SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 July 31, 1996: 5,882,248
Common Stock Outstanding as of July 31, 1996: 15,038,773
Index
A. O. Smith Corporation
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings and Retained Earnings
- Six months ended June 30, 1996 and 1995 3
Condensed Consolidated Balance Sheet
- June 30, 1996 and December 31, 1995 4-5
Condensed Consolidated Statements of Cash Flows
- Six months ended June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial Statements
- June 30, 1996 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-11
Part II. Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13-14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Index to Exhibits 16
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
A. O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
AND RETAINED EARNINGS
Three and Six months ended June 30, 1996 and 1995
(000 omitted except for per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
EARNINGS 1996 1995 1996 1995
Electrical Products Company $ 95,067 $ 84,560 $187,368 $169,816
Automotive Products Company 221,848 220,272 452,786 441,941
Water Products Company 72,706 66,870 141,237 130,950
Smith Fiberglass Products Inc. 14,810 15,600 28,260 29,317
Other Products 24,277 12,541 45,216 20,807
------- ------- ------ ------
NET REVENUES 428,708 399,843 854,867 792,831
Cost of products sold 361,844 335,535 724,109 664,380
------- ------- ------- -------
Gross profit 66,864 64,308 130,758 128,451
Selling, general and
administrative expenses 32,737 29,315 65,270 58,277
Interest expense 3,545 3,349 7,397 6,565
Other expense - net 2,022 1,147 3,394 3,131
------- ------- ------- -------
28,560 30,497 54,697 60,478
Provision for income taxes 11,174 11,744 21,363 23,150
------- ------ ------- -------
Earnings before equity in
earnings of affiliated
companies 17,386 18,753 33,334 37,328
Equity in earnings of affiliated
companies 1,346 1,272 2,740 1,058
------- ------- ------- -------
NET EARNINGS 18,732 20,025 36,074 38,386
======= ======= ======= =======
RETAINED EARNINGS
Balance at beginning of period 287,955 240,110 273,751 224,467
Cash dividends on common shares (3,556) (3,137) (6,694) (5,855)
------- ------- ------- -------
BALANCE AT END OF PERIOD $303,131 $256,998 $303,131 $256,998
======= ======= ======= =======
NET EARNINGS PER COMMON SHARE $.90 $.96 $1.72 $1.84
DIVIDENDS PER COMMON SHARE $.17 $.15 $.32 $.28
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
June 30, 1996 and December 31, 1995
(000 omitted)
(unaudited)
June 30, 1996 Dec. 31, 1995
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 4,240 $ 4,807
Trade receivables 178,649 165,924
Finance subsidiary receivables and
leases 11,920 13,449
Customer tooling 37,865 30,799
Inventories (note 2) 99.806 103,413
Deferred income taxes 18,208 17,542
Other current assets 14,734 14,327
------- -------
TOTAL CURRENT ASSETS 365,422 350,261
Investment in and advances to affiliated
companies 37,101 28,731
Deferred model change 28,119 25,246
Finance subsidiary receivables and
leases 22,240 26,950
Other assets 78,540 79,220
Property, plant and equipment 1,039,718 965,021
Less accumulated depreciation 554,595 528,487
--------- ---------
Net property, plant and equipment 485,123 436,534
--------- ---------
TOTAL ASSETS $1,016,545 $946,942
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade payables $ 148,728 $112,645
Accrued payroll and benefits 46,895 47,763
Postretirement benefit obligation 7,774 7,837
Other current liabilities 32,007 40,469
Long-term debt due within one year 5,175 3,925
Finance subsidiary long-term debt due
within one year 1,008 1,008
--------- ---------
TOTAL CURRENT LIABILITIES 241,587 213,647
Long-term debt (note 3) 178,871 167,139
Finance subsidiary long-term debt 19,353 23,799
Postretirement benefit obligation 75,288 74,799
Other liabilities 34,092 31,955
Deferred income taxes 65,797 63,239
STOCKHOLDERS' EQUITY:
Class A common stock , $5 par value
