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, 2001 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 June 30, 2001 8,675,389 shares Common Stock Outstanding as of June 30, 2001 15,071,564 shares Exhibit Index Page 18
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, 2001 and 2000 3 Condensed Consolidated Balance Sheets - June 30, 2001 and December 31, 2000 4 Condensed Consolidated Statements of Cash Flows - Six months ended June 30, 2001 and 2000 5 Notes to Condensed Consolidated Financial Statements - June 30, 2001 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-13 Item 3. Quantitative and Qualitative Disclosure of Market Risk 13-14 Part II. Other Information Item 1. Legal Proceedings 15 Item 4. Submission of Matters to a Vote of Security Holders 15-16 Item 5. Other Information 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17 Index to Exhibits 18 2
PART I--FINANCIAL INFORMATION ITEM 1--FINANCIAL STATEMENTS <TABLE> A.O. SMITH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS AND RETAINED EARNINGS Three and Six Months ended June 30, 2001 and 2000 (000 omitted except for per share data) (unaudited) <CAPTION> Three Months Ended Six Months Ended June 30 June 30 ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> Continuing Operations Electric Motor Technologies $ 221,630 $ 253,579 $ 447,883 $ 505,922 Water Systems Technologies 86,618 87,706 178,600 179,929 --------- --------- --------- --------- Net sales 308,248 341,285 626,483 685,851 Cost of products sold 249,663 267,819 509,103 539,014 --------- --------- --------- --------- Gross profit 58,585 73,466 117,380 146,837 Selling, general and administrative expenses 36,338 39,304 74,461 82,295 Interest expense 3,901 5,733 8,702 11,164 Amortization of intangibles 1,734 1,732 3,467 3,459 Other (income) expense - net 349 (530) 948 313 --------- --------- --------- --------- 16,263 27,227 29,802 49,606 Provision for income taxes 5,570 9,634 10,580 17,858 --------- --------- --------- --------- Earnings from Continuing Operations 10,693 17,593 19,222 31,748 Discontinued Operations (note 4) Gain (loss) on disposition less related income tax provision (benefit) - $(21) & $276 - (32) - 424 --------- --------- --------- --------- Net Earnings $ 10,693 $ 17,561 $ 19,222 $ 32,172 ========= ========= ========= ========= Retained Earnings Balance at beginning of period $ 554,705 $ 543,008 $ 549,237 $ 531,204 Net earnings 10,693 17,561 19,222 32,172 Cash dividends on common shares (3,078) (2,810) (6,139) (5,617) --------- --------- --------- --------- Balance at End of Period $ 562,320 $ 557,759 $ 562,320 $ 557,759 ========= ========= ========= ========= Basic Earnings per Common Share (note 8) Continuing Operations $0.45 $0.75 $0.82 $1.36 Discontinued Operations - - - 0.02 --------- --------- --------- --------- Net Earnings $0.45 $0.75 $0.82 $1.38 ========= ========= ========= ========= Diluted Earnings per Common Share (note 8) Continuing Operations $0.45 $0.74 $0.81 $1.34 Discontinued Operations - - - 0.02 --------- --------- --------- --------- Net Earnings $0.45 $0.74 $0.81 $1.36 ========= ========= ========= ========= Dividends per Common Share $0.13 $0.12 $0.26 $0.24 </TABLE> 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, 2001 and December 31, 2000 (000 omitted) (unaudited) December 31, June 30, 2001 2000 ------------- ------------ Assets Current Assets Cash and cash equivalents (note 2) $ 15,187 $ 15,287 Receivables 198,226 169,117 Inventories (note 5) 158,864 169,630 Deferred income taxes 1,568 7,215 Other current assets 38,896 22,199 Net current assets - discontinued operations (note 4) - 22,651 ----------- ----------- Total Current Assets 412,741 406,099 Property, plant and equipment 555,366 542,018 Less accumulated depreciation 276,535 259,183 ----------- ----------- Net property, plant and equipment 278,831 282,835 Net goodwill and other intangibles 241,421 244,821 Other assets 115,099 107,928 Net long-term assets - discontinued operations (note 4) - 17,493 ----------- ----------- Total Assets $ 1,048,092 $ 1,059,176 =========== =========== Liabilities Current Liabilities Trade payables $ 101,588 $ 91,780 Accrued payroll and benefits 23,162 27,388 Accrued liabilities 31,338 26,865 Product warranty 11,629 11,574 Income taxes 201 1,695 Long-term debt due within one year 11,129 11,129 ----------- ----------- Total Current Liabilities 179,047 170,431 Long-term debt (note 6) 275,888 316,372 Other liabilities 59,149 61,856 Deferred income taxes 69,687 62,122 ----------- ----------- Total Liabilities 583,771 610,781 Stockholders' Equity Class A common stock, $5 par value: authorized 14,000,000 shares; issued 8,707,984 43,540 43,614 Common stock, $1 par value: authorized 60,000,000 shares; issued 23,841,378 23,841 23,827 Capital in excess of par value 54,442 53,521 Retained earnings (note 6) 562,320 549,237 Accumulated other comprehensive loss (note 7) (4,826) (5,438) Treasury stock at cost (214,996) (216,366) ----------- ----------- Total Stockholders' Equity 464,321 448,395 ----------- ----------- Total Liabilities and Stockholders' Equity $ 1,048,092 $ 1,059,176 =========== =========== See accompanying notes to unaudited condensed consolidated financial statements 4
