SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 8-K/A
AMENDMENT NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
-----------------------
Date of Report
(Date of earliest
event reported): December 28, 2001
A. O. Smith Corporation
(Exact name of registrant as specified in its charter)
Delaware 1-475 39-0619790
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation
P.O. Box 245009, Milwaukee, Wisconsin 53224-9509
(Address of principal executive offices, including zip code)
(414) 359-4000
(Registrant's telephone number)
A. O. Smith Corporation (the "Company") hereby amends Item 7 of the Company's
Current Report on Form 8-K dated December 28, 2001, reporting the Company's
acquisition of all the issued and outstanding shares of common stock of State
Industries, Inc. ("State Industries") to include the requisite historical
financial statements of State Industries and pro forma financial statements of
the Company. The complete text of Item 7 as amended is as follows:
Item 7 - Financial Statements, Pro Forma Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Financial statements of State Industries are included as follows:
As of December 31, 2000 and for the year ended December 31, 2000.
o Report of Independent Auditors
o Consolidated Balance Sheet
o Consolidated Statement of Operations
o Consolidated Statement of Changes in Stockholder's Equity
o Consolidated Statement of Cash Flows
o Notes to Consolidated Financial Statements
As of September 29, 2001 and for the nine months ended September 29, 2001
and September 30, 2000.
o Unaudited Condensed Consolidated Balance Sheet
o Unaudited Condensed Consolidated Statement of Operations
o Unaudited Condensed Consolidated Statement of Cash Flows
o Unaudited Notes to Condensed Consolidated Financial Statements
(b) Pro Forma Financial Information
Pro forma financial statements of A. O. Smith Corporation are included as
follows:
Pro Forma Condensed Consolidated Financial Statements
o Condensed Consolidated Statements of Earnings for the year ended
December 31, 2000 and nine months ended September 30, 2001, and
related notes
(c) Exhibits
The exhibits listed in the accompanying Exhibit Index are filed as part of
this Current Report on Form 8-K.
2
Independent Auditors' Report
----------------------------
The Board of Directors
State Industries, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheet of State Industries,
Inc. and Subsidiaries (a wholly-owned subsidiary of Ocelot Oil Corp.) as of
December 31, 2000, and the related consolidated statements of operations,
changes in stockholder's equity and comprehensive income (loss), and cash flows
for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of State
Industries, Inc. and Subsidiaries as of December 31, 2000, and the results of
their operations and cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
February 2, 2001,
Except for Notes 7, 11, 14, 16(a), and 18, as
to which the date is November 27, 2001, and
note 19, as to which the date is March 6, 2002
3
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Consolidated Balance Sheet
December 31, 2000
Assets
Current assets:
Cash and cash equivalents $ 5,101,856
Receivables:
Trade accounts 62,248,247
Other 1,070,660
----------------
63,318,907
Less allowance for doubtful receivables 3,025,970
----------------
Net receivables 60,292,937
Inventories 18,936,225
Refundable income taxes, current portion 2,415,830
Prepaid expenses 3,628,570
Deferred income taxes 13,369,320
----------------
Total current assets 103,744,738
Property, plant and equipment, at cost:
Land $ 1,465,160
Land improvements 3,525,052
Buildings and improvements 34,647,564
Machinery and equipment 115,633,137
Office furniture and equipment 17,112,801
Construction in progress 3,927,759
----------------
176,311,473
Less accumulated depreciation and amortization 125,432,873
----------------
Net property, plant and equipment 50,878,600
Other assets:
Assets held for sale 233,965
Deferred income taxes 13,146,038
Goodwill, net 1,489,787
Refundable income taxes, excluding current portion 3,873,922
Other 2,005,875
----------------
Total other assets 20,749,587
----------------
$ 175,372,925
================
See accompanying notes to consolidated financial statements.
