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, 2000
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
[GRAPHIC OMITTED]
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 June 30, 2000 8,690,125 shares
Common Stock Outstanding as of June 30, 2000 14,725,080 shares
Exhibit Index Page 16
1
<PAGE>
Index
A. O. Smith Corporation
ASDF
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings and Retained Earnings
- Three and six months ended June 30, 2000 and 1999 3
Condensed Consolidated Balance Sheet
- June 30, 2000 and December 31, 1999 4
Condensed Consolidated Statement of Cash Flows
- Six months ended June 30, 2000 and 1999 5
Notes to Condensed Consolidated Financial Statements
- June 30, 2000 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 12
Part II. Other Information
Item 1. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 5. Other Information 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
<TABLE>
A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Three and Six Months ended June 30, 2000 and 1999
(000 omitted except for per share data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
------- -------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Continuing Operations
Electric Motor Technologies $248,245 $156,664 $496,121 $304,539
Water Systems Technologies 83,036 78,751 170,203 160,739
-------- -------- -------- --------
Net Sales 331,281 235,415 666,324 465,278
Cost of products sold 264,323 185,952 531,971 369,888
-------- -------- -------- --------
Gross profit 66,958 49,463 134,353 95,390
Selling, general and
administrative expenses 32,782 23,847 68,434 47,599
Interest expense 5,733 2,007 11,164 3,985
Interest income (307) (196) (404) (520)
Other expense - net 1,523 1,397 5,553 3,177
-------- -------- -------- --------
27,227 22,408 49,606 41,149
Provision for income taxes 9,634 8,191 17,858 14,980
-------- -------- -------- --------
Earnings from Continuing Operations 17,593 14,217 31,748 26,169
Discontinued Operations (note 4)
Earnings (loss) from operations less
related income tax provision
(benefit) 2000 - $777 & $1,074;
1999 - ($175) & ($488) 1,190 (302) 1,646 (852)
Loss on disposition less related
income tax benefit 2000 - ($798) (1,222) - (1,222) -
-------- -------- -------- --------
Net Earnings 17,561 13,915 32,172 25,317
======== ======== ======== ========
Retained Earnings
Balance at beginning of period 543,008 508,561 531,204 499,954
Net Earnings 17,561 13,915 32,172 25,317
Cash dividends on common shares (2,810) (2,783) (5,617) (5,578)
-------- -------- -------- --------
Balance at End of Period $557,759 $519,693 $557,759 $519,693
======== ======== ======== ========
Basic Earnings (Loss) per
Common Share (note 8)
Continuing Operations $ 0.75 $ 0.61 $ 1.36 $ 1.13
Discontinued Operations - (0.01) 0.02 (0.04)
-------- -------- -------- --------
Net Earnings $ 0.75 $ 0.60 $ 1.38 $ 1.09
======== ======== ======== ========
Diluted Earnings (Loss) per
Common Share (note 8)
Continuing Operations $ 0.74 $ 0.60 $ 1.34 $ 1.11
Discontinued Operations - (0.01) 0.02 (0.04)
-------- -------- -------- --------
Net Earnings $ 0.74 $ 0.59 $ 1.36 $ 1.07
======== ======== ======== ========
Dividends per Common Share $ 0.12 $ 0.12 $ 0.24 $ 0.24
</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 SHEETS
June 30, 2000 and December 31, 1999
(000 omitted)
(unaudited)
June 30, December 31,
2000 1999
----------- ------------
Assets
Current Assets
Cash and cash equivalents (note 2) $ 8,308 $ 14,761
Receivables 221,247 183,442
Inventories (note 5) 165,745 163,443
Deferred income taxes 10,560 11,323
Other current assets 7,534 5,253
Net current assets -
discontinued operations (note 4) 16,665 10,405
---------- -----------
Total Current Assets 430,059 388,627
Property, plant and equipment 535,993 518,741
Less accumulated depreciation 252,295 235,248
---------- -----------
Net property, plant and equipment 283,698 283,493
Goodwill and other intangibles 248,040 251,085
Other assets 99,655 88,990
Net long-term assets -
discontinued operations (note 4) 49,332 51,791
---------- -----------
Total Assets $1,110,784 $1,063,986
