A.O. Smith Second Quarter Earnings Per Share Increase 28 Percent to $.78 Per Share MILWAUKEE, July 15 -- A.O. Smith Corporation (NYSE: AOS; Amex: SMC) today announced second quarter 1998 earnings per share of $.78, a 28 percent increase over 1997 second quarter earnings of $.61 per share. The company reported earnings from continuing operations of $12.6 million, an eight percent increase over 1997 second quarter earnings of $11.7 million.

Second quarter sales of the Milwaukee-based manufacturer of $227 million were comparable to 1997 sales of $225 million.

"Improved performance at the Water Systems Technologies platform and reduced general and administrative expense combined to generate the improved second quarter results," Robert J. O'Toole, chairman and chief executive officer, observed.

For the first six months of 1998, A.0. Smith earned $1.40 per share, a 49 percent increase over 1997 earnings of $.94 per share. Earnings from continuing operations were $22.8 million, a 21 percent increase over 1997 first half earnings of $18.8 million.

Second quarter sales of Electric Motor Technologies, A.0. Smith's largest platform, were $3 million higher than the second quarter of 1997. Stronger sales of pump, subfractional, and air-moving motors helped offset lower international sales resulting from the Asian economic situation. Second quarter operating profit was lower than the prior year primarily due to lower pricing in some segments of the market.

Stronger sales of both residential and commercial water heaters enabled the Water Systems Technologies platform to increase its sales four percent to more than $74 million in the second quarter. Unit volumes for residential and commercial water heaters were stronger compared with the second quarter of 1997. Improved pricing for commercial helped generate higher operating profit.

The sales of the Storage & Fluid Handling Technologies platform declined nearly 10 percent in the second quarter to approximately $38 million as a result of significantly lower sales of fiberglass pipe to chemical and petroleum production markets and lower sales of storage products for municipal and agricultural applications. Despite the decline in sales, second quarter operating profits were comparable to the same period in 1997, reflecting cost-reduction actions taken during the second half of last year.

On June 9, A.O. Smith's board of directors declared a three-for-two stock split to be paid on August 17 to shareholders of record on July 31. Second quarter earnings per share, adjusted for the stock split, would be $.52 compared with $.40 earned in the second quarter of 1997. At the June 9 meeting, the board also increased the quarterly cash dividend to $.12 per share (post-split).

On July 1, the company completed the acquisition of the General Electric's domestic compressor motor business for $120 million. Sales and earnings of that operation will be reflected in the third quarter results of the Electric Motor Technologies platform. The acquisition includes a 250,000 square foot manufacturing facility located in Scottsville, Ky., employing approximately 875 people. The business's annual sales are approximately $130 million, making A.0. Smith North America's leading manufacturer of compressor motors for the air conditioning industry.

Earlier this month, the company signed a five-year agreement with York International, the largest independent U.S. manufacturer of heating and air conditioning equipment, to supply York and its Bristol Compressors subsidiary with compressor, fan, and blower motors. Under this agreement, A.0. Smith becomes a Tier 1 supplier and now will provide product for all of York's HVAC motor applications.

A.0. Smith Corporation is a diversified manufacturer with headquarters in Milwaukee, Wis., and total sales of $833 million in 1997. 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.

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

                            Statement of Earnings

                                     Three Months ended    Six Months ended
    Continuing                             June 30              June 30
    Sales                              1998       1997       1998       1997
      Electric Motor Technologies   $113,765   $110,771   $225,604   $204,698
      Water Systems Technologies      74,295     71,374    148,849    142,346
      Storage & Fluid
       Handling Technologies          38,620     42,793     75,182     74,142
    Net Sales                        226,680    224,938    449,635    421,186

    Costs and Expenses
      Cost of Products Sold          178,827    176,296    356,013    329,746
      Selling, General
       and Administrative             26,381     29,845     54,281     57,238
      Interest Expense                 1,593      2,445      3,217      4,689
      Interest Income                 (1,309)    (3,302)    (3,021)    (3,360)
      Other Expense                      692        701      1,414      1,691
      Tax Provision                    7,193      6,694     13,231     11,085
        Total Costs and Expenses     213,377    212,679    425,135    401,089

