SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31,June 30, 1994
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Class A Common Stock Outstanding as of AprilJuly 29, 1994: 6,077,12914,833,322
Common Stock Outstanding as of AprilJuly 29, 1994: 14,786,7926,068,299
Exhibit Index Page 15
Index
A. O. Smith Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings and Retained Earnings
- ThreeSix months ended March 31,June 30, 1994 and 1993 3
Condensed Consolidated Balance Sheet
- March 31,June 30, 1994 and December 31, 1993 4-5
Condensed Consolidated Statements of Cash Flows
- ThreeSix months ended March 31,June 30, 1994 and 1993 6
Notes to Condensed Consolidated Financial Statements
- March 31,June 30, 1994 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-118-10
Part II. Other Information
Item 1. Legal Proceedings 1211
Item 2. Changes in Securities 1211
Item 4. Submission of Matters to a Vote of Security Holders 11-13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Index to Exhibits 15
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Three and Six months ended March 31,June 30, 1994 and 1993
(000 omitted except for per share data)
(Unaudited)
Three Months Ended March 31Six Months Ended
June 30 June 30
EARNINGS 1994 1993 1994 1993
Electrical Products Company $ 70,441 $63,73474,858 $ 66,280 $145,299 $130,014
Automotive Products Company 182,615 155,438185,611 158,862 368,226 314,300
Water Products Company 68,002 59,62962,764 62,875 130,766 122,504
Smith Fiberglass Products Inc. 12,700 11,41215,857 17,452 28,557 28,864
Agricultural Products 6,045 5,88511,102 10,333 17,147 16,218
------- --------- ----------------- --------
NET REVENUES $339,803 $296,098350,192 315,802 689,995 611,900
Cost of products sold 286,420 248,019291,653 263,907 578,073 511,926
------- --------- -------- -----------------
Gross profit 53,383 48,07958,539 51,895 111,922 99,974
Selling, general and
administrative expenses 25,540 23,19226,013 25,319 51,553 48,511
Interest expense 2,972 3,5243,083 3,428 6,055 6,952
Other (income) expense - net 216 311
----------922 (594) 1,138 (283)
------- --------- 24,655 21,052-------- --------
28,521 23,742 53,176 44,794
Provision for income taxes 9,303 8,501
----------10,810 9,459 20,113 17,960
------- --------- -------- --------
Earnings before equity in earnings
of affiliated companies 15,352 12,55117,711 14,283 33,063 26,834
Equity in earnings of affiliated
companies 354 475
----------aftertax 247 794 601 1,269
------- --------- -------- --------
NET EARNINGS 15,706 13,02617,958 15,077 33,664 28,103
RETAINED EARNINGS
Balance at beginning of period 190,973 154,467 177,543 147,065
Cash dividends on common shares (2,276) (5,624)(2,712) (2,049) (4,988) (7,673)
-------- -------- -------- --------
BALANCE AT END OF PERIOD $190,973 $154,467$206,219 $167,495 $206,219 $167,495
======== ======== ======== ========
DIVIDENDS PER COMMON SHARE
Regular (Class A and common) $ .11.13 $ .10 $ .24 $ .20
Special (Common stock only) $ -.-- $ .-- $ .-- $ .25
NET EARNINGS PER COMMON SHARE $ .76.86 $ .64.74 $1.62 $1.37
See accompanying notes to unaudited condensed consolidated financial
statements.
