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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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 23972, Milwaukee, Wisconsin 53223-0972
Telephone: (414) 359-4000
Securities registered pursuant to Section 12(b) of the Act:
Shares of Stock Name of Each
Outstanding Exchange on
Title of Each Class February 28, 1996 Which Registered
Class A Common Stock 5,884,441 American Stock
(par value $5.00 per Exchange
share)
Common Stock 15,034,180 New York Stock
(par value $1.00 per Exchange
share)
Securities registered pursuant to Section 12(g) of the Act: None.
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 if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $12,084,737 for Class A Common Stock and $339,373,803 for
Common Stock as of February 28, 1996.
Documents Incorporated by Reference:
1. Portions of the corporation's definitive Proxy Statement dated March
4, 1996 for an April 3, 1996 Annual Meeting of Stockholders are
incorporated by reference in Part III.
PART I
ITEM 1 - BUSINESS
A. O. Smith Corporation, a Delaware corporation organized in 1916, its
subsidiaries and its affiliates (hereafter collectively called the
"Corporation" unless the context otherwise requires) are engaged in four
business segments. These segments are Original Equipment Manufacturer
("OEM") Products, Water Products, Fiberglass Products, and Other Products.
The corporation's principal OEM Products business is the Automotive
Products Company, a supplier of truck and automobile structural components
and assemblies. OEM Products also includes the Electrical Products
Company which produces fractional horsepower and hermetic electric motors.
The Water Products Company is a leading manufacturer of residential and
commercial gas, oil, and electric water heating systems. Smith Fiberglass
Products Inc. (Smith Fiberglass) manufactures reinforced thermosetting
resin piping. Other Products consists of three units. A. O. Smith
Harvestore Products, Inc. (Harvestore) is a manufacturer of agricultural
feed storage and handling systems, for which AgriStor Credit Corporation
(AgriStor) provides financing, and industrial and municipal water and bulk
storage systems. The corporation intends to sell the agricultural
business and is in the process of liquidating AgriStor. In December of
1995 the corporation expanded its presence in the environmental bulk
storage tank business with the purchase of Peabody TecTank, Inc.
(TecTank). TecTank is a manufacturer of epoxy-coated steel and aluminum
storage tanks primarily used in industrial, food processing, water, and
waste water applications. Information regarding industry segments is
provided in Note 14 to the Consolidated Financial Statements which appear
elsewhere herein.
The following table summarizes revenues by segment for the corporation's
operations. This segment summary and all other information presented in
this section should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto which appear elsewhere herein.
Years Ended December 31 (Dollars in Millions)
1995 1994 1993 1992 1991
OEM Products
Automotive Products
Truck frames $ 666.4 $ 559.4 $ 487.2 $ 419.1 $318.5
Other 178.9 163.3 119.1 108.5 107.6
------ ----- ----- ----- -----
Total Automotive 845.3 722.7 606.3 527.6 426.1
Electrical Products 317.3 281.2 242.5 225.6 205.1
------ ----- ----- ----- -----
Total OEM Products 1,162.6 1,003.9 848.8 753.2 631.2
Water Products 276.0 271.5 248.1 215.2 194.6
Fiberglass Products 58.6 57.9 58.9 43.9 53.9
Other Products 47.6 40.2 38.1 34.0 36.1
------ ----- ----- ----- -----
Total Corporation $1,544.8 $1,373.5 $1,193.9 $1,046.3 $915.8
======= ======= ======= ======= =====
OEM PRODUCTS
Automotive Products
Automotive sales in 1995 of $845.3 million, or 55 percent of total
corporation revenues, increased 17 percent from previous year sales. This
was due to continued strength in the North American market for both the
light and heavy truck segments. Automotive Products had product on six of
the top seven selling vehicles sold in the U.S. in 1995.
Automotive Products has contracts, some of which are subject to economic
price adjustments, to supply frame assemblies and components to Ford,
Chrysler, and General Motors in the passenger car and light truck class.
Because of the importance of light vehicle sales to this unit, it is
affected by general business conditions in the North American automotive
industry. The company is also a supplier of truck frames to most domestic
producers of medium and heavy-duty trucks, such as Ford, Navistar
International, Freightliner, and Paccar.
The largest product group within Automotive Products continues to be truck
frames and components which accounted for 79 percent of Automotive
Products' sales and almost 43 percent of the corporation's revenues. The
company continues to hold its lead position in truck frame manufacturing
in the United States and Canada, supplying nearly 40 percent of the 1995
market.
In 1995, the Milwaukee, Wisconsin plant began shipping full frame
assemblies for the new Chevrolet Tahoe/GMC Yukon and the extended cab
version of the Dodge Ram pickup truck. The Granite City, Illinois plant
began producing engine cradles for the redesigned Ford Taurus/Mercury
Sable and the Milan, Tennessee plant began shipping side rail assemblies
for the Nissan pickup.
Automotive Products reached an agreement in 1995 to establish a joint
venture in Changchun, China, with First Auto Works and Golden Lion Group
to produce automotive structures. A. O. Smith is the majority owner in
the venture and will begin producing components in January of 1997.
In 1996, the company plans two new product programs and three major
redesign programs. In the first quarter, production will begin on frame
rails for the new Nissan pickup truck followed by production to support
Volvo/GM's new Class 8 heavy truck in the third quarter. The Volvo custom
frame rails will be fabricated at a new regional assembly plant in
Roanoke, Virginia. Major redesign programs include suspension links on the
1997 Camry, full frame for the Econoline/Club Wagon, and the full frame
for the Dakota Pickup. Assembly for the Dakota pickup will be at a new
regional plant in Plymouth, Michigan.
The company's products are sold in competitive markets with its principal
competitors including Dana Corporation, Magna International, and
integrated units of Ford, Chrysler, and General Motors.
The following table summarizes sales to the company's three largest
automotive customers:
Years Ended December 31(Dollars in Millions)
1995 1994 1993 1992 1991
Ford
Sales $408.8 $325.6 $266.9 $219.3 $177.5
Percentage of total
corporation revenues 26.5% 23.7% 22.4% 21.0% 19.4%
Chrysler
Sales $173.8 $177.6 $118.2 $ 96.7 $ 75.8
Percentage of total
corporation revenues 11.3% 12.9% 9.9% 9.2% 8.3%
General Motors
Sales $164.5 $135.9 $132.0 $148.1 $115.6
Percentage of total
corporation revenues 10.6% 9.9% 11.1% 14.2% 12.6%
Total 48.4% 46.5% 43.4% 44.4% 40.3%
Electrical Products
Sales of electric motors increased by $36.1 million or 13% in 1995 to
$317.3 million. The increased volume came primarily as a result of strong
market demand for hermetic motors and sales growth in the export segment.
Sales of motors were up for heating, ventilating and air conditioning, for
both original equipment and replacement customers as a result of growing
demand in 1995. The manufacturing operations handled the increased volume
without disproportionate increases in costs.
The company's product lines include jet pump motors sold to manufacturers
of home water systems, swimming pools, hot tubs and spas; and fan motors
used in furnaces, air conditioners, and blowers, as well as fractional
horsepower motors used in other consumer products. Hermetic motors are
sold worldwide to manufacturers of compressors and are used in air
conditioning and refrigeration systems. In addition to selling its
products directly to OEMs, Electrical Products also markets its products
through a distributor network which sells to both OEMs and the related
after-market. The company estimates that approximately one half of the
market is derived from the less cyclical replacement business with the
remainder being impacted by general business conditions in the new
construction market.
The company's principal products are sold in competitive markets with its
major competitors being Emerson Electric, General Electric, Magnetek,
Inc., Fasco, and vertically integrated customers.
WATER PRODUCTS
Sales in 1995 were a record $276 million, increasing slightly from $271.5
million in 1994, which represents 18 percent of total corporation
revenues. The company capitalized on its strong wholesale channels to
improve market share in the commercial water heater industry.
Water Products markets residential gas and electric water heaters through
a diverse network of plumbing wholesalers in the United States. The
majority of Water Products' sales is in the less cyclical replacement
market although the new housing market is an important segment as well.
The residential water heater market remains highly competitive with Water
Products and three other manufacturers supplying over 90 percent of market
requirements.
Water Products markets commercial water heating systems through a diverse
network of plumbing wholesalers in the United States and Canada.
Commercial water heating systems are used in a wide range of applications
including schools, nursing homes, hospitals, prisons, hotels, motels,
laundries, restaurants, stadiums, amusement parks, car washes, and other
large users of hot water. The commercial market is characterized by
competition from a broader range of products and competitors than occurs
in the residential market.
Water Products Company established a joint venture with Nanjing Water
Heater Company of China to manufacture instantaneous and storage type
heaters for the Chinese market. Water Products Company is a majority
owner of the venture, which is scheduled to begin operation in early 1996.
The principal competitors in the Water Products segment are Rheem
Manufacturing, State Industries, The American Water Heater Group (formerly
SABH, Inc.) and Bradford-White. Water Products is the largest
manufacturer of commercial water heaters and is a major manufacturer of
residential water heaters in the United States.
FIBERGLASS PRODUCTS
Smith Fiberglass sales totaled $58.6 million in 1995; up slightly from
1994 sales of $57.9 million. Sales to the international petroleum
industry were strong during 1995. This was offset by the continuing
effects of strong competition in the service station market.
Smith Fiberglass manufactures reinforced thermosetting resin piping and
fittings used to carry corrosive materials. Typical applications include
chemical and industrial plant piping, oil field piping, and underground
distribution at gasoline service stations. Smith Fiberglass also
manufactures high pressure fiberglass piping systems used in the petroleum
production industry. Its products are sold through a network of
distributors.
Smith Fiberglass has formed a joint venture with Harbin Composites
Corporation of Harbin, China to supply fiberglass pipe to the Chinese oil
industry. Smith Fiberglass is a majority owner of the new venture, which
is scheduled to begin production in early 1996.
The company's principal products are sold in competitive markets with its
major competitors being Ameron Corporation, Fibercast Company, Environ
Corporation, and Total Containment Corporation.
OTHER PRODUCTS
Other Products includes Harvestore, AgriStor, and TecTank. Harvestore
sales in 1995 were $40.6 million, which were about 9 percent higher than
1994 sales of $37.4 million. The increase was attributable to demand for
waste water storage systems due to growing environmental concerns.
AgriStor revenues in 1995 were $2.8 million, down 3 percent from $2.9
million in 1994. The lower revenues resulted from a decline in the size
of AgriStor's lending portfolio and represents management's continued
progress toward its goal to liquidate the agricultural finance business.
Harvestore manufactures and markets agricultural feed storage and handling
systems, and industrial and potable water and bulk storage systems.
Harvestore's products are distributed through a network of independent
dealers. AgriStor assists farm customers in the financing of
Harvestore/R/ equipment out of offices in Milwaukee, Wisconsin and
Columbus, Ohio.
In December the Corporation purchased TecTank from the Pullman Company.
TecTank, with fiscal 1995 sales of $49.0 million, is a manufacturer of
epoxy-coated steel and aluminum storage tanks primarily used in
industrial, food processing, water and waste water applications. It is
one of the few manufacturers to supply factory-coated tanks to the market
segments mentioned above. TecTank will complement Harvestore and provide
the corporation with a more comprehensive product line for both dry
storage and liquid storage applications.
AgriStor competes with other agricultural banks and farm credit service
companies. Harvestore's and TecTank's products are sold in competitive
markets that include concrete, site-welded, and bolted tanks. Principal
competitors include Columbian, Imperial, and Ladig.
Raw Material
Raw materials for the corporation's operations, which consist primarily of
steel, copper, and aluminum, are generally available from several sources
in adequate quantities.
Seasonality
The corporation's third quarter revenues and earnings have traditionally
been lower than the other quarters due to Automotive Products' model year
changeovers and customer plant shutdowns.
Research and Development, Patents and Trademarks
The corporation conducts new product and process development at its
Corporate Technology Center in Milwaukee, Wisconsin, and at its operating
unit locations. The objective of this activity is to increase the
competitiveness of A. O. Smith and generate new products to fit the
corporation's market knowledge. Total expenditures for research and
development in 1995, 1994, and 1993 were approximately $9.7 million,
$9.2 million and $7.6 million, respectively.
The corporation owns and uses in its businesses various trademarks, trade
names, patents, trade secrets, and licenses. While a number of these are
important to the corporation, it does not consider a material part of its
business to be dependent on any one of them.
Employees
The corporation and its subsidiaries employed approximately 13,000 persons
in its operations as of December 31, 1995.
Backlog
Normally none of the corporation's operations sustain significant
backlogs. However, the Automotive Products Company has long term
contracts to supply parts to the large auto and truck manufacturers.
Environmental Laws
Compliance with federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of
the environment has not had a material effect and is not expected to have
a material effect upon the capital expenditures, earnings, or competitive
position of the corporation. See ITEM 3.
Foreign Sales
Total export sales from the U.S. were $135 million, $114 million, and $71
million in 1995, 1994, and 1993, respectively. The increase in sales from
1994 to 1995 was largely attributable to increased exports by Electrical
Products Company and Harvestore. The amount of revenue and operating
profit derived from, or the assets attributable to, sales outside the
North American geographic area are not a substantial portion of total
corporation operations.
ITEM 2 - PROPERTIES
The corporation manufactures its products in 38 locations worldwide.
