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 March 31, 2003.
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 ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act) Yes X No ___
Class A Common Stock Outstanding as of March 31, 2003 -- 8,553,671 shares
Common Stock Outstanding as of March 31, 2003 -- 20,494,398 shares
Exhibit Index Page 22
Index
A. O. Smith Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings
- Three months ended March 31, 2003 and 2002 3
Condensed Consolidated Balance Sheets
- March 31, 2003 and December 31, 2002 4
Condensed Consolidated Statements of Cash Flows
- Three months ended March 31, 2003 and 2002 5
Notes to Condensed Consolidated Financial Statements
- March 31, 2003 6-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosure of Market Risk 15
Item 4. Controls and Procedures 15
Part II. Other Information
Item 1. Legal Proceedings 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
Certification of Periodic Report 18-21
Index to Exhibits 22
Exhibit 99 23
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months ended March 31, 2003 and
2002 (dollars in thousands, except for per
share data)
(unaudited)
Three Months Ended
March 31
-------------------------
2003 2002
---------- ----------
Electrical Products $ 213,091 $ 196,234
Water Systems 174,821 175,693
---------- ----------
Net Sales 387,912 371,927
Cost of products sold 309,719 295,026
---------- ----------
Gross profit 78,193 76,901
Selling, general and administrative expenses 54,023 53,204
Interest expense 2,908 4,177
Other expense - net 336 870
---------- ----------
20,926 18,650
Provision for income taxes 7,220 6,528
---------- ----------
Net Earnings $ 13,706 12,122
========== ==========
Earnings per Common Share
Basic $0.47 $0.51
========== ==========
Diluted $0.46 $0.50
========== ==========
Dividends per Common Share $0.14 $0.13
========== ==========
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
March 31, 2003 and December 31, 2002
(dollars in thousands)
(unaudited) December 31,
March 31, 2003 2002
Assets -------------- ------------
Current Assets
Cash and cash equivalents $ 27,501 $ 32,847
Receivables 246,129 215,481
Inventories 217,689 200,351
Deferred income taxes 26,008 26,714
Other current assets 18,289 12,858
------------ ------------
Total Current Assets 535,616 488,251
Property, plant and equipment 691,745 686,180
Less accumulated depreciation 336,638 323,450
------------ ------------
Net property, plant and equipment 355,107 362,730
Goodwill 302,413 302,410
Other intangibles 6,671 6,741
Other assets 65,840 64,725
------------ ------------
Total Assets $ 1,265,647 $ 1,224,857
============ ============
Liabilities
Current Liabilities
Trade payables $ 150,870 $ 131,423
Accrued payroll and benefits 35,715 38,745
Accrued liabilities 56,731 58,576
Product warranty 19,405 19,478
Income taxes 3,764 1,786
Long-term debt due within one year 11,671 11,671
------------ ------------
Total Current Liabilities 278,156 261,679
Long-term debt 253,438 239,084
Pension liability 88,323 90,836
Other liabilities 113,192 114,694
Deferred income taxes 10,496 7,512
------------ ------------
Total Liabilities 743,605 713,805
Stockholders' Equity
Class A common stock, $5 par value: authorized
14,000,000 shares; issued 8,586,266 42,931 42,977
Common stock, $1 par value: authorized
60,000,000 shares; issued 23,963,096 23,963 23,954
Capital in excess of par value 73,581 73,526
Retained earnings 598,134 588,487
Accumulated other comprehensive loss (120,739) (121,877)
Treasury stock at cost (95,828) (96,015)
------------ ------------
Total Stockholders' Equity 522,042 511,052
------------ ------------
Total Liabilities and Stockholders' Equity $ 1,265,647 $ 1,224,857
============ ============
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 Three
Months Ended March 31, 2003 and 2002
(dollars in thousands)
(unaudited)
Three Months Ended
March 31
--------------------------
2003 2002
----------- ----------
Operating Activities
Continuing
Net earnings $ 13,706 $ 12,122
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities:
Depreciation 12,313 11,941
Amortization 476 356
Net change in current assets and
liabilities (36,024) 3,024
Net change in other noncurrent assets
and liabilities (143) (5,516)
Other (1,007) 927
----------- ----------
Cash Provided by (Used in) Operating Activities (10,679) 22,854
Investing Activities
Capital expenditures (5,423) (7,080)
Acquisition of business - (2,050)
----------- ----------
Cash Used in Investing Activities (5,423) (9,130)
Financing Activities
Long-term debt incurred 16,497 -
Long-term debt retired (2,143) (14,798)
Net proceeds from common stock and option
activity - 815
Dividends paid (4,059) (3,094)
----------- ----------
Cash Provided by (Used in) Financing Activities 10,295 (17,077)
Cash Provided by Discontinued Operations 461 4,445
----------- ----------
Net increase (decrease) in cash and cash
equivalents (5,346) 1,092
Cash and cash equivalents-beginning of period 32,847 20,759
----------- ----------
Cash and Cash Equivalents - End of Period $ 27,501 $ 21,851
=========== ==========
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
March 31, 2003
(unaudited)
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with accounting principles generally
accepted in the United States for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended March 31, 2003 are not
necessarily indicative of the results expected for the full year. It is
suggested that the accompanying condensed consolidated financial
statements be read in conjunction with the audited consolidated financial
statements and the notes thereto included in the company's latest Annual
Report on Form 10-K. Certain prior year amounts have been reclassified to
conform to the 2003 presentation.