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
March 31,June 30, 1994 and December 31, 1993
(000 omitted)
(unaudited)
March 31,June 30, 1994 December 31, 1993
ASSETS
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,4107,289 $ 11,902
Trade receivables 159,489164,910 126,949
Finance subsidiary receivables and
leases 18,79517,282 19,151
Customer tooling 19,95719,464 15,471
Inventories (note 2) 98,10597,436 89,804
Deferred income taxes 27,06826,667 27,614
Other current assets 15,51820,988 12,987
----------------- ----------
TOTAL CURRENT ASSETS 344,342354,036 303,878
Investment in and advances to
affiliated companies 24,01224,338 23,669
Deferred model change 20,49819,124 22,095
Finance subsidiary receivables and
leases 48,10746,423 53,481
Other assets 46,39145,955 44,962
Property, plant and equipment 834,458851,229 823,786
Less accumulated depreciation 458,777470,238 448,772
----------------- ---------
Net property, plant and equipment 375,681380,991 375,014
----------------- ---------
TOTAL ASSETS $859,031$870,867 $823,099
======== ========
LIABILITIES AND STOCKHOLDERS'EQUITYSTOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables $119,513$114,542 $ 99,320
Accrued payroll and pension 36,77141,465 38,347
Postretirement benefit obligation 9,1069,855 8,950
Other current liabilities 60,83565,167 62,155
Long-term debt due within one year 8,7443,700 8,819
Finance subsidiary long-term debt due
within one year 3,4934,053 5,598
------------------ ----------
TOTAL CURRENT LIABILITIES 238,462238,782 223,189
Long-term debt (note 3) 154,025150,579 148,851
Finance subsidiary long-term debt 37,77435,356 41,723
Postretirement benefit obligation 70,21870,715 69,773
Other liabilities 30,05927,202 28,652
Deferred income taxes 43,14345,831 41,281
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Class A common stock, $5 par value:
authorized 7,000,000 shares; issued
6,081,5926,072,059 and 6,084,845 30,40830,360 30,424
Common stock, $1 par value:
authorized 24,000,000 shares; issued
15,618,05815,627,591 and 15,614,805 15,61815,628 15,615
Capital in excess of par value 67,29468,025 65,950
Retained earnings (note 3) 190,973206,219 177,543
Pension liability adjustment (9,141) (9,141)
Cumulative foreign currency
translation adjustments (1,060)(568) (841)
Treasury stock at cost (8,742)(8,121) (9,920)
---------- ---------
TOTAL STOCKHOLDERS' EQUITY 285,350302,402 269,630
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $859,031$870,867 $823,099
======== ========
See accompanying notes to unaudited condensed consolidated financial
statements.
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O.SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
ThreeSix months ended March 31,June 30, 1994 and 1993
(000 omitted) - (unaudited)
CASH FLOWS 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $15,706 $ 13,02633,664 $28,103
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 11,338 9,97024,546 20,691
Deferred income taxes 2,408 2,7555,497 4,022
Equity in earnings of affiliates, net of
dividends (354) (475)(601) 331
Deferred model change and software
amortization 2,162 2,3104,549 4,522
Other - net 395 1,334870 3,429
Change in current assets and liabilities:
Trade receivables and customer tooling (36,793) (31,694)(40,278) (29,312)
Current income tax accounts-net 2,229 4,943(150) 6,133
Inventories (8,301) (10,025)(7,632) (11,535)
Prepaid expenses and other (1,882) (1,280)(7,355) (7,590)
Trade payables 20,193 22,336Payables 15,222 27,300
Accrued liabilities, payroll and pension (4,955) 4,1067,202 14,975
Net change in noncurrent assets and liabilities 4,660 8803,752 6,014
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES 6,806 18,18639,286 67,083
-------- ---------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (12,063) (13,869)(30,696) (25,453)
Other - net (512) (140)
-------(733) (708)
---------- ---------
CASH USED BY INVESTING ACTIVITIES (12,575) (14,009)
------(31,429) (26,161)
--------- ---------
CASH FLOW BEFORE FINANCING ACTIVITIES (5,769) 4,177
-------7,857 40,922
-------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Long-term debt incurred 8,909 10,441828 10,000
Long-term debt retired (3,810) (3,683)(4,219) (35,126)
Finance subsidiary net long-term debt retired (6,054) (4,880)(7,912) (10,365)
Proceeds from common stock options exercised 1,023 8981,850 1,770
Other stock transactions 1,485 2681,971 227
Dividends paid (2,276) (5,624)
---------(4,988) (7,673)
---------- ---------
CASH USED BY FINANCING ACTIVITIES (723) (2,580)(12,470) (41,167)
Net increase (decrease)decrease in cash and cash equivalents (6,492) 1,597(4,613) (245)
Cash and cash equivalents-beginning of period 11,902 6,025
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,4107,289 $ 7,6225,780
======== =========
See accompanying notes to unaudited condensed consolidated financial
statements.
PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,June 30, 1994
(unaudited)
1. Basis of Presentation
---------------------
The financial statements presented herein are based on interim figures
and are subject to audit. In the opinion of management, all
adjustments consisting of normal accruals considered necessary for
fair presentation of the results of operations and of financial
position have been made. The results of operations for the three-
monthsix-month
period ended March 31,June 30, 1994 are not necessarily indicative of the
results expected for the full year. The consolidated balance sheet as
of December 31, 1993 is derived from the audited financial statements
but does not include all disclosures required by generally accepted
accounting principles.