PART I--FINANCIAL INFORMATION ITEM 1--FINANCIAL STATEMENTS A.O. SMITH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS Six Months Ended June 30, 2001 and 2000 (000 omitted) (unaudited) Six Months Ended June 30 --------------------------- 2001 2000 ----------- ----------- Operating Activities Continuing Earnings from continuing operations $ 19,222 $ 31,748 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 18,725 18,535 Amortization 4,255 4,234 Net change in current assets and liabilities (22,871) (18,671) Net change in other noncurrent assets and liabilities (2,481) (6,263) Other 496 662 ----------- ----------- Cash Provided by Operating Activities 17,346 30,245 Investing Activities Capital expenditures (15,498) (20,733) Other (545) (558) ----------- ----------- Cash Used in Investing Activities (16,043) (21,291) Financing Activities Debt retired (40,484) (6,451) Net proceeds from common stock and option activity 1,046 38 Dividends paid (6,139) (5,617) ----------- ----------- Cash Used in Financing Activities (45,577) (12,030) Cash Provided by (Used in) Discontinued Operations 44,174 (3,377) ----------- ----------- Net decrease in cash and cash equivalents (100) (6,453) Cash and cash equivalents-beginning of period (note 2) 15,287 14,761 ----------- ----------- Cash and Cash Equivalents - End of Period $ 15,187 $ 8,308 =========== =========== 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, 2001 (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, 2001 are not necessarily indicative of the results expected for the full year. The condensed consolidated balance sheet as of December 31, 2000 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 2001 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. Acquisition On August 2, 1999, A. O. Smith Corporation (the company) acquired the assets of MagneTek, Inc.'s (MagneTek) domestic electric motor business and six wholly owned foreign subsidiaries for $244.6 million. In connection with the MagneTek acquisition, the company recorded additional purchase liabilities of $17.9 million, which included employee severance and relocation, as well as certain facility exit costs. Costs incurred and charged against the liabilities to date totaled $4.7 million. The majority of the activities are expected to be completed by the end of 2001. 4. Discontinued Operations In the first quarter 2000, the company, with the approval of the Board of Directors, decided to divest its fiberglass piping and liquid and dry bulk storage tank businesses. These sales were completed in December 2000 and January 2001, respectively. Net sales of these businesses were $34.1 million and $63.0 million for the three- and six-month periods ended June 30, 2000. 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. 6
5. Inventories (000 omitted) June 30, 2001 December 31, 2000 ------------- ----------------- Finished products $ 99,045 $ 109,702 Work in process 36,192 37,186 Raw materials 41,054 40,191 Supplies 882 860 ----------- ----------- 177,173 187,939 Allowance to state inventories at LIFO cost 18,309 18,309 ----------- ----------- $ 158,864 $ 169,630 =========== =========== 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 $68.6 million were unrestricted as of June 30, 2001. 