SEC Filing | A. O. Smith Corporation

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

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

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) Three Months Ended Six Months Ended June 30 June 30 ------- ------- 1999 1998 1999 1998 ---- ---- ---- ---- 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 See accompanying notes to unaudited condensed consolidated financial statements. 3

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) (unaudited) June 30, 1999 December 31, 1998 ------------- ----------------- 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 ========= ========== See accompanying notes to unaudited condensed consolidated financial statements 4

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) Six Months Ended June 30 ------- 1999 1998 ---- ---- 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 ========= ========= See accompanying notes to unaudited condensed consolidated financial statements. 5

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

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: Three Months Ended Six Months Ended June 30 June 30 ------------------------------ --------------------------- 1999 1998 1999 1998 -------------- -------------- ------------- ------------ 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 ============== ============== ============= ============ 7. Operations by Segment (000 omitted) Three Months Ended Six Months Ended June 30 June 30 ------------------------------ --------------------------- 1999 1998 1999 1998 -------------- -------------- ------------- ------------ 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. 7

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

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. 89

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

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

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

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 13

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 8,601,091 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 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

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

INDEX TO EXHIBITS Exhibit Number Description - - ------ ----------- (27) Financial Data Schedule 16

5 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. 1,000 6-MOS DEC-31-1999 JUN-30-1999 5,484 26,219 165,335 0 102,392 315,705 525,509 271,027 807,988 153,528 131,212 67,484 0 0 350,131 807,988 520,106 520,106 415,847 415,847 59,951 0 4,499 39,809 14,492 25,317 0 0 0 25,317 1.09 1.07