2. Inventories
-----------
(000 omitted) March 31,June 30, 1994 December 31, 1993
Finished products $ 53,39452,620 $ 53,337
Work in process 36,73736,127 37,215
Raw materials 43,25543,236 36,371
Supplies 6,0566,883 5,228
------- -------
139,442138,866 132,151
Allowance to state
inventories at LIFO cost 41,33741,430 42,347
------- -------
$ 98,10597,436 $ 89,804
=============== =======
3. Long-Term Debt
--------------
On April 5, 1994, the $12.5 million 8.9 percent term loan agreement
was amended to carry a floating interest rate as of April 1994 and the
final maturity was extended from April 1996 to April 1999. The
interest rate is set at 50 basis points over LIBOR and the loan can be
repaid at any time without penalty.
On June 15, 1994, the Corporation put in place a $140 million
revolving credit agreement which replaced a $115 million A. O. Smith
facility and a $30 million AgriStor Credit Corporation facility. The
term of the amended agreement was extended two years until April 3,
1998. In addition to lower fees and lower borrowing rates the
agreement contains fewer restrictive covenants. Due to a continuing
reduction in funding needs, AgriStor Credit Corporation terminated its
commercial paper program on June 15, 1994.
The Corporation's long-term 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 $82.4$91.9 million were unrestricted as of March 31,June 30, 1994 for
cash dividends and treasury stock purchases.
PART I - FINANCIAL1--FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FIRST THREE MONTHS OFResults of Operatons - First six months of 1994 COMPARED TOcompared to 1993
The combination of effective business strategies and favorable economic
conditions were reflected in the Corporation's results for the first six
months and second quarter of 1994 as sales and earnings for these periods
surpassed those of any previous comparable period. Through the first half
of the year, all product operations of the Corporation except Fiberglass
Products, exceeded their sales and earnings of the corresponding period
last year.
Revenues for the first half of 1994 were $690 million or almost 13 percent
better than the $611.9 million of revenues in the same period of 1993.
Revenues of $350.2 million in the second quarter of 1994 were $339.8 million representing
the best quarterly performance on record and surpassingsurpassed last
year's firstsecond quarter revenues by $43.7$34.4 million or 14.8almost 11 percent.
NetThe Corporation earned $33.7 million for the first half of 1994 compared
to $28.1 million in the first half of 1993. Second quarter earnings were
$18.0 million in 1994, an increase of $15.7$2.9 million or $.76 per share19 percent over the
$15.1 million earned in the same quarter of 1993.
The second quarter gross margin of 16.7 percent compared favorably to the
16.4 percent margin in the same period of 1993. Increased volume and
improved manufacturing efficiencies at the Electrical Products Company
were the major reasons for the second quarter improvement in profit margin
and offset higher new product launch costs at Automotive. The gross
profit margin through the first half of the year was 16.2 percent or
slightly lower than the 16.3 percent realized in the same period in 1993
reflecting conditions in the first quarter of 1994 also exceeded those
of any prior quarter and were $2.7 million higher than the $13.0 million
or $.64 per share reported in the same period last year.
Most of the Corporation's operating units benefitted from an expanding
economy which commenced in 1993 and continued in 1994 manifesting itself
in the form of increased sales for all of the Corporation's manufacturing
units and increased earnings in three of the Corporation's four largest
operating units when comparing the first quarter of 1994 to the same
period in 1993. While sales increased significantly in the first quarter
of 1994, the Corporation's overall gross profit margin declined from 16.2
percent in 1993's first quarter to 15.7 percent in the first quarter of
1994. The decline in the gross profit margin was due largely to costs
associated withincluding new product launches within thelaunch
costs at Automotive Products
Company and competitive conditions in the electric motors
markets.
The Automotive Products Company was the most notable beneficiarydomestic automotive industry demonstrated a continuation of the expanding economy as they providedmarket
expansion that has occurred over 60 percent of the Corporation's
first quarter revenue increase. Automotive's 1994 first quarter sales
were $182.6 million representing an increase of $27.2 million or 17.5
percent over last year's first quarter. The significant sales increase
was the result of strongpast year and a half, with
particularly high demand particularly for light truck products in which the companyAutomotive
Products Company has a strong product presence.