7. Comprehensive Earnings (000 omitted) The company's comprehensive earnings were comprised of net earnings, foreign currency translation adjustments, and in 2001, realized and unrealized gains and losses on cash flow derivative instruments. Also included in comprehensive earnings for the six-month period ended June 30, 2001 was a cumulative loss adjustment on cash flow hedges of approximately $0.6 million in connection with the adoption of Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended. The amount recorded in earnings during the six-month period ending June 30, 2001, associated with the transition adjustment as of January 1, 2001 was not material to the company's financial statements. Three Months Ended Six Months Ended June 30 June 30 ------------------ ---------------- 2001 2000 2001 2000 ---- ---- ---- ---- Net Earnings $10,693 $17,561 $19,222 $32,172 Other comprehensive earnings (loss): Foreign currency translation adjustments 650 (399) (1,167) (1,389) Unrealized net gains on cash flow derivative instruments less related income tax provision - $928 & $1,137 1,453 - 1,779 - ------- ------- ------- ------- Comprehensive Earnings $12,796 $17,162 $19,834 $30,783 ======= ======= ======= ======= 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 ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- Denominator for basic earnings per share - weighted-average shares 23,644,889 23,363,973 23,578,440 23,362,683 Effect of dilutive stock options 267,289 370,512 292,127 353,742 ---------- ---------- ---------- ---------- Denominator for diluted earnings per share 23,912,178 23,734,485 23,870,567 23,716,425 ========== ========== ========== ========== 9. Operations by Segment (000 omitted) Three Months Ended Six Months Ended June 30 June 30 -------------------- ------------------- 2001 2000 2001 2000 -------- -------- -------- -------- Net Sales Electric Motor Technologies $221,630 $253,579 $447,883 $505,922 Water Systems Technologies 86,618 87,706 178,600 179,929 -------- -------- -------- -------- Net Sales $308,248 $341,285 $626,483 $685,851 ======== ======== ======== ======== Earnings before Interest and Taxes Electric Motor Technologies $ 15,379 $ 28,487 $ 29,403 $ 54,559 Water Systems Technologies 9,885 8,927 19,736 18,450 -------- -------- -------- -------- Total Segments 25,264 37,414 49,139 73,009 Corporate Expenses (5,100) (4,454) (10,635) (12,239) Interest Expense (3,901) (5,733) (8,702) (11,164) -------- -------- -------- -------- Earnings from Continuing Operations before Income Taxes 16,263 27,227 29,802 49,606 Provision for Income Taxes (5,570) (9,634) (10,580) (17,858) -------- -------- -------- -------- Earnings from Continuing Operations $ 10,693 $ 17,593 $ 19,222 $ 31,748 ======== ======== ======== ======== Intersegment sales, which are immaterial, have been excluded from segment revenues. 8
10. Accounting for Derivative Instruments Effective January 1, 2001, the company adopted SFAS No. 133, as amended, which requires that all derivative instruments be recorded on the balance sheet at fair value and establishes criteria for designation and effectiveness of the hedging relationships. Any fair value changes are recorded in net income or other comprehensive income. The cumulative effect of adopting SFAS No. 133 was not material to the company's consolidated financial statements as of January 1, 2001. The company utilizes certain derivative instruments to enhance its ability to manage currency exposures and raw materials price risks. Derivative instruments are entered into for periods consistent with the related underlying exposures and do not constitute positions independent of those exposures. The company does not enter into contracts for speculative purposes. The company has hedged certain of its forecasted exposures. Approximately 95% of these contracts expire by December 31, 2002. The contracts are executed with major financial institutions with no credit loss anticipated for failure of the counterparties to perform. Foreign Currency Forward Contracts The company is exposed to foreign currency exchange risk as a result of transactions in currencies other than the functional currency of certain subsidiaries. The company utilizes foreign currency forward purchase and sale contracts to manage the volatility associated with foreign currency purchases and certain intercompany transactions in the normal course of business. Contracts typically have maturities of a year or less. Principal currencies include the Mexican peso, Hungarian forint, British pound and U.S. dollar. Forward contracts are accounted for as cash flow hedges of a forecasted transaction. The fair value of these currency derivatives of approximately $6.3 million as of June 30, 2001 has been recorded in other current assets. Gains and losses on these instruments are recorded in other comprehensive income(loss) until the underlying transaction is recorded in earnings. When the hedged item is realized, gains or losses are reclassified from accumulated other comprehensive income(loss) to the statement of earnings on the same line item as the underlying transaction. The assessment of effectiveness for forward contracts is based on changes in the forward rates. Commodity Future Contracts In addition to entering into supply arrangements in the normal course of business, the company also enters into future contracts to fix the cost of certain raw material purchases, principally copper, with the objective of minimizing changes in inventory cost due to market price fluctuations. 9