2. Acquisitions
On July 1, 2002, A. O. Smith Corporation (the company) completed the
purchase of the hermetic motor assets of the Athens Products (Athens)
division of Electrolux Group for cash consideration of $9.7 million. The
purchase price was allocated to the assets acquired and liabilities
assumed based upon current estimates of their respective fair values at
the date of acquisition.
In late 2002, the company acquired the motor manufacturing assets of
Jiangsu Changheng Group Co. Ltd. (Changheng) for a total cost of $15.3
million including future payments of $3.8 million. The purchase price was
allocated to the assets acquired and liabilities assumed based upon
current estimates of their respective fair values at the date of
acquisition.
In connection with the Athens acquisition and other acquisitions by the
company, aggregate purchase liabilities of $26.5 million were recorded for
employee severance and relocation, as well as certain facility exit costs.
As of March 31, 2003, costs incurred and charged against these liabilities
to date totaled $17.5 million.
6
3. Business Improvement Programs
In the fourth quarter of 2001, the company recorded restructuring and
other charges of $9.4 million. The charges included employee separation
costs of $7.7 million associated with product or component manufacturing
repositioning and the realignment of certain administrative functions. The
resulting reduction of workforce is approximately 150 salaried and 775
hourly employees. In addition, the company recorded facility impairment
and lease charges of $1.7 million representing estimated costs of
facilities to be vacated. The company spent $4.3 million through March 31,
2003 for employee severance and separation costs. At March 31, 2003, the
company estimates approximately 200 employees are yet to be impacted. The
realignment activities will be substantially completed prior to December
31, 2003.
4. Inventories
Inventories consist of the following (dollars in thousands):
March 31, 2003 December 31, 2002
-------------- -----------------
Finished products $ 143,915 $ 130,685
Work in process 42,765 39,691
Raw materials 59,340 58,306
--------- ---------
246,020 228,682
LIFO reserve 28,331 28,331
--------- ---------
$ 217,689 $ 200,351
========= =========
5. Goodwill
The company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets", effective January 1, 2002.
Under SFAS No. 142, goodwill is no longer amortized but is reviewed for
impairment on an annual basis.
Changes in the carrying amount of goodwill during the three-month period
ended March 31, 2003 consist of the following (dollars in thousands):
Electrical Water
Products Systems Total
---------- --------- ---------
Balance at December 31, 2002 $ 233,782 $ 68,628 $ 302,410
Additional acquisition costs 3 - 3
---------- --------- ---------
Balance at March 31, 2003 $ 233,785 $ 68,628 $ 302,413
========== ========= =========
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 $96.2
million were unrestricted as of March 31, 2003.
7
7. Product warranty
The company offers warranties on the sales of certain of its products and
records an accrual for estimated future claims. Such accruals are based
upon historical experience and management's estimate of the level of
future claims. The following table presents the company's product warranty
liability activity for the three-months ended March 31, 2003 and 2002,
respectively (dollars in thousands):
2003 2002
---------- ----------
Balance at January 1 $ 70,515 $ 69,632
Expense 7,475 8,172
Claims settled (7,810) (7,764)
---------- ----------
Balance at March 31 $ 70,180 $70,040
========== ==========
8. Common Stock Issuance
On May 10, 2002, the company completed the sale of 4,776,065 shares of its
common stock held in treasury. The $127.5 million net proceeds from the
offering were used to reduce long-term debt.