========== ===========
Liabilities
Current Liabilities
Trade payables $ 103,296 $ 81,221
Accrued payroll and benefits 30,708 32,272
Accrued liabilities 30,514 27,301
Product warranty 11,513 10,847
Income taxes 4,112 7,170
Long-term debt due within one year 9,629 9,629
---------- -----------
Total Current Liabilities 189,772 168,440
Long-term debt (note 6) 344,800 351,251
Other liabilities 63,279 64,536
Deferred income taxes 56,330 48,675
---------- -----------
Total Liabilities 654,181 632,902
Stockholders' Equity
Class A common stock, $5 par value: authorized
14,000,000 shares; issued 8,722,720 43,614 43,615
Common stock, $1 par value: authorized 60,000,000
shares; issued 23,826,642 23,827 23,826
Capital in excess of par value 53,252 53,026
Retained earnings (note 6) 557,759 531,204
Accumulated other comprehensive loss (note 7) (4,627) (3,238)
Treasury stock at cost (217,222) (217,349)
---------- -----------
Total Stockholders' Equity 456,603 431,084
---------- -----------
Total Liabilities and Stockholders' Equity $1,110,784 $1,063,986
========== ===========
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, 2000 and 1999
(000 omitted)
(unaudited)
Six Months Ended
June 30
-------
2000 1999
---- ----
Operating Activities
Continuing
Earnings from continuing operations $ 31,748 $ 26,169
Adjustments to reconcile net earnings
to net cash provided by (used in)
operating activities:
Depreciation 18,535 13,204
Amortization 4,234 2,613
Net change in current
assets and liabilities (18,671) (9,437)
Net change in other noncurrent
assets and liabilities (6,306) (9,285)
Other 662 229
--------- ---------
Cash Provided by Operating Activities 30,202 23,493
Investing Activities
Capital expenditures (20,733) (15,978)
Other (558) (782)
--------- ---------
Cash Used in Investing Activities (21,291) (16,760)
--------- ---------
Cash Flow Before Financing Activities 8,911 6,733
Discontinued
Cash Used in Discontinued Operations (3,377) (4,564)
Financing Activities
Debt incurred - 1,609
Debt retired (6,451) (1,600)
Purchase of treasury stock - (2,691)
Net proceeds from common stock
and option activity 38 78
Tax benefit from exercise of stock options 43 50
Dividends paid (5,617) (5,578)
--------- ---------
Cash Used in Financing Activities (11,987) (8,132)
--------- ---------
Net decrease in cash and cash equivalents (6,453) (5,963)
Cash and cash equivalents-beginning
of period (note 2) 14,761 37,666
--------- ---------
Cash and Cash Equivalents - End of Period $ 8,308 $ 31,703
========= =========
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, 2000
(unaudited)
1. Basis of Presentation
The condensed 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, 2000 are not necessarily indicative of the results
expected for the full year. The condensed consolidated balance sheet as of
December 31, 1999 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 2000 presentation.
In the second quarter, the company changed its vacation policy for certain
employees so that vacation pay is earned ratably throughout the year. The
accrued liability at June 30, 2000 was reduced by $2.3 million to
eliminate vacation pay no longer required to be accrued under the current
policy.
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. Acquisition
On August 2, 1999, the company acquired the assets of MagneTek, Inc.'s
(MagneTek) domestic electric motor business and six wholly owned foreign
subsidiaries for $244.6 million. The purchase price was allocated to the
assets acquired and the liabilities assumed based upon current estimates
of their respective fair values at the date of acquisition. These
estimates may be revised at a later date.
In connection with the MagneTek acquisition, the company recorded
additional purchase liabilities of $19.4 million which included employee
severance and relocation, as well as certain facility exit costs. Costs
incurred and charged against the purchase liability totaled $0.9 and $1.7
million for the three- and six-month periods ended June 30, 2000. Total
costs incurred and charged against the liability from August 2, 1999 to
June 30, 2000 totaled $2.7 million.