The commodity future contracts are designated as cash flow hedges. Derivative commodity liabilities of approximately $3.6 million are recorded in accrued liabilities as of June 30, 2001 with the value of the effective portion of the contracts of approximately $3.4 million recorded in accumulated other comprehensive income(loss) and reclassified into cost of products sold in the period in which the underlying transaction is recorded in earnings. Ineffective portions of the commodity hedges are recorded into earnings in the period in which the ineffectiveness occurs in the same statement of earnings line item as the intended underlying exposure is recorded. Hedge ineffectiveness and impact on earnings was not material for the three- and six-month periods ended June 30, 2001. The majority of the amounts in accumulated other comprehensive income(loss) for cash flow hedges are expected to be reclassified into earnings within a year. 10
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 2001 COMPARED TO 2000 Sales were $308 million in the second quarter of 2001, approximately $33 million, or ten percent lower than the record sales of $341 million recorded in the second quarter of 2000. Sales for the first half of 2001 were $626 million, a decline of nine percent compared with the $686 million of sales in the same period last year. Nearly all of the sales decline for both the second quarter and first half of 2001 occurred in the electric motor business which experienced lower sales for most product lines primarily as a result of sluggish economic conditions. Second quarter earnings of $10.7 million were $6.9 million, or 39 percent lower than last year's record second quarter earnings of $17.6 million. Earnings of $19.2 million for the first half of 2001 were $12.5 million lower than earnings of $31.7 million in the first half of 2000. On a diluted per share basis, second quarter earnings declined from $.74 in 2000 to $.45 in 2001. Continuing earnings per share for the first half of 2001 were $.81 compared with $1.34 in the same period last year. The lower year over year earnings for the second quarter and first half of the year were due mostly to the sales volume reduction at the electric motors operation. The gross profit margin for the second quarter declined from 21.5 percent in 2000 to 19.0 percent in 2001. The year to date gross profit margin in 2001 was 18.7 percent compared with 21.4 percent in the same period in 2000. The lower margins in both the second quarter and first half of 2001 resulted primarily from under-absorption of manufacturing costs associated with the lower volume in the electric motor business. Second quarter sales of Electric Motor Technologies were $222 million or $32 million less than the second quarter of 2000. Year-to-date sales for this segment were $448 million, a decline of $58 million from 2000 first half sales of $506 million. Overall economic sluggishness, reduced discretionary spending on the part of consumers, and inventory adjustments by large retailers adversely affected motor demand in agricultural, pool and spa, air compressor, and home improvement markets. Sales of heating and air conditioning motors declined compared with the prior year while hermetic air conditioning motor sales began to stabilize in the second quarter as improved exports overcame a decline in the domestic market. Second quarter operating profits for Electric Motor Technologies decreased from $28.5 million in 2000 to $15.4 million in 2001. Earnings for the first six months of the year declined from $54.6 million to $29.4 million in 2001. The significant decline in earnings was due mostly to lower sales volume, higher costs for Mexican labor, and competitive pressures in a number of the company's major markets. The second quarter and first half of 2000 benefited from a favorable earnings adjustment of $2.3 million associated with a one-time vacation policy adjustment. Second quarter and first half sales in 2001 for Water Systems Technologies were $86.7 million and $178.6 million, respectively, slightly lower than the comparable periods in 2000. Lower sales in the 11