The significant volume increase atconcentration of its revenues. Automotive
resultedincreased sales by approximately 17 percent in 1994's earnings
being improved overboth the first half and
second quarter of 1994 when compared to the same period last year. Theperiods of 1993.
Automotive's earnings improvement was achieved despite havingduring 1994 have been sufficient to contend withabsorb the costs
associated with a number of aggressive new product launches during the quarter. The company began initial shipmentsyear and
reflected double digit percentage increases over the comparable periods of
engine cradles and
trailing axles1993. Assuming the continued popularity of the vehicles for which the
Company is a supplier, the outlook for the new Ford Windstar mini van. Full production of
this product is scheduled to occur by the endremainder of the second quarter.
Automotive also began manufacturing the Toyota Camry rear suspension
assembly during the first quarter with full production anticipated by the
end of summer.
In the second quarter Automotive will begin shipping the engine cradle for
Ford's new Contour/Mystique passenger car. The companyyear is
responsible for
all North American cradle production and this program solidifies its
position as Ford's number one structure supplier.
In April, Automotive became aware that at the beginning of the 1998 model
year, it will no longer manufacture the engine cradle which is a component
of the front-suspension module it supplies for Chrysler's LH vehicles. In
1993 the cradle represented about $20 million in annual sales. Automotive
expects it will continue to supply both the front- and rear-suspension
modules for these vehicles.
Also in April, Automotive was awarded the contract to manufacture the full
frame for the 1996 model year Chrysler Dodge Ram extended cab model
pickup truck. This new business is expected to represent $35 million of
incremental sales. The company was also awarded a contract to manufacture
side member assemblies for the 1997 model Isuzu Rodeo and Honda Passport,
which should result in approximately $10 million of added annual sales and
continues to increase the company's penetration in the Japanese automotive
transplant segment of the market.encouraging.
Equity in earnings of the Corporation's 40 percent owned Mexican affiliate
Metalsa S.A. were modestly lower in the second quarter and first quarterhalf of 1994 compared to 1993. Start-up1993
as the result of start up costs for new product and a continuation of
plant consolidationalong with costs contributedincurred
to the lower earnings. Earningsrealign manufacturing operations. These costs are expected to improvediminish
through the rest of 1994 and second half results should show some
improvement.
Year-to-date sales in 1994 for the balance of 1994.
The Water Products Company experienced a 14company were $130.8
million or 6.7 percent higher than the first half of 1993. The majority
of the increase in sales from year-to-year occurred in the firstresidential
heater business. Sales for the second quarter of 1994 climbing from $59.6 millionwere comparable to
1993 second quarter sales and reflected both increased residential sales
and an industry wide downturn in the first
quartercommercial heater business due to a
build-up of distributor inventories which occurred late in 1993 to $68.0 million. Sales of residential water heaters were
particularly strong, reflecting the company's very competitive position in
the replacement market and the growth in new housing.
The incremental earningsearly
1994.
Operating profits for Water Products in the first half of 1994 were
improved over the same period of 1993. The impact of increased
residential heater volume more than offset the adverse effect of a
reduction in the volume of the higher margin commercial product. Profits
for the second quarter of 1994 overwere at the same level as the second
quarter lastof 1993. Improved demand for commercial product is expected in
the third quarter as distributors begin to replenish their inventory.
Given year-to-date results, strengthening demand for commercial product
and the introduction of a number of new residential and commercial
products during the second half of the year, were consistent with1994 should show another
solid earnings performance by Water Products.
Management has been encouraged by the increase in
residential product sales.
First quarter sales forrecent performance of the Electrical
Products CompanyCompany. Favorable conditions in the pump, air compressor, HVAC,
and replacement segments of the business have manifested themselves in the
form of increased $6.7sales in both the second quarter and first half of 1994
when compared to the same periods of 1993. 1994 first half sales were
more than $15 million or 10.511.7 percent fromhigher than the same period in 1993.
The pace of incoming orders suggests that the outlook for third quarter
volume is also good.
The increased volume along with improved factory performance had a
positive influence on Electrical Products earnings in the first six months
of 1994 with an even more pronounced improvement in the second quarter
ofcompared to 1993. The company's
first quarter earnings declined from 1993 first quarter levels as a result
of continuing pricing pressures within the motor market and certain
manufacturing inefficiencies.