These facilities have an aggregate floor space of approximately 9,205,000
square feet, consisting of approximately 7,148,000 square feet owned by
the corporation and 2,057,000 square feet of leased space. Thirteen of
the corporation's facilities are foreign plants with approximately
1,144,000 square feet of space, including approximately 441,000 square
feet which are leased.
The manufacturing plants presently operated by the corporation are listed
below by industry segment. This data excludes four plants operated by a
Mexican affiliate.
United States Foreign
OEM Products
-Automotive Products Granite City, IL; Rockford,IL(2); Barrie, Canada
(5,025,000 sq. ft.) Corydon, IN; Bowling Green, KY;
Belcamp, MD; Bellevue, OH;
Milan, TN; Milwaukee, WI
-Electrical Products Mebane, NC; Mt. Sterling, KY; Bray, Ireland;
(1,641,000 sq. ft.) Tipp City, OH; Upper Sandusky,OH Acuna, Mexico;
Juarez, Mexico(5);
Monterrey, Mexico
Water Products Florence, KY; McBee, SC; Stratford,
Canada(2);
(1,402,000 sq. ft.) El Paso, TX; Seattle, WA Juarez, Mexico;
Veldhoven,
The Netherlands
Fiberglass Products Little Rock, AR (2);
(438,000 sq. ft.) Wichita, KS
Other Products Bakersfield, CA; DeKalb IL;
(699,000 sq. ft.) Parsons, KS; Fort Mills, SC;
Winchester, TN
The principal equipment at the corporation's facilities consist of
presses, welding, machining, slitting and other metal fabricating
equipment, winding machines, and furnace and painting equipment. The
corporation regards its plant and equipment as well-maintained and
adequate for its needs. Multishift operations are used where necessary.
In the fourth quarter of 1995, the Automotive Products Company, Water
Products Company, and Smith Fiberglass Products Inc. each established a
majority-owned joint venture in the People's Republic of China. The
companies and partners are in the process of making investments in
facilities.
In addition, the corporation is in the process of acquiring facilities for
two new Automotive Products Company plants in Plymouth, Michigan and
Roanoke, Virginia, with start up of these facilities in 1996.
ITEM 3 - LEGAL PROCEEDINGS
As of December 31, 1995, the corporation and Harvestore were defendants in
eight cases alleging damages for economic losses claimed to have arisen
out of alleged defects in Harvestore animal feed storage equipment. Some
plaintiffs are seeking punitive as well as compensatory damages. The
corporation believes that a significant number of these claims were
related to the deteriorated general farm economy. In 1995, fifteen cases
were concluded. The corporation and Harvestore continue to vigorously
defend these cases.
Two of the eight pending cases contain class action allegations. One of
the cases is a New York state court action which names the corporation,
Harvestore, and two of its dealers as defendants. The court has denied
the plaintiffs' motion to certify the class and has granted the
defendants' motions dismissing some of the plaintiffs' allegations. The
plaintiffs are appealing the court's rulings.
The second case is pending in the Federal District Court for the Southern
District of Ohio. It was filed in August 1992 and the court, in March
1994, conditionally certified it as a class action on behalf of purchasers
and lessees of Harvestore structures manufactured by the corporation and
Harvestore. A notice of the certification was mailed to the purported
class members in the third quarter of 1994, with approximately 5,500 "opt
out" forms being filed with the court, the impact of which is unknown.
The court canceled a previously set trial date as a result of motions the
corporation filed seeking summary judgment or in the alternative
decertification of the class. The corporation is awaiting a ruling.
Based on the facts currently available to management and its prior
experience with lawsuits alleging damages for economic loss resulting from
use of the Harvestore animal feed storage equipment, management is
confident that the class action suits can be defeated and that the
lawsuits do not represent a material threat to the corporation. The
corporation believes that any damages, including any punitive damages,
arising out of the pending cases are adequately covered by insurance and
recorded reserves. No range of reasonably possible losses can be
estimated because in most instances the complaint is silent as to the
amount of the claim or states it as an unspecified amount in excess of the
jurisdictional minimum. The corporation reevaluates its exposure
periodically and makes adjustment of its reserves as appropriate.
A lawsuit for damages and declaratory judgments in the Circuit Court of
Milwaukee County, State of Wisconsin, in which the corporation and
Harvestore are plaintiffs is pending against three insurance companies for
failure to pay in accordance with liability insurance policies issued to
the corporation. The insurers have failed to pay, in full or in part,
certain judgments, settlements and defense costs incurred in connection
with pending and closed lawsuits alleging damages for economic losses
claimed to have arisen out of alleged defects in Harvestore animal feed
storage equipment. While the corporation has, in part, assumed
applicability of this coverage, an adverse judgment should not be material
to its financial condition.
As part of its routine business operations, the corporation disposes of
and recycles or reclaims certain industrial waste materials, chemicals,
and solvents at disposal and recycling facilities which are licensed by
appropriate federal, state and local agencies. In some instances, when
those facilities are operated such that hazardous substances contaminate
the soil and groundwater, the United States Environmental Protection
Agency ("EPA") will designate the contaminated sites as Superfund sites,
and will designate those parties which are believed to have contributed
hazardous materials to the sites as potentially responsible parties
("PRPs"). Under the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA" or the "Superfund" law) and similar state
laws, each PRP that contributes hazardous substances to a Superfund site
is jointly and severally liable for the costs associated with cleaning up
the site. Typically, PRPs negotiate with the EPA and those state
environmental agencies that are involved in the matter regarding the
selection and implementation of a plan to clean up the Superfund site and
the terms and conditions under which the PRPs will be involved in the
process. PRPs also negotiate with each other regarding allocation of each
PRP's share of the clean up costs.
The corporation is currently involved as a PRP in judicial and
administrative proceedings initiated on behalf of the EPA seeking to clean
up the environment at seventeen Superfund sites and to recover costs it
has or will incur as a result of the clean up. Certain state
environmental agencies have also asserted claims to recover their clean up
costs in some of these actions. The sites are as follows:
Two separate but related sites in Kentucky involving the same storage
and disposal operation. Proceedings were commenced on behalf of the
EPA in the United States District Court for the District of Kentucky,
Louisville Division in March 1988 with respect to these sites. A
consent decree allocating liability among the PRPs for costs of
remediation at the sites and the response costs of the EPA and the
Commonwealth of Kentucky was executed by the corporation in September
1993. The consent decree was lodged by the Court in 1994 and the
corporation paid the entire amount allocated to it as its share of
the clean up costs. The corporation remains liable for a share of
the cost overruns, but none are anticipated at this time.
A site in Indiana used for storage, treatment, recycling and disposal
of waste chemicals. In January 1984, the company and several other
PRPs became parties to an action that had been pending in the United
States District Court for the District of Indiana since January 1980
regarding this site. In July 1988, the corporation executed a
consent decree allocating liability among the PRPs for costs of
remediation at the site and the EPA's response costs. Remediation is
well underway at the site.
A municipal landfill in Michigan is the subject of a proceeding that
was filed on behalf of the EPA in the United States District Court
for the Western District of Michigan in this case in April 1991. In
1994 EPA required actions were taken and point source contaminants
were removed by the end of the year. Work to determine the extent to
which a long-term groundwater remedy may be required began in 1995.
A county-owned incinerator, ash disposal lagoon, and landfill in
Ohio. A proceeding was commenced on behalf of the EPA in the United
States District Court for the Southern District of Ohio, Western
Division regarding this site in December 1989. A final remedy was
selected and the consent decree, which was executed by the PRPs and
the EPA, was entered by the Court in March 1993. Work on the remedy
began shortly after the consent decree was entered and has been
progressing on schedule.
An industrial and municipal waste landfill in Wisconsin. Separate
proceedings commenced on behalf of the EPA and the State of
Wisconsin in the United States District Court for the Eastern
District of Wisconsin in November 1991 relative to this site were
consolidated into a single matter in 1992. The consent decree
entered into by the PRPs, the EPA, and the State of Wisconsin divides
the site into two operable units, the first of which deals with soil
remediation and an interim groundwater remedy and the second of which
is anticipated to deal with the long-term groundwater remedy. The
cap on the landfill was completed in 1994 and work on the interim
groundwater remedy is underway. At this time, the extent to which
long-term groundwater treatment will be required with respect to the
second operable unit has not been determined.
A drum disposal site in Wisconsin. In September 1992, the
corporation joined a group of PRPs that attempted to negotiate with
other PRPs and the EPA to come to agreement as to the respective
liabilities of the PRPs involved at the site, the implementation of a
plan to clean up the site, and the terms and conditions under which
the PRPs would be involved in the process. In May 1993, after those
negotiations stalled, the EPA issued an order to 17 of the PRPs, one
of which was the corporation, under Section 106 of CERCLA requiring
them to take certain measures to clean up the site. In 1994 the cap
on the landfill was completed and construction of the groundwater
monitoring and treatment system began. In 1995 the corporation
settled all of its remaining liability at the site under an agreement
with two of the major PRPs at the site which have assumed
responsibility for completing the remediation required by the EPA.
A former mining site in Colorado. The corporation held the majority
of stock of a Colorado mining operation for a period of time
beginning in 1936 and ending in 1942. Because of that stock
ownership, the corporation was notified by the EPA in March 1993 that
it is a PRP at the site. Estimates of clean-up costs at this site
have been as high as $150,000,000. The corporation believes that a
large majority of those costs relate to contamination caused by a
corporation that worked the mine in the 1980s. In 1995, the EPA made
an offer to negotiate de minimis settlements with each PRP that
contributed less than 3% of the hazardous materials to the site. The
corporation accepted that offer, and settlement negotiations are
expected to begin in 1996. However, the corporation continues to
maintain that it has valid defenses to any liability at this site.
It is impossible at this time to reasonably estimate the
corporation's liability at this site, if any.
A drum recycling facility. In 1992, the EPA commenced an action
against a small group of PRPs in the United States District Court for
the Western District of Michigan to recover its response costs and
require the PRPs to clean up a Superfund site in Michigan. Those
PRPs filed a motion for summary judgment in this matter claiming they
were not responsible for cleaning up the site. The Court granted the
motion and the government has appealed. Those PRPs had previously
commenced a third party contribution action against approximately
eighty other parties which were involved at the subject site but were
not named as defendants in the EPA's action. The corporation became
a third party defendant to that action in January 1994. If the
summary judgment is upheld by the Court of Appeals, the action
against the corporation and the other third party defendants will be
dismissed.
A site in Wisconsin that was formerly owned and operated by a drum
recycling facility. When the property was being developed for
residential purposes, it was discovered that the site is
contaminated. Subsequently, the EPA notified a large group of PRPs
that did business with the recycler that they are responsible for
remediating the site. A PRP group was formed and it has agreed to
remediate the site. The corporation joined that group in 1995. Some
remedial activities have been performed at the site, but the full
extent of the contamination and the types of remediation that will be
required are still being investigated. It is impossible at this time
to accurately estimate the total clean-up costs at the site or the
corporation's liability for those costs, if any.
Two separate but related sites in Kansas and Missouri involving the
same PCB treatment business. In 1995, the corporation received a
notice from the EPA that it is a PRP at the sites. Information
concerning the extent of the contamination and the remediation that
will be required is not available. According to information the EPA
made available to the corporation, it is believed that the
corporation did very little business with the PCB treatment
operations and may qualify as a de minimis party.
CERCLA provides that the EPA has authority to enter into de minimis
settlement agreements with those PRPs that are believed to have
contributed relatively small ("de minimis") amounts of materials to a
Superfund site as compared to major contributors at the site. The
corporation has settled its liability at sites in Indiana and Arkansas as
a de minimis party. Under those settlement agreements, the corporation
may have additional liability to participate in cleaning up the affected
site under certain circumstances, such as: changes in the scope of
remedial action are required to the extent that costs to clean up the site
are substantially increased, or new information is discovered that
indicates that the corporation contributed more or different materials to
the site than was previously believed. There is no information at this
time which would indicate that the corporation will incur any material
additional liability at either site. Further, the corporation has joined
with similarly situated PRPs to negotiate settlements as de minimis
parties at three sites in Indiana and Illinois.
The corporation has compiled information regarding the cost to clean up
all of the sites where the corporation has been designated a PRP by the
EPA or a comparable state agency. The following estimates include amounts
that have already been spent at the sites and estimates of amounts that
will be spent to complete remediation activities. The corporation
estimates that the total cost to clean up all of the sites is
approximately $293.4 million. The corporation's estimate of the portion
of the total for which the corporation is or may be responsible is
approximately $7.3 million, of which $6.2 million has already been paid by
the corporation and its insurance companies. The balance of the estimated
cleanup costs is believed to be adequately covered by insurance and
reserves which have been established by the corporation. To the best of
the corporation's knowledge, the insurers have the financial ability to
pay any such covered claims. The corporation reevaluates its exposure
periodically and makes adjustment of its reserves as appropriate.
The above cost estimates are not complete. It is impossible at this time
to estimate the total cost of remediation for all of the sites, or the
corporation's ultimate share of those costs, for a variety of reasons.
Many of the reasons are related to the fact that the sites are in various
stages of the remediation process. For example, the investigation of the
extent of remediation has not been completed at all sites; at several
sites the final remedy has not been selected; negotiations concerning the
corporation's liability relative to the liability of the other PRPs
continue at some sites; and for others, even though the remedy has been
selected, final cost estimates have not been determined. Other
uncertainties are based upon the current status of the law. Key issues
that have not been resolved include the extent to which costs associated
with the sites are recoverable from insurers, the extent to which joint
and several liability can be imposed upon PRPs at the various sites, and
the viability of defenses asserted by the PRPs. It is impossible to
determine at this time how the courts will resolve those issues.