    Earnings Before Equity
     In Loss of Joint Ventures        13,303     12,259     24,500     20,097
      Equity In Loss of Joint Ventures  (674)      (581)    (1,693)    (1,298)
    Earnings from Continuing
     Operations                       12,629     11,678     22,807     18,799

    Continuing Earnings Per
     Share of Common Stock (Diluted)    $.78       $.61      $1.40       $.94

    Average Common Shares
     Outstanding (000s omitted)       16,190     19,246     16,332     19,974

    Adjusted for 3 for 2 Stock Split    $.52       $.40       $.93       $.63
    Payable August 17 to shareholders
     of record July 31
      Average Common Shares
       Outstanding (000s omitted)     24,285     28,869     24,498     29,961


                            A.0. SMITH CORPORATION
                                Balance Sheet

                                                   June 30      December 31
                                                    1998            1997
    ASSETS:
      Cash and cash equivalents                   $99,672        $145,896
      Receivables                                 146,764         126,232
      Inventories                                  78,159          79,049
      Deferred income taxes                         9,707          11,849
      Other current assets                          4,190           2,702

        Total Current Assets                      338,492         365,728

      Net property, plant and equipment           207,737         207,756
      Investments in and advances
       to joint ventures                           29,660          25,605
      Goodwill                                     50,925          51,783
      Other assets                                 69,809          65,644

    Total Assets                                 $696,623        $716,516

    LIABILITIES AND STOCKHOLDERS' EQUITY:

    Trade payables                                $57,137         $61,299
    Accrued payroll and benefits                   24,948          26,397
    Product warranty                                7,492           7,972
    Income taxes                                      282           6,607
    Long-term debt due within one year              5,566           5,590
    Other current liabilities                      22,757          20,017

      Total Current Liabilities                   118,182         127,882

    Long-term debt                                100,190         100,972
    Other liabilities                              55,120          59,515
    Deferred income taxes                          30,264          28,442
    Stockholders' equity                          392,867         399,705

    Total Liabilities and Stockholders' Equity   $696,623        $716,516


                            A.0. SMITH CORPORATION
                           STATEMENT OF CASH FLOWS

                                                           Six Months ended
                                                               June 30
                                                          1998         1997
    Operating Activities
    Continuing
      Net earnings                                      $22,807      $18,799
      Adjustments to reconcile net earnings
       to net cash provided by operating
       activities:
         Depreciation & amortization                     13,443       12,708
         Deferred income taxes                            3,964       (1,455)
         Equity in loss of joint ventures                 1,693        1,298
         Net change in current assets and liabilities   (28,549)     (18,318)
         Net change in noncurrent assets and liabilities (9,441)         656
         Other                                              537          491
    Cash Provided by Operating Activities                 4,454       14,179
    Investing Activities
      Capital expenditures                              (12,367)     (23,801)
      Capitalized purchased software costs                 (547)        (730)
      Investment in joint ventures                       (5,748)      (7,436)
      Acquisition of business (net of cash acquired)          0      (59,897)
    Cash Used by Investing Activities                   (18,662)     (91,864)

    Cash Used by Continuing Operations
     before Financing Activities                        (14,208)     (77,685)

    Discontinued
    Cash Provided / (Used) by Discontinued Operations
     before Financing Activities                         (1,196)     536,178

    Financing Activities
      Long-term debt incurred                               819            0
      Long-term debt retired                             (1,625)    (139,406)
      Purchase of common stock held in treasury         (24,860)    (101,579)
      Proceeds from common stock options exercised          202        2,880
      Tax benefit from exercise of stock options             69          334
      Dividends paid                                     (5,425)      (6,798)
    Cash Used by Financing Activities                   (30,820)    (244,569)
      Net increase / (decrease) in cash and
       cash equivalents                                 (46,224)     213,924
      Cash and cash equivalents - beginning of period   145,896        6,405

    Cash and Cash Equivalents - End of Period           $99,672     $220,329