9. Comprehensive Earnings
The company's comprehensive earnings are comprised of net earnings,
foreign currency translation adjustments, and realized and unrealized
gains and losses on cash flow derivative instruments.
Three Months Ended
March 31
-------------------------
(dollars in thousands) 2003 2002
---------- ----------
Net Earnings $ 13,706 $ 12,122
Other comprehensive earnings (loss):
Foreign currency translation adjustments 429 (276)
Unrealized net gain on cash flow
derivative instruments less related income
tax benefit: 2003- $454 and 2002 -$2,767 710 4,319
---------- ----------
Comprehensive Earnings $ 14,845 $ 16,165
========== ==========
10. 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
March 31
-------------------------
2003 2002
---------- ----------
Denominator for basic earnings per share
- weighted-average shares 28,942,357 23,772,140
Effect of dilutive stock options 579,995 545,337
---------- ----------
Denominator for diluted earnings per share 29,522,352 24,317,477
========== ==========
8
11. Stock Based Compensation
The company has one stock-based employee compensation plan as more fully
described in Note 11 of Notes to Consolidated Financial Statements of the
Company's 2002 annual report on Form 10-K. SFAS No. 123, "Accounting for
Stock-Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at
fair value. The company has chosen to continue applying Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plan. Accordingly, because the number of shares is fixed and the exercise
price of the stock options equals the market price of the underlying stock
on the date of grant, no compensation expense has been recognized.
Had compensation cost been determined based upon the fair value at the
grant date for awards under the plans based on the provisions of SFAS No.
123, the company's pro forma net earnings and earnings per share would
have been as follows:
Three months ended
March 31
(dollars in thousands, except ------------------------
per share amounts) 2003 2002
-------------------------------------------------------------------------
Net earnings:
As reported $ 13,706 $ 12,122
Deduct: Total stock based employee
compensation expense determined under
fair value based method, net of tax (439) (409)
--------- --------
Pro forma $ 13,267 $ 11,713
========= ========
Earnings per share:
As reported:
Basic $0.47 $0.51
Diluted 0.46 0.50
Pro forma:
Basic $0.46 $0.49
Diluted 0.45 0.48
9
12. Operations by Segment
Three months ended
March 31
------------------------
(dollars in thousands) 2003 2002
-------------------------------------------------------------------------
Net Sales
Electrical Products $ 213,091 $ 196,234
Water Systems 174,821 175,693
--------- ---------
$ 387,912 $ 371,927
========= =========
Earnings before interest and taxes
Electrical Products $ 17,689 $ 15,162
Water Systems 12,011 13,578
--------- ---------
29,700 28,740
Corporate expenses (5,866) (5,913)
Interest expense (2,908) (4,177)
--------- ---------
Earnings before income taxes 20,926 18,650
Provision for income taxes (7,220) (6,528)
--------- ---------
Net Earnings $ 13,706 $ 12,122
========= =========
Intersegment sales, which are immaterial, have been excluded from segment
revenues.
10
PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST THREE MONTHS OF 2003 COMPARED TO 2002
Net sales in the first quarter of 2003 were $387.9 million, an increase of $16.0
million or 4.3 percent over sales of $371.9 million in the first quarter of
2002. The increase in year-over-year first quarter sales occurred in our
Electrical Products segment and was attributable to our acquisitions of Athens
Products (Athens) and Jiangsu Changheng Group Co. Ltd. (Changheng) in the last
half of 2002 as well as a modest increase in the base motors business.
Our gross profit margin declined slightly from 20.7 percent in the first quarter
of 2002 to 20.2 percent in this year's first quarter. The decrease in margin was
due to increased steel prices and cost escalation associated with employee
benefits such as pension and health insurance.
Selling, general and administrative expense for the first quarter of 2003 was
$54.0 million, slightly higher than the $53.2 million in the first quarter of
2002. The slight increase was due to the aforementioned increase in benefit
costs partially offset by cost reduction activities within our operating units.
Interest expense in the first quarter of 2003 declined to $2.9 million from $4.2
million in the first quarter of 2002. The lower interest expense was due to a
significant reduction in debt levels resulting from our May 10, 2002 stock
offering as well as lower interest rates.