Sales for Smith Fiberglass Products increased 11.3 percent when comparingwere lower in 1994 than in 1993 for
both the first half and second quarter as the prior year benefited from
two large oil field shipments. Earnings were also lower than the same
periods of 1993 as a result of reduced volume and the favorable impact
last year of a non-recurring patent infringement lawsuit.
The losses incurred by the agricultural operations in the second quarter
and first half of 1994 to 1993. First quarter shipments of service
station pipe were higherless than the previous year despite the poor weather
conditions that hindered field installation. The chemical/industrial
markets and international petroleum production market also showed strengththose incurred in the first quarter.
First quarter earningssame period of
1993. The reasons for Fiberglass Productsthe reduced losses were significantly higher
than those of the prior year's first quarter as a direct result of
increased volume and favorable product mix.
Smith Fiberglass received a boost to its international marketing efforts
during the first quarter when the Little Rock, AR facility earned ISO-9001
certification. With most countries outside the U.S. accepting ISO-9000
standards, this designation will enable the company to expand overseas
sales activity, especially for service station and oil field pipe. To
support this increased international presence, a sales and marketing
office was opened in London, England during the first quarter.
Revenuestwofold. Earnings for A.
O. Smith Harvestore Products, Inc. (AOSHPI) increased
modestlywere higher than those of the previous
years due to strong activity in the first quarter of 1994 as they experienced increased sales
especially in the municipal/municipal and industrial and water and
waste storage markets. Revenuesmarkets and provisions in 1994 for AgriStor Credit Corporation declined from the
levels of a year ago as the process of liquidating this finance subsidiary
continues. The loss incurred in the quarter reflects the seasonality of
AOSHPI's businessproduct liability and was at an expected level consistent with the first
quarter of 1993.bad
debts were lower.
Selling, general and administrative expenses in the first quarter1994 were approximately $2.3 million morehigher than the
same periodrespective periods of 1993 but declined as a percentage to salesof sales. The
$3.0 million increase from 7.8 percent inthe first half of 1993 to 7.5 percent in 1994.
The absolute increase in expensethe first half of
1994 was due mostly to higher employee incentive and profit sharing accruals
associated with the increased earnings. Interest expense forearnings and higher commissions and other
expenses in support of increased sales volumes. Through the first six
months of 1994, interest expense was 13 percent lower than in the same
period of 1993 reflecting an approximate $20 million decline in debt since
June 30, 1993, and refinancing of relatively higher cost borrowings.
Non-operating expenses for 1994 reflect an unfavorable swing of
approximately $1.5 million for both the second quarter declined $.6and first half when
compared to the same periods of 1993. A judgment in a patent infringement
suit and the settlement of a malpractice suit resulted in approximately
$4.7 million fromof non-operating income in the levels incurredsecond quarter of 1993 offset
in last year's first quarter aspart by a result of lower
debt.$2.8 million write-off related to impaired assets.
The Corporation's effective tax rate declined from approximately 40% in 1993 to around
38% in 1994. The favorable impact of research and development and foreign
tax credits recognized in 1994 was lowermore than offset the 1993 rate due to the recognition of foreign tax credits.
The record sales and earnings established in the first quarter of 1994
supports the Corporation's objective of surpassing 1993's record
results. Assuming increases in short term borrowing rates do not
significantly impact the current favorable conditions within the
automotive and housing industries, the favorable trend established in the
first quarter should continue throughout the year. In view of this
projection, in April the Board of Directors increased the quarterly
dividend by 18 percent, from $.11 to $.13 per share commencingincrease
associated with the dividend paid in May.
In the quarter, the corporation sent a delegationRevenue Reconciliation Act of senior executives
including the chief executive officer to the Peoples Republic of China
in order to assess opportunities in that market.
In March, the Corporation learned that the United States District
Court for the Southern District of Ohio ruled that a lawsuit filed by
three Ohio farmers in 1992 against the Corporation and Harvestore Products
can conditionally proceed as a class action on behalf of all purchasers of
Harvestore/R/ structures. The court's ruling does not address the merits of
the claims, and the court retains the discretion to decertify the class at
any time.1993.
