS $ 807,988 $ 767,432
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
CURRENT LIABILITIES
Trade payables $ 83,223 $ 57,429
Accrued payroll and benefits 28,255 31,385
Product warranty 7,749 7,892
Accrued income taxes 6,063 6,786
Long-term debt due within one year 4,629 4,629
Other current liabilities 23,609 24,036
--------- ----------
TOTAL CURRENT LIABILITIES 153,528 132,157
Long-term debt (note 4) 131,212 131,203
Other liabilities 58,347 60,636
Deferred income taxes 47,286 42,343
STOCKHOLDERS' EQUITY:
Class A common stock, $5 par value: authorized
14,000,000 shares; issued 8,733,525 43,668 43,688
Common stock, $1 par value: authorized 60,000,000
shares; issued 23,815,837 23,816 23,812
Capital in excess of par value 51,434 51,121
Retained earnings (note 4) 519,693 499,954
Accumulated other comprehensive income (note 5) (2,461) (1,488)
Treasury stock at cost (218,535) (215,994)
--------- ----------
TOTAL STOCKHOLDERS' EQUITY 417,615 401,093
--------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 807,988 $ 767,432
========= ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
4
<PAGE>
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
(000 omitted)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30
-------
1999 1998
---- ----
<S> <C> <C>
OPERATING ACTIVITIES
CONTINUING
- - ----------
Net earnings $ 25,317 $ 22,807
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 18,242 13,977
Equity in loss of joint ventures - 1,693
Net change in current assets and liabilities (10,298) (26,407)
Net change in noncurrent assets and liabilities (8,904) (7,619)
Other - net (302) 3
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 24,055 4,454
INVESTING ACTIVITIES
Capital expenditures (19,375) (12,367)
Capitalized purchased software costs (824) (547)
Investment in joint ventures - (5,748)
Acquisition of business (531) -
--------- ---------
CASH USED BY INVESTING ACTIVITIES (20,730) (18,662)
--------- ---------
CASH PROVIDED/(USED) BY CONTINUING OPERATIONS
BEFORE FINANCING ACTIVITIES 3,325 (14,208)
DISCONTINUED
- - ------------
Cash used by discontinued operations
before financing activities (1,156) (1,196)
FINANCING ACTIVITIES
Long-term debt incurred 1,609 819
Long-term debt retired (1,600) (1,625)
Purchase of common stock held in treasury (2,691) (24,860)
Proceeds from common stock options exercised 78 202
Tax benefit from exercise of stock options 50 69
Dividends paid (5,578) (5,425)
--------- ---------
CASH USED BY FINANCING ACTIVITIES (8,132) (30,820)
--------- ---------
Net decrease in cash and cash equivalents (5,963) (46,224)
Cash and cash equivalents-beginning of period (note 2) 37,666 145,896
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 31,703 $ 99,672
========= =========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999
(unaudited)
1. Basis of Presentation
The consolidated financial statements presented herein are based on
interim figures and are subject to audit. In the opinion of management,
all adjustments consisting of normal accruals considered necessary for a
fair presentation of the results of operations and of financial position
have been made. The results of operations for the three- and six-month
periods ended June 30, 1999 are not necessarily indicative of the results
expected for the full year. The consolidated balance sheet as of December
31, 1998 is derived from the audited financial statements but does not
include all disclosures required by generally accepted accounting
principles. Certain prior year amounts have been reclassified to conform
to the 1999 presentation.
2. Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, cash and cash
equivalents include short-term investments held primarily for cash
management purposes. These investments normally mature within three months
from the date of acquisition.
3. Inventories (000 omitted)
June 30, 1999 Dec. 31, 1998
------------- -------------
Finished products $ 59,815 $ 58,534
Work in process 19,619 18,354
Raw materials 50,057 50,542
Supplies 1,533 1,350
------------- -------------
131,024 128,780
Allowance to state inventories
at LIFO cost 28,632 28,796
------------- -------------
$ 102,392 $ 99,984
============= =============
4. Long-Term Debt
The company's long-term credit agreements contain certain conditions and
provisions which restrict the company's payment of dividends. Under the
most restrictive of these provisions, retained earnings of $69.6 million
were unrestricted as of June 30, 1999 for cash dividends and treasury
stock purchases.
6
<PAGE>
5. Comprehensive Earnings (Loss)
The company's comprehensive earnings were $13,684,000 and $24,344,000 for
the three- and six-month periods ended June 30, 1999 and $12,618,000 and
$22,484,000 for the three- and six-month periods ended June 30, 1998.