authorized 14,000,000 shares; issued
5,887,608 and 5,888,601 29,438 29,443
Common stock, $1 par value: authorized
60,000,000 shares; issued 15,812,042
and 15,811,049 15,812 15,811
Capital in excess of par value 68,889 68,871
Retained earnings (note 3) 303,131 273,751
Cumulative foreign currency translation
adjustments (7,721) (7,499)
Treasury stock at cost (7,992) (8,013)
--------- --------
TOTAL STOCKHOLDERS' EQUITY 401,557 372,364
--------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,016,545 $946,942
========= ========
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
Six months ended June 30, 1996 and 1995
(000 omitted) - (unaudited)
CASH FLOWS 1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $36,074 $38,386
Adjustments to reconcile net earnings to
net cash provided by operating
activities:
Depreciation 30,389 26,522
Deferred income taxes 1,892 4,706
Equity in earnings of affiliates, net
of dividends (340) (1,058)
Deferred model change and software
amortization 6,970 3,807
Other - net 341 (1,157)
Change in current assets and liabilities:
Trade receivables and customer tooling (21,562) (15,811)
Current income tax accounts-net 1,895 2,468
Inventories 3,607 902
Prepaid expenses and other (4,288) (6,311)
Trade payables 36,083 (6,122)
Accrued liabilities, payroll and
benefits (7,408) (1,857)
Net change in noncurrent assets and
liabilities 8,249 1,837
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES 91,902 46,312
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures (73,264) (32,592)
Investment in joint ventures (7,993) -
Other - net (13,090) (8,368)
-------- --------
CASH USED BY INVESTING ACTIVITIES (94,347) (40,960)
-------- --------
CASH FLOW BEFORE FINANCING ACTIVITIES (2,445) 5,352
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Long-term debt incurred 16,707 15,000
Long-term debt retired (3,725) (13,665)
Finance subsidiary net long-term debt
retired (4,446) (4,217)
Stock transactions 36 77
Dividends paid (6,694) (5,855)
-------- --------
CASH PROVIDED/(USED) BY FINANCING
ACTIVITIES 1,878 (8,660)
Net decrease in cash and cash equivalents (567) (3,308)
Cash and cash equivalents-beginning of
period 4,807 8,485
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $4,240 $5,177
====== ======
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
June 30, 1996
(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 six-month period
ended June 30, 1996 are not necessarily indicative of the results
expected for the full year. The consolidated balance sheet as of
December 31, 1995 is derived from the audited financial statements but
does not include all disclosures required by generally accepted
accounting principles. Certain prior year amounts have been
reclassified to conform to the 1996 presentation.
2. Inventories
(000 omitted) June 30, 1996 December 31, 1995
Finished products $50,547 $53,788
Work in process 43,543 44,806
Raw materials 42,470 41,841
Supplies 9,782 9,067
-------- -------
146,342 149,502
Allowance to state
inventories at LIFO
cost 46,536 46,089
-------- --------
$99,806 $103,413
======= ========
3. Long-Term Debt
In June the corporation amended its revolving credit agreement. The
facility was increased from $160 million to $210 million, and the term
of the agreement was extended one year to June 30, 2001. The amended
agreement also carries lower fees and lower borrowing rates.
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 $111.7 million were unrestricted as of June 30, 1996 for
cash dividends and treasury stock purchases.
PART 1 -- FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations - First six months of 1996 compared to 1995
Revenues for the first half of 1996 were $854.9 million or almost eight
percent better than the $792.8 million of revenues in the same period of
1995. Revenues of $428.7 million in the second quarter of 1996 were the
highest quarterly revenues in the corporation's history and surpassed last
year's second quarter by $28.9 million or 7.2 percent.