The Corporation remains confident this issue can be resolved,optimistic that adequate insurancethe markets it serves will
continue to expand throughout 1994 and reserves are in placeinto 1995, and the original
strategy of selling Harvestore and liquidating AgriStor can be pursued.that 1994 financial
results should surpass last year's record setting results.
Liquidity and Capital Resources
--------------------------------
The Corporation's working capital was $105.9$115.3 million at March 31,June 30, 1994
compared to $80.7 million at December 31, 1993. The majority of the
increase can be attributed toIncreased sales and
seasonally related increases in trade receivables, of $32 millioninventories and inventories of $8 millionother
current assets were partially offset by a corresponding
increaserelated increases in trade
payables of $20 million.and other accrued liabilities.
Cash flow provided by operations was $11.4$27.8 million less than the same
period last year primarily due to increasedas the improved earnings were more than offset by higher
working capital requirements. TheWhile the Corporation's long-term debt
increased $5.2 millionslightly in the first threesix months to $150.6 million due to the
increased working capital requirements, the debt to equity ratio of 1994 to $15449.8%
was improved over the same time last year when it was 55.2%. The long-
term debt of the finance subsidiary declined $6.4 million to finance working capital. The finance
subsidiary's long-term debt decreased $3.9 million during the first
quarter to $37.8$35.4 million
reflecting the continuing liquidation of thethat business.
The Corporation anticipates that a combination of current earnings trends
and moderating seasonal working capital requirements will reduce debt and
further improve its debt-
to-equitydebt-to-equity ratio during the balance of 1994.
Capital spending continues at higher levels due largely to new autmotiveautomotive
product programs and is
expected tocould exceed $80$70 million in 1994.
OnIn April, 5, 1994, the $12.5 million 8.9 percent term loan agreement was amended to
carry a floating interest rate as of April 1994 and the final maturity was extended from
April 1996 to April 19991999. In addition, in June, the Corporation put in
place a $140 million revolving credit agreement which replaced a $115
million A. O. Smith facility and a $30 million AgriStor Credit Corporation
facility. The term of the agreement was extended two years to April 3,
1998. In addition to lower fees and lower borrowing rates, the agreement
contains fewer restrictive covenants (see Note 3).
At its April 14,June 7, 1994 meeting, A. O. Smith's Board of Directors increased
thedeclared a
regular quarterly dividend toof $.13 per share on its common stock (Classes
A and Common) from $.11 per share.. The dividend is payable on May 16,August 15, 1994 to shareholders
of record as of AprilJuly 29, 1994.
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
At March 31,June 30, 1994, the Corporation or A.O.A. O. Smith Harvestore Products, Inc.
("AOSHPI"), a wholly-owned subsidiary of the Corporation, were defendants
in approximately twenty-six (26)twenty-seven (27) cases and two putative class action
lawsuits filed by various plaintiffs who were alleging damages for
economic losses claimed to have arisen out of alleged defects in AOSHPI's
animal feed storage equipment. In the firstsecond quarter of 1994, three new
cases were filed against the Corporation and AOSHPI and threetwo cases were
settled. Among the pending cases is a case in
the New York State Court in the County of Dutchess brought by five parties
on "behalf of themselves and all other New York State residents similarly
situated who have purchased or leased Harvestore structures from any
defendant at anytime."favorably resolved. The plaintiffs are seeking to recover for the
putative class the lease payments or purchase price paid for the
Harvestore structures, restitution for damages together with interest and
attorney fees. To date, the Corporation and AOSHPI have procured rulings
from the Court striking a number of the plaintiffs' claims, the balance of
the claims are also being procedurally attacked and the Corporation and
AOSHPI have filed their answers.
On March 25, 1994, the United States District Court for the Southern
District of Ohio ruled that a lawsuit filedhas set an October 16, 1995 trial date and approved the
form of Notice which was mailed during the quarter to the class members in
the conditionally certified class action brought on behalf of purchasers
and lessees of Harvestore structures manufactured by three Ohio farmers in 1992
against the Corporation and
AOSHPI, asAOSHPI. Information on these lawsuits was previously describedreported in Part I,
Item 3 of the Corporation's 1992 and 1993 annual reports on Form 10-K can conditionally proceed as a class action on behalf of all purchasers of
Harvestore/R/ structures. The Court's ruling does not address the meritsand
in Part II, Item 1 of the claims, andCorporation's Form 10-Q report for the court retains the discretion to decertify the class
at any time. The Corporation believes that any damages, including any
punitive damages, arising out of the pending cases, including the
conditionally certified class action,quarterly
period ended March 31, 1994 which are adequately coveredincorporated herein by insurance
and recorded reserves.reference.