Comprehensive earnings, for all periods presented, were comprised of net
earnings and foreign currency translation adjustments. No provisions or
benefits for U.S. income taxes have been made on these foreign currency
translation adjustments.
6. Earnings per Share of Common Stock
The numerator for the calculation of basic and diluted earnings per share
is net earnings. The following table sets forth the computation of basic
and diluted weighted-average shares used in the earnings per share
calculations:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ---------------------------
1999 1998 1999 1998
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Denominator for basic earnings
per share
- weighted-average shares 23,151,831 23,595,939 23,188,004 23,843,069
Effect of dilutive stock options 574,810 689,151 546,288 654,858
-------------- -------------- ------------- ------------
Denominator for diluted earnings
per share 23,726,641 24,285,090 23,734,292 24,497,927
============== ============== ============= ============
<CAPTION>
7. Operations by Segment
(000 omitted) Three Months Ended Six Months Ended
June 30 June 30
------------------------------ ---------------------------
1999 1998 1999 1998
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Net Sales
Electric Motor Technologies $ 156,664 $ 113,765 $ 304,539 $ 225,604
Water Systems Technologies 78,751 74,295 160,739 148,849
Other 27,355 38,620 54,828 75,182
-------------- -------------- ------------- ------------
Net Sales $ 262,770 $ 226,680 $ 520,106 $ 449,635
============== ============== ============= ============
Earnings before Interest and Taxes
Electric Motor Technologies $ 20,889 $ 13,437 $ 39,035 $ 26,354
Water Systems Technologies 8,538 7,783 16,898 14,502
Other 192 3,596 191 5,757
-------------- -------------- ------------- ------------
Total Segments 29,619 24,816 56,124 46,613
General Corporate and Research
and Development Expenses (5,733) (5,149) (12,370) (11,483)
Interest Expense - Net (1,954) (284) (3,945) (196)
-------------- -------------- ------------- ------------
Earnings before Income Taxes 21,932 19,383 39,809 34,934
Provision for Income Taxes (8,017) (6,754) (14,492) (12,127)
-------------- -------------- ------------- ------------
Net Earnings $ 13,915 $ 12,629 $ 25,317 $ 22,807
============== ============== ============= ============
Intersegment sales, which are immaterial, have been excluded from segment
revenues. Total assets by segment at June 30, 1999 have not changed
materially from December 31, 1998.
</TABLE>
7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST SIX MONTHS OF 1999 COMPARED TO 1998
Sales were $262.8 million in the second quarter of 1999, an increase of $36.1
million or nearly 16% over sales of $226.7 million in the second quarter of
1998. Sales for the first half of 1999 were $520.1 million or 15.7% higher than
the $449.6 million of sales in the same period last year. Both the second
quarter and first half of 1999 were impacted by significantly higher sales at
Electric Motors and modest volume improvement at Water Systems which more than
offset a significant sales decline for fiberglass pipe and storage tank
businesses.
Second quarter net earnings of $13.9 million surpassed last year's second
quarter earnings of $12.6 million by $1.3 million or 10.2%. Net earnings for the
first half of 1999 were $25.3 million or 11% higher than earnings of $22.8
million in the first half of 1998. On a per share basis, second quarter diluted
net earnings increased from $.52 in 1998 to $.59 in 1999. Diluted net earnings
per share for the first half of 1999 were $1.07 compared to $.93 per share in
the same period last year. The improved earnings for the second quarter and
first half of the year were consistent with the sales increases experienced at
the Electric Motors and Water Systems operations.
The gross profit margin for the second quarter declined slightly from 21.1% in
1998 to 20.5% in 1999. The year to date gross profit margin in 1999 was 20.0%
compared to 20.8% for the same period in 1998. The lower margins in both the
second quarter and first half of 1999 were the result of the decline in
profitability in the fiberglass pipe and storage tank businesses.
Second quarter sales of Electric Motor Technologies were a record $156.7 million
or almost $43 million higher than the second quarter of 1998. Year to date sales
for this segment were $304.5 million, a 35% increase over 1998 first half sales
of $225.6 million. The acquisition of General Electric's hermetic motor business
in July 1998, stronger pump and HVAC business, and the Tier One supply agreement
with York International negotiated in July 1998 provided the sales impetus for
both the second quarter and first half of 1999.
Second quarter operating profit for Electric Motor Technologies increased from
$13.4 million in 1998 to $20.9 million in 1999. The first half earnings
exhibited similar improvement as earnings increased from $26.4 million in 1998
to $39 million in 1999. Operating profits in both the second quarter and first
half of 1999 were favorably
8
<PAGE>
impacted by the higher volumes and improved operating efficiencies compared with
1998.