The corporation's 1996 first half earnings declined six percent to $36.1
million from $38.4 million in the first half of 1995. Second quarter
earnings were $18.7 million in 1996, a decline of $1.3 million or 6.5
percent from the $20 million earned in the same quarter of 1995. Strong
performance by the corporation's Electrical Products and Peabody TecTank
businesses was overshadowed by lower profits from Automotive Products,
Water Products and Smith Fiberglass.
The gross profit margin through the first half of the year was 15.3
percent, down from 16.2 percent for the same period last year. The lower
first half margin was caused by several factors. Automotive's margins
were adversely impacted by start-up costs associated with three
facilities. Water Products margins were significantly reduced as a result
of matching industry-wide price concessions, while unfavorable product mix
caused reduced margins at Smith Fiberglass Products. The second quarter
gross margin of 15.6 percent declined from 16.1 percent from the second
quarter of 1995. The aforementioned start-up costs at Automotive, price
concessions in the water heater industry, and unfavorable mix for
fiberglass pipe continued to erode margins throughout the second quarter.
The Automotive Products Company sales in the first half were slightly
higher than the same period in 1995 while sales in the second quarter of
1996 were about equal to last year's second quarter. 1996 second quarter
sales were impacted by weak conditions in the medium/heavy truck market
and by a shutdown of the Dodge Dakota frame line to accommodate a model
changeover. The Dakota model changeover is near completion as the new
plant in Plymouth, Michigan commenced production of full frame assemblies
for the 1997 Dodge Dakota in July.
Start-up costs associated with the aforementioned Plymouth, Michigan plant
as well as two other new facilities contributed to lower earnings for the
first half and second quarter of 1996 when compared to the same periods of
1995.
Sales for the Electrical Products Company in the second quarter of 1996
were more than 12 percent higher than the same period last year as a
result of strong demand in all of the company's major markets. The
hermetic motor segment, in particular, has demonstrated significant
improvement due to increased customer export sales, replacement demand and
higher market share.
Higher volumes, increased capacity utilization and enhanced productivity
contributed to improved earnings for both the second quarter and first
half of 1996 when compared to the same periods in 1995.
Second quarter sales for the Water Products Company increased $6 million
or 8.7 percent over the second quarter of 1995 while year-to-date sales
were $10.3 million or 7.9 percent higher than the first half of 1995. The
increased sales resulted from higher unit volumes for both residential and
commercial water heaters.
Despite the increased volume for Water Products, 1996 second quarter and
first half profits were lower than the corresponding periods last year.
The earnings reduction was a direct result of industry-wide residential
price concessions which were established early in the year and continued
through June. Recent indications suggest that the pricing pressure will
moderate in the third quarter and that residential prices will return to
more normal levels for the remainder of the year.
Second quarter sales for Smith Fiberglass Products Inc. were lower than
the second quarter of 1995 as demand for service station product and oil
field piping remains weak. Sales for the first half of 1996 declined 3.6
percent from the first six months of 1995.
The volume decline and unfavorable product mix resulted in decreased
earnings for Fiberglass Products in both the second quarter and first half
of the year when compared to the same periods last year.
Revenues for the Other Products segment of the corporation consisting of
A. O. Smith Harvestore Products, Inc. (AOSHPI), the recently acquired
Peabody TecTank, Inc. (PTT) and AgriStor Credit Corporation increased from
$12.5 million in the second quarter of 1995 to $24.3 million in the second
quarter of 1996. 1996 first half sales increased $24.4 million over the
first half of 1995. The significant increase in revenues from year-to-
year was attributable to the acquisition of PTT which experienced strong
demand for its line of bolted tanks. AOSHPI's second quarter and first
half revenues were adversely impacted by softness in the municipal and
agricultural markets while AgriStor's revenues continue to decline
consistent with the intent to liquidate this entity. The incremental
profits generated by PTT helped this segment of the corporation's business
substantially improve its earnings over the second quarter and first half
of 1995.