4. Discontinued Operations
In the first quarter, the company decided to divest its fiberglass piping
and liquid and dry bulk storage tank businesses. Net sales of these
businesses were $33.9 and $62.6 million
6
<PAGE>
for the three- and six-month periods ended June 30, 2000 and $27.4 and
$54.8 million for the three- and six-month periods ended June 30, 1999.
The operating results of the discontinued businesses have been reported
separately as discontinued operations in the accompanying financial
statements. Certain expenses have been allocated to the discontinued
operations, including interest expense, which was allocated based on the
ratio of net assets of the discontinued businesses to the total
consolidated capital of the company.
The company recorded an aftertax charge of $1.2 million in the second
quarter in settlement of certain claims which arose out of the sale of its
automotive business in April 1997.
5. Inventories (000 omitted)
June 30, 2000 Dec. 31, 1999
------------- -------------
Finished products $ 107,271 $ 99,335
Work in process 36,526 40,197
Raw materials 40,402 41,997
Supplies 954 1,322
----------- -----------
185,153 182,851
Allowance to state inventories
at LIFO cost 19,408 19,408
----------- -----------
$ 165,745 $ 163,443
=========== ===========
6. Long-Term Debt
The company's credit agreement and term notes contain certain conditions
and provisions which restrict the company's payment of dividends. Under
the most restrictive of these provisions, retained earnings of $69.3
million were unrestricted as of June 30, 2000. The company renewed its
$100 million credit facility which now expires on July 27, 2001. In
addition, the company has available a $250 million credit facility that
expires August 2, 2004.
7. Comprehensive Earnings (Loss)
The company's comprehensive earnings were $17.2 and $30.8 million for the
three- and six-month periods ended June 30, 2000 and $13.7 and $24.3
million for the three- and six-month periods ended June 30, 1999.
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.
7
<PAGE>
8. 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:
Three Months Ended Six Months Ended
June 30 June 30
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Denominator for basic
earnings per share
- weighted-average shares 23,363,973 23,151,831 23,362,683 23,188,004
Effect of dilutive
stock options 370,512 574,810 353,742 546,288
---------- ---------- ---------- ----------
Denominator for diluted
earnings per share 23,734,485 23,726,641 23,716,425 23,734,292
========== ========== ========== ==========
9. Operations by Segment
(000 omitted) Three Months Ended Six Months Ended
June 30 June 30
--------------------- ---------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net Sales
Electric Motor Technologies $248,245 $156,664 $496,121 $304,539
Water Systems Technologies 83,036 78,751 170,203 160,739
-------- -------- -------- --------
Net Sales $331,281 $235,415 $666,324 $465,278
======== ======== ======== ========
Earnings before Interest
and Taxes
Electric Motor Technologies $ 28,365 $ 21,128 $ 54,288 $ 39,514
Water Systems Technologies 8,889 8,680 18,354 17,183
-------- -------- -------- --------
Total Segments 37,254 29,808 72,642 56,697
General Corporate and Research
and Development Expenses (4,601) (5,589) (12,276) (12,083)
Interest Expense - Net (5,426) (1,811) (10,760) (3,465)
-------- -------- -------- --------
Earnings before Income Taxes 27,227 22,408 49,606 41,149
Provision for Income Taxes (9,634) (8,191) (17,858) (14,980)
-------- -------- -------- --------
Earnings from Continuing
Operations $ 17,593 $ 14,217 $ 31,748 $ 26,169
======== ======== ======== ========
Intersegment sales, which are immaterial, have been excluded from segment
revenues.
8
<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 2000 COMPARED TO 1999
Sales were $331.3 million in the second quarter of 2000, an increase of almost
$96 million or 40.7% over sales of $235.4 million in the second quarter of 1999.