On August 2, 1999 the company acquired the worldwide motor operations of
MagneTek, Inc. for approximately $250 million. This strategic acquisition will
significantly strengthen Electric Motor Technologies' presence in the fractional
horsepower motor market. The company projects about $150 million of additional
sales and neutral earnings impact as a result of the acquisition during the
balance of 1999. Earnings accretion of $.30 to $.35 per share is projected for
the year 2000, the first full year of operation.
Second quarter sales for Water Systems Technologies were $78.8 million in 1999
or 6% higher than 1998 second quarter sales of $74.3 million due to stronger
international sales and inclusion of sales for the Chinese operation which was
accounted for on the equity method in 1998. Sales for the first half of 1999
were 8% higher than the same period last year and reflect stronger markets and
the inclusion of sales for the Chinese operations. Water Systems Technologies'
1999 second quarter operating profits increased 9.7% from $7.8 million in 1998
to $8.5 million in 1999 while first half earnings increased 16.5% from $14.5
million in 1998 to $16.9 million in 1999. The earnings improvement was volume
related.
Sales in the Other segment for the second quarter and first six months of 1999
declined 29.2% and 27.1%, respectively, when compared with the same periods in
1998. The steepest decline occurred in the fiberglass pipe operation as sales to
both petroleum production and chemical markets declined to levels significantly
lower than last year. The soft demand was attributable to weak and volatile
pricing in the oil and chemical markets and the related impact on capital
spending. Reduced capital spending in the chemical and food processing
businesses resulted in decreased volume for the dry storage products offered by
this segment as well.
As a result of the lower volume, operating profits for the Other segment were
slightly above breakeven for both the second quarter and first half of 1999.
Profits in the second quarter and first half of 1998 were $3.6 million and $5.8
million, respectively.
Selling, general and administrative (SG & A) expenses through the first half of
the year increased $2.7 million from the same period in 1998. Relative to sales,
SG & A decreased from 12.1% in 1998 to 11.0% as a result of the significantly
improved operating expense leverage in the motors business resulting from the
acquisition of the General Electric compressor motor operation.
Net interest expense for the second quarter and first half of 1999 exceeded that
of the comparable periods in 1998 by $1.7 million and $3.7 million,
respectively. The increased financing cost was associated with the General
Electric motor acquisition.
Other expense for the second quarter and first half of 1999 was more than double
that in the same periods in 1998 due principally to the amortization of goodwill
resulting from the aforementioned acquisition.
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The effective tax rate for the first six months was 36.4% in 1999 and 35.1% in
1998. The difference in rates was directly related to the amount of research and
development tax credits recognized in each year.
During the first half of 1999 and 1998, the company was party to futures
contracts for the purposes of hedging a portion of certain raw material
purchases. The company was also a party to forward foreign exchange contracts to
hedge foreign currency transactions consistent with its committed exposures. Had
these contracts not been in place, the earnings of the company would not have
been materially affected.
Liquidity & Capital Resources
The company's working capital was $162.2 million at June 30, 1999 compared to
$155.2 million at December 31, 1998, an increase of $7.0 million. The increase
was primarily attributable to sales related increases to accounts receivable
that were partially offset by sales related increases to accounts payable. Cash
flow from operations was $17.5 million higher than the same period last year due
to lower working capital requirements.
Capital expenditures during the first half of 1999 were $19.4 million compared
with $12.4 million during the same period last year. The majority of the
increase in capital spending was related to higher spending requirements in the
motor business. The company expects higher capital spending in 1999 compared to
1998, but expects such capital expenditures to be covered by operating cash
flow.
The company made no purchases of its common stock during the second quarter
under its stock repurchase program. Since the program's inception in January
1997, approximately 8.6 million shares have been repurchased. At its June 9,
1999, meeting, A. O. Smith's Board of Directors authorized an odd lot repurchase
program providing for the company to extend an offer to purchase Class A Common
Stock or Common Stock from shareholders who own a total of less than 100 shares.
Eligible shareholders who accept the offer may dispose of those shares without
expense at the closing price on the applicable stock exchange on the day the
paying agent receives the required documentation from the shareholder. A $10.00
premium per shareholder shall be paid for such shares. The program was initiated
by a mailing to eligible shareholders on July 29, 1999.
On August 2, 1999, the company purchased substantially all of the assets of
MagneTek, Inc.'s worldwide motor operations for approximately $250 million,
subject to adjustments. To support the acquisition, a $350 million multi-year
credit facility was put in place on August 2, 1999 with nine banks. The facility
is made up of two tranches: $100 million which expires July 31, 2000 and $250
million which expires August 2, 2004. The $100 million facility that was due to
expire on June 30, 2001 was terminated as of August 2, 1999. The acquisition was
funded with issuance of commercial paper, borrowings under the new credit
facility and available cash.