Selling, general and administrative (SGA) expenses in the second quarter
were $3.4 million more than the same period in 1995. Through the first
six months of the year SGA expenses were $7 million higher than the first
half of 1995. Most of this increase was associated with the acquisition
of PTT, general increases to support higher sales volumes and costs
incurred relative to the start-up of the corporation's Chinese joint
ventures. The $.8 million year-to-year increase in interest expense for
the first half was a direct result of increased debt levels to support
higher capital spending programs and the PTT acquisition.
Other expenses were higher in the second quarter and first half of 1996
compared to the same periods in 1995 due primarily to the amortization of
goodwill associated with the PTT acquisition. The effective tax rates for
the second quarter and first half of 1996 were higher than the same
periods in 1995 as the research and development tax credits recognized in
1995 were not available in 1996.
Equity in earnings of affiliated companies for the second quarter was
approximately the same as for 1995. The corporation's 40 percent owned
Mexican affiliate, Metalsa, continues to perform well. As they did in the
first quarter, sales in the second quarter increased more than 50 percent
over the comparable quarter of 1995. Metalsa's operating profit for the
period improved due to the higher sales volume. Its strong earnings helped
offset expected losses associated with the corporation's start-up of new
joint ventures in China.
During the first six months of 1996, the corporation was a party to
futures contracts for purposes of hedging a portion of certain raw
material purchases. The corporation was also a party to forward exchange
contracts to hedge foreign currency transactions consistent with its
committed exposures. Had these contracts not been in place, the net
earnings of the corporation would not have been materially affected in the
second quarter or first half of 1996.
Liquidity and Capital Resources
The corporation's working capital was $123.8 million at June 30, 1996
compared to $136.6 million at December 31, 1995. Business activity
related increases in trade receivables and customer tooling were more than
offset by increases in trade payables.
Cash flow provided by operations during the first half of 1996 was nearly
double the level generated during the same period last year due primarily
to lower relative working capital requirements. The corporation's long-
term debt increased $11.8 million in the first six months of 1996 to
$178.9 million to finance capital expenditures. However, its leverage
ratio as measured by total debt excluding the finance subsidiary divided
by total capitalization remained at 31%, the same level as at December 31,
1995. The finance subsidiary's long-term debt decreased $4.4 million
during the first six months of 1996 to $19.4 million, reflecting the
continuing liquidation of the business.
In June, the corporation amended its revolving credit agreement. The
facility was increased from $160 million to $210 million, and the term of
the agreement was extended one year to June 30, 2001. The amended
agreement also carries lower fees and lower borrowing rates.
During the first six months of 1996, capital expenditures were $73.3
million, $40.7 million higher than the same period one year ago. As
mentioned in the corporation's annual report on Form 10-K for the period
ending December 31, 1995, capital spending will remain higher for the
remainder of the year due largely to new automotive programs. Although
the corporation expects that cash flow from operations will cover the
majority of the planned capital requirements, debt levels will be higher
during the balance of the year.
At its June 11, 1996 meeting, A. O. Smith's Board of Directors declared a
regular quarterly dividend of $.17 per share on its common stock (Classes
A and Common). The dividend is payable on August 15, 1996 to shareholders
of record as of July 31, 1996.
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
At June 30, 1996, the corporation or A. O. Smith Harvestore Products, Inc.
("AOSHPI"), a wholly-owned subsidiary of the corporation, were defendants
in seven cases alleging damages for economic losses claimed to have arisen
out of alleged defects in AOSHPI's animal feed storage equipment. No new
cases have been filed against the corporation since July 1994.
In the second quarter, a federal court jury in Lansing, Michigan returned
a verdict against the corporation and AOSHPI holding that they violated
the RICO Act and the former operators of a Michigan dairy farm were
awarded $156,008.34. The companies and the plaintiffs are awaiting
rulings on motions filed following the entry of the judgment. The
plaintiffs are seeking attorneys' fees and costs and the companies are
seeking a judgment as a matter of law.
Two of the seven pending cases contain class action allegations. One of
the cases is a New York State court action which names the corporation,
AOSHPI, 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 in March 1994 the court
conditionally certified it as a class action on behalf of purchasers and
lessees of Harvestore structures manufactured by the corporation and
AOSHPI. 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.
