A.O. Smith 1997 Earnings Increase 68% to $2.00 Per Share MILWAUKEE, Wis., Jan. 19 -- A.O. Smith Corporation (NYSE: AOS) today announced 1997 earnings increased 49 percent to $37.6 million, compared with 1996 earnings of $25.2 million.

Earnings per share of $2.00 (diluted) were 68 percent higher than the $1.19 per share earned in 1996, underscoring the additional benefit of the company's share repurchase program. Sales of $833 million were $52 million higher than 1996 sales of $781 million.

For the fourth quarter, earnings from continuing operations were $9.7 million or $.56 per share (diluted), significantly higher than the $6.0 million or $.28 per share earned during the same period in 1996. Sales of $206 million represented a seven percent increase over fourth quarter 1996 sales of $192 million.

During the fourth quarter, the company completed the sale of its Mexican automotive affiliate, Metalsa, bringing the divestiture of its automotive operations to a conclusion.

"The company was able to achieve its earnings objectives despite recurring challenges in several of our major markets," Robert J. O'Toole, chairman and chief executive officer, observed. "The acquisition of UPPCO, reductions in general and administrative expense and higher interest income contributed to the significant improvement in earnings."

Sales in the Electric Motor Technologies platform increased nearly 16 percent to a record $391 million. The March 31 acquisition of UPPCO, a manufacturer of subfractional horsepower electric motors, added approximately $57 million to 1997 sales. The company was able to overcome a nearly 10 percent decline in the domestic air conditioning industry, with sales of fractional horsepower and hermetic motors approximately the same as in the prior year. Operating profits were moderately higher than 1996 due to contributions from the UPPCO acquisition.

Water Systems Technologies' sales of $287 million were slightly lower than 1996 sales of $291 million. Higher sales of commercial water heaters and boilers were offset by second-half weakness in the residential water heater market. 1997 marked the sixth consecutive year that A.0. Smith has increased its sales in the important commercial water heating market segment. Profits were essentially unchanged compared with 1996.

Sales of the Storage and Fluid Handling Technologies platform of $155 million were slightly higher than 1996 sales of $153 million. Improved performance by the Smith Fiberglass unit was partially offset by lower sales of liquid storage tanks. Operating profits were essentially flat in 1997.

The company also announced that its Board of Directors approved an authorization to repurchase an additional $50 million of its Common Stock and Class A Common Stock. The company reported that it has nearly completed the previous authorization to repurchase $80 million of common stock granted on June 10, 1997. Since the inception of the program in January of last year, the company has repurchased approximately 4.9 million shares for $181 million, representing 23 percent of the total shares outstanding. As of January 19, 1998, there were 16.2 million shares of Common Stock and Class A Common Stock issued and outstanding.

The Board of Directors also today declared a regular quarterly cash dividend of $.17 per share on Common Stock and Class A Common Stock. The dividend is payable February 17 to shareholders of record January 31, 1998.

A.0. Smith Corporation is a diversified manufacturer with headquarters in Milwaukee, Wis. Its major product lines include fractional horsepower, subfractional horsepower, and hermetic electric motors; residential and commercial water heaters; industrial storage tanks; and fiberglass reinforced plastic pipe.

                   A.O. SMITH CORPORATION AND SUBSIDIARIES
               (condensed consolidated financial statements --
                     $000 omitted except per share data)

                            Statement of Earnings

                                          Three Months ended      Year ended
    Continuing                               December 31         December 31
    Sales                                   1997    1996        1997     1996
    Electric Motor Technologies          $91,970  $73,094   $390,749 $337,138
    Water Systems Technologies            76,240   79,943    287,458  291,281
    Storage & Fluid Handling Technologies 37,577   38,777    154,730  152,774
    Net Sales                            205,787  191,814    832,937  781,193

    Costs and Expenses
    Cost of Products Sold                165,421  150,546    662,227  614,218
    Selling, General and Administrative   24,748   25,734    106,999  107,350
    Interest Expense                       1,160    2,231      7,762    8,114
    Interest Income                       (2,665)    (153)    (9,035)    (341)
    Other Expense                          1,243    2,192      3,328    5,629
    Tax Provision                          5,356    3,848     21,359   17,080
    Total Costs and Expenses             195,263  184,398    792,640  752,050

    Earnings Before Equity in
     Loss of Joint Ventures               10,524    7,416    40,297    29,143
    Equity in Loss of Joint Ventures        (779)  (1,385)   (2,744)   (3,894)
    Earnings from Continuing Operations    9,745    6,031    37,553    25,249