Sales for the first half of 2000 were $666.3 million or 43.2% higher than the
$465.3 million of sales in the same period last year. Both the second quarter
and first half of 2000 were impacted by higher sales at Electric Motors due to
the MagneTek motor business acquired in August 1999. This acquisition had net
revenues of approximately $93 million and $183 million in the second quarter and
first half of 2000, respectively.
Second quarter earnings from continuing operations of $17.6 million surpassed
last year's second quarter earnings of $14.2 million by $3.4 million or about
24%. Continuing earnings for the first half of 2000 were $31.7 million or 21%
higher than earnings of $26.2 million in the first half of 1999. On a diluted
per share basis, second quarter continuing earnings increased from $.60 in 1999
to $.74 in 2000. Continuing earnings per share for the first half of 2000 were
$1.34 compared to $1.11 in the same period last year. The improved earnings for
the second quarter and first half of the year were due mostly to the higher
sales volume at the electric motors operation compared with the prior year.
The gross profit margin for the second quarter declined from 21% in 1999 to
20.2% in 2000. The year to date gross profit margin in 2000 was 20.2% compared
to 20.5% in the same period in 1999. The lower margins in both the second
quarter and first half of 2000 resulted primarily from the inclusion of the
MagneTek motors business.
Second quarter sales of Electric Motor Technologies were $248.2 million or $91.6
million higher than the second quarter of 1999. Year to date sales for this
segment were $496.1 million, an increase of $191.6 million over 1999 first half
sales of $304.5 million. Excluding sales associated with the August, 1999 motor
business acquisition, second quarter sales were basically unchanged from the
second quarter of 1999 as a 4% decline in motor sales to the heating,
ventilating and air conditioning industry (HVAC) were offset by increased sales
to other motor markets. Year to date sales for this operation reflect
approximately $183 million of sales related to the acquisition as well as growth
in the base motor business which occurred in the HVAC, pump and garage door
opener markets in the first quarter of 2000.
Second quarter operating profits for Electric Motor Technologies increased from
$21.1 million in 1999 to $28.4 million in 2000. The first half earnings
exhibited similar improvement as earnings increased from $39.5 million in 1999
to $54.3 million in 2000. Increased operating profits in both the second quarter
and first half of 2000 were due mostly to the higher sales volume. As discussed
in the notes to the financial statements, second quarter 2000 operating profits
were also impacted as a result of conforming the vacation policy of certain
employees to comply with the existing overall company policy.
9
<PAGE>
Second quarter sales for Water Systems Technologies were $83 million in 2000 or
5.3% higher than 1999 second quarter sales of $78.8 million due to continued
international growth, most notably in China and the Far East. Sales for the
first half of 2000 were 5.9% higher than the same period last year and also
reflected higher volume for the China operation. Water Systems Technologies'
2000 second quarter and first half operating profits increased slightly from
1999 levels as a result of the lower loss in China and increased earnings from
other international operations.
Selling, general and administrative (SG & A) expense in the second quarter and
first half of the year were substantially higher than the respective periods in
1999 due to the motors acquisition. Relative to sales, year to date SG & A was
consistent in 1999 and 2000.
Net interest expense for the second quarter and first half of 2000 exceeded that
of the comparable periods in 1999 by $3.6 million and $7.3 million,
respectively. The increased financing cost was due to the MagneTek acquisition.
Other expense in the second quarter of 2000 was slightly higher than the same
period in 1999 as the impact of additional goodwill amortization associated with
the acquisition was partially offset by certain miscellaneous items. Other
expense for the first half of 2000 was $2.4 million higher than the same period
last year due to acquisition related expenses including goodwill amortization.
The effective tax rate for the first six months of the year was 36% in 2000,
slightly lower than the 36.4% rate in the first half of 1999. The second quarter
effective tax rate was 35.4% and compared to 36.6% in the same period of 1999.
The lower rates in the first half and second quarter of 2000 were due to
increased foreign earnings which are taxed at lower rates and additional federal
income tax credits.