4
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Consolidated Balance Sheet, Continued
Liabilities and Stockholder's Equity
Current liabilities:
Current installments of long-term debt $ 48,661,564
Accounts payable, including checks written in
excess of bank balance of approximately
$17,600,000 42,842,172
Accrued expenses:
Compensation and benefits $ 4,104,428
Pension 792,737
Self-insurance, current portion 14,192,091
Customer rebates 11,187,619
Legal and other related costs 11,221,768
Taxes, other than income taxes 1,322,351
Interest 414,681
Due to parent company 9,766,268
----------------
Total accrued expenses 53,001,943
Provision for warranties, current portion 4,204,650
Income taxes 27,467
----------------
Total current liabilities 148,737,796
Provision for warranties, excluding current portion 6,000,000
Pension 5,831,476
Self-insurance, excluding current portion 12,585,046
Other long-term liabilities 2,021,312
----------------
Total liabilities 175,175,630
Stockholder's equity:
Common stock of $1 par value. Authorized 200,000
shares; issued and outstanding 90,000 shares 90,000
Additional paid-in capital 938,389
Retained earnings (90,329)
Equity adjustment from foreign currency translation (740,765)
----------------
Total stockholder's equity 197,295
----------------
$ 175,372,925
================
See accompanying notes to consolidated financial statements.
5
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Consolidated Statement of Operations
Year ended December 31, 2000
Sales $ 384,863,457
Sales adjustments:
Returns and allowances $ 16,847,383
Discounts 6,886,750
Customer rebates 23,389,641
Freight-out costs 17,141,169
----------------
Total sales adjustments 64,264,943
----------------
Net sales 320,598,514
Cost of sales 272,396,326
----------------
Gross profit 48,202,188
Selling, general and administrative expenses 54,218,511
----------------
Operating loss before impairment of assets (6,016,323)
Impairment of assets 10,357,061
----------------
Operating loss (16,373,384)
Other deductions:
Interest expense, net (5,796,204)
Miscellaneous, net (1,428,601)
Loss on disposal of assets (11,030)
Management fee expense (2,998,046)
----------------
Total other deductions (10,233,881)
----------------
Loss before income tax benefit (26,607,265)
Income tax benefit (5,953,947)
----------------
Net loss $ (20,653,318)
================
See accompanying notes to consolidated financial statements.
6
STATE INDUSTRIES, INC. AND SUBISIDIARES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Consolidated Statement of Changes in Stockholder's Equity
and Comprehensive Income (Loss)
Year ended December 31, 2000
Equity
Adjustment
Additional From Foreign
Common Paid-in Retained Currency
Stock Capital Earnings Translation Total
Balance at December 31, 1999 $ 90,000 938,389 20,562,989 (742,774) 20,848,604
Net loss - - (20,653,318) - (20,653,318)
Equity adjustment from
foreign currency translation - - - 2,009 2,009
-------------- ------------- --------------- --------------- ----------------
Balance at December 31, 2000 $ 90,000 938,389 (90,329) (740,765) 197,295
============== ============= =============== =============== ================
Comprehensive Loss:
- ----------------------------------------
Net loss $ (20,653,318)
Equity adjustment from
foreign currency translation 2,009
--------------
Comprehensive loss $ (20,651,309)
==============
See accompanying notes to consolidated financial statements.
7
STATE INDUSTRIES, INC. AND SUBISIDIARES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Consolidated Statement of Cash Flows
Year ended December 31, 2000
Net loss $ (20,653,318)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization $ 12,670,803
Provision for doubtful accounts (65,166)
Adjustment of inventories to LIFO cost basis (104,408)
Provision for pension benefit (575,644)
Provision for deferred income taxes, net of allowance (6,003,360)
Loss on impairment of assets 10,357,061
Loss on disposal 11,030
Effect of exchange rates on assets and liabilities
of foreign subsidiaries 2,009
(Increase) decrease in assets:
Receivables, net of allowance 6,499,052
Inventories 1,737,359
Prepaid expenses (899,975)
Other assets (291,130)
Increase (decrease) in liabilities:
Accounts payable 2,082,745
Accrued expenses 4,196,627
Due to parent company 2,897,129
Income taxes (5,350)
-----------------
Total adjustments 32,508,782
------------------
Net cash provided by operating activities 11,855,464
Cash flows from investing activities:
Proceeds from sale of property and equipment 78,125
Purchases of property and equipment (7,682,764)
-----------------
Net cash used by investing activities (7,604,639)
Cash flows from financing activities -
principal payments on long-term debt (1,819,959)
------------------
Net increase in cash and cash equivalents 2,430,866
Cash and cash equivalents at beginning of year 2,670,990
------------------
Cash and cash equivalents at end of year $ 5,101,856
==================
Supplemental Disclosures of Cash Flow Information:
Income taxes paid $ 23,500
==================
Interest paid $ (5,234,271)
==================
Interest received $ 15,600
==================
See accompanying notes to consolidated financial statements.
