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, 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

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

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, 2000 and 1999 (000 omitted except for per share data) (unaudited) Three Months Ended Six Months Ended June 30 June 30 ------- ------- 2000 1999 2000 1999 ---- ---- ---- ---- 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 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 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

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

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

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

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

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

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

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

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

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

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

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

INDEX TO EXHIBITS Exhibit Number Description (27) Financial Data Schedule (27-1) Restated Financial Data Schedule 16

5 1,000 6-MOS DEC-31-2000 JUN-30-2000 8,308 0 223,961 (2,714) 165,745 430,059 535,993 252,295 1,110,784 189,772 344,800 0 0 67,441 389,162 1,110,784 666,324 666,324 531,971 531,971 5,553 0 11,164 49,606 17,858 31,748 424 0 0 32,172 1.38 1.36

5 1,000 6-MOS DEC-31-1999 JUN-30-1999 31,703 0 144,779 (2,033) 88,830 295,206 421,215 214,438 776,230 133,029 131,212 0 0 67,484 350,131 776,230 465,278 465,278 369,888 369,888 3,177 0 3,985 41,149 14,980 26,169 (852) 0 0 25,317 1.09 1.07