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October 13, 1998 at 12:00 AM EDT

A.O. Smith Reports Record Third Quarter Earnings of $.46 Per Share and Issues Outlook for 1999

A.O. Smith Reports Record Third Quarter Earnings of $.46 Per Share and Issues Outlook for 1999 MILWAUKEE, Oct. 13 -- A. 0. Smith Corporation (NYSE: AOS; Amex: SMCA) today announced record third quarter earnings per share of $.46, a 39 percent increase over 1997 third quarter earnings of $.33.

Third quarter earnings increased nearly 22 percent to $11.0 million compared with the $9.0 million earned in last year's third quarter.

Sales totaled more than $243 million in the 1998 third quarter, an 18 percent increase over 1997 third quarter sales of $206 million.

"Improved demand for air conditioning compressor motors combined with sales and profits from our recent compressor motor acquisition had a positive impact on third quarter performance and allowed us to overcome the downturn in the fiberglass pipe and storage tank markets," commented Robert J. O'Toole, chairman and chief executive officer.

For the first nine months of 1998, the Milwaukee-based manufacturer earned $33.8 million or $1.39 per share, compared with $27.8 million or $.96 per share for the first nine months of 1997. Sales for the first nine months of this year were $693 million, more than 10 percent higher than sales of $627 million for the same period in 1997.

Third quarter sales for the Electric Motor Technologies platform increased nearly 44 percent to approximately $135 million. The motors segment benefited from approximately $30 million in third quarter sales from its new Scottsville, Ky., operation acquired on July 1. In addition, improved demand for air conditioning and subfractional horsepower motors also contributed to the higher sales achieved in the third quarter.

Operating profit improved significantly compared with the third quarter of 1997, reflecting the higher volumes and the impact of the Scottsville business.

Sales for the Water Systems Technologies platform increased 4 percent in the third quarter, due primarily to better commercial business. Operating profits for the Water Systems segment were higher than the third quarter of 1997.

Third quarter sales of the Storage & Fluid Handling Technologies platform were 16 percent lower than the same period in 1997, due to lower demand for fiberglass pipe and storage tanks in the chemical and petroleum production markets. The soft demand continues to be attributed to weak prices in the oil and chemical markets and the impact of those weak prices on capital spending. Third quarter operating profits declined significantly as a result of the lower volumes.

Company Discusses Outlook

"We are comfortable with the range of analyst estimates for 1998," O'Toole commented. "For 1999, we expect the difficulties at Storage and Fluid Handling to persist. We are cautiously optimistic about the Water Systems market and believe the Electric Motors business should have another good year especially considering the incremental business of the Scottsville acquisition and the new tier one contract with York International.

"We continue to aggressively pursue accretive acquisitions such as UPPCO and Scottsville and consider the pursuit of such acquisitions to be a very important element in our growth strategy considering the slower near term prospects of our non-motor businesses. Although we believe 1999 earnings, excluding acquisitions, will increase over 1998 levels, accretive acquisitions will be required to get us to our target of 15 percent annual growth in earnings per share."

Forward-Looking Statements

Certain statements in this press release are forward-looking statements. 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 may 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 worldwide heating, ventilating and air conditioning market; the weather and its impact on the heating and air conditioning market; the pricing environment for residential water heaters; capital spending trends in the oil, petrochemical and chemical markets; and the successful development of the company's business venture in China.

A.0. Smith Corporation is a diversified manufacturer with headquarters in Milwaukee, Wis. Its major product lines include fractional horsepower, hermetic, and subfractional horsepower electric motors; residential and commercial water heaters; municipal, industrial, and agricultural storage tanks; and fiberglass reinforced piping systems.
                (condensed consolidated financial statements -
                     $000 omitted except per share data)

Statement of Earnings

Three Months ended Nine Months ended Continuing September 30 September 30 Sales 1998 1997 1998 1997 Electric Motor Technologies $135,309 $94,081 $360,913 $298,779 Water Systems Technologies 71,685 68,872 220,534 211,218 Storage & Fluid Handling Technologies 36,260 43,011 111,442 117,153 Net Sales 243,254 205,964 692,889 627,150 Costs and Expenses Cost of Products Sold 196,232 167,060 552,245 496,806 Selling, General and Administrative 26,324 25,013 80,605 82,251 Interest Expense 1,974 1,913 5,191 6,602 Interest Income (258) (3,010) (3,279) (6,370) Other Expense 927 394 2,341 2,085 Tax Provision 6,356 4,918 19,587 16,003 Total Costs and Expenses 231,555 196,288 656,690 597,377 Earnings Before Equity In Loss of Joint Ventures 11,699 9,676 36,199 29,773 Equity in Loss of Joint Ventures (725) (667) (2,418) (1,965) Earnings from Continuing Operations 10,974 9,009 33,781 27,808 Continuing Earnings Per Share of Common Stock (Diluted) $0.46 $0.33 $1.39 $0.96 Average Common Shares Outstanding (000's omitted) 23,958 26,982 24,316 28,959


September 30 December 31 1998 1997 ASSETS: Cash and cash equivalents $26,191 $ 145,896 Receivables 146,769 126,232 Inventories 86,985 79,049 Deferred income taxes 11,487 11,849 Other current assets 12,863 2,702 Total Current Assets 284,295 365,728 Net property, plant and equipment 232,611 207,756 Investments in and advances to joint ventures 31,253 25,605 Goodwill 141,493 51,783 Other assets 72,913 65,644 Total Assets $762,565 $ 716,516


Trade payables $74,869 $61,299 Accrued payroll and benefits 30,639 26,397 Product warranty 8,002 7,972 Income taxes 883 6,607 Long-term debt due within one year 4,629 5,590 Other current liabilities 23,478 20,017 Total Current Liabilities 142,500 127,882 Long-term debt 126,933 100,972 Other liabilities 55,291 59,515 Deferred income taxes 44,708 28,442 Stockholders' equity 393,133 399,705 Total Liabilities and Stockholders' Equity $762,565 $716,516


Nine Months ended September 30 1998 1997 Operating Activities

Continuing Net earnings $33,781 $27,808 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation & amortization 21,751 19,390 Equity in loss of joint ventures 2,418 1,965 Net change in current assets and liabilities (6,963) 4,679 Net change in noncurrent assets and liabilities 2,751 432 Other 702 1,042 Cash Provided by Operating Activities 54,440 55,316 Investing Activities Capital expenditures (20,116) (33,460) Capitalized purchased software costs (1,308) (1,094) Investment in joint ventures (8,066) (10,281) Acquisition of business (126,456) (60,918) Cash Used by Investing Activities (155,946) (105,753) Cash Used by Continuing Operations before Financing Activities (101,506) (50,437)

Discontinued Cash Provided/(Used) by Discontinued Operations before Financing Activities (2,095) 503,754

Financing Activities Long-term debt incurred 30,590 -- Long-term debt retired (5,590) (143,768) Purchase of common stock held in treasury (33,244) (125,168) Proceeds from common stock options exercised 232 3,455 Tax benefit from exercise of stock options 165 571 Dividends paid (8,257) (9,786) Cash Used by Financing Activities (16,104) (274,696) Net increase/(decrease) in cash and cash equivalents (119,705) 178,621

Cash and cash equivalents - beginning of period 145,896 6,405

Cash and Cash Equivalents - End of Period $26,191 $185,026