With the exception of the former mining site in Colorado discussed above,
the amount allocated to the corporation at any specific site, or in the
aggregate for all sites, is not expected to be material. Concerning the
former mining site, a judgment as to materiality is premature given the
early stage of the investigation, the uncertainty regarding appropriate
remediation and its costs, and the potential liability of governmental
agencies in this case. However, even though the allocation process has
not been completed at the site and settlement negotiations with the EPA
have not yet begun, it is anticipated that the corporation's liability at
the site will not be material because the EPA is treating the corporation
as a potential de minimis party.
Over the past several years, the corporation has self-insured a portion of
its product liability loss exposure and other business risks. The
corporation has established reserves which it believes are adequate to
cover incurred claims. For the year ended December 31, 1995, the
corporation had $60 million of third-party product liability insurance for
individual losses in excess of $1.5 million and for aggregate losses in
excess of $10 million.
Reference also Note 13 in the Notes to the Consolidated Financial
Statements.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the security holders during the
fourth quarter of 1995.
EXECUTIVE OFFICERS OF THE CORPORATION
Pursuant to General Instruction of G(3) of Form 10-K, the following list
is included as an unnumbered Item in Part I of this report in lieu of
being included in the company's Proxy Statement for its 1996 Annual
Meeting of Stockholders.
ROBERT J. O'TOOLE
Chairman of the Board of Directors, President, and Chief Executive Officer
Mr. O'Toole, 55, became chairman of the board of directors in March 1992.
He is a member of the Investment Policy Committee of the board. He was
elected chief executive officer in March 1989. He was elected president,
chief operating officer and a director in 1986. From November 1990 to
May 1992, he served as head of the A. O. Smith Automotive Products
Company, a division of the corporation. Mr. O'Toole joined the
corporation in 1963. He is a director of Firstar Bank Milwaukee, N.A.
GLEN R. BOMBERGER
Executive Vice President, Chief Financial Officer, and Director
Mr. Bomberger, 58, has been a director and executive vice president and
chief financial officer of the corporation since 1986. He is a member of
the Investment Policy Committee of the board of directors. Mr. Bomberger
joined the corporation in 1960. He is currently a director and vice
president-finance of Smith Investment Company. He is a director of
Portico Funds, Inc.
JOHN A. BERTRAND
President ~ A. O. Smith Electrical Products Company
Mr. Bertrand, 57, has been president of A. O. Smith Electrical Products
Company, a division of the corporation, since 1986. Mr. Bertrand joined
the corporation in 1960.
CHARLES J. BISHOP
Vice President ~ Corporate Technology
Dr. Bishop, 54, has been vice president-corporate technology since 1985.
Dr. Bishop joined the corporation in 1981.
DONALD M. HEINRICH
Vice President ~ Business Development
Mr. Heinrich, 43, was elected vice president-business development in
October 1992. Previously, from 1990 to 1992, he was president of DM
Heinrich & Co., a financial advisory firm. From 1983 to 1990, he was
senior vice president of Shearson Lehman Brothers, an investment banking
firm.
JOHN J. KITA
Treasurer and Controller
Mr. Kita, 40, was elected treasurer and controller on February 6, 1995.
Prior thereto, he served as assistant treasurer since he joined the
corporation in 1988.
SAMUEL LICAVOLI
President ~ A. O. Smith Automotive Products Company
Mr. Licavoli, 54, was appointed president of A. O. Smith Automotive
Products Company, a division of the corporation, in May 1992. Previously,
from 1988 to 1992, he was senior vice president, and from 1984 to 1988,
vice president of operations for Walker Manufacturing Company's OEM
division, an automotive products company.
RONALD E. MASSA
President ~ A. O. Smith Water Products Company
Mr. Massa, 46, became the president of A. O. Smith Water Products Company,
a division of the corporation, in June 1995. He served as the executive
vice president-manufacturing and engineering since 1992 and has held other
management positions in the Water Products Company. He joined the
corporation in 1976.
ALBERT E. MEDICE
Vice President ~ Europe
Mr. Medice, 52, was elected vice president ~ Europe in February 1995.
Previously, from 1990 to 1995, he was the general manager of A. O. Smith
Electric Motors (Ireland) Ltd., a subsidiary of the corporation. Mr.
Medice joined the corporation in 1986 as vice president-marketing for its
Electrical Products Company division.
EDWARD J. O'CONNOR
Vice President ~ Human Resources and Public Affairs
Mr. O'Connor, 55, has been vice president-human resources and public
affairs for the corporation since 1986. He joined the corporation in
1970.
W. DAVID ROMOSER
Vice President, General Counsel and Secretary
Mr. Romoser, 52, was elected vice president, general counsel and secretary
in March 1992. Prior thereto, he was vice president, general counsel, and
secretary from 1988 to 1992 and general counsel and secretary from 1982 to
1988 of Amsted Industries Incorporated, a manufacturer of railroad,
building and construction and industrial products.
JAMES C. SCHAAP
President ~ A. O. Smith Harvestore Products, Inc.
Mr. Schaap, 54, has been president of A. O. Smith Harvestore Products,
Inc., a subsidiary of the corporation, since 1988. He joined the
corporation in 1977.
WILLIAM V. WATERS
President ~ Smith Fiberglass Products Inc.
Mr. Waters, 61, has been president of Smith Fiberglass Products Inc., a
subsidiary of the corporation, since 1988. He joined the corporation in
1960.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) Market Information. The Class A Common Stock of A. O. Smith
Corporation is listed on the American Stock Exchange. As of December 14,
1994, the Common Stock began trading on the New York Stock Exchange. The
symbols for these classes of the corporation's stock are: SMCA for the
Class A Common Stock and AOS for the Common Stock. Firstar Trust Company,
P.O. Box 2077, Milwaukee, Wisconsin 53201 serves as the registrar, stock
transfer agent, and the dividend reinvestment agent for both classes of
the corporation's common stock.
Quarterly Common Stock Price Range
1995 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Class A Common
High 24-3/8 24-7/8 28-7/8 27-1/4
Low 19-3/8 22-1/8 23-3/4 20-1/8
Common Stock
High 24-5/8 24-7/8 28-5/8 25-7/8
Low 19-1/8 21-7/8 23-5/8 19-1/8
1994 1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
Class A Common
High 39-1/4 34-1/2 30 27-1/8
Low 30-3/8 24-3/4 24-1/2 21-1/2
Common Stock
High 40 34-1/2 29-7/8 27-1/8
Low 30 25 23-3/4 21-1/8
(b) Holders. As of January 31, 1996, the approximate number of holders of
Class A Common Stock and Common Stock were 700 and 1300, respectively.
(c) Dividends. Dividends paid on the common stock are shown in Note 15 to
the Consolidated Financial Statements appearing elsewhere herein. The
corporation's credit agreements contain certain conditions and provisions
which restrict the corporation's payment of dividends. Under the most
restrictive of these provisions, retained earnings of $107.3 million were
unrestricted as of December 31, 1995.
ITEM 6 - SELECTED FINANCIAL DATA
(Dollars in Thousands, except per share amounts)
Year Ended December 31
1995 1994 1993 1992 1991
Net Revenues $1,544,770 $1,373,546 $1,193,870 $1,046,345 $915,833
Earnings (loss)
Continuing
operations 61,413 57,347 42,678 27,206 3,450
Cumulative effect
of accounting
changes -- -- -- (44,522) --
Net earnings (loss) 61,413 57,347 42,678 (17,316) 3,450
Net earnings (loss)
applicable to
common stock 61,413 57,347 42,678 (18,172) 25
Primary earnings
(loss) per share
of common stock
Earnings before
cumulative effect
of accounting
changes $2.94 $2.75 $2.08 $1.40 $ .00
Realization of
tax credits .00 .00 .00 .08 .00
----- ----- ----- ----- -----
Earnings before
effect of
postretirement
benefits 2.94 2.75 2.08 1.48 .00
Change in
postretirement
benefits, net
of taxes .00 .00 .00 (2.44) .00
----- ----- ----- ----- -----
Net earnings
(loss) $2.94 $2.75 $2.08 $(.96) $ .00
===== ===== ===== ====== =====
Fully diluted earnings
(loss) per share of
common stock
Earnings before
cumulative effect of
accounting changes $2.94 $2.75 $2.08 $1.33 $ .00
Realization of
tax credits .00 .00 .00 .08 .00
----- ----- ----- ----- -----
Earnings before
effect of
postretirement
benefits 2.94 2.75 2.08 1.41 .00
Change in
postretirement
benefits, net
of taxes .00 .00 .00 (2.25)* .00
----- ----- ----- ----- -----
Net earnings (loss) $2.94 $2.75 $2.08 $(.84)* $ .00
===== ===== ===== ====== =====
Total assets 952,918 847,857 823,099 768,987 754,332
Long-term debt,
including
finance subsidiary 190,938 166,126 190,574 236,621 249,186
Total stockholders'
equity 372,364 312,745 269,630 244,656 266,897
Cash dividends per
common share $.58 $.50 $.42** $.40 $.40
* For 1992, the net loss per share amounts are antidilutive because of
the conversion of preferred stock.
** Excludes special dividend of .25 per share (split adjusted).
Effective January 1, 1992, the corporation adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
In addition, on January 1, 1992, the corporation adopted FAS No. 109,
"Accounting for Income Taxes."
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
A. O. Smith Corporation achieved record earnings of $61.4 million or $2.94
per share in 1995 versus $57.3 million or $2.75 per share in 1994. Three
units, Automotive Products, Electrical Products, and Water Products
established new sales records in 1995. Details of individual unit
performance will be discussed later in this section.
Working capital at December 31, 1995 was $138.8 million compared to $113.6
million and $80.7 million at December 31, 1994 and 1993, respectively.
Higher working capital requirements, predominantly accounts receivable and
customer tooling, supported higher sales in 1995 versus 1994. Higher
sales in 1994 versus 1993 also led to increased working capital
requirements, particularly for accounts receivable, customer tooling and
inventory, which were modestly offset by related increases in trade
payables.
Capital expenditures were $91.0 million in 1995 compared to $76.1 million
in 1994 and $54.7 million in 1993. Capital spending in 1995 was higher
than 1994 levels due principally to new Automotive Products Company
programs.
For 1996, the corporation projects capital expenditures, excluding
investments in joint ventures, to be between $120 and $140 million. A
significant portion of these expenditures is associated with two new
Automotive Products Company manufacturing plants in Roanoke, Virginia and
Plymouth, Michigan. The corporation anticipates that the majority of the
planned cash requirements will be funded with cash flow from operations.
In the fourth quarter of 1995, the corporation established three joint
ventures in the People's Republic of China. The corporation will maintain
the majority interest in each of these businesses. In addition to the
above mentioned capital expenditures, the corporation expects to invest
approximately $25 million in these ventures in 1996.
Long-term debt, excluding debt of the finance subsidiary, increased from
$136.8 million at the end of 1994 to $167.1 million at the end of 1995.
The majority of the increase was due to the acquisition of Peabody TecTank
for approximately $18 million. The long-term debt of the finance
subsidiary has been reduced from $29.4 million in 1994 to $23.8 million at
December 31, 1995, as the planned liquidation of AgriStor Credit
Corporation continued. Despite the higher debt level, an increased equity
base allowed the total debt to total capital ratio, excluding the finance
subsidiary, to remain relatively constant at 31.5 percent and 31 percent
in 1995 and 1994, respectively. Given the capital spending and investment
activities mentioned above, the corporation projects that the total debt
to total capital ratio will be higher in 1996, but should return to a
percentage more in line with recent years in 1997.
In June 1995, the corporation's multi-year revolving credit agreement was
increased to $160 million and extended to June 30, 2000. The amended
agreement carries lower fees and borrowing costs.
During 1995, the corporation drew down $60 million of long-term debt under
various loan facilities. The notes range in term from ten to fifteen
years. During the year, the corporation entered into two loan facilities
with insurance companies, which as of December 31, 1995, give it the
ability to borrow up to $80 million.
The corporation uses futures contracts to fix the cost of portions of its
expected raw materials needs, primarily for copper and aluminum, with the
objective of reducing risk due to market price fluctuations. In addition,
the corporation enters into foreign currency forward contracts to minimize
the effect of fluctuating foreign currencies on its income. Differences
between the corporation's fixed price and current market prices on raw
materials contracts are included as part of inventory cost when the
contracts mature. Differences between the corporation's fixed price and
current market prices on currency contracts are recognized in the same
period in which gains or losses from the transactions being hedged are
recognized and, accordingly, no net gain or loss is realized when
contracts mature. The corporation does not engage in speculation in its
derivatives strategies. The effect of these programs was not material on
the results of operations for 1995, 1994, or 1993.
At the present time, the corporation is not a party to any contracts to
manage its exposure to interest rate changes related to its borrowing.
The corporation does not expect interest rate movements to significantly
affect its liquidity or operating results in the foreseeable future. At
December 31, 1995, the corporation's floating rate debt amounted to 47
percent of its total debt.