We have significant pension benefit costs and credits that are developed from
actuarial valuations. The valuations reflect key assumptions regarding, among
other things, discount rates, expected return on assets, retirement ages, and
years of service. Consideration is given to current market conditions, including
changes in interest rates, in making these assumptions. Our assumption for the
expected rate of return on pension plan assets is 9.0 percent in 2003 compared
with 9.75 percent in 2002. Pension income in the first quarter of 2003 was $2.5
million or $2.0 million less than the first quarter of 2002. Our pension income
is reflected as reductions to cost of products sold and selling, general, and
administrative expense.
Other expenses decreased from $0.9 million in the first quarter of 2002 to $0.3
million in the first quarter of 2003 due mostly to a non-recurring gain on the
sale of securities.
Our effective tax rate declined from 35.0 percent in the first quarter of 2002
to 34.5 percent in the first quarter of 2003 due to the ongoing process of
optimizing the tax structure of our international operations.
Net earnings in the first quarter of 2003 were $13.7 million, representing a 13
percent improvement compared with the $12.1 million of net earnings in last
year's first quarter. The increase in net earnings was primarily attributable to
improved operating performance in our Electrical Products segment as well as
lower interest expense. While net earnings improved 13 percent, our 2003 first
quarter earnings per diluted share of $0.46 was less than last year's per share
earnings of $0.50 due to the impact of the 4.8 million shares of stock issued in
May 2002.
11
Electrical Products
First quarter net sales for our Electrical Products segment were $213.1 million
or $16.9 million higher than sales of $196.2 million in the same period last
year. The sales increase was the result of our July 2002 acquisition of Athens
Products, higher sales in the pump and after-market businesses, as well as
additional sales from our recently acquired Chinese motor operations. Sales to
the heating, ventilating, and air conditioning market were comparable to the
same quarter last year.
Operating earnings for our Electrical Products segment in the first quarter of
2003 were $17.7 million or 16.7 percent higher than the $15.2 million of
operating earnings in the first quarter of 2002. Higher volumes and the
favorable impact of continuing cost reduction and product repositioning
initiatives were responsible for the earnings increase. As part of the
repositioning activities, we closed the Monticello assembly facility during the
quarter and transferred the production to our operations in Mexico.
Water Systems
First quarter net sales for our Water Systems segment were $174.8 million,
compared to sales of $175.7 million in the same period last year. Lower unit
sales were offset by a price increase that took effect in the middle of the
quarter.
Operating earnings for our Water Systems segment in the first quarter of 2003
declined to $12.0 million from $13.6 million in the first quarter of 2002. The
earnings decline was caused by higher steel costs.
On July 1, 2003, new regulatory standards go into effect that impact gas-fired
residential water heaters, and Water Systems remains on schedule with plans to
introduce new products that comply with these standards. The new regulations
mandate that gas residential water heaters resist accidentally igniting
flammable vapors that may be caused by spilled gasoline or other flammable
materials ill-advisedly taken into the home. The standards will be phased in
over a two-year period, beginning with 30, 40, and 50-gallon products this year.
Outlook
Our customers remain very cautious due to weakening consumer demand and the
general uncertainty in the U.S. economy. In spite of these concerns, we remain
comfortable with our forecast of 2003 earnings in the range of $2.05 and $2.25
per share.
As we have stated before, lower pension income and cost increases in areas such
as medical benefits, liability insurance, and steel will impact us during the
full year, while the benefits of repositioning at Electrical Products, the
integration of State Industries, and the introduction of new water heater
products are weighted to the last half of the year.
Consequently, we expect year-over-year comparisons to improve in the last half
of the year. For the second quarter of 2003, we estimate net income will be
modestly better than last year, with earnings per share in a range of $.64 to
$.68 per share.
12
Liquidity & Capital Resources
Our working capital was $257.5 million at March 31, 2003, $30.9 million higher
than at December 31, 2002. Sales related increases in accounts receivable of
$30.6 million and inventory of $17.3 million were partially offset by increases
in accounts payable of $19.4 million. Cash used by our operations during the
first quarter of 2003 was $10.7 million compared with $22.9 million provided by
our operations during the same period in 2002. Essentially all of the difference
is due to the investment in working capital, as described above, during the
first quarter of 2003 compared with a small reduction in working capital during
the first quarter of 2002, resulting from the receipt of a $12.4 million tax
refund.