In the first quarter the company announced its intent to exit the fiberglass
pipe and storage tank markets and accordingly, Smith Fiberglass Products Company
and A. O. Smith Engineered Storage Products Company have been classified as
discontinued operations in the accompanying financial statements. Sales for
these discontinued operations were $33.9 million in the second quarter of 2000
and compared with $27.4 million in the same quarter last year. Year to date
sales for 2000 and 1999 were $62.6 million and $54.8 million, respectively. The
after-tax profits in 2000 for Engineered Storage Products Company were $1.2
million in the second quarter and $1.6 million in the first half of 2000,
compared with $1.0 million and $1.3 million in the same periods in 1999. Fiscal
1999 discontinued aftertax operating losses of $.3 million and $.9 million for
the three and six month periods included both discontinued business. The
after-tax loss for Smith Fiberglass Products Company for the three and six
months ended June 30, 2000 were $.2 million and $.9 million respectively. Fiscal
2000 Smith Fiberglass losses have been charged to the disposition reserves
established at December 31, 1999. At June 30, 2000 the company believes such
reserves are adequate and expects its divestitures to be completed in the fourth
quarter of 2000. During the second quarter, the company recorded an after-tax
charge of $1.2 million in settlement of certain claims that arose out of the
sale of its automotive business in April 1997.
10
<PAGE>
During the first half of 2000 and 1999, 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 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.
Outlook
The company recently disclosed that it is seeing signs in its markets that the
economy is beginning to moderate. The company views the heating and air
conditioning industry with caution as sales growth begins to decelerate and
customers cut back on production to keep inventories in line. The weaker HVAC
market has also had an adverse effect on the company's recent MagneTek motor
acquisition. Coupled with some acquisition-related transition problems, the
company is now projecting lower sales for MagneTek than previously expected.
Accordingly, earnings accretion from the acquisition is now expected to be less
than the $.30 to $.35 per share previously forecast. As a result of the market
softening, the company is now cautious about the outlook for the balance of the
year, and believes analyst earnings estimates of approximately $2.50 per share
for the full year 2000, may prove difficult to achieve.
Liquidity & Capital Resources
The company's working capital was $240.3 million at June 30, 2000, $20.1 million
higher than at December 31, 1999. An increase in accounts receivable of $37.8
million, resulting from higher sales, was partially offset by increases to
accounts payable. Cash provided by continuing operations during the first half
of 2000 was $8.9 million compared to $6.7 million during the same time period
one year ago.
Capital expenditures by continuing operations during the first half of 2000
totaled $20.7 million compared with $16.0 million during the same period in
1999. All of the increase in capital spending was related to higher spending
requirements in the motor business. The company expects higher capital spending
in 2000 compared to 1999, and expects capital expenditures to be covered by
operating cash flow.
The company's long term debt decreased by $6.5 million from $351.3 million at
December 31, 1999 to $344.8 million at June 30, 2000. The company's leverage as
measured by the ratio of total debt to total capitalization was 44% at the end
of the second quarter. This was slightly lower than the 46% leverage ratio at
the end of last year. The company renewed its $100 million credit facility which
now expires on July 27, 2001. In addition, the company has available a $250
million credit facility that expires August 2, 2004.
In connection with the MagneTek acquisition in August, 1999, additional purchase
liabilities of $19.4 million were recorded which included employee severance and
relocation, as well as certain facility exit costs. Costs incurred and charged
against the purchase liabilities totaled $1.7 million and $2.7 million during
the first half of 2000 and since the acquisition, respectively. The purchase
price was allocated to the assets acquired and the liabilities assumed based
upon current estimates of their respective fair values at the date of
acquisition. These estimates may be revised at a later date.
11
<PAGE>
At its July 11, 2000 meeting, A. O. Smith's Board of Directors declared an 8%
increase to its regular quarterly dividend and will pay $.13 per share on its
common stock (Class A Common and Common). The dividend is payable on August 15,
2000 to shareholders of record July 31, 2000.
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, 1999, 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,
1999.