On December 14, 1994, the A. O. Smith Common Stock (AOS) moved from the
American Stock Exchange back to the New York Stock Exchange after an
absence of ten years. This move was made to enhance the recognition of
the corporation's Common Stock.
At its April 6, 1995 meeting, A. O. Smith Corporation's Board of Directors
increased the regular quarterly dividend by 15 percent to $.15 per share
on its common stocks (Class A and Common). The last three quarterly
dividend payments in 1995 were paid at this rate, resulting in a total of
$.58 per share being paid versus $.50 per share in 1994. A. O. Smith
Corporation has paid dividends on its common stock for 56 consecutive
years.
Results of Operations
Revenues in 1995 were $1.54 billion, achieving record levels for the third
consecutive year and surpassing 1994 revenues of $1.37 billion by 12.5
percent and 1993 revenues of $1.19 billion by 29.4 percent. Despite
competitive conditions in all of the markets the corporation serves, each
operating company's sales increased over the prior year. The most
significant revenue improvements occurred in the OEM segment of the
corporation, comprised of the Automotive Products and Electrical Products
companies, and provided almost 93 percent of the increased revenues in
1995.
The corporation's gross profit margin in 1995 was 14.4 percent or one
percent and one half percent lower than the profit margins experienced in
1994 and 1993, respectively. The reduced margin was due mostly to a
series of one-time unrelated occurrences at the Automotive Products
Company which more than offset the favorable influence of increased volume
throughout the corporation. During 1995, launch costs associated with
several new product programs had an adverse impact on margins. The most
significant decline in margins occurred in the third quarter. Extremely
heavy demand at the Automotive Products Company for light and heavy truck
products created unusual pressures on production schedules, particularly
at the company's Milwaukee, Wisconsin facilities. The impact of strong
demand was accompanied by unprecedented hot weather as well as labor-
related inefficiencies in its Milwaukee operations.
Automotive Products Company achieved record sales of $845.3 million in
1995 surpassing the previous year's record of $722.7 million by $122.6
million or 17 percent. Sales in 1993 were $606.3 million. The record-
setting sales performance was especially encouraging considering it was
achieved in a domestic automotive market for light vehicles that decreased
by approximately three percent from the prior year. Automotive continues
to benefit from providing full frame assemblies and other products
associated with popular models within the light truck segment. Most of
the 1995 sales increase was attributable to recent new product programs
which supply the expanding sport utility market. Demand within the heavy
truck market remained strong in 1995 and resulted in record sales for the
Automotive heavy truck operations.
Automotive's trend of increasing earnings which commenced in 1991 was
curtailed in 1995 as operating profits were less than 1994. The impact of
the aforementioned product launch costs, record summer heat, unprecedented
product demand, and labor contract issues presented an obstacle that could
not be overcome by the increased volume.
Automotive anticipates that 1996 earnings will benefit from the recently
ratified, four-year labor agreement. The new contract should resolve
labor productivity issues which negatively affected 1995. Automotive's
aggressive efforts to expand its presence in the light truck/sport utility
market, as evidenced by several new product launches and redesign
programs, and the forecast of a modest recovery in light vehicle sales in
1996 should also prove beneficial. The company will be confronted by
costs related to the start-up of two new regional assembly plants in 1996
and will be further challenged by the costs associated with new products
and redesign programs.
The corporation's 40 percent owned Mexican affiliate, Metalsa, S.A.,
experienced a very good year. Equity in earnings was $3.4 million in 1995
compared to $1.6 million and $2.3 million in 1994 and 1993, respectively.
A significant portion of Metalsa's sales are for the export market and are
denominated in U.S. dollars. Due to increased export shipments and a
lower cost structure reflecting the benefits of realigned operations, the
affiliate's results compare positively to 1994. Total sales as expressed
in dollars were down from 1994 levels as an increase in dollar-
denominated export sales was not sufficient to offset the decline in
domestic sales.
In 1994, Metalsa's sales were approximately the same as the prior year.
Earnings in 1994 were lower than 1993 due to restructuring and product
launch costs. In 1995, a translation loss of $.5 million was incurred and
reflected in earnings. Due to the decline in the value of the peso, in
late 1994, the corporation recorded a translation adjustment of $7.5
million in stockholders' equity. There were no similar adjustments in
1993, as the value of the peso was fairly constant.
Electrical Products Company sales in 1995 increased $36.1 million or
almost 13 percent to a record $317.3 million from 1994 sales of $281.2
million. Sales in 1993 were $242.5 million. The company's major motor
markets continued to expand in 1995 although the growth exhibited was not
as strong as was experienced in 1994. While much of the increased volume
in 1994 was due to low finished goods levels at which many motor markets
entered 1994, the increased volume in 1995 was the result of obtaining
incremental share in several market segments. Strong global demand for
compressors bolstered hermetic motor sales significantly in 1995. The
company's position as a low-cost producer of fractional horsepower fan
motors and a revitalized domestic heating, ventilation, and air
conditioning industry resulted in a double-digit percentage increase over
the prior year's sales in this segment. The company's continued focused
penetration of the international markets provided a 50 percent increase in
export sales in 1995. Sales into the motor aftermarket increased
significantly in 1995 due to new merchandising strategies and favorable
alignment with several key wholesale distributors.
Profits for the Electrical Products Company in 1995 demonstrated
substantial improvement from a relatively good earnings year experienced
in 1994. The increase in 1994 earnings over those in 1993 resulted from
the transfer of production to the company's lower cost facilities which
occurred in 1993. During 1995, the company continued its successful
strategy of concentrating manufacturing activities in the most efficient
plant locations. Additionally, the company upgraded capital equipment in
all of its plant locations resulting in further productivity gains. This
combination of significantly higher volumes, concentration of production
in low cost facilities, and improved technology was responsible for the
increased earnings in 1995.
Electrical Products is positioned to surpass 1995's strong performance in
1996 assuming its ability to retain newly acquired market share and
continued strong market conditions entering the new year.
Sales for the Water Products Company were $276.0 million in 1995,
increasing slightly from $271.5 million in 1994 and establishing a record
for the fourth consecutive year. Sales in 1993 were $248.1 million.
While sales of residential water heaters in 1994 benefitted from a shift
in demand to the fourth quarter of that year due to an announced price
increase effective as of January 1, 1995, sales in early 1995 were
adversely impacted. In contrast to the residential inventory situation,
the commercial water heater industry entered 1995 with low inventory
levels. Demand for commercial products in 1995 rebounded from the
depressed levels experienced in 1994. The combination of low inventory
levels at the start of the year and an expanded market, coupled with Water
Products strong position in the wholesale channels and broad commercial
product offering resulted in a significant gain in market share in 1995.
Although total sales increased only modestly in 1995, earnings for the
Water Products Company were seven percent higher than 1994 and also
established a record for the fourth consecutive year. The increased
volume of the higher-margin commercial product more than offset the
adverse impact of lower volume and pricing for residential water heaters.
Water Products anticipates that 1996 will provide further growth in sales
as the residential market returns to more normal growth patterns and our
Chinese joint venture begins operations.
Smith Fiberglass Products Inc. 1995 sales of $58.6 million were modestly
higher than 1994 sales of $57.9 million and slightly less than the record
sales of $58.9 million established in 1993. While sales were at levels
comparable to the prior two years, the mix among the company's various
markets was substantially different. Sales of fiberglass pipe to service
stations in 1995 were significantly lower than 1994 and were at the lowest
levels in three years. This decline in the petroleum marketing segment
was caused by a significant slowdown in construction, poor weather early
in the year, and loss of market share to flexible hose products. Sales to
the chemical and industrial market increased over the prior two years as
fiberglass pipe continues to gain acceptance as an alternative to its iron
and steel counterparts. Shipments to the domestic petroleum production
industry showed improvement during the second half of 1995 as a result of
stable oil prices. Strong export sales to South American oil fields also
helped offset declines in the petroleum marketing segment.
Earnings for Fiberglass Products in 1995 were lower than the previous two
years. The higher concentration of sales in the company's lower-margin
product lines was a major cause of the earnings decline. Additional costs
associated with establishing a joint venture in China, as well as other
new marketing initiatives, also affected 1995 earnings.
Fiberglass Products' projections for 1996 reflect an improvement in
earnings, however a return to the record earnings level of 1993 is not
expected. Most of the growth will come from new corrosion resistant
product offerings to the chemical and industrial market, an increased
presence in the international market, and additional export shipments.
Revenues for the corporation's other operations were $47.6 million in
1995, an increase of $7.4 million and $9.5 million over 1994 and 1993,
respectively. Sales in 1995 for A. O. Smith Harvestore Products, Inc.
(Harvestore), were $40.6 million, an 8.7 percent increase over 1994 and
the highest total since 1984. The major growth in sales occurred in the
municipal and industrial segment of the business where a record for unit
volume was established in 1995. Harvestore's agricultural business
exhibited mixed results in 1995 as sales of its newest chain unloader
increased 25 percent over 1994 while sales of Slurrystore structures
declined after five years of volume growth. Earnings in 1995 for
Harvestore were much improved over both 1994 and 1993 as a result of
higher volume.
To further expand opportunities in the municipal and industrial storage
market the corporation acquired Peabody TecTank Inc. from the Pullman
Company, Inc. in December 1995. TecTank is a manufacturer of bolted steel
tanks and shop welded steel, stainless steel, and aluminum tanks. TecTank
had sales of $49 million in fiscal 1995 and will more than double the
corporation's presence in the storage tank market. Sales and earnings
since the acquisition of this wholly owned subsidiary have been included
in the Other Products segment of the corporation and were not significant
to 1995 results.
Revenues for AgriStor Credit Corporation were $2.8 million, $2.9 million,
and $4.8 million in 1995, 1994, and 1993, respectively. The trend of
decreasing revenues is reflective of management's desire to liquidate this
finance subsidiary. Interest costs and administrative expenses have
declined consistently throughout the liquidation process. The costs
associated with non-performing contracts were significantly less in 1995
than 1994, thereby reducing the loss incurred in 1995.
Management is encouraged by the fact that the Other Products segment of
the corporation has gone from a net after tax loss of $.17 per share in
both 1994 and 1993 to break-even in 1995. The future for this segment of
the corporation has improved substantially with the aforementioned TecTank
acquisition increasing penetration of the storage tank market as well as
providing an expanded international presence with several foreign sales
offices.
Selling, general, and administrative (SGA) expense for the corporation in
1995 was $113.0 million compared to $108.3 million and $96.3 million in
1994 and 1993, respectively. The majority of the increase during this
period was caused by higher employee incentive and profit sharing
provisions, increased commissions, and other expenses in support of
additional sales volume. The amount of increase in SGA in 1995 was
substantially less than 1994 due to a significant reduction in the amount
of bad debt expenditures and re-marketing costs associated with
repossessed equipment incurred by AgriStor Credit Corporation. As a
percent of sales, selling, general, and administrative expenses have
declined steadily from 8.1 percent in 1993 to 7.3 percent in 1995.
Interest expense increased $1.0 million in 1995 to $13.1 million from
$12.1 million in 1994. Interest expense in 1993 was $13.4 million. The
increase in interest expense in 1995 reflected higher average interest
rates. The decline in interest expense from 1993 to 1994 was a function
of lower debt levels.
The corporation's effective income tax rate decreased to 37.9 percent in
1995 from 38.3 percent and 41 percent in 1994 and 1993, respectively.
The slight decline in rate in 1995 was caused primarily by lower state
income and franchise tax provisions and tax benefits associated with the
corporation's newly created foreign sales corporation. The relatively
high rate in 1993 was due to the one percent federal rate increase
including the cumulative impact on prior years.
In the fourth quarter of 1995, the Automotive Products Company, Water
Products Company, and Smith Fiberglass Products Inc. each established a
joint venture in the People's Republic of China. The companies and their
partners are in the process of making the required initial investments.
When all the capital contributions and shareholder loans have been made,
A.O. Smith Corporation will hold a majority interest in each venture.
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount.
Statement No. 121 also addresses the accounting for long-lived assets that
are expected to be disposed of. The corporation will adopt Statement No.
121 in the first quarter of 1996 and, based on current circumstances, does
not believe the effect of adoption will be material.
The corporation has applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for its stock
option plans. No decision has been reached as to how the corporation will
apply, beginning in 1996, recently issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
which permits the corporation to continue accounting for stock options in
the same manner with fair value disclosures or measure compensation cost
by the fair value of stock options granted.
The corporation entered 1995 with the aggressive objective of establishing
record earnings for the third consecutive year. The goal was achieved, as
net earnings in 1995 were $61.4 million or $2.94 per share surpassing the
previous record of $57.3 million or $2.75 per share earned in 1994. The
corporation earned $42.7 million or $2.08 per share in 1993. The record-
setting performance in 1995 was accomplished despite the challenges
presented by weather issues, union contract negotiations, and volatile
Mexican economic conditions.