Our capital expenditures during the first quarter of 2003 totaled $5.4 million,
which was less than the $7.1 million spent in the first quarter of 2002, due to
lower spending by our Electrical Products segment. We are projecting 2003
capital expenditures to approximate the $42.5 million spent in 2002. We expect
that cash flow during 2003 will adequately cover planned capital expenditures.
We believe that our present facilities and planned capital expenditures are
sufficient to provide adequate capacity for our operations in 2003.
Our total debt increased by $14.4 million from $250.7 million at December 31,
2002 to $265.1 million at March 31, 2003. Our leverage as measured by the ratio
of total debt to total capitalization was 34%, up slightly from the 33% at the
end of 2002. We did not enter into any significant operating leases during the
first quarter of 2003. At March 31, 2003, our company had available borrowing
capacity of $205.6 million under our credit facilities. We believe that the
combination of available borrowing capacity and operating cash flow will provide
sufficient funds to finance our existing operations for the foreseeable future.
In connection with recent acquisitions, we have recorded aggregate purchase
liabilities of $26.5 million for employee severance and relocation as well as
certain facility exit costs. As of March 31, 2003, we incurred and charged $17.5
million against these liabilities. We expect the majority of the activities to
be completed by December 31, 2003.
On April 8, 2003, our board of directors declared a regular quarterly dividend
of $.14 per share on our Common stock and Class A common stock, which is payable
on May 15, 2003 to stockholders of record on April 30, 2003.
Critical Accounting Policies
Our accounting policies are described in Note 1 of Notes to Consolidated
Financial Statements as disclosed in the Form 10-K for the fiscal year ended
December 31, 2002. Also as disclosed in Note 1, the preparation of financial
statements in conformity with accounting principles generally accepted in the
United States requires the use of estimates and assumptions about future events
that affect the amounts reported in the financial statements and accompanying
notes. Future events and their effects cannot be determined with absolute
certainty. Therefore, the determination of estimates requires the exercise of
judgment. Actual results inevitably will differ from those estimates, and such
differences may be material to the financial statements.
The most significant accounting estimates inherent in the preparation of our
financial statements include estimates associated with the evaluation of the
impairment of goodwill, as well as the
13
recoverability of receivables resulting from the payment of claims associated
with the dip tube class action lawsuit (see Note 14 of notes to consolidated
financial statements in the Form 10-K for the fiscal year ended December 31,
2002). There are also significant estimates used in the determination of
liabilities related to warranty activity, litigation, product liability,
environmental matters and pensions and other post-retirement benefits. Various
assumptions and other factors underlie the determination of these significant
estimates. The process of determining significant estimates is fact-specific and
takes into account factors such as historical experience and trends, and in some
cases, actuarial techniques. We constantly reevaluate these significant factors
and adjustments are made when facts and circumstances dictate.
Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued SFAS No. 143,
"Accounting for Asset Retirement Obligations", SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities," and SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure". SFAS No.
143, which was adopted on January 1, 2003, did not have a material impact on our
consolidated financial statements since its adoption. SFAS No. 146 is effective
for exit or disposal activities initiated after December 31, 2002. Adoption of
this statement did not have a material impact on our consolidated financial
statements. Effective December 31, 2002, we began making the disclosures
required under SFAS No. 148.
14
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
As is more fully described in our annual report on Form 10-K for the year ended
December 31, 2002, we are exposed to various types of market risks, primarily
currency and certain commodities. We monitor our risks in these areas on a
continuous basis and generally enter into forward and futures contracts to
minimize these exposures for periods of less than one year. Our company does not
engage in speculation in our derivative strategies. It is important to note that
gains and losses from our forward and futures contract activities are offset by
changes in the underlying costs of the transactions being hedged.
ITEM 4 - CONTROLS AND PROCEDURES
Evaluation of disclosure controls and procedures
The chief executive officer and chief financial officer have evaluated the
effectiveness of the company's disclosure controls and procedures within the
90-day period prior to the filing of this report and have concluded that these
disclosure controls and procedures were adequate and effective to ensure that
material information relating to the company and its consolidated subsidiaries
would be made known to them by others within those entities.