As reported in the environmental matters discussed in Item 3 in the
corporation's Form 10-K Report for the period ending December 31, 1995,
which is incorporated herein by reference, the corporation joined with a
group of companies identified by the U.S. Environmental Protection Agency
("EPA") as Potentially Responsible Parties (PRPs) under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") to
negotiate settlements as de minimis parties at a site in Indiana. Pursuant
to those discussions, the EPA issued an order under section 106 of CERCLA
requiring the corporation and 38 other PRPs to perform certain remedial
actions at the site. Based upon information that is currently available,
the corporation believes that its ultimate share of the costs associated
with this site should not be material to its financial condition. Except
for that matter, there have been no material changes in the environmental
matters that were previously reported in Item 3.
ITEM 2--CHANGES IN SECURITIES
On June 19, 1996, the corporation's $160,000,000 Revolver Agreement with a
group of ten banks was amended to $210,000,000 and the final maturity was
extended from June 30, 2000 to June 30, 2001. The covenants and
restrictions on the payment of dividends remain essentially the same.
Refer to Note 3 on page 7 of this report for more detailed information
regarding the corporation's debt covenants, dividend payment restrictions
and retained earnings.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 4, 1996, the corporation mailed a proxy statement to its
stockholders relating to the annual meeting of stockholders on April 3,
1996. The annual meeting included the election of directors and the
consideration and action upon proposals to approve the ratification of
Ernst & Young LLP as the independent auditors of the corporation for 1996
and to act upon a stockholder proposal to provide a post-meeting report of
the annual meeting of stockholders.
Directors are elected by a plurality of the votes cast, by proxy or in
person, with the holders voting as separate classes. A plurality of votes
means that the nominees who receive the greatest number of votes cast are
elected as directors. Consequently, any shares which are not voted,
whether by abstention, broker non-votes or otherwise, will have no effect
on the election of directors.
For all other matters considered at the meeting, both classes of stock
vote together as a single class, with the Class A Common Stock entitled to
one vote per share and the Common Stock entitled to 1/10th vote per share.
All such other matters are decided by a majority of the votes cast. On
such other matters, an abstention will have the same effect as a "no" vote
but, because shares held by brokers will not be considered to vote on
matters as to which the brokers withhold authority, a broker non-vote will
have no effect on the vote.
1. Election of Directors
Votes Broker
Votes For Withheld Non-Votes
Class A Common Stock Directors
Tom H. Barrett 5,786,377 2,714 0
Glen R. Bomberger 5,786,477 2,614 0
Thomas I. Dolan 5,786,113 2,978 0
Robert J. O'Toole 5,786,477 2,614 0
Donald J. Schuenke 5,786,477 2,614 0
Arthur O. Smith 5,786,377 2,714 0
Bruce M. Smith 5,786,477 2,614 0
Common Stock Directors
Russell G. Cleary 12,500,616 251,865 0
Leander W. Jennings 12,499,701 252,780 0
Dr. Agnar Pytte 12,501,758 250,723 0
2. Ratification of Ernst & Young LLP as Independent Auditors
Votes Broker
Votes For Against Abstentions Non Votes
COMBINED CLASS VOTE:
Class A Common Stock
and Common Stock
(1/10th vote) 7,054,072 6,336 3,929 0
3. Stockholder Proposal on Issuing a Post-Meeting Report of the Annual
Stockholders Meeting
Votes Broker
Votes For Against Abstentions Non Votes
COMBINED CLASS VOTE:
Class A Common Stock
and Common Stock
(1/10th vote) 79,339 6,711,278 31,243 242,477
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
(4) Amendment dated as of June 19, 1996 to the Revolver
Agreement dated February 26, 1993.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the corporation in the
second quarter of 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
A. O. SMITH CORPORATION
August 9, 1996 /s/ John J. Kita
John J. Kita
Vice President,
Treasurer and Controller
August 9, 1996 /s/ Glen R. Bomberger
G. R. Bomberger
Executive Vice President
and Chief Financial Officer
INDEX TO EXHIBITS
Exhibit
Number Description
4 Amendment dated as of June 19, 1996 to the Revolver Agreement
dated February 26, 1993
27 Financial Data Schedule
EXTENSION AND FOURTH AMENDMENT
EXTENSION AND FOURTH AMENDMENT, dated as of June 19, 1996, to
the Amended and Restated Credit Agreement, dated as of February 26, 1993
(as amended, supplemented or otherwise modified from time to time, the
"Credit Agreement"), among A.O. SMITH CORPORATION, a Delaware corporation
(the "Borrower"), the banks parties thereto (the "Banks"), and Chemical
Bank, as agent (in such capacity, the "Agent").