segment's residential and commercial businesses and certain international markets, offset improved sales in the Chinese water heater operation. Operating profits for Water Systems Technologies were $9.9 million in the second quarter of 2001 reflecting a $1.0 million increase over the same period last year. For the first half of 2001, earnings were $19.7 million or seven percent higher than earnings of $18.5 million in the first six months of 2000. The improved earnings performance in the second quarter and first half of 2001 compared with the same periods in 2000 were the result of increased earnings in the residential business and continued progress in the Chinese operation. Selling, general and administrative (SG&A) expense in the second quarter and first half of 2001 were lower than the same periods in 2000 by $3.0 million and $7.8 million, respectively. The lower SG&A was a function of lower sales, cost reduction programs and lower corporate expense. As a proportion of sales, 2001 SG&A was similar to year ago rates. Interest expense for the second quarter and first half of 2001 was lower than the comparable periods in 2000 by $1.8 million and $2.5 million, respectively, due to lower debt levels and declining interest rates. Other expense in the second quarter and first half of 2001 was higher than the same periods in 2000 due to the recognition of certain non-recurring income items in the second quarter of 2000. The effective tax rate for the first six months of the year was 35.5 percent in 2001 and 36.0 percent in 2000. The second quarter effective tax rate was 34.2 percent compared with 35.4 percent in the same period of 2000. The decrease in the effective tax rates is due primarily to the second quarter initiation of an international tax strategy to improve the tax efficiency of the company. The impact on net earnings in 2001 was minimal, since consulting fees associated with this tax strategy partially offset the tax benefit recognized in the second quarter. The company anticipates that the tax strategy will reduce taxes for the foreseeable future. In the first six months of 2000, the company recognized after-tax earnings from discontinued operations of $.4 million associated with the operations of the storage tank business. This entity was sold in January of 2001. A more detailed discussion of the sale transaction can be found in the company's 2000 Annual Report or Form 10-K. Outlook The widespread weakness in the U. S. industrial economy makes it very difficult to forecast future performance with any degree of certainty. The company expects that this economic weakness, as well as the seasonal nature of several of its key motor markets, will result in lower sales in the second half of 2001. Furthermore, although the company anticipates second half sales in 2001 to exceed the second half of 2000, market conditions will cause this growth to be modest. Primarily as a result of the continued market softness, the company expects earnings to range between $.20 and $.25 per share for the third quarter. For the entire year, it estimates that earnings will be in a range of $1.20 to $1.30. 12
Liquidity & Capital Resources The company's working capital for continuing operations was $233.7 million at June 30, 2001, $20.7 million higher than at December 31, 2000. Accounts receivable balances were $29.1 million higher as a result of seasonally higher sales in the second quarter of 2001 compared with the fourth quarter of 2000. The largest component of the increase in other current assets was a $7.0 million increase in receivable due to payments of claims associated with the dip tube class action lawsuit (described in more detail 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 31, 2000, which are incorporated herein by reference). Higher accounts payable balances and lower inventory levels partially offset these increases. Cash provided by continuing operations during the first half of 2001 was $17.3 million compared with $30.2 million during the same time period one year ago due to lower earnings as explained above. Capital expenditures during the first half of 2001 totaled $15.5 million compared with $20.7 million during the same period in 2000. The company expects capital spending in 2001 to be essentially the same as in 2000 and that such spending will be covered by operating cash flow. In connection with the MagneTek acquisition in August 1999, additional purchase liabilities of $17.9 million were recorded, which included employee severance and relocation as well as certain facility exit costs. Costs incurred and charged against the liability to date totaled $4.7 million. The majority of the activities are expected to be completed by the end of 2001. The