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. The company
considers most important among such factors, the stability in its electric motor
and water products markets, the timely and proper integration of the MagneTek
motors acquisition, and the implementation of associated 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
Dip Tube Litigation
The company previously reported on the Dip Tube Litigation in its Form 10-Q
Reports for the Quarters ended March 31, 1999, and September 30, 1999, and Form
10-K for the fiscal year ended December 31, 1999. On May 1, 2000, the federal
court overseeing the dip tube class action, described and captioned as Paul
Heilman, et al. v. Perfection Corporation, et al., gave final approval to the
settlement. The final Order approved the remedial system provided for in the
settlement agreement. The company and the other water heater manufacturers are
currently funding settlement claims, which consist of two parts. The first part
entitles consumers to obtain reimbursement for amounts they spent fixing dip
tube related damages. The deadline for filing claims for reimbursement expired
on June 30, 2000. Part two of the settlement offers prospective relief in the
form of certificates for dip tube replacements, dip tube replacements plus
system flushes, system flushes only and emergency relief if the circumstances
warrant. The deadline for filing claims for prospective relief is December 31,
2000.
The direct action lawsuit brought by the water heater manufacturers, including
the company, in the Civil District Court for the Parish of Orleans, State of
Louisiana against Perfection Corporation; American Meter Company, the parent
company of Perfection; and their insurers is in the motion and discovery stage.
This lawsuit seeks (1) recovery of damages sustained by the company and the
other water heater manufacturers related to the costs of the class action
settlement and the handling of dip tube claims outside of and prior to the
national class action settlement, (2) damages for the liability of the water
heater manufacturers assumed by Perfection Corporation by contract, and (3)
damages for the personal injuries suffered by the company and the other water
heater manufacturers as a result of disparagement of their businesses. Also
relating to the water heater manufacturers' recovery efforts, the insurers of
Perfection Corporation have brought third-party claims against the water heater
manufacturers in a state court action in Cook County, Illinois. Perfection
Corporation has also sued the company and the water heater manufacturers in a
separate action in Cook County, Illinois. The filing by Perfection Corporation
is an attempt to preempt the Louisiana lawsuit.
Environmental Matters
In the second quarter, the United States Environmental Protection Agency notifed
the company that it may be a Potentially Responsible Party at a contaminated
site in St. Louis, Missouri, bringing the total number of sites at which the
company is involved to thirteen. Based on the limited information available to
the company at this time, the company believes that if it was involved at the
site, its participation was minimal.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 2, 2000, the company mailed a proxy statement to its stockholders
relating to the annual meeting of stockholders on April 5, 2000. The annual
meeting included the election of directors and to approve the ratification of
Ernst & Young LLP as the independent auditors of the company for 2000.
13
<PAGE>
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 matters as to which the brokers
withhold authority, a broker nonvote will have no effect on the vote.
1. Election of Directors
Broker
Class A Common Stock Directors Votes For Votes Withheld Nonvotes
Tom H. Barrett 8,605,724 3,678 0
Glen R. Bomberger 8,605,724 3,678 0
Robert J. O'Toole 8,605,769 3,633 0
Dr. Agnar Pytte 8,605,616 3,786 0
Arthur O. Smith 8,605,724 3,678 0
Bruce M. Smith 8,605,724 3,678 0
Broker
Common Stock Directors Votes For Votes Withheld Nonvotes
William F. Buehler 11,903,986 94,576 0
Kathleen J. Hempel 11,904,727 94,835 0
2. 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) 9,803,815 3,819 1,625
ITEM 5 - OTHER INFORMATION
On July 11, 2000, the Board of directors elected a new director, W. Michael
Barnes. Mr. Barnes is senior vice president of finance and planning and chief
financial officer of Rockwell International Corporation in Milwaukee, Wisconsin.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None.
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
July 21, 2000 /s/John J. Kita
---------------------------------
John J. Kita
Vice President,
Treasurer and Controller
July 21, 2000 /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
(27-1) Restated Financial Data Schedule
16