There have been no material changes in the environmental matters
previously reported in Part I, Item 3 in the Company'sCorporation's 1993 annual
report on Form 10-K Report for the
fiscal year ended December 31, 1993 which is incorporated herein by reference.
PART II -- OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES
Previously reported in Item 2, Part II of the Corporation's quarterly
report on Form 10-Q for the quarter ended March 31, 1994, which is
incorporated herein by reference.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 5,March 3, 1994 the Corporation's $12.5 million term loan agreement with
NBD Bank, N.A. was amendedCorporation mailed a proxy statement to carry a floating interest rate asits
stockholders relating to the annual meeting of stockholders on April 199413,
1994. The annual meeting included the election of directors and the
final maturity was extendedconsideration and action upon proposals to increase the number of shares
of Common Stock reserved under and make certain other amendments to and
restate the 1990 Long Term Executive Incentive Compensation Plan, to
approve the ratification of Ernst & Young as the independent auditors of
the Corporation and to act upon two stockholder proposals, one relating to
the cumulative voting in the election of directors and the other relating
to the Maquiladora Operations.
Directors are elected by the holders of each class of stock, voting as
separate classes, with the holders of Class A Common Stock entitled to
elect six directors and the holders of Common Stock entitled to elect
three directors. In the other matters voted upon at the meeting, both
classes of stock vote together as a single class, with the Class A Common
Stock holders having one vote per share and the Common Stock holders
having 1/10th vote per share. The voting results from April 1996 to April 1999.
The covenantsthe matters voted
upon at the annual meeting were as follows:
1. Election of Directors
Votes Broker
Votes For Withheld Non-Votes
Class A Common Stock
Directors
Tom H. Barrett 5,714,918 7,805 0
Glen R. Bomberger 5,717,420 5,303 0
Thomas I. Dolan 5,716,720 6,003 0
Robert J. O'Toole 5,717,420 5,303 0
Donald J. Schuenke 5,717,020 5,703 0
Arthur O. Smith 5,716,720 6,003 0
Common Stock Directors
Russell G. Cleary 10,928,491 68,593 0
Leander W. Jennings 10,929,205 67,879 0
Dr. Agnar Pytte 10,929,205 67,879 0
2. Amendment and restrictionsRestatement of the 1990 Long-Term Executive Incentive
Compensation Plan
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 6,622,697 90,412 20,162 89,160
3. Ratification of Ernst & Young as Independent Auditors
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 6,795,081 15,177 12,173 0
4. Stockholder Proposal on the paymentCumulative Voting in Election of dividends remain
essentially the same. Refer to Note 3Directors
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
Common Stock (1/10th vote) 573,307 5,992,706 17,689 238,728
5. Stockholder Proposal on page 7 of this report for more
detailed information regarding the Corporation's debt covenants, dividend
payment restrictionsMaquiladora Operations
Votes Broker
Votes For Against Abstentions Non-Votes
COMBINED CLASS VOTE:
Class A Common Stock and
retained earnings.
PART II -- OTHER INFORMATIONCommon Stock (1/10th vote) 179,210 6,303,221 101,272 238,728
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Term LoanExtension and First Amendment, dated as of June 15, 1994,
to the Amended and Restated Credit Agreement, dated April 5, 1994, between A. O. Smith
Corporation and NBD Bank, N.A.as of
February 26, 1993.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Corporation in the
firstsecond quarter of 1994.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly casued this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. O. SMITH CORPORATION
May 6,August 8, 1994 THOMAS W. RYAN
Thomas W. Ryan
Vice President
Treasurer and Controller
May 6,August 8, 1994 G. R. BOMBERGER
G. R. Bomberger
Executive Vice President
and Chief Financial Officer
EXHIBIT INDEX TO EXHIBITS
Exhibit
Number Exhibit
(4) Term LoanDescription
4 Extension and First Amendment, dated as of June 15, 1994, to the
Amended and Restated Credit Agreement, dated April 5, 1994, between A. O. Smith
Corporation and NBD Bank, N.A.as of February 26,
1993.