10
<PAGE>
At its June 9, 1999 meeting, A. O. Smith's Board of Directors declared a regular
quarterly dividend of $.12 per share on its common stock (Class A common and
Common). The dividend is payable on August 16, 1999 to shareholders of record
July 30, 1999.
Year 2000
The company has organized its activities to prepare for the Year 2000 (Y2K)
under a company-wide project that involves four phases: assessment,
modification, testing, and implementation.
The Y2K readiness project is a company-wide effort and is monitored centrally.
Each business segment has a core of full-time individuals who have been assigned
specific Y2K responsibilities in addition to their regular assignments.
The assessment and modification phases are complete. Key customers, vendors and
service providers have been queried about their Y2K readiness, and their
responses have been analyzed. Follow-up efforts are continuing to obtain
feedback from critical suppliers.
The testing and implementation phases for renovated Information Technology (IT)
systems are nearing completion. Implementation of all new and renovated IT
systems that are Y2K compliant is complete. Testing of non-critical modules of
renovated systems will be completed during the second half of 1999.
Costs specifically associated with renovating software for Y2K readiness are
funded through operating cash flow and expensed as incurred. Y2K-related costs
have not had a material effect on the company's financial position or results of
operations. The company expects to incur total costs of approximately $2.0
million on the Y2K project of which the remaining costs are approximately $250
thousand. Costs of replacing some of the company's systems with Year 2000
compliant systems have been capitalized as these new systems were acquired for
business reasons and not to remediate Y2K problems, if any, in the former
systems.
To prepare for unforeseen Y2K problems, each business segment has developed
formal contingency plans which include ensuring availability of in-house support
and technical personnel during the transition to the new year, establishing
earlier reporting deadlines, and completing certain critical processes before
year-end.
On August 2, 1999, the company acquired the worldwide motor operations of
MagneTek, Inc. which has just completed the conversion of its IT systems to
eliminate Y2K problems. MagneTek, whose products are Year 2000 compliant, has
assessed its major suppliers and determined their level of compliance for their
equipment, products and services.
The company believes that all critical IT and non-IT systems and processes will
be Y2K compliant and allow the company to continue operations in the Year 2000
and beyond with no material impact on its financial position or results of
operations. Unanticipated problems including, but not limited to, critical
suppliers and business partners not meeting
11
<PAGE>
their commitments to be Y2K ready, and the loss of critical skilled personnel,
could result in an undetermined financial risk.
ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
As is more fully described in the company's annual report on Form 10-K for the
year ended December 31, 1998, the company is exposed to various types of market
risks, primarily currency and certain commodities. The company monitors its
risks in such areas on a continuous basis, and generally enters into futures
contracts to minimize such exposures for periods of less than one year. The
company does not engage in speculation in its derivatives strategies. There have
been no material changes in the company's futures contracts since December 31,
1998.
Forward Looking Statements
Certain statements in this report are "forward-looking statements". These
forward-looking statements can generally be identified as such because the
context of the statement will include words such as the company "believes",
"anticipates", "expects", "projects" or words of similar import. Although the
company believes that its expectations are based upon reasonable assumptions
within the bounds of its knowledge of its business, there can be no assurance
that its financial goals will be realized. Although a significant portion of the
company's sales are derived from the replacement of previously installed
product, and such sales are therefore less volatile, numerous factors may affect
actual results and cause results to differ materially from those expressed in
forward-looking statements made by or on behalf of the company. Among such
numerous factors, the company includes the continued growth of the world-wide
air conditioning, heating, and refrigeration market; the weather and its impact
on the HVAC, pool and spa pump markets; and the timely and proper implementation
of future cost reduction programs. All subsequent written and oral
forward-looking statements attributable to the company, or persons acting on its
behalf, are expressly qualified in their entirety by these cautionary
statements.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The company is involved in various unresolved legal actions, administrative
proceedings and claims in the ordinary course of its business involving product
liability, property damage, insurance coverage, patents and environmental
matters including the disposal of hazardous waste. Although it is not possible
to predict with certainty the outcome of these unresolved legal actions or the
range of possible loss or recovery, the company believes these unresolved legal
actions will not have a material effect on its financial position or results of
operations.