    Discontinued
    Earnings from Operations (less related
     income tax (1997 - $O & $7,698;
     1996 - $4,880 & $19,988))                --   10,778    15,231    40,168
    Gain on Disposition (less related income
     tax of $13,482 & $71,538)             6,430       --   101,046        --
    Net Earnings                         $16,175  $16,809  $153,830   $65,417

    Basic Earnings Per Share of Common Stock
    Continuing Operations                  $0.58    $0.29     $2.04     $1.21
    Discontinued Operations                $0.38    $0.51     $6.31     $1.92
    Net Earnings                           $0.96    $0.80     $8.35     $3.13

    Average Common Shares
     Outstanding                16,880,268  20,929,264  18,422,871  20,922,195

    Diluted Earnings Per Share of Common Stock
    Continuing Operations                  $0.56    $0.28     $2.00     $1.19
    Discontinued Operations                $0.37    $0.51     $6.19     $1.90
    Net Earnings                           $0.93    $0.79     $8.19     $3.09

    Average Common Shares
     Outstanding                17,278,684  21,200,534  18,794,190  21,156,193


                            A.0. SMITH CORPORATION
                           STATEMENT OF CASH FLOWS

                                                           Year Ended
                                                           December 31
                                                        1997        1996
    Operating Activities
    Continuing
     Net earnings                                    $37,553     $25,249

    Adjustments to reconcile net earnings
     to net cash provided by operating activities:
      Depreciation & amortization                     26,286      23,601
     Deferred income taxes                            (2,262)     (3,345)
     Equity in loss of joint ventures                  2,744       3,894
     Net change in current assets and liabilities     10,797      24,320
     Net change in noncurrent assets and liabilities   3,635       4,083
     Other                                             1,495       2,630
    Cash Provided by Operating Activities             80,248      80,432

    Investing Activities
     Capital expenditures                            (44,886)    (37,804)
     Capitalized purchased software costs             (1,295)     (2,567)
     Investment in joint ventures                    (13,719)    (15,147)
     Acquisition of business (net of cash acquired)  (60,918)     (1,111)
     Cash Used by Investing Activities              (120,818)    (56,629)

    Cash Flow Provided / (Used) by Continuing
     Operations before Financing Activities          (40,570)     23,803

    Discontinued
     Cash Provided / (used) by operating activities (106,132)    113,644
     Cash used by investing activities               (52,456)   (177,116)
     Proceeds from disposition                       773,090          --
     Tax payments associated with disposition       (106,039)         --
    Cash Flow Provided / (Used) by Discontinued
     Operations before Financing Activities          508,463     (63,472)

    Financing Activities
     Long-term debt incurred                              --      58,507
     Long-term debt retired                         (143,816)     (4,000)
     Purchase of common stock held in treasury      (176,550)         --
     Proceeds from common stock options exercised      3,757         539
     Tax benefit from exercise of stock options          884          28
     Dividends paid                                  (12,677)    (13,807)
    Cash Provided/(Used) by Financing Activities    (328,402)     41,267

    Net increase in cash and cash equivalents        139,491       1,598
    Cash and cash equivalents - beginning of period    6,405       4,807

    Cash and Cash Equivalents - End of Period       $145,896      $6,405


                            A.0. SMITH CORPORATION

                                  Balance Sheet

                                                  December 31   December 31
                                                      1997         1996
    ASSETS:
     Cash and cash equivalents                      $145,896      $6,405
     Receivables                                     126,232     121,571
     Inventories                                      79,049      80,445
     Deferred income taxes                            11,849      12,416
     Other current assets                              2,702       4,537
      Total Current Assets                           365,728     225,374

     Net property, plant and equipment               207,756     182,600
     Investments in and advances to joint ventures    25,605      14,579
     Prepaid pension asset                            37,468      46,628
     Goodwill                                         51,783       6,540
     Other assets                                     28,176      37,777
     Net long-term assets - discontinued operations       --     357,654

      Total Assets                                  $716,516   $871,152

    LIABILITIES AND STOCKHOLDERS' EQUITY:

     Trade payables                                  $61,299    $66,514
     Accrued payroll and benefits                     26,397     27,362
     Product warranty                                  7,972      7,563
     Income taxes                                      6,607      1,351
     Long-term debt due within one year                5,590     11,932
     Other current liabilities                        13,556      7,228
     Net current liabilities - discontinued operations 6,461      2,602

      Total Current Liabilities                      127,882    124,552

     Long-term debt                                  100,972    238,446
     Product warranty                                 18,349     17,109
     Other liabilities                                24,410     18,135
     Deferred income taxes                            28,442     31,271
     Postretirement benefit obligation                16,756     17,000
     Stockholders' equity                            399,705    424,639

      Total Liabilities and Stockholders' Equity    $716,516   $871,152