Changes in internal controls
There were no significant changes in our internal controls or in other factors
that could significantly affect our disclosure controls and procedures
subsequent to the date of their evaluation, nor were there any significant
deficiencies or material weaknesses in our internal controls. As a result, no
corrective actions were required or undertaken.
Forward Looking Statements
This document contains statements that we believe are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements generally can be identified by the use of
words such as "may," "will," "expect," "intend," "estimate," "anticipate,"
"believe," "continue," "expectation", or words of similar meaning. These
forward-looking statements are subject to risks and uncertainties that could
cause actual results to differ materially from those anticipated as of the date
of this filing. Factors that could cause such a variance include the following:
instability in the company's electric motor and water products markets;
inability to generate the synergistic cost savings from the acquisition of State
Industries; the inability to implement cost-reduction programs; adverse changes
in general economic conditions; significant increases in raw material prices; a
failure to comply with new flammable vapor ignition prevention standards in the
residential gas water heater industry; competitive pressures on the company's
businesses; and the potential that assumptions on which the company based its
expectations are inaccurate or will prove to be incorrect.
Forward-looking statements included in this document are made only as of the
date of this filing, and the company is under no obligation to update these
statements to reflect subsequent events or circumstances. All subsequent written
and oral forward-looking statements attributable to the company, or persons
acting on its behalf, are qualified in their entirety by these cautionary
statements.
15
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
There have been no material changes in the legal and environmental matters
previously reported in Part 1, Item 3 and Note 14 of the Notes to Consolidated
Financial Statements in the company's Form 10-K Report for the year ended
December 31, 2002.
ITEM 5 - OTHER INFORMATION
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has authorized this report to be signed on its behalf by the
undersigned.
A. O. SMITH CORPORATION
May 1, 2003 /s/John J. Kita
----------------------------
John J. Kita
Vice President,
Treasurer and Controller
May 1, 2003 /s/Kenneth W. Krueger
----------------------------
Kenneth W. Krueger
Senior Vice President
and Chief Financial Officer
17
CERTIFICATION OF PERIODIC REPORT
I, Robert J. O'Toole, Chairman, President, and Chief Executive Officer, certify
that:
1. I have reviewed this quarterly report on Form 10-Q of A. O. Smith
Corporation (the "company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the company as of, and for, the periods presented in this
quarterly report;
4. The company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the company and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the company's auditors and the audit committee
of the company's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the company's ability to record,
process, summarize and report financial data and have identified for
the company's auditors any material weaknesses in internal controls;
and
18
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal
controls; and
6. The company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 1, 2003
/s/ Robert J. O'Toole
- --------------------------------------
Robert J. O'Toole
Chairman, President, and Chief Executive Officer
19
CERTIFICATION OF PERIODIC REPORT
I, Kenneth W. Krueger, Senior Vice President and Chief Financial Officer,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of A. O. Smith
Corporation (the "company");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the company as of, and for, the periods presented in this
quarterly report;
4. The company's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the company and we
have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the company, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The company's other certifying officer and I have disclosed, based on our
most recent evaluation, to the company's auditors and the audit committee
of the company's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the company's ability to record,
process, summarize and report financial data and have identified for
the company's auditors any material weaknesses in internal controls;
and
20
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the company's internal
controls; and
6. The company's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: May 1, 2003
/s/ Kenneth W. Krueger
- -------------------------------------------
Kenneth W. Krueger
Senior Vice President and Chief Financial Officer
21
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
99 Written Statement of the Chief Executive Officer and the Chief
Financial Officer pursuant to 18 U.S.C. Section 1350.
22
Exhibit 99
Written Statement of the Chief Executive Officer and the
Chief Financial Officer Pursuant to 18 U.S.C. Section 1350
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350, each of the undersigned certifies that to the best of our knowledge:
(1) the Quarterly Report on Form 10-Q of A. O. Smith Corporation for the
quarter ended March 31, 2003 (the "Report") fully complies with the
requirements of Section 13(a) or Section 15(d) of the Securities Exchange
Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of A. O. Smith
Corporation.
Date: May 1, 2003
/s/ Robert J. O'Toole
- -----------------------------------------
Robert J. O'Toole
Chairman, President, and Chief Executive Officer
/s/ Kenneth W. Krueger
- -----------------------------------------
Kenneth W. Krueger
Senior Vice President and Chief Financial Officer
23