With respect to environmental matters the company reported in Part 1, Item 3 and
Note 12 of the Notes to Consolidated Financial Statements in the company's Form
10-K Report for the year ended December, 1998, which are incorporated herein by
reference, that the company was designated a Potentially Responsible Party with
respect to a former mining site in Colorado which is being cleaned up by the
United States Environmental Protection Agency ("EPA"). In 1996, the EPA started
a cost recovery lawsuit against a private individual who owned a corporation
that was involved in mining operations at the site in the 1980s. In the second
quarter of 1999, that individual commenced a third party action against the
company and several other companies that were involved in mining operations at
the site seeking to hold the third party defendants responsible for all or part
of the clean up costs should the EPA prevail in its legal action. To date, the
EPA has not asserted any claims against the company in the action. The company
believes it has valid defenses to any liability at this site and will vigorously
defend this lawsuit. Except for that matter, there have been no material changes
in the environmental matters that were previously reported.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 5, 1999, the company mailed a proxy statement to its stockholders
relating to the annual meeting of stockholders on April 14, 1999. The annual
meeting included the election of directors and the consideration and action upon
a proposal to approve the adoption of a Long-Term Executive Incentive
Compensation Plan and to approve the ratification of Ernst & Young LLP as the
independent auditors of the company for 1999.
Directors are elected by a plurality of votes cast, by proxy or in person, with
the holders voting as separate classes. A plurality of votes means that the
nominees who receive the greatest number of votes cast are elected as directors.
Consequently, any shares which are not voted, whether by abstention, broker
nonvotes or otherwise, will have no effect on the election of directors.
For all other matters considered at the meeting, both classes of stock vote
together as a single class, with the Class A Common Stock entitled to one vote
per share and the Common Stock entitled to 1/10th vote per share. All such other
matters are decided by a majority of the votes cast. On such other matters, an
abstention will have the same effect as a "no" vote but, because shares held by
brokers will not be considered to vote on
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<PAGE>
matters as to which the brokers withhold authority, a broker nonvote will have
no effect on the vote.
<TABLE>
<CAPTION>
1. Election of Directors
Broker
Class A Common Stock Directors Votes For Votes Withheld Nonvotes
<S> <C> <C> <C>
Tom H. Barrett 8,601,091 2,889 0
Glen R. Bomberger 8,601,088 2,892 0
Robert J. O'Toole 8,601,088 2,892 0
Robert N. Pokelwaldt 8,599,953 4,027 0
Arthur O. Smith 8,601,091 2,889 0
Bruce M. Smith 8,601,091 2,889 0
Broker
Common Stock Directors Votes For Votes Withheld Nonvotes
0
William F. Buehler 12,503,825 221,872 0
Kathleen J. Hempel 12,500,648 225,049 0
Agnar Pytte 12,503,763 221,934 0
2. Approve the adoption of a Long-Term Executive Incentive Compensation Plan
Broker
COMBINED CLASS VOTE: Votes For Votes Against Abstentions
Class A Common Stock and
Common Stock (1/10th vote) 9,460,825 103,750 20,686
3. Ratification of Ernst & Young LLP as Independent Auditors
Broker
COMBINED CLASS VOTE: Votes For Votes Against Abstentions
Class A Common Stock and
Common Stock (1/10th vote) 9,832,557 40,698 3,295
</TABLE>
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the company in the second quarter
of 1999.
14
<PAGE>
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 thereunto duly authorized.
A. O. SMITH CORPORATION
August 13, 1999 /s/John J. Kita
------------------------------
John J. Kita
Vice President,
Treasurer and Controller
August 13, 1999 /s/G. R. Bomberger
------------------------------
G. R. Bomberger
Executive Vice President
and Chief Financial Officer
15
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Description
- - ------ -----------
(27) Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF A. O. SMITH CORPORATION AS OF AND FOR THE
SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,484
<SECURITIES> 26,219
<RECEIVABLES> 165,335
<ALLOWANCES> 0
<INVENTORY> 102,392
<CURRENT-ASSETS> 315,705
<PP&E> 525,509
<DEPRECIATION> 271,027
<TOTAL-ASSETS> 807,988
<CURRENT-LIABILITIES> 153,528
<BONDS> 131,212
67,484
0
<COMMON> 0
<OTHER-SE> 350,131
<TOTAL-LIABILITY-AND-EQUITY> 807,988
<SALES> 520,106
<TOTAL-REVENUES> 520,106
<CGS> 415,847
<TOTAL-COSTS> 415,847
<OTHER-EXPENSES> 59,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,499
<INCOME-PRETAX> 39,809
<INCOME-TAX> 14,492
<INCOME-CONTINUING> 25,317
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,317
<EPS-BASIC> 1.09
<EPS-DILUTED> 1.07
</TABLE>