company's long term debt decreased by $40.5 million, from $316.4 million at December 31, 2000 to $275.9 million at June 30, 2001. The proceeds received from the divestiture of the storage tank business in the first quarter 2001 were used to reduce debt. The company's leverage as measured by the ratio of total debt to total capitalization improved to 38 percent at June 30, 2001 from 42 percent at the end of last year. On June 8, 2001, the company issued $50 million in senior notes under loan facilities with various insurance companies. The notes range in maturity from 2013 to 2016 and carry an interest rate of 7.28 percent. The proceeds from the notes were used to repay floating rate debt. At its July 10, 2001 meeting, the company's Board of Directors declared a 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, 2001 to shareholders of record July 31, 2001. 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, 2000, 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 forward and futures contracts to minimize such exposures. These contracts generally last for periods of up to eighteen months. The company does not engage in speculation in its derivatives strategies. It is important to note that gains and losses from the company's forward and futures contract activities are offset by changes in the underlying costs of the transactions being hedged. 13
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," "estimates," "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 the results expressed in forward-looking statements 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, general economic conditions, cost stability, foreign currency fluctuations, climatic conditions, competitive pressures, and the successful implementation of cost reduction programs including the integration of the MagneTek electric motors acquisition. 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. 14
PART II - OTHER INFORMATION ITEM 1 - LEGAL PROCEEDINGS In the legal and environmental matters discussed 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 31, 2000, which are incorporated herein by reference, the company reported that the U.S. EPA and the former owner of a mining company settled their respective claims against each other in a lawsuit concerning the costs to remediate a former mine site in Colorado, that upon final approval of the settlement both parties would dismiss their claims against each other, and that the former owner indicated he intended to continue to pursue his contribution claim against the company. The company's motion for summary judgment in that action has been granted and the former owner's claims against the company have been dismissed. The company reported in its Form 10-Q for the first quarter of 2001, which is incorporated herein by reference, that the State of Colorado brought a legal action against the company and other PRPs to recover its remediation costs at the same site. The company has filed a motion for summary judgment in that action. The court has not ruled on that motion which contains grounds for dismissal that are similar to those asserted in the related action as well as additional grounds for dismissal. The company continues to believe it has very good defenses to the State's claims in this action. Except with respect to these matters, there have been no material changes in the legal or environmental matters that were previously reported. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On March 5, 2001, the company mailed a proxy statement to its stockholders relating to the annual meeting of stockholders on April 4, 2001. The annual meeting included the election of directors and the ratification of Ernst & Young LLP as the independent auditors of the company for 2001. 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 Class A Common Stock Directors Votes For Votes Withheld W. Michael Barnes 8,603,098 1,352 Glen R. Bomberger 8,603,098 1,352 Robert J. O'Toole 8,603,098 1,352 Dr. Agnar Pytte 8,603,098 1,352 Bruce M. Smith 8,603,098 1,352 Mark D. Smith 8,603,098 1,352 15
Common Stock Directors Votes For Votes Withheld William F. Buehler 11,758,529 70,327 Kathleen J. Hempel 11,756,328 72,528 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) 9,783,141 2,819 1,776 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 July 26, 2001 /s/John J. Kita -------------------------------- John J. Kita Vice President, Treasurer and Controller July 26, 2001 /s/Kenneth W. Krueger -------------------------------- Kenneth W. Krueger Senior Vice President and Chief Financial Officer 17