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks, and the Agent are parties to
the Credit Agreement;
WHEREAS, the Borrower has requested that the Agent and the Banks
amend certain provisions of the Credit Agreement in order to increase the
aggregate Commitments (as defined in the Credit Agreement) to
$210,000,000; and
WHEREAS, the Agent and the Banks are willing to agree to such
amendments only upon the terms and subject to the conditions set forth
herein;
NOW, THEREFORE, in consideration of the premises, the parties
hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized
terms which are defined in the Credit Agreement are used herein as therein
defined.
2. Amendments of Article I of the Credit Agreement.
(a) Section 1.1 of the Credit Agreement is hereby amended by deleting the
definitions of "Interest Rate Leverage Percentage" and "Termination Date"
in their entirety and by inserting in lieu thereof the following
definitions:
"Interest Rate Leverage Percentage" means, as to any CD Loan or
Euro-Dollar Loan, the percentage set forth in the table below under
the appropriate column opposite the Leverage Ratio range which
includes the Leverage Ratio of the Borrower:
Interest Rate Leverage Percentage
Leverage Ratio Euro-Dollar Loan CD Loan
Less than or equal to
30.0% .2000% .3250%
Greater than 30% and
less than or equal to
40.0% .2250% .3500%
Greater than 40% and
less than or equal to
50.0% .3000% .4250%
Greater than 50.0% .4250% .5500%
For purposes of this definition, the Leverage Ratio shall be
determined for any day on the basis of each notice furnished to the
Banks from time to time pursuant to Section 5.10(a) or (b) and shall
be effective from the date of receipt by the Agent of such notice for
the period from such date until the date of receipt of the next such
notice.
"Termination Date" means June 30, 2001.
(b) Section 1.1 is hereby amended by adding thereto the following
definition in its appropriate alphabetical order:
"Fourth Amendment Effective Date" means the date on which all
the conditions set forth in Section 8 of the Extension and Fourth
Amendment are satisfied or waived.
3. Amendments to Article II of the Credit Agreement. (a)
Sections 2.1 and 2.8 of the Credit Agreement are hereby amended by
deleting the date "June 30, 2000" wherever it appears in such Sections and
inserting in lieu thereof the date "June 30, 2001".
(b) Section 2.6(a) of the Credit Agreement is hereby amended by
deleting such subsection in its entirety and inserting in lieu thereof the
following subsection (a):
"(a) Facility Fees. The Borrower shall pay to the Agent for the
account of each Bank a facility fee on the average daily amount of
such Bank's Commitment at the per annum rate set forth in the table
below opposite the Leverage Ratio range which includes the Leverage
Ratio of the Borrower:
Leverage Ratio Per Annum Rate
Less than or equal to 30.0% 0.1000%
Greater than 30% and less
than or equal to 40.0% 0.1250%
Greater than 40% and less
than or equal to 50.0% 0.1500%
Greater than 50.0% 0.2000%
For purposes of this Section 2.6(a), the Leverage Ratio shall be
determined for any day on the basis of each notice furnished to the
Banks from time to time pursuant to Section 5.10 (a) and (b) and
shall be effective from the date of receipt by the Agent of such
notice for the period from such date until the date of receipt of the
next such notice. Such facility fees shall accrue from and including
the date hereof to and including June 30, 2001 and shall be payable
quarterly on each June 30, September 30, December 31 and March 31."
4. Amendment of Article III of the Credit Agreement. Section
3.1(d) of the Credit Agreement is hereby amended by deleting the date
"December 31, 1994" and substituting in lieu thereof "December 31. 1995".
5. Amendment of Article IV of the Credit Agreement. Sections
4.4(a) and 4.4(b) of the Credit Agreement are hereby amended by deleting
the year "1994" wherever it appears and substituting in lieu thereof
"1995".
6. Amendment of Article V of the Credit Agreement. (a)
Section 5.6 of the Credit Agreement is hereby amended by deleting the
phrase "7% of Consolidated Tangible Net Worth" and substituting in lieu
thereof "10% of Consolidated Tangible Net Worth".
(b) Section 5.8(b) of the Credit Agreement is hereby amended by deleting
the last proviso thereof and substituting in lieu thereof the following:
"provided that the aggregate book value of all assets so sold or
disposed of shall not exceed 20% of Consolidated Tangible Net Worth
in any fiscal year. For purposes of calculating the aggregate book
value of all assets sold or disposed of in any fiscal year, in order
to determine compliance with this Section 5.8(b), notes receivable or
accounts receivable sold or disposed of in connection with any
receivable sales program shall be valued by reference to the then
outstanding aggregate face amount of the receivables so sold or
disposed."
7. Amendment of Schedule I of the Credit Agreement. The Credit
Agreement is hereby further amended by deleting Schedule I in its entirety
and inserting in lieu thereof Schedule I attached hereto.
8. Representations and Warranties of Borrower. The Borrower
hereby represents and warrants that each of the representations and
warranties of the Borrower contained in the Credit Agreement, as amended
by this Amendment, is true and correct on the date hereof as if made on
and as of the date hereof except that representations and warranties that
apply to a specific date were true and correct as of such date.
9. Effectiveness. This Fourth Amendment shall become effective
as of the first date (the "Fourth Amendment Effective Date") prior to June
19, 1996 or the first day thereafter when the following conditions shall
have been met:
(i) the Agent shall have received counterparts hereof, duly
executed by the Borrower and all the Banks;
(ii) the Agent shall have received an opinion of W. David
Romoser, General Counsel of the Borrower to be attached as
Exhibit A.
(iii) the Agent shall have received a certificate, in form and
substance satisfactory to the Agent, certifying that the
Borrower is authorized to borrow money and to effectuate
agreements entered into pursuant to such authority, by the
Secretary or an Assistant Secretary of the Borrower, as the
case may be, as of the Fourth Amendment Effective Date.
10. Continuing Effect of Credit Agreement. This Amendment
shall not constitute a waiver or amendment of any other provision of the
Credit Agreement not expressly referred to herein and shall not be
construed as a waiver or consent to any further or future action on the
part of the Borrower that would require a waiver or consent of the
Required Banks or the Agent. Except as expressly amended hereby, the
provisions of the Credit Agreement are and shall remain in full force and
effect.
11. Counterparts. This Amendment may be executed by the
parties hereto in any number of counterparts, and all of such counterparts
taken together shall be deemed to constitute one and the same instrument.
12. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above
written.
A.O. SMITH CORPORATION
By:______________________________
Title:
CHEMICAL BANK, as Agent and
as a Bank
By:______________________________
Title:
BANK OF AMERICA ILLINOIS
By:______________________________
Title:
MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By:______________________________
Title:
M & I MARSHALL & ILSLEY BANK
By:______________________________
Title:
CITIBANK, N.A.
By:______________________________
Title:
FIRST BANK MILWAUKEE
By:______________________________
Title:
FIRSTAR BANK MILWAUKEE, N.A.
By:______________________________
Title:
BANK ONE, MILWAUKEE, N.A.
By:______________________________
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By:______________________________
Title:
NORWEST BANK WISCONSIN, N.A.
By:______________________________
Title:
Schedule I
COMMITMENT AMOUNTS
Commitment
Chemical Bank $ 36,000,000
Bank of America Illinois $ 36,000,000
Morgan Guaranty Trust Company
of New York $ 36,000,000
M & I Marshall & Ilsley Bank $ 18,000,000
Citibank, N.A. $ 18,000,000
Firstar Bank Milwaukee, N.A. $ 15,000,000
First Bank Milwaukee $ 15,000,000
Bank One, Milwaukee, N.A. $ 13,500,000
The First National Bank of
Chicago $ 13,500,000
Norwest Bank Wisconsin, N.A. $ 9,000,000
-----------
$210,000,000
EXHIBIT A
OPINION OF
COUNSEL FOR THE BORROWER
June 19, 1996
To the Banks and the Agent
Referred to Below
c/o Chemical Bank,
as Agent
270 Park Avenue
New York, New York 10017
Dear Sirs:
I have acted as counsel for A.O. Smith Corporation (the
"Borrower") in connection with the Extension and Fourth Amendment, dated
as of June 19, 1996 (the "Fourth Amendment"), to the Amended and Restated
Credit Agreement (the "Credit Agreement") dated as of February 26, 1993
among the Borrower, the banks listed on the signature pages thereof and
Chemical Bank, as Agent. Terms defined in the Credit Agreement are used
herein as therein defined.
I have examined originals or copies, certified or otherwise
identified to my satisfaction, of such documents, corporate records,
certificates of public officials and other instruments and have conducted
such other investigations of fact and law as I have deemed necessary or
advisable for purposes of this opinion.
Upon the basis of the foregoing, I am of the opinion that:
1. The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of Delaware, and has all
corporate powers and all material governmental licenses, authorizations,
consents and approvals required to carry on its business as now conducted.
2. The execution, delivery and performance by the Borrower of
the Fourth Amendment are within the Borrower's corporate powers, have been
duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official
and does not contravene, or constitute a default under, any certificate of
incorporation or by-laws of the Borrower or, to the best of my knowledge,
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in the creation or imposition of any
Lien on any asset of the Borrower or any of its Subsidiaries.
3. The execution, delivery and performance by the Borrower of
the Notes are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, require no action by or in
respect of, or filing with, any governmental body, agency or official and
does not contravene, or constitute a default under, any certificate of
incorporation or by-laws of the Borrower or, to the best of my knowledge,
of any agreement, judgment, injunction, order, decree or other instrument
binding upon the Borrower or result in the creation or imposition of any
Lien on any asset of the Borrower or any of its Subsidiaries.
4. The Fourth Amendment and the Notes constitute the valid and
the binding obligations of the Borrower enforceable in accordance with
their terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles.
5. Except as set forth in the Ilhardt, et al. v. A.O. Smith
Corp., et al. lawsuit, there is no action, suit or proceeding pending
against, or to the best of my knowledge threatened against or affecting,
the Borrower or any of its Subsidiaries before any court or arbitrator or
any governmental body, agency or official, in which there is a reasonable
possibility of an adverse decision which could materially adversely affect
the business, consolidated financial position or consolidated results of
operations of the Borrower and its Consolidated Subsidiaries, considered
as a whole or which in any manner draws into question the validity of the
Fourth Amendment.
6. Each of the Borrower's Subsidiaries is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry on its
business as now conducted.
Very truly yours,
5
1,000
6-MOS
DEC-31-1996
JAN-01-1996
JUN-30-1996
4,240
0
190,569
0
99,806
365,422
1,039,718
(554,595)
1,016,545
241,587
198,224
0
0
106,147
295,410
1,016,545
854,867
854,867
724,109
724,109
68,664
0
7,397
54,697
21,363
36,074
0
0
0
36,074
1.72
1.72