8
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(1) Nature of Operations
The Company and its subsidiaries manufacture and sell water heaters, pump
tanks, and appliance component parts throughout North America and Europe.
Sales are primarily to retail companies, such as hardware and home centers,
and plumbing wholesalers.
(2) Summary of Significant Accounting Policies
(a) Parent Company
The Company is a wholly-owned subsidiary of Ocelot Oil Corp.
("Ocelot").
(b) Principles of Consolidation
The consolidated financial statements include the accounts of State
Industries, Inc. and its wholly-owned subsidiaries, APCOM, Inc., State
Water Heaters (UK) Ltd., and State France S.A. Also included are the
accounts of State France S.A.'s wholly-owned subsidiary, Societe
Thermique de Valence (S.T.V.).
Significant intercompany transactions have been eliminated in
consolidation. Financial information of State Water Heaters (UK) Ltd.,
State France S.A. and Societe Thermique de Valence (S.T.V.) have been
translated to U.S. dollars using applicable exchange rates. The equity
adjustment from foreign currency translation is related to the
consolidation of State Water Heaters (UK) Ltd., State France S.A. and
Societe Thermique de Valence (S.T.V.).
(c) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(d) Cash Equivalents
Cash equivalents include all highly-liquid debt instruments with a
maturity of three months or less.
9
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(2) Summary of Significant Accounting Policies, Continued
(e) Inventories
Inventories of State Industries, Inc. are stated at cost, with cost
determined by use of the last-in, first-out (LIFO) method. Inventories
of APCOM, Inc., State Water Heaters (UK) Ltd., State France S.A. and
Societe Thermique de Valence (S.T.V.) are stated at the lower of cost
or market with cost determined by use of the first-in, first-out
(FIFO) method. See note 4.
(f) Property, Plant and Equipment
Property, plant and equipment is stated at cost. Depreciation of plant
and equipment is provided over their estimated useful lives using the
straight-line method. Buildings are generally depreciated over forty
years while machinery and equipment is depreciated over seven to ten
years.
Expenditures for maintenance and repairs are expensed when incurred.
Expenditures for renewals or betterments are capitalized. When
property is retired or sold, the cost and the related accumulated
depreciation are removed from the accounts, and the resulting gain or
loss is included in operations.
Management evaluates the recoverability of these assets on an ongoing
basis and recognizes any impairment in the year of determination. It
is reasonably possible that relevant conditions could change in the
near term and necessitate a change in management's estimate of the
recoverability of these assets. See note 5.
(g) Intangible Assets
Intangible assets consist of goodwill associated with the purchase of
interests in various subsidiaries, goodwill and non-compete amounts
associated with the purchase of competitor assets, and loan costs.
These assets are amortized on a straight-line basis over their lives
which are estimated to be fifteen to twenty years for goodwill, ten
years for non-compete, and five years for loan costs. See note 6.
Management evaluates the recoverability of these assets on an ongoing
basis in comparison to projections of future profitability and
industry and economic conditions. It is reasonably possible that such
conditions could change in the near term and necessitate a change in
management's estimate of the recoverability of such assets.
10
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(2) Summary of Significant Accounting Policies, Continued
(h) Self-Insurance Liabilities
The self-insurance liabilities are based upon loss reports on
individual cases and an amount, based on industry data, for losses
incurred but not reported. Such liabilities are necessarily based on
estimates and, while management believes that the amount is adequate,
the ultimate liability may be in excess of or less than the amounts
provided. The methods for making such estimates and for establishing
the resulting liability are developed actuarially and are continually
reviewed, with any adjustments necessary reflected in current year
operations. Due to their nature, it is reasonably possible that the
estimates of these self-insurance liabilities could change
significantly over time if circumstances so warrant.
The Company records its estimate of the self-insurance liabilities on
a discounted basis. The portion of the self-insurance liabilities
included in current liabilities is an estimate of the expenditures
necessary in the following year. See note 8.
(i) Warranties
Estimated expenses relating only to contractual costs required to be
paid under the Company's product warranties are provided in the year
of sale.
Historical warranty cost information is not available as the Company's
contractual costs are commingled with other payments to customers such
as other returns and allowances and costs incurred for customer
relations purposes and it is presently impractical to segregate such
amounts. In addition, the Company lacks other key information, such as
records pertaining to the pattern of warranty returns by year of
manufacture, with which to historically estimate its warranty
liability. Due to this lack of historical information, the warranty
provision at any point in time is based on management's estimate in
conjunction with industry practice.