The corporation is committed to extending its string of record-setting
performances in 1996. Achieving this goal will require successfully
contending with a new set of challenges including: start-up of the Chinese
joint ventures and two regional assembly facilities for Automotive
Products Company; integration of the recently acquired Peabody TecTank
business; and the introduction of new product programs throughout the
corporation.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements: Form 10-K
Page Number
Report of Independent Auditors ....................... 23
Consolidated Balance Sheet at December 31, 1995
and 1994......................................... 24
For each of the three years in the period
ended December 31, 1995:
- Consolidated Statement of Earnings
and Retained Earnings ...................... 25
- Consolidated Statement of Cash Flows .......... 26
Notes to Consolidated Financial Statements ........... 27-42
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
The Board of Directors and Stockholders
A. O. Smith Corporation
We have audited the accompanying consolidated balance sheet of A. O. Smith
Corporation as of December 31, 1995 and 1994 and the related consolidated
statements of earnings and retained earnings and cash flows for each of
the three years in the period ended December 31, 1995. Our audits also
included the financial statement schedule listed in the index in Item
14(a). These financial statements and schedule are the responsibility of
the corporation's management. Our responsibility is to express an opinion
on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of A. O.
Smith Corporation at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 16, 1996
CONSOLIDATED BALANCE SHEET
December 31 (dollars in thousands)
Assets 1995 1994
Current Assets
Cash and cash equivalents $ 5,694 $ 8,485
Trade receivables 165,924 132,630
Finance subsidiary receivables and leases 13,449 16,361
Customer tooling 30,799 24,489
Inventories 103,540 110,863
Deferred income taxes 17,542 28,100
Other current assets 15,537 8,592
--------- -------
Total Current Assets 352,485 329,520
Investments in and advances to affiliated
companies 21,577 17,326
Deferred model change 25,246 18,638
Finance subsidiary receivables and leases 26,950 37,842
Other assets 79,305 42,751
Net property, plant, and equipment 447,355 401,780
--------- -------
Total Assets $ 952,918 $ 847,857
========= ========
Liabilities
Current Liabilities
Trade payables $ 112,645 $ 112,940
Accrued payroll and benefits 47,763 49,289
Postretirement benefit obligation 7,837 9,573
Accrued liabilities 37,964 34,806
Income taxes 2,505 2,060
Long-term debt due within one year 3,925 3,775
Finance subsidiary long-term debt due
within one year 1,008 3,480
--------- -------
Total Current Liabilities 213,647 215,923
Long-term debt 167,139 136,769
Finance subsidiary long-term debt 23,799 29,357
Postretirement benefit obligation 74,799 72,388
Product warranty 16,658 15,089
Deferred income taxes 63,239 54,445
Other liabilities 15,297 11,141
--------- -------
Total Liabilities 574,578 535,112
Commitments and contingencies
(notes 7 and 13)
Minority interests in joint ventures 5,976 --
Stockholders' Equity
Preferred Stock -- --
Class A Common Stock (shares issued
5,888,601 and 6,035,541) 29,443 30,178
Common Stock (shares issued
15,811,049 and 15,664,109) 15,811 15,664
Capital in excess of par value 68,871 68,209
Retained earnings 273,751 224,467
Cumulative foreign currency
translation adjustments (7,499) (8,035)
Pension liability adjustment -- (9,653)
Treasury stock at cost (8,013) (8,085)
--------- -------
Total Stockholders' Equity 372,364 312,745
--------- -------
Total Liabilities and
Stockholders' Equity $ 952,918 $ 847,857
========= =========
See accompanying notes which are an integral part of these statements.
CONSOLIDATED STATEMENT OF EARNINGS AND RETAINED EARNINGS
Years ended December 31 (dollars in thousands,
except per share amounts)
Earnings 1995 1994 1993
Net revenues $1,544,770 $1,373,546 $1,193,870
Cost of products sold 1,321,591 1,162,096 1,015,397
--------- --------- ---------
Gross profit 223,179 211,450 178,473
Selling, general, and
administrative expenses 113,018 108,271 96,345
Interest expense 13,093 12,085 13,431
Other expense - net 3,546 591 179
-------- ------- -------
93,522 90,503 68,518
Provision for income taxes 35,473 34,707 28,124
-------- ------- -------
Earnings before equity in
earnings of affiliated
companies 58,049 55,796 40,394
Equity in earnings of
affiliated companies 3,364 1,551 2,284
------- ------- -------
Net Earnings 61,413 57,347 42,678
Retained Earnings
Balance at beginning of year 224,467 177,543 147,065
Cash dividends on common stock (12,129) (10,423) (12,200)
-------- -------- --------
Balance at End of Year $273,751 $224,467 $177,543
======== ======== ========
Net Earnings Per Common Share $2.94 $2.75 $2.08
===== ===== =====
See accompanying notes which are an integral part of these statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years ended December 31 (dollars in thousands)
Cash Flow from Operating Activities 1995 1994 1993
Net earnings $ 61,413 $ 57,347 $ 42,678
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation 55,701 49,160 42,607
Deferred income taxes 14,987 14,296 11,800
Deferred income taxes 14,296 11,800 (22,928)
Equity in earnings of affiliated
companies, net of dividends (3,364) (751) 516
Deferred model change and software
amortization 11,238 8,078 9,080
Net change in current assets
and liabilities (28,422) (29,415) (1,310)
Net change in noncurrent assets
and liabilities 4,938 13,401 4,640
Other (975) 7,357 5,340
------- ------- -------
Cash Provided by Operating Activities 115,516 119,473 115,351
------- ------- -------
Cash Flow from Investing Activities
Capital expenditures (91,001) (76,133) (54,703)
Purchase of subsidiary (18,000) -- --
Deferred model change expenditures (13,619) (7,921) (1,586)
Other (6,739) (699) (562)
-------- ------ ------
Cash Used by Investing Activities (129,359) (84,753) (56,851)
Cash Flow before Financing Activities (13,843) 34,720 58,500
Cash Flow from Financing Activities
Long-term debt incurred 65,000 -- 30,000
Long-term debt retired (34,480) (17,126) (53,020)
Finance subsidiary net long-term
debt retired (8,030) (14,484) (21,417)
Net proceeds from common stock
and option activity 49 1,764 1,787
Tax benefit from exercise of
stock options 96 2,132 2,227
Joint ventures partners'
contributions 546 -- --
Dividends paid (12,129) (10,423) (12,200)
------- ------ ------
Cash Provided (Used) by
Financing Activities 11,052 (38,137) (52,623)
------- ------- ------
Net increase (decrease) in cash
and cash equivalents (2,791) (3,417) 5,877
Cash and cash equivalents--
beginning of year 8,485 11,902 6,025
-------- -------- --------
Cash and Cash Equivalents--End of Year $ 5,694 $ 8,485 $ 11,902
======== ======== ========
See accompanying notes which are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies
Organization. A.O. Smith Corporation is a diversified manufacturer
serving customers world-wide. The corporation's major product lines
include: automotive structural components; fractional horsepower and
hermetic electric motors; residential and commercial water heaters;
fiberglass piping systems and water, waste water, and dry storage tanks.
The corporation's products are marketed primarily in North America. The
major automotive manufacturers and other original equipment manufacturers
are the largest customers of the automotive and electrical products units.
Water heaters are distributed through a diverse network of plumbing
wholesalers. Fiberglass piping is sold through a network of distributors
to the service station market and the petroleum production industry as
well as the chemical/industrial market. The corporation's storage tanks
and handling systems are sold through a network of dealers to
municipalities, industrial concerns, and farmers.
Consolidation and basis of presentation. The consolidated financial
statements include the accounts of the corporation and its wholly-owned
subsidiaries and majority owned joint ventures.
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ
from those estimates.
Foreign currency translation. For all subsidiaries outside the United
States with the exception of entities in Mexico, the corporation uses the
local currency as the functional currency. For these operations, assets
and liabilities are translated into U.S. dollars at year-end exchange
rates and weighted average exchange rates are used for revenues and
expenses. The resulting translation adjustments are recorded as a
separate component of stockholders' equity. Gains and losses from foreign
currency transactions are included in net earnings. For the corporation's
Mexican affiliate and subsidiaries, the U.S. dollar is used as the
functional currency. Accordingly, cash and certain other monetary assets
and liabilities, such as receivables and payables, and revenues and
expenses are translated into U.S. dollars using current exchange rates.
Inventories and nonmonetary assets, such as fixed assets, are translated
into U.S. dollars using historical exchange rates. The resulting
translation adjustments and gains and losses from foreign currency
transactions are reflected in net earnings.
Inventory valuation. Inventories are carried at lower of cost or market.
Cost is determined on the last-in, first-out (LIFO) method for a
significant portion of domestic inventories. Inventories of foreign
subsidiaries and supplies are determined using the first-in, first-out
(FIFO) method.
Derivative instruments. The corporation enters into futures contracts to
fix the cost of certain raw material purchases, principally copper and
aluminum, with the objective of minimizing cost risk due to market
fluctuations. Any differences between the corporation's fixed price and
current market prices are included as part of the inventory cost when the
contracts mature. As of December 31, 1995, the corporation had contracts
covering the majority of its expected copper and aluminum requirements for
1996, with varying maturities in 1996, the longest duration of which is
December 1996. These futures contracts limit the impact from both
favorable and unfavorable price changes.
As a result of having various foreign operations, the corporation is
exposed to the effect of foreign currency rate fluctuations on the U.S.
dollar value of its foreign subsidiaries. Further, the corporation and
its subsidiaries conduct business in various foreign currencies. To
minimize the effect of fluctuating foreign currencies on its income, the
corporation enters into foreign currency forward contracts. The contracts
are used to hedge known foreign currency transactions on a continuing
basis for periods consistent with the corporation's exposures.
The corporation does not engage in speculation. The difference between
market and contract rates is recognized in the same period in which gains
or losses from the transactions being hedged are recognized. The
contracts, which are executed with major financial institutions, generally
mature within one year and no credit loss is anticipated for failure of
the counterparties to perform.
The following table summarizes, by currency, the corporation's forward
exchange contracts.
December 31 (dollars in thousands) 1995 1994
Buy Sell Buy Sell
U.S. dollars $ 3,102 $ -- $ 2,400 $ 3,840
British pounds 4,659 -- 4,489 --
Canadian dollars 5,454 -- 5,714 --
French franc -- 1,483 -- 2,591
German deutsche mark 329 3,208 -- 3,587
Italian lira -- 992 3,801 --
Mexican peso 3,808 -- 17,418 --
------- ------- ------- -------
Total $17,352 $ 5,683 $33,822 $10,018
======= ======= ======= =======
The contracts in place at December 31, 1995 and 1994 amounted to
approximately 35 and 58 percent, respectively, of the corporation's
anticipated subsequent year exposure for those currencies hedged.
Property, plant, and equipment. Property, plant, and equipment are stated
at cost. Depreciation is computed primarily by the straight-line method.
Deferred model change. Tool costs not reimbursed by customers and
expenses associated with significant model changes are amortized over the
estimated model life which ranges from four to ten years, with the shorter
periods associated with automobile structural components and the longer
periods associated with structural components for trucks.
Finance subsidiary. Finance charges for retail contracts receivable are
recognized as income as installments become due using the interest method.
For direct finance leases, income is recognized based upon a constant rate
of return on the unrecovered lease investment over the term of the related
lease.
Revenue recognition. The corporation recognizes revenue upon shipment of
product to the customer.
Research and development. Research and development costs are charged to
expense as incurred and amounted to approximately $9.7, $9.2, and $7.6
million during 1995, 1994, and 1993, respectively.
Earnings per share of common stock. Earnings per common share are
computed using the weighted average number of shares outstanding during
the year. The effect of shares issuable under stock compensation plans is
not significant.
Reclassifications. Certain prior year amounts have been reclassified to
conform to the 1995 presentation.
2. Acquisition and Joint Ventures
On December 6, 1995, the corporation acquired the stock of Peabody TecTank
Inc. (TecTank), a manufacturer of environmental bulk storage tanks, for
approximately $18 million, subject to final adjustment of the purchase
price. The transaction has been accounted for as a purchase and the
consolidated financial statements include the results of TecTank from the
date of acquisition. The purchase price has been allocated to the assets
purchased and the liabilities assumed based upon the respective fair
values at the date of acquisition. The excess of the purchase price over
the fair values of net assets acquired has been recorded as goodwill and
will be amortized over 15 years. The allocation is preliminary pending
completion of an appraisal. The proforma effect of this acquisition would
not be significant to either 1995 or 1994 operating results.
In the fourth quarter of 1995, the corporation established three joint
ventures in the People's Republic of China. The corporation and its
partners are in the process of making their initial investments. When the
ventures are completed, the corporation will hold a majority interest in
each. In 1995, the corporation's partners contributed to the ventures
non-cash assets valued at approximately $5.4 million. The balance sheet
accounts of the ventures are included in the consolidated financial
statements with the corporation's partners' pro rata share of the net
assets reflected as minority interest. Once operations begin, the
operating results will be reflected in the Consolidated Statement of
Earnings to the extent of the corporation's ownership.
3. Statement of Cash Flows
For purposes of the Consolidated Statement of Cash Flows, cash and cash
equivalents include investments with original maturities of three months
or less. Supplemental cash flow information is as follows:
Years ended December 31
(dollars in thousands) 1995 1994 1993
Change in current assets and liabilities:
Trade receivables and customer
tooling $(31,379) $(15,131) $(35,008)
Finance subsidiary receivables 2,912 2,790 529
Inventories 10,657 (21,059) (17,054)
Other current assets (3,976) 6,180 (5,297)
Trade payables (5,385) 1,833 37,214
Accrued liabilities, payroll,
and benefits 3,138 (972) 16,274
Current income tax accounts-net (4,389) (3,056) 2,032
-------- -------- --------
$(28,422) $(29,415) $ (1,310)
======== ======== ========
4. Inventories
December 31 (dollars in thousands) 1995 1994
Finished products $ 53,788 $ 55,331
Work in process 44,806 48,886
Raw materials 41,968 41,709
Supplies 9,067 7,457
------- -------
149,629 153,383
Allowance to state inventories at LIFO cost
46,089 42,520
-------- --------
$ 103,540 $ 110,863
========= =========
5. Investments in and Advances to Affiliated Companies
Investments in affiliates in which ownership is 50 percent or less are
accounted for under the equity method. The corporation's equity in the
undistributed earnings of such affiliates at December 31, 1995, amounted
to approximately $21.5 million. In 1995, because the Mexican affiliate's
sales, financing, and certain costs are now primarily U.S. dollar
denominated, the corporation changed the functional currency for foreign
currency translation purposes from the Mexican peso to the U.S. dollar.
In 1994, due to the decline in the value of the Mexican peso, the
corporation recorded as a component of stockholders' equity, translation
adjustments of approximately $7.5 million. During 1994 and 1993, the
corporation received dividends of $.8 and $2.8 million, respectively, from
such affiliates.
6. Property, Plant, and Equipment
December 31 (dollars in thousands) 1995 1994
Land $ 10,099 $ 7,527
Buildings 200,844 186,320
Equipment 764,899 687,870
-------- -------
975,842 881,717
Less accumulated depreciation 528,487 479,937
--------- --------
$ 447,355 $ 401,780
========= =========
Interest on borrowed funds during construction of $.5, $.8, and $1.1
million was capitalized in 1995, 1994, and 1993, respectively.
7. Long-Term Debt and Lease Commitments
December 31 (dollars in thousands) 1995 1994
Bank credit lines, average year-end
interest rate of 6.6% for 1995 and
7.1% for 1994 $ 8,135 $ 15,308
Commercial paper, average year-end
interest rate of 5.9% for 1995
and 1994 43,345 71,577
8.75% notes, payable annually
through 1997 7,125 10,700
Long-term notes, expiring through
November 2000 average year-end
interest rate of 6.3% for 1995
and 6.4% for 1994 17,500 12,500
Long-term notes, expiring through
2010, average year-end interest
rate of 7.0% for 1995 and 6.8% 1994 90,000 30,000
Other notes, expiring through 2012,
average year-end interest rate of
6.8% for 1995 and 6.9% for 1994 29,766 33,296
------- -------
195,871 173,381
Less amount due within one year 4,933 7,255
------- -------
$190,938 $166,126
======== ========
In June 1995, the corporation's multi-year revolving credit agreement with
a group of ten banks was increased from $140 million to $160 million and
extended to June 30, 2000. The amended agreement carries lower fees and
borrowing costs. During 1995, the corporation borrowed $5 million with a
five year term from one of the banks. At its option, the corporation
maintains either cash balances or pays fees for bank credit and services.
In 1993, the corporation entered into two loan facilities with insurance
companies totaling $65 million. Through the expiration of these
facilities in 1995, the corporation had drawn down $45 million under terms
ranging from ten to thirteen years.
In 1995, the corporation entered into two new loan facilities with
insurance companies totaling $125 million. Through December 31, 1995, the
corporation had drawn down, under terms ranging from ten to fifteen years,
$45 million under these facilities.
The corporation's credit agreement and term loans contain certain
conditions and provisions which restrict the corporation's payment of
dividends. Under the most restrictive of these provisions, retained
earnings of $107.3 million were unrestricted as of December 31, 1995.
Borrowings under the bank credit lines and in the commercial paper market
are supported by the revolving credit agreement and have been classified
as long-term. It has been the corporation's practice to renew or replace
the credit agreement so as to maintain the availability of debt on a long-
term basis and to provide 100 percent backup for its borrowings in the
commercial paper market.
Long-term debt, maturing within each of the five years subsequent to
December 31, 1995, is as follows: 1996--$4.9; 1997--$12.0; 1998--$12.2;
1999--$8.1; 2000--$9.9 million.
The corporation has an agreement to sell, without recourse and at market
rates, up to $50 million of certain automotive-related receivables. The
corporation sold receivables totaling $41.0 million at December 31, 1995,
compared to $27.5 million at December 31, 1994. The receivables sale
program is scheduled to expire on November 28, 1996, unless mutually
extended.
Future minimum payments under noncancelable operating leases total $113.4
million and are due as follows: 1996--$24.7; 1997--$22.5; 1998--$20.7;
1999--$16.2; 2000--$7.5; thereafter--$21.8 million. Rent expense,
including payments under operating leases, was $31.4, $30.8, and $28.2
million in 1995, 1994, and 1993, respectively.
Interest paid by the corporation, was $13.1, $13.3, and $14.0 million in
1995, 1994, and 1993, respectively.
8. Stockholders' Equity
On April 5, 1995, the corporation's stockholders approved an increase in
the authorized shares of Class A Common Stock $5 par value from 7 million
shares to 14 million shares and in the authorized shares of Common Stock
$1 par value from 24 million shares to 60 million shares. The Common
Stock has equal dividend rights with Class A Common Stock and is entitled,
as a class, to elect 25 percent of the board of directors and has 1/10th
vote per share on all other matters. As of December 31, 1995, there are
also 3 million shares of preferred stock $1 par value authorized.
On February 1, 1993, the Board of Directors declared a special $.25 per
share dividend to holders of Common Stock. No special dividend was
declared on the Class A Common Stock. During 1993, 2,009,683 shares of
Class A Common Stock, including 623,362 shares held in Treasury, were
converted into Common Stock. An additional 146,940 and 49,304 shares of
Class A Common Stock were converted into Common Stock during 1995 and
1994, respectively. Regular dividends paid on the Class A Common and
Common Stock amounted to $.58, $.50, and $.42 per share in 1995, 1994, and
1993, respectively.
Changes in certain components of stockholders' equity are as follows:
Class A Capital in Treasury Stock
(dollars in Common Common Excess of
thousands) Stock Stock Par Value Shares Amount
Balance at
December 31, 1992 $25,197 $5,767 $78,009 623,362 $10,918
Conversion of
Class A Common
Stock (10,048) 2,010 7,746 -- --
Exercise of stock
options (net of
21,200 shares
surrendered as
stock option
proceeds -- 43 1,056 (183,300) (1,267)
Purchase of
treasury shares -- -- -- 5,930 269
Tax benefit
from exercise
of stock options -- -- 2,227 -- --
Two-for-one
stock split 15,275 7,795 (23,088) 566,792 --
------ ------ ------ --------- -----
Balance at
December 31, 1993 30,424 15,615 65,950 1,012,784 9,920
Conversion of
Class A Common
Stock (246) 49 197 -- --
Exercise of
stock options
(net of 4,845
shares surrendered
as stock option
proceeds -- -- (70) (218,755) (1,835)
Tax benefit
from exercise
of stock
options -- -- 2,132 -- --
------ ------ ------ ------- -----
Balance at
December 31, 1994 30,178 15,664 68,209 794,029 8,085
Conversion of
Class A Common
Stock (735) 147 588 -- --
Exercise of
stock options
(net of 3,400
shares surrendered
as stock option
proceeds) -- -- (22) (13,000) (72)
Tax benefit
from exercise
of stock
options -- -- 96 -- --
------- ------- ------- ------- ------
Balance at
December 31, 1995 $29,443 $15,811 $68,871 781,029 $8,013
======= ======= ======= ======= ======
In 1993, 5,930 shares of treasury stock were acquired under a purchase
offer made to holders of less than 100 shares of Class A Common Stock and
Common Stock.
At December 31, 1995, 3,460 and 777,569 shares of Class A Common Stock and
Common Stock, respectively, were held as treasury stock.
9. Stock Options
During 1990, the corporation adopted a Long-Term Executive Incentive
Compensation Plan (1990 Plan) which initially reserved 1 million shares of
Common Stock for granting of nonqualified and incentive stock options. In
April 1994, shareholders approved a proposal to reserve an additional 1
million shares of Common Stock for the 1990 plan. In addition, the
corporation has a Long-Term Executive Incentive Compensation Plan (1980
Plan) which has terminated except as to outstanding options. Options
under both plans become exercisable one year from date of grant and, for
active employees, expire ten years after date of grant. The number of
shares available for granting of options at December 31, 1995 and 1994 was
470,500 and 659,600, respectively.
Changes in option shares (all Common Stock) were as follows:
Years ended December 31 1995 1994 1993
Outstanding at beginning of year 963,600 1,009,800 1,184,200
Granted
1995--$23.125 and $25.00 per share 189,100
1994--$21.563 and $25.81 per share 177,400
1993--$27.50 per share 188,400
Exercised
1995--$7.00 to $8.00 per share (16,400)
1994--$7.00 to $13.00 per share (223,600)
1993--$6.375 to $15.188 per share (362,800)
Canceled or expired (11,700) -- --
--------- ------- ---------
Outstanding at End of Year
(1995--$7.00 to $27.50 per share) 1,124,600 963,600 1,009,800
========= ======= =========
Exercisable at December 31, 1995 935,500
=======
The corporation has applied Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", in accounting for its stock
option plans. No decision has been reached as to how the corporation will
apply, beginning in 1996, recently issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation",
which permits the corporation to continue accounting for stock options in
the same manner with fair value disclosures or measure compensation cost
by the fair value of stock options granted.
10. Retirement Plans
The corporation and its domestic subsidiaries provide retirement benefits
for all employees. As of December 31, 1995, the corporation merged its
various qualified noncontributory defined benefit plans in the United
States into one pension plan. Benefits for salaried employees are based
on an employee's years of service and compensation. Benefits for hourly
employees are generally based on years of service. The corporation's
funding policy is to contribute amounts which are actuarially determined
to provide sufficient assets to meet future benefit payment requirements
consistent with the funding requirements of federal laws and regulations.
Plan assets consist primarily of marketable equities and debt securities.
The corporation also has several foreign pension plans, none of which are
material to the corporation's financial position.
The following tables present the components of pension expense, the funded
status, and the major assumptions used to determine these amounts for
domestic pension plans:
Years ended December 31 (dollars in thousands)
1995 1994 1993
Components of pension
expense:
Service cost--
benefits earned
during the year $ 6,062 $ 6,759 $ 6,261
Interest cost on
projected benefit
obligation 31,340 27,111 27,400
Return on plan assets:
Actual return $(112,130) $ 1,748 $(42,270)
Deferral of
investment return
in excess of
(less than)
expected return 74,948 (37,180) 9,145
-------- ------- ------
(37,182) (35,432) (33,125)
Net amortization and
deferral 531 651 569
------- ------- ------
Net periodic pension
expense (income) $ 751 $(911) $1,105
===== ===== ======
December 31 (dollars in thousands)
1995 1994
Assets Assets Accumulated
Exceed Exceed Benefits
Accumulated Accumulated Exceed
Benefits Benefits Assets
Actuarial present value
of benefit obligations:
Vested benefit obligation $384,726 $145,488 $166,962
======= ======= =======
Accumulated benefit
obligation $432,143 $155,817 $198,485
======= ======= =======
Projected benefit obligation $450,577 $171,074 $198,694
Plan assets at fair value 462,093 219,026 155,924
------- ------- -------
Plan assets in excess of
(less than) projected
benefit obligation 11,516 47,952 (42,770)
Unrecognized net transition
(asset) obligation at
January 1, 1986 (5,192) (12,053) 12,316
Unrecognized net loss 6,310 3,189 16,111
Prior service cost not yet
recognized in periodic
pension cost 29,404 3,641 9,766
Adjustment required to recognize
minimum liability/1 -- -- (37,984)
------- -------- --------
Prepaid pension asset
(liability) $ 42,038 $ 42,729 $(42,561)
======= ======== =======
1/ The provisions of FAS No. 87, "Employers' Accounting for Pensions,"
require the recognition of an additional minimum liability for each
defined benefit plan for which the accumulated benefit obligation exceeds
plan assets. Prior to December 31, 1995, this amount was recorded as a
long-term liability with an offsetting intangible asset. Because the
asset recognized may not exceed the amount of unrecognized prior service
cost and transition obligation on an individual plan basis, the balance,
net of tax benefits, was reported as a separate reduction of stockholders'
equity at December 31, 1994. As the result of the merger of the various
plans on December 31, 1995, the corporation no longer has any underfunded
plans.
Major assumptions at year-end:
1995 1994 1993
Discount rate 7.50% 8.50% 7.75%
Rate of increase in compensation level 4.00% 4.50% 4.00%
Expected long-term rate of return on assets 10.25% 10.25% 10.25%
Net periodic pension cost is determined using the assumptions as of the
beginning of the year. The funded status is determined using the
assumptions as of the end of the year.
The corporation has a defined contribution profit sharing and retirement
plan covering salaried nonunion employees which provides for annual
corporate contributions of 35 percent to 140 percent of qualifying
contributions made by participating employees. The amount of the
corporation's contribution in excess of 35 percent is dependent upon the
corporation's profitability. The amount of the contribution was $5.2,
$5.2, and $4.0 million for 1995, 1994, and 1993, respectively.
Postretirement Benefits other than Pensions
The corporation has several unfunded defined benefit postretirement plans
covering certain hourly and salaried employees which provide medical and
life insurance benefits from retirement to age 65. Salaried employees
retiring after January 1, 1995 are covered by an unfunded defined
contribution plan with benefits based on years of service. Certain hourly
employees retiring after January 1, 1996 will be subject to a maximum
annual benefit limit. Salaried employees hired after December 31, 1993
are not eligible for postretirement medical benefits.
Net periodic postretirement benefit cost included the following
components:
Years ended December 31 (dollars in thousands)
1995 1994 1993
Service cost--benefits attributed to
employee service during the year $ 1,318 $ 1,847 $ 1,841
Interest cost on accumulated
postretirement benefit obligation 6,948 7,477 6,959
Amortization of unrecognized net
(gain) loss (132) 816 --
------- ------- ------
Net periodic postretirement
benefit cost $ 8,134 $10,140 $ 8,800
======= ======= ======
The following table sets forth the plans' status as reflected in the
consolidated balance sheet:
December 31 (dollars in thousands) 1995 1994
Accumulated postretirement benefit obligation:
Retirees $44,347 $51,066
Fully eligible active plan participants 16,255 12,724
Other active plan participants 32,655 35,333
------- -------
93,257 99,123
Unrecognized net loss (10,621) (17,162)
------- -------
Accrued postretirement benefit cost $82,636 $81,961
======= =======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation (APBO) is 6 percent. The weighted
average discount rate used in determining the APBO was 7.50 and 8.50
percent at December 31, 1995 and 1994, respectively. If the health care
cost trend rate was increased by 1 percent, the APBO at December 31, 1995
would increase by $3.7 million and net periodic postretirement benefit
cost for 1995 would increase by $0.3 million.
11. Income Taxes
The components of the provision for income taxes consisted of the
following:
Years ended December 31 (dollars in thousands)
1995 1994 1993
Current:
Federal $15,405 $15,470 $11,208
State 2,955 4,095 1,955
Foreign 3,753 2,384 3,109
Cumulative effect of
rate change -- -- 836
Deferred 14,340 14,301 11,297
Business tax credits (980) (1,543) (281)
------- ------- -------
Provision for income taxes $35,473 $34,707 $28,124
======= ======= =======
The tax provision differs from the statutory U.S. federal rate due to the
following items:
Years ended December 31 (dollars in thousands)
1995 1994 1993
Provision at federal
statutory rate $32,733 $31,676 $23,981
Cumulative effect of
rate change -- -- 836
Foreign income taxes 389 245 637
State income and
franchise taxes 3,392 3,996 3,056
Business and foreign
tax credits (1,445) (1,877) (631)
Non-deductible items 552 542 287
Foreign sales
corporation benefit (278) -- --
Other 130 125 (42)
------- ------- -------
Provision for income
taxes $35,473 $34,707 $28,124
======= ======= =======
The domestic and foreign components of income from operations before
income taxes were as follows:
Years ended December 31
(dollars in thousands) 1995 1994 1993
Domestic $84,127 $84,358 $60,407
Foreign 9,395 6,145 8,111
------- ------- -------
$93,522 $90,503 $68,518
======= ======= =======
Taxes paid amounted to $25.2, $21.7, and $12.2 million in 1995, 1994, and
1993, respectively.
No provision for U.S. income taxes has been made on the undistributed
earnings of foreign subsidiaries as such earnings are considered to be
permanently invested. At December 31, 1995, the undistributed earnings
amounted to $17.4 million. It is not practical to determine the income
tax liability that would result had such earnings been repatriated.
No provision for U.S. income taxes has been made on the cumulative net
translation gains and other items of equity investees. At December 31,
1995, the amount of unrecognized U.S. tax liability for the net
translation gains and other items totaling $9.8 million amounted to $3.4
million.
The approximate tax effects of temporary differences between income tax
and financial reporting are as follows:
December 31 (dollars in thousands)
1995 1994
Assets Liabilities Assets Liabilities
Finance subsidiary leases $ -- $ (7,278) $ -- $(13,717)
Group health insurance and
postretirement
obligations 37,951 -- 36,484 --
Employee benefits 5,179 (15,559) 4,128 (10,122)
Product liability and
warranty 7,472 -- 8,017 --
Bad debts 1,276 -- 4,633 --
Tax over book depreciation -- (54,026) -- (51,474)
Deferred model change -- (13,263) -- (11,603)
Equity in affiliated
companies -- (3,416) -- (1,336)
Tax carryforwards -- -- 9,597 --
All other -- (4,033) -- (952)
------- --------- ------- --------
$51,878 $(97,575) $62,859 $(89,204)
======= ======== ======= ========
Net liability $(45,697) $(26,345)
======== ========
These deferred tax assets and liabilities are classified in the balance
sheet as current or long-term based on the balance sheet classification of
the related assets and liabilities. The balances are as follows:
December 31 (dollars in thousands) 1995 1994
Current deferred income tax assets $ 17,542 $ 28,100
Long-term deferred income tax liabilities (63,239) (54,445)
-------- --------
Net liability $(45,697) $(26,345)
======== ========
12. Agricultural Businesses
The corporation's strategic plan is to concentrate its resources in
nonagricultural businesses and withdraw from the agricultural market. The
strategy includes plans to sell the agricultural business and to phase out
AgriStor Credit Corporation (AgriStor), a wholly-owned finance subsidiary.
It is not possible to predict when the sale of the agricultural business
will occur. The corporation is continuing to phase out AgriStor's
operations in an orderly manner.
The corporation's consolidated balance sheet includes AgriStor. A
condensed consolidated balance sheet of AgriStor is presented below:
December 31 (dollars in thousands) 1995 1994
Assets
Cash and cash equivalents $ 2,320 $ 2,636
Retail contracts receivable 19,705 24,396
Net investment in leases 12,149 17,663
Equipment available for resale 10,733 23,739
Reserve for bad debts (2,189) (10,020)
Other assets 68 226
-------- --------
Total Assets $ 42,786 $ 58,640
======== ========
Liabilities and stockholder's equity
Long-term debt due within one year $ 1,008 $ 3,480
Other liabilities 9,180 13,573
Long-term debt 23,799 29,357
Stockholder's equity 8,799 12,230
-------- --------
Total Liabilities and Stockholder's Equity $ 42,786 $ 58,640
======== ========
AgriStor was the lessor of Harvestore equipment accounted for as direct
financing leases. AgriStor is currently financing under retail
installment contracts a nominal amount of new and previously owned
equipment. There is no quoted market price available for the retail
contracts and leases. Management believes fair value approximates book
value. While some maturities extend beyond the year 2000, the portfolio
is predominantly of three to four year duration carrying an average
interest rate of 7.7 percent.
The majority of AgriStor's financing needs are provided by the
corporation. AgriStor Credit Corporation-Canada (AgriStor Canada) had
outstanding a $4.1 million Canadian dollar denominated note ($3.0 million
U.S. dollar equivalent) with a final maturity in 1998. AgriStor Canada
also has a $10.0 million Canadian dollar denominated credit facility ($7.3
million U.S. dollar equivalent) to meet its borrowing needs, none of which
was outstanding at December 31, 1995. Long-term debt, excluding financing
provided by the corporation, maturing subsequent to December 31, 1995, is
as follows: 1996--$1.0; 1997--$1.0; 1998--$1.0; million.
A condensed consolidated statement of operations of AgriStor is presented
below. The 1995 and 1994 statements of operations reflect repossession
and contract settlement costs that previously were not recognized until
final disposition of repossessed structures.
Years Ended December 31
(dollars in thousands) 1995 1994 1993
Revenues $ 2,789 $ 2,876 $ 4,783
Interest expense 2,162 2,849 3,794
General and administrative expenses 735 1,696 2,951
Bad debt provision 2,600 4,800 1,750
Repossession costs 3,026 2,698 --
------- ------ ------
Total expenses 8,523 12,043 8,495
------- ------ ------
Loss before income taxes $ (5,734) $ (9,167) $ (3,712)
======= ======= ======
The finance subsidiary provided cash before financing activities of $8.0,
$14.5, and $21.4 million in 1995, 1994, and 1993, respectively.
13. Litigation and Insurance Matters
As of December 31, 1995, the corporation and A. O. Smith Harvestore
Products, Inc. (Harvestore), a subsidiary of the corporation, were
defendants in eight cases alleging damages for economic losses claimed to
have arisen out of alleged defects in Harvestore animal feed storage
equipment. Some plaintiffs are seeking punitive as well as compensatory
damages. The corporation believes that a significant number of these
claims were related to the deteriorated general farm economy. In 1995,
fifteen cases were concluded. The corporation and Harvestore continue to
vigorously defend these cases.
Two of the eight pending cases contain class action allegations. One of
the cases is a New York state court action which names the corporation,
Harvestore, and two of its dealers as defendants. The court has denied
the plaintiffs motion to certify the class and has granted the defendants'
motions dismissing some of the plaintiffs' allegations. The plaintiffs
are appealing the court's rulings.
The second case is pending in the Federal District Court for the Southern
District of Ohio. It was filed in August 1992 and the court, in March
1994, conditionally certified it as a class action on behalf of purchasers
and lessees of Harvestore structures manufactured by the corporation and
Harvestore. A notice of the certification was mailed to the purported
class members in the third quarter of 1994, with approximately 5,500 "opt
out" forms being filed with the court, the impact of which is unknown.
The court canceled a previously set trial date as a result of motions the
corporation filed seeking summary judgment or in the alternative
decertification of the class. The corporation is awaiting a ruling.
Based on the facts currently available to management and its prior
experience with lawsuits alleging damages for economic loss resulting
from use of the Harvestore animal feed storage equipment, management is
confident that the class action suits can be defeated and that the
lawsuits do not represent a material threat to the corporation. The
corporation believes that any damages, including any punitive damages,
arising out of the pending cases are adequately covered by insurance and
recorded reserves. No range of reasonably possible losses can be
estimated because in most instances the complaint is silent as to the
amount of the claim or states it as an unspecified amount in excess of the
jurisdictional minimum. The corporation reevaluates its exposure
periodically and makes adjustment of its reserves as appropriate.
A lawsuit for damages and declaratory judgments in the Circuit Court of
Milwaukee County, State of Wisconsin, in which the corporation and
Harvestore are plaintiffs is pending against three insurance companies for
failure to pay in accordance with liability insurance policies issued to
the corporation. The insurers have failed to pay, in full or part,
certain judgments, settlements and defense costs incurred in connection
with pending and closed lawsuits alleging damages for economic losses
claimed to have arisen out of alleged defects in Harvestore animal feed
storage equipment. While the corporation has, in part, assumed
applicability of this coverage, an adverse judgment should not be material
to its financial condition.
The corporation is involved in other litigation and claims which arise in
the ordinary course of its business including governmental proceedings
regarding the disposal of hazardous waste at sites which are in various
stages of the remediation process. For some of the sites, total costs for
remediation are not available because the final remedy has not been
selected or for other reasons. Further, the ultimate liability of the
corporation, if any, has not been determined at all of the sites. As a
result, it is impossible at this time to estimate the total cost of
remediation for all of the sites. The total estimated cleanup costs
identified at this time for all parties at all sites involving claims
filed by the Environmental Protection Agency or similar state agencies
where the corporation has been designated a potentially responsible party
is approximately $293.4 million. The estimated portion of the total for
which the corporation is or may be responsible is approximately $7.3
million, of which $6.2 million has been contributed towards the cleanup
costs by the corporation and its insurance companies. The balance of the
identified potential cleanup costs is covered by insurance and established
reserves set by the corporation which are believed to be adequate to cover
the corporation's obligations with respect to the unpaid balance of the
claims. To the best of the corporation's knowledge, the insurers have the
financial ability to pay any such covered claims and the corporation has
not incorporated any insurance proceeds in the calculation of its reserves
for which recovery is not considered probable. The corporation reevaluates
its exposure periodically and makes adjustment of its reserves as
appropriate.
In March 1992, a subsidiary of the corporation, Smith Fiberglass Products
Inc. (Smith Fiberglass), won a patent infringement suit filed against a
competitor. A judgment was entered in favor of Smith Fiberglass. The
judgment was appealed by the defendant. However, the Court of Appeals
affirmed the award and Smith Fiberglass recognized the judgment which
amounted to $1.9 million after recognition of legal fees as income in the
second quarter of 1993.
A lawsuit initiated by the corporation in connection with previously
concluded antitrust action involving a former subsidiary was terminated in
the second quarter of 1993 with a favorable settlement of $2.8 million.
Over the past several years, the corporation has self-insured a portion of
its product liability loss exposure and other business risks. The
corporation has established reserves which it believes are adequate to
cover incurred claims. For the year ended December 31, 1995, the
corporation had $60 million of third-party product liability insurance for
individual losses in excess of $1.5 million and for aggregate losses in
excess of $10 million.
14. Operations by Segment
Years ended December 31 (dollars in millions)
Net Revenues/1 Earnings (Loss)
1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
OEM Products
Auto and truck structural
components, fractional
horsepower, and hermetic
electric motors $1,162.6 $1,003.9 $ 848.8 $ 753.2 $ 631.2 $94.8 $92.2 $70.2 $52.8 $12.0
Water Products
Water heaters and water
heating systems and protective
industrial coatings 276.0 271.5 248.1 215.2 194.6 32.2 30.1 26.5 18.2 11.0
Fiberglass Products
Fiberglass reinforced
piping systems 58.6 57.9 58.9 43.9 53.9 5.1 9.2 9.5 4.7 10.2
Other Products
Municipal and
industrial storage systems,
agricultural feed storage
systems, and agricultural
financing 47.6 40.2 38.1 34.0 36.1 .1 (5.8) (4.8) (4.5) (3.6)
-------- -------- -------- -------- ------- ----- ----- ----- ---- ----
$1,544.8 $1,373.5 $1,193.9 $1,046.3 $ 915.8 132.2 125.7 101.4 71.2 29.6
======== ======== ======== ======== =======
General corporate and research
and development expense (27.8) (26.0) (23.3) (20.5) (14.1)
Interest expense/2 (10.9) ( 9.2) (9.6) (11.9) (13.0)
----- ---- ---- ---- ----
Earnings Before Income Taxes,
Equity in Earnings of Affiliated
Companies, and Cumulative Effect
of Accounting Changes $93.5 $90.5 $68.5 $38.8 $ 2.5
===== ===== ===== ===== =====
Further discussion of the segment results, including Automotive Products
and Electrical Products which comprise the OEM segment, can be found under
"Management's Discussion and Analysis--Results of Operations."
1/ Revenues are primarily from the North American area. Major customers
for the Original Equipment Manufacturers (OEM) segment are Ford,
Chrysler, and General Motors which accounted for $408.8, $173.8, and
$164.5 million in 1995; $325.6, $177.6, and $135.9 million in 1994;
$266.9, $118.2, and $132.0 million in 1993; $219.3, $96.7, and $148.1
million in 1992; and $177.5, $75.8, and $115.6 million in 1991 of this
segment's revenues.
2/ Interest expense of the finance subsidiary of $2.2,$2.9, $3.8,
$6.0,and $7.9 million in 1995, 1994, 1993, 1992, and 1991, respectively,
has been included in the Other Products segment.
(dollars in millions)
Capital
Identifiable Depreciation Expenditures
Total Assets (Years ended (Years ended
(December 31) December 31) December 31)
1995 1994 1993 1995 1994 1993 1995 1994 1993
Automotive Products $426.3 $361.9 $322.4 $34.0 $27.4 $21.1 $62.6 $58.0 $31.5
Electrical Products 162.5 158.9 161.0 12.3 12.7 12.0 12.9 8.1 14.8
Water Products 132.1 127.8 119.0 6.0 6.0 5.9 9.8 4.8 3.5
Fiberglass Products 37.0 31.6 27.3 1.8 1.4 1.9 3.8 3.5 3.5
Other Products 95.2 82.0 102.5 1.2 1.3 1.4 1.2 1.1 1.2
Investments in
affiliated companies 21.6 17.3 23.8 -- -- -- -- -- --
Corporate assets 78.2 68.4 67.1 .4 .4 .3 .7 .6 .2
------ ----- ----- ---- ---- ---- ---- ---- ----
Total $952.9 $847.9 $823.1 $55.7 $49.2 $42.6 $91.0 $76.1 $54.7
====== ====== ====== ===== ==== ==== ===== ===== =====
15. Quarterly Results of Operations (Unaudited)
(dollars in millions, except per share amounts
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
1995 1994 1995 1994 1995 1994 1995 1994
Net revenues $393.0 $339.8 $399.8 $350.2 $354.4 $332.7 $397.6 $350.8
Gross profit 64.2 53.4 64.3 58.5 40.4 46.3 54.3 53.3
Net earnings 18.4 15.7 20.0 18.0 7.4 10.1 15.6 13.5
Net earnings per share .88 .76 .96 .86 .36 .48 .74 .65
Common dividends declared .13 .11 .15 .13 .15 .13 .15 .13
See note 7 for restrictions on the payment of dividends.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information included under the heading "Election of Directors" in the
corporation's definitive Proxy Statement dated March 4, 1996 for the
Annual Meeting of Stockholders to be held April 3, 1996 is incorporated
herein by reference. The information required regarding Executive
Officers of the Corporation is included in Part I of this Form 10-K under
the caption "Executive Officers of the Corporation."
The information included under the heading "Compliance with Section 16(a)
of the Securities Exchange Act" in the corporation's definitive Proxy
Statement dated March 4, 1996 for the Annual Meeting of Stockholders to be
held on April 3, 1996 is incorporated herein by reference.
ITEM 11 - EXECUTIVE COMPENSATION
The information included under the heading "Executive Compensation" in the
corporation's definitive Proxy Statement dated March 4, 1996 for the April
3, 1996 Annual Meeting of Stockholders is incorporated herein by
reference, except for the information required by paragraphs (i), (k) and
(l) of Item 402(a)(8) of Regulation S-K.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information included under the headings "Principal Stockholders" and
"Security Ownership of Directors and Management" in the corporation's
Proxy Statement dated March 4, 1996 for the April 3, 1996 Annual Meeting
of Stockholders is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information included under the headings "Relationships and Related
Transactions" and "Compensation Committee Interlocks and Insider
Participation" in the corporation's Proxy Statement dated March 4, 1996
for the April 3, 1996 Annual Meeting of Stockholders is incorporated
herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules
Form 10-K
Page Number
The following consolidated financial statements of
A. O. Smith Corporation are included in Item 8:
Consolidated Balance Sheet at December 31, 1995
and 1994 ......................................... 24
For each of the three years in the period ended
December 31, 1995:
- Consolidated Statement of Earnings
and Retained Earnings ......................... 25
- Consolidated Statement of Cash Flows ........... 26
Notes to Consolidated Financial Statement.......... 27-42
The following consolidated financial statement
schedule of A. O. Smith Corporation is included
in Item 14(d):
Schedule II - Valuation and Qualifying Accounts ... 45
All other schedules are omitted since the required information is not
present or is not present in amounts sufficient to require submission of
the schedule, or because the information required is included in the
consolidated financial statements or the notes thereto.
Financial statements of Metalsa S.A., an affiliate in which the
corporation has a 40 percent investment, are omitted since it does not
meet the significant subsidiary test of Rule 3-09 of Regulation S-X.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1995.
(c) Exhibits - see the Index to Exhibits on pages 50-52 of this
report.
Pursuant to the requirements of Rule 14a-3(b)(10) of the Securities
Exchange Act of 1934, as amended, the corporation will, upon request and
upon payment of a reasonable fee not to exceed the rate at which such
copies are available from the Securities and Exchange Commission, furnish
copies to its security holders of any exhibits listed in the Index to
Exhibits.
Management contracts and compensatory plans and arrangements required to
be filed as exhibits pursuant to Item 14(c) of Form 10-K are listed as
Exhibits 10(a) through 10(h) in the Index to Exhibits.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on behalf of the undersigned, thereunto duly authorized.
A. O. SMITH CORPORATION
By: /s/ Robert J. O'Toole
Robert J. O'Toole
Chief Executive Officer
Date: March 22, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below as of March 22, 1995 by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Name and Title Signature
ROBERT J. O'TOOLE /s/ Robert J. O'Toole
Chairman of the Board of Robert J. O'Toole
Directors, President, and
Chief Executive Officer
GLEN R. BOMBERGER /s/ Glen R. Bomberger
Executive Vice President, Glen R. Bomberger
Chief Financial Officer, and
Director
JOHN J. KITA /s/ John J. Kita
Treasurer and Controller John J. Kita
TOM H. BARRETT, Director /s/ Tom H. Barrett
Tom H. Barrett
RUSSELL G. CLEARY, Director /s/ Russell G. Cleary
Russell G. Cleary
THOMAS I. DOLAN, Director /s/ Thomas I. Dolan
Thomas I. Dolan
LEE W. JENNINGS, Director /s/ Lee W. Jennings
Lee W. Jennings
AGNAR PYTTE, Director /s/ Agnar Pytte
Agnar Pytte
DONALD J. SCHUENKE, Director /s/ Donald J. Schuenke
Donald J. Schuenke
ARTHUR O. SMITH, Director /s/ Arthur O. Smith
Arthur O. Smith
A. O. SMITH CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(000 Omitted)
Years ended December 31, 1995, 1994, and 1993
Additions
Balance at Charged to Charged Balance at
Beginning Costs and to Other the End of
Description of Year Expenses/1 Accounts Deductions/2 Year
1995:
Valuation allowance
for trade and notes
receivable $ 2,455 $ 773 $ -- $ 621 $ 2,607
Valuation allowance
for finance subsidiary
receivables 10,020 3,533 -- 11,364 2,189
1994:
Valuation allowance
for trade and notes
receivable 3,986 579 -- 2,110 2,455
Valuation allowance
for finance subsidiary
receivables 14,564 4,800 -- 9,344 10,020
1993:
Valuation allowance
for trade and notes
receivables 1,738 2,624 -- 376 3,986
Valuation allowance
for finance subsidiary
receivables 20,585 1,750 -- 7,771 14,564
1/ Provision (credit) based upon estimated collection.
2/ Uncollectible amounts charged against the reserve.
For the purposes of complying with the amendments to the rules governing
Form S-8 (effective July 13, 1990) under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which undertaking
shall be incorporated by reference into registrant's Registration
Statements on Form S-8 Nos. 2-72542 filed on May 26, 1981, Post-Effective
Amendment No. 1, filed on May 12, 1983, Post-Effective Amendment No. 2,
filed on December 22, 1983, Post-Effective Amendment No. 3, filed on
March 30, 1987; 33-19015 filed on December 11, 1987; 33-21356 filed on
April 21, 1988; Form S-8 No. 33-37878 filed November 16, 1990; and
Form S-8 No. 33-56827 filed December 13, 1994.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit, or proceedings)
is asserted by such director, officer, or controlling person in connection
with the securities being registered, the registrant will, unless in the
opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of such issue.
INDEX TO EXHIBITS
Exhibit Form 10-K
Number Description Page Number
*(3)(i) Restated Certificate of Incorporation of the
corporation as amended April 5, 1995
incorporated by reference to the quarterly report
on Form 10-Q for the quarter ended March 31, 1995
and as further amended on February 5, 1996 . . . . . N/A
(3)(ii) By-laws of the corporation as amended
February 5, 1990 incorporated by reference to the
Annual Report on Form 10-K for the year ended
December 31, 1989 . . . . . . . . . . . . . . . . . N/A
(4) (a) The corporation's outstanding long-term
debt is described in Note 7 to the Consolidated
Financial Statements. None of the long-term debt
is registered under the Securities Act of 1933.
None of the debt instruments outstanding at the
date of this report exceeds 10% of the Corporation's
total consolidated assets, except for the item
disclosed as exhibit 4(b) below. The corporation
agrees to furnish to the Securities & Exchange
Commission, upon request, copies of any
instruments defining rights of holders of
long-term debt described in Note 7.
(b) Extension and Third Amendment, dated as of
June 30, 1995, $160 Million Credit Agreement
incorporated by reference to the quarterly report
on Form 10-Q for the quarter ended June 30, 1995 . . N/A
(c) A. O. Smith Corporation Restated Certificate
of Incorporation as amended April 5, 1995
(incorporated by reference to Exhibit (3)(i)
hereto). . . . . . . . . . . . . . . . . . . . . . . N/A
(10) Material Contracts
(a) 1990 Long-Term Executive Compensation Plan,
as amended, incorporated by reference to the
Form S-8 Registration Statement filed by the
corporation on December 13, 1994 . . . . . . . . . . N/A
(b) 1980 Long-Term Executive Incentive Compensation
Plan incorporated by reference to the corporation's
Proxy Statement dated March 1, 1988 for an April 6,
1988 Annual Meeting of Shareholders . . . . . . . . N/A
(c) Executive Incentive Compensation Plan,
as amended, incorporated by reference to the
Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 . . . . . . . . . . . . N/A
(d) Letter Agreement dated December 15, 1979, as
amended by the Letter Agreement dated November 9,
1981, between the corporation and Thomas I. Dolan
incorporated by reference to Amendment No. 2 to the
Annual Report on Form 10-K for the year ended
December 31, 1984 . . . . . . . . . . . . . . . . . N/A
(e) Supplemental Benefit Plan, as amended,
incorporated by reference to the Annual Report
on Form 10-K for the fiscal year ended
December 31, 1992 . . . . . . . . . . . . . . . . . N/A
(f) Executive Life Insurance Plan, incorporated
by reference to the Annual Report on Form 10-K
for the fiscal year ended December 31, 1992. . . . . N/A
(g) Corporate Directors' Deferred Compensation
Plan, as amended, incorporated by reference to
the Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 . . . . . . . . . . . . N/A
(h) Non-employee Directors' Retirement Plan
incorporated by reference to the quarterly report
on Form 10-Q for the quarter ended June 30, 1991 . . N/A
*(21) Subsidiaries. . . . . . . . . . . . . . . . . . . . N/A
*(23) Consent of Independent Auditors . . . . . . . . . . N/A
(24) (a) Power of Attorney - Arthur O. Smith
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1980. . N/A
(b) Power of Attorney - Tom H. Barrett
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1981. . N/A
(c) Power of Attorney - Russell G. Cleary
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1984. . N/A
(d) Power of Attorney - Lee W. Jennings
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1986. . N/A
(e) Power of Attorney - Donald J. Schuenke
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1988. . N/A
(f) Power of Attorney - Dr. Agnar Pytte
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1990. . N/A
(g) Power of Attorney - Thomas I. Dolan
incorporated by reference to the Annual Report
on Form 10-K for the year ended December 31, 1992. . N/A
*(27) Financial Data Schedule. . . . . . . . . . . . . . . N/A
* Filed Herewith
N/A = Not Applicable