Management believes the estimate of its warranty liability is
reasonable and does not expect a significant change in the near term.
However, it is reasonably possible that the estimate of the warranty
liability could change significantly over time if circumstances
warrant or as adequate historical data is developed and analyzed.
The portion of the warranty reserve included in current liabilities is
an estimate of the expenditures necessary in the following year.
11
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(2) Summary of Significant Accounting Policies, Continued
(j) Income Taxes
Income taxes are provided for the tax effects of transactions reported
in the consolidated financial statements and consist of taxes
currently due plus deferred taxes. Deferred taxes relate primarily to
operating loss carryforwards for income tax purposes and to
differences between the basis of receivables, inventories, property,
plant and equipment, and provisions for insurance, pension and
warranties for financial and income tax reporting. The deferred tax
assets and liabilities represent the future tax return consequences of
those differences, which will either be taxable or deductible when the
assets and liabilities are recovered or settled. The recovery of the
deferred income tax assets is based upon the future profitability of
the Company. See note 11.
(k) Advertising Costs
Advertising costs are expensed as incurred. See note 12.
12
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(3) Concentrations
(a) Cash and Cash Equivalents
The Company generally maintains cash and cash equivalents on deposit
at banks in excess of federally insured amounts. The Company has not
experienced any losses in such accounts and management believes the
Company is not exposed to any significant credit risk on cash.
(b) Trade Receivables
Concentrations in trade receivables as of December 31, 2000 are
approximately as follows:
Retail companies:
Major customer $ 13,283,000
Other retail companies 14,301,000
-----------
Total retail companies 27,584,000
Plumbing wholesalers:
Major customer $ 11,132,000
Other plumbing wholesalers 14,022,000
-----------
Total plumbing wholesalers 25,154,000
Export and foreign customers 4,403,000
Other customers 5,108,000
-----------
$ 62,249,000
===========
The Company generally does not require collateral to secure its trade
receivables.
(c) Major Customers
Net sales of approximately $96,000,000 were made to two major
customers during 2000.
13
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(4) Inventories
A summary of inventories as of December 31, 2000 is as follows:
Raw materials $ 12,185,855
Work-in-process 7,897,348
Finished goods 14,469,418
-----------
34,552,621
Reduction to LIFO cost basis 15,616,396
-----------
$ 18,936,225
===========
Inventories valued using the LIFO method comprised approximately 68% of
consolidated inventories at December 31, 2000.
(5) Impairment of Assets
During 2000, the Company decided to discontinue one of its product lines
and valued the related assets at net realizable value. Accordingly, the
Company recognized approximately $2,559,000 of impairment in certain
equipment, inventory and maintenance supplies related to this product line.
This impairment is reflected in the consolidated financial statements as
impairment of assets. See note (14) also for additional impairment recorded
related to the Company's foreign operations.
(6) Goodwill
Goodwill is comprised of APCOM, Inc.'s purchase of a competitor's assets,
net of amortization of $601,141.
14
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(7) Long-term Debt
A summary of long-term debt as of December 31, 2000 is
as follows:
Revolving credit agreements totaling $64,000,000,
interest payable at variable rates subject to interest
rate swap contracts, maturing in August 2002. See
note 8. $ 32,790,421
Term note payable agreements totaling $25,000,000 due
in quarterly installments of $1,000,000, plus interest
subject to interest rate swap contracts, to July 2002,
with the unpaid balance due in August 2002. 13,361,363
Capital expenditure note payable agreements totaling
$7,000,000 due in quarterly installments of $125,000,
plus interest subject to interest rate swap contracts,
to July 2002, with the unpaid balance due in August
2002. 2,000,000
Other 509,780
-----------
Total long-term debt $ 48,661,564
===========
See note (19) for subsequent events affecting long-term debt.
This debt is secured by substantially all assets of the Company.
The Company has entered into interest rate swap contracts that limited the
interest rate to 9.35% at December 31, 2000 for the term and capital
expenditure note payable agreements and a portion of the revolving credit
agreements (approximately $19,600,000 at December 31, 2000), up to a total
debt of $35,000,000. The remaining revolver balance at December 31, 2000
was subject to a 9.75% interest rate. These interest rate swap contracts
expire in March of 2003 and 2005. If the Company terminates the swap
contracts prior to their maturity dates a significant early termination fee
could be required.
The provisions of the debt agreements place certain restrictions and
limitations upon the Company and its subsidiaries. These include
maintenance of certain financial ratios and restrictions or limitations on
the payment of dividends, capital expenditures, advances to related parties
and affiliates, investments, sales or rentals of property, and additional
borrowings.
15
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(7) Long-term Debt, Continued
The Company was in violation of several covenants as of December 31, 2000
for which a subsequent forbearance agreement with the lenders was
negotiated. See note 18.
Management believes that the carrying amount of its long-term debt
approximates fair value considering current economic and operational
conditions.
(8) Self-Insurance Liabilities
The Company self-insures its product liability claims, up to $3,000,000 per
claim and $6,000,000 for total claims in each policy year, with insurance
coverage obtained for claims in excess of those amounts. The Company also
self-insures its workers' compensation and auto claims with insurance
coverage obtained for claims over $250,000.
As of December 31, 2000, the Company's accrual for these self-insurance
liabilities amounted to approximately $31,000,000 on a gross basis and
$26,800,000 on a discounted basis using a 6% discount rate.
The Company provided a letter of credit of $2,500,000 at December 31, 2000
related to this insurance coverage which, along with two other letters of
credit totaling $975,000 related to other matters, reduces the Company's
available credit under its revolving credit agreements. See note 7.
Additionally, as of December 31, 2000, approximately $190,000 of deposits
classified as other assets are pledged to third parties related to this
self-insurance. The Company has also posted a surety bond in the amount of
$1,500,000 related to this self-insurance.
16
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(9) Pension Plans
(a) State Industries, Inc.
State Industries, Inc. sponsors a noncontributory defined benefit pension
plan for substantially all of its employees. Pension benefits begin to vest
after three years of service and are based on years of service and average
salary of the highest five consecutive calendar years. The Company's
funding policy is to contribute funds to a trust as necessary to provide
for current service and for any unfunded benefit obligation over a
reasonable period. To the extent that these requirements are fully covered
by assets in the trust, a contribution may not be made in a particular
year. The plan had an excess of plan assets over its projected benefit
obligation in 1986 when FAS No. 87 was adopted. This transition asset is
being amortized to offset annual pension expense over fifteen years.
Information regarding the plan as of December 31, 2000 is as follows:
Benefit obligation $ 57,688,955
Fair value of plan assets (56,368,135)
-------------
Funded status $ (1,320,820)
=============
Accrued benefit cost recognized in the
consolidated financial statements $ 5,831,476
=============
Benefit cost $ (575,988)
=============
Employer Contribution $ -
Benefits paid $ 2,501,300
=============
Assumptions used in determining the preceding pension information as of
December 31, 2000 are as follows:
Discount rate 7.75%
Expected return on plan assets 8.5%
Rate of compensation increase 5%
The Company converted this pension plan to a cash balance plan as of
January 1, 1999.
The Company does not anticipate paying any significant amounts of the
recognized accrued benefit cost during 2001. Accordingly, this liability is
reflected as long-term in the consolidated financial statements.
It is reasonably possible the funded status and/or accrued benefit cost
related to the plan could change materially in the near term due to
assumption changes, market fluctuations or other matters.
17
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(9) Pension Plans, Continued
(a) State Industries, Inc., Continued
Effective January 1, 1999, State Industries, Inc. implemented a 401(k)
defined contribution plan that covers substantially all of its
employees. According to the provisions of the plan, the Company will
match 50% of each participant's salary deferral up to 5% of their
salary. Employer matching contributions begin to vest after one year
of credited service and are fully vested after five years.
Contributions to this plan amounted to approximately $780,000 for
2000.
State Industries, Inc. has entered into a deferred compensation
agreement with certain of its key employees. Under the terms of the
agreement, the employees defer a portion of their salary annually, to
be received upon their retirement. No deferrals can be made until
2000. The minimum deferral that can be made is $1,000 and the maximum
is 25% of the participant's salary and 95% of the participant's bonus.
Company matching contributions are made at management's discretion and
have been set at 50% of the first 10% of compensation deferred during
2000. Matching contributions of approximately $64,000 were made during
2000.
(b) APCOM, Inc.
APCOM, Inc. sponsors a separate money purchase pension plan covering
substantially all its employees. Employer contributions are made in
amounts equal to a certain percentage of employee compensation. The
expense associated with this plan was approximately $684,000 during
2000. The Company also sponsors a 401(k) plan. The Company is not
required to contribute to this plan and did not contribute during
2000.
Effective December 1998, APCOM entered into a deferred compensation
agreement with one of its officers. Under the terms of the agreement,
the Company will pay $20,000 per month to the officer upon his
retirement (effective July 1999) for the officer's life or his
spouse's life, if he predeceases her.
(10) Self-Insured Medical Plans
The Company and its subsidiary, APCOM, Inc., both sponsor medical benefit
plans for all full-time employees and their dependents. The contribution
rate of employees is based upon the number of years of employment and type
of coverage. The Company and its subsidiary contributes any additional
amount required to provide benefits. The contributions for both plans
amounted to approximately $8,600,000 during 2000.
18
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(11) Income Taxes
The provision for income taxes during 2000 is as follows:
Current tax expense:
Federal $ 26,279
State 23,134
----------
Total current tax expense 49,413
Deferred income tax benefit:
Federal $ (8,624,642)
State (1,310,918)
-----------
Total deferred income tax benefit (9,935,560)
Increase in valuation allowance 3,932,200
----------
Total provision for income taxes $(5,953,947)
==========
The Company and its U.S. subsidiaries file a consolidated federal income
tax return on a calendar year basis with its parent, Ocelot Oil Corp.
Federal net operating loss carryforwards of the consolidated group
approximate $5,500,000 at December 31, 2000 and are generally available for
federal tax purposes from 2017 through 2020.
Net deferred income taxes in the balance sheet as of December 31, 2000
include the following amounts of deferred income tax assets and
liabilities:
Current Long-term Total
------- --------- -----
Deferred income tax assets $ 13,369,320 21,028,343 34,397,663
Deferred income tax liabilities - (2,640,505) (2,640,505)
----------- ----------- -----------
Net deferred tax assets 13,369,320 18,387,838 31,757,158
Less valuation allowance - (5,241,800) (5,241,800)
----------- ----------- -----------
$ 13,369,320 13,146,038 26,515,358
=========== =========== ===========
19
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(11) Income Taxes, Continued
Realization of the net deferred income tax assets of approximately
$26,500,000 at December 31, 2000 is dependent on the Company generating
sufficient taxable income with which to utilize the temporary differences
and loss carryforwards giving rise to these assets. Although realization is
not assured, management believes it is more likely than not that all of the
deferred income tax assets will ultimately be realized. It is reasonably
possible that the amount of the deferred income tax assets considered
realizable, however, could be substantially reduced in the near term if the
Company does not return to a profitable level of operations. The
realization of the deferred income tax asset related to federal loss
carryforwards (approximately $2,100,000 at December 31, 2000) could also be
substantially reduced if limitations on the utilization of such
carryforwards arise due to ownership changes in the Company. Certain credit
carryovers may also expire before they can be utilized. The valuation
allowance of approximately $5,200,000 as of December 31, 2000 was
established to reduce the net deferred income tax assets to the amount that
will more likely than not be realized because of these factors.
During 1997, the Internal Revenue Service (IRS) commenced an examination of
Ocelot Oil Corp.'s income tax return for the 1994 to 1997 tax years. During
2001, the IRS completed the examination and determined that there was no
deficiency or overassessment for these tax years.
During 2000 and 2001, the Company filed for income tax refunds totaling
approximately $6,300,000 related to carryback of losses incurred in 2000
and prior years due to product liability payments. The Company collected a
portion of these refunds during 2001 and, accordingly, the receivable
related to that portion has been classified as a current asset in the
consolidated financial statements. The remaining receivable is not expected
to be received until 2002 or later and has been classified as a long-term
asset in the consolidated financial statements.
See note (19) for subsequent events.
(12) Advertising Costs
Advertising costs of approximately $9,100,000 were expensed during 2000.
20
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(13) Research and Development Costs
Research and development costs of approximately $2,500,000 were expensed
during 2000.
(14) Foreign Operations
The operations of the Company's foreign-based subsidiaries accounted for
approximately 4% of the Company's net sales during 2000 and for
approximately 3% of the Company's total assets as of December 31, 2000.
As of December 31, 2000, the Company considered the value of certain assets
of its European manufacturing subsidiaries State France S.A. and Societe
Thermique de Valence (S.T.V.) to be impaired. A summary of the assets and
their approximate impairment is as follows:
Accounts receivable $ 1,040,000
Inventories 2,770,000
Property, plant and equipment 1,520,000
Goodwill 2,390,000
Other 80,000
-----------
Total impairment $ 7,800,000
===========
This impairment is reflected in the consolidated financial statements as
impairment of assets.
See note (19) for subsequent events affecting foreign subsidiaries.
21
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements
December 31, 2000
(15) Commitments
(a) Operating Lease Agreements
The Company utilizes data processing and transportation equipment under
lease arrangements classified as operating leases. Total rent expense
amounted to approximately $5,800,000 during 2000. Transportation equipment
rental related to product delivery is presented as a reduction of sales.
Rent expense includes contingent rentals for transportation equipment,
which is based on miles driven.
The following is a schedule by years of the approximate future minimum
lease payments required under the non-cancelable operating leases as of
December 31, 2000:
Other Transportation
Year Equipment Equipment Total
---- --------- --------- -----
2001 $ 163,000 2,866,000 3,029,000
2002 119,000 1,960,000 2,079,000
2003 83,000 1,477,000 1,560,000
2004 69,000 756,000 825,000
2005 - 619,000 619,000
Later years - 1,054,000 1,054,000
---------- ----------- -----------
$ 434,000 8,732,000 9,166,000
========== =========== ===========
Insurance and maintenance expenses related to operating leases are
generally the obligation of the Company. It is expected that in the normal
course of business, most operating leases that expire will be renewed or
replaced by similar leases; thus, it is anticipated that future rent
expense will not be substantially less than the expense amount shown for
2000.
22
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(15) Commitments, Continued
(b) Trademark License Agreement
The Company has entered into a trademark license agreement with a customer.
The terms of the agreement require the Company to pay this customer
royalties equal to 3% to 5% of net sales through December 31, 2002 with
minimum royalty payments of $1,108,000 due in 2001 and $1,400,000 in 2002.
The agreement is subject to renewal for an additional five years if certain
performance goals are achieved. Royalties under this agreement amounted to
approximately $1,392,000 during 2000.
(c) Other
The Company has entered into an employment contract with an officer. Under
the terms of the agreement, certain payments to this officer may be
required based on the value of the Company upon the termination of his
employment or change in control of the Company.
(16) Contingencies
(a) Class Action Lawsuit
A class action suit was filed against the Company in 1999 related to
certain water heaters manufactured from 1989 to the present. The suit
alleges that the water heaters were defective and seeks to hold the Company
responsible for the cost of replacing all such heaters that have not yet
failed, reimbursement for all costs incurred by the class for replacement
costs, and compensation for all property damage that class members have
suffered from leaks. In May 1999, the class was certified by the court.
During 2000, the Company reached a settlement related to this lawsuit and
this settlement was approved by the Trial Court in July 2000. Based on this
settlement, the estimated liability related to this lawsuit ranges from
$10,600,000 to approximately $40,000,000.
During 2000, certain members of the class objected to the settlement and
appealed the Trial Court's ruling. During this appeal, the Appeals Court
reversed the certification of the class. This certification reversal was
appealed by the plaintiffs but the appeal was denied. Any payments related
to this matter have been delayed pending the outcome of this process. As
this matter develops, it is reasonably possible management's estimate of it
could change and a change in the accrual could be required.
See note (19) for subsequent events affecting this class action lawsuit.
23
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(16) Contingencies, Continued
(b) Other
There are numerous legal proceedings pending against the Company
related to product liability, workers compensation, and auto claims.
These are covered under the Company's self-insurance plan (see note 8)
and through excess coverage insurance. In the opinion of management,
any liabilities in excess of such insurance would not have a material
adverse effect on the Company's consolidated financial position.
Additionally, there are several other legal proceedings pending
against the Company related to employee discrimination/harassment and
environmental matters. The Company is uninsured in these matters but
management does not expect the ultimate resolution of these matters to
have a material adverse effect on the Company's consolidated financial
position.
As these matters develop, it is reasonably possible management's
estimate of their effect could change and an accrual for additional
liabilities could be required.
(17) Related Party Transactions
The Company has entered into a management agreement with Ocelot, its
parent. This agreement superseded a similar agreement with State Holding
Company, a wholly-owned subsidiary of Ocelot, which was merged into Ocelot
during 1997. The terms of this agreement require the Company to fund
Ocelot's operations with a management fee equal to the principal and
interest requirements of Ocelot's debt and other costs incurred, including
income taxes. Management fee expense amounted to approximately $2,998,000
during 2000.
24
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Consolidated Financial Statements, Continued
December 31, 2000
(18) Management's Plans for Future Operations
The Company incurred losses of approximately $20,650,000 during 2000. These
losses were exacerbated by various factors, including competitive
pressures, the 1998 loss of a key customer, loss on impairment of assets of
one of its subsidiaries and several other non-recurring charges (see notes
5, 16{a} and 14).
These situations caused the Company to be in violation of several
provisions of its loan agreement with its lender at times during this
period. As a result, the Company operated under forbearance agreements with
this lender during much of 2000 and 2001.
In response to these situations, management has and continues to implement
a cost reduction and manufacturing efficiency program, including
initiatives such as reductions in work force, discontinuation of
unprofitable production lines, increased employee contribution to health
care programs, reduction in private trucking fleet cost, decrease in
discretionary advertising and other selling expenses, ergonomic measures to
reduce workers' compensation claims, and savings in the purchase of raw
material commodities.
The ability of the Company to continue as a going concern is dependent upon
the continued success of the Company's initiatives. The consolidated
financial statements do not include any adjustments that might be necessary
if the Company is unable to continue as a going concern.
See note (19) for subsequent events affecting management's plan for future
operations.
(19) Subsequent Events
On December 28, 2001, 100% of the common stock of the Company was acquired
by A. O. Smith Corporation. Prior to this acquisition, State France S.A.
and Societe Thermique de Valence (S.T.V.) was transferred to the Company's
parent, Ocelot Oil Corp., via a dividend. Additionally, all long-term debt
of the Company was repaid in full and has therefore been classified as
current in the Company's December 31, 2000 consolidated balance sheet.
Based on recent developments in late 2001 related to the class action
lawsuit, the Company has reduced its estimate of the ultimate liability
related to this case. This change in the estimated liability was recognized
in the December 28, 2001 balance sheet of the acquired Company.
25
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Condensed Consolidated Balance Sheet
September 29, 2001
(Dollars in Thousands)
(unaudited)
Assets
Current Assets
Cash and cash equivalents $ 7,033
Receivables 55,703
Inventories (note 2) 18,158
Deferred income taxes 13,619
Other current assets 9,633
------------
Total Current Assets 104,146
Net property, plant and equipment 48,222
Net goodwill and other intangibles 1,411
Deferred income taxes 14,954
Other assets 1,632
------------
Total Assets $ 170,365
============
Liabilities
Current Liabilities
Long-term debt in default (note 3) $ 54,595
Trade payables 49,285
Accrued payroll and benefits 5,608
Accrued liabilities 32,259
Product warranty 4,159
------------
Total Current Liabilities 145,906
Other liabilities 25,339
------------
Total Liabilities 171,245
Stockholder's Deficit
Common Stock 90
Capital in excess of par value 938
Accumulated deficit (1,167)
Accumulated other comprehensive loss (741)
------------
Total Stockholder's Deficit (880)
------------
Total Liabilities and Stockholder's Deficit $ 170,365
============
See accompanying notes to unaudited condensed consolidated financial statements.
26
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Condensed Consolidated Statement of Operations
Nine Months ended September 29, 2001 and September 30, 2000
(Dollars in Thousands)
(unaudited)
September 29, 2001 September 30, 2000
------------------ ------------------
Net sales $235,143 $240,834
Cost of products sold 193,707 201,530
------------------ ------------------
Gross profit 41,436 39,304
Selling, general and administrative expenses 36,764 40,387
Interest expense 3,991 4,312
Other expense - net 2,530 2,606
------------------ ------------------
(1,849) (8,001)
Income tax benefit (773) (2,895)
------------------ ------------------
Net loss $ (1,076) $ (5,106)
================== ==================
See accompanying notes to unaudited condensed consolidated financial statements.
27
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Condensed Consolidated Statement of Cash Flows
Nine Months Ended September 29, 2001 and September 30, 2000
(Dollars in Thousands)
(unaudited)
September 29, September 30,
2001 2000
------------- --------------
Operating Activities
Net loss from continuing operations $ (1,076) $ (5,106)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 7,734 9,388
Net change in current assets and liabilities (7,237) 4,410
Net change in other noncurrent assets and liabilities 1,053 (559)
Other (249) 44
-------------- --------------
Cash Provided by Operating Activities 225 8,177
Investing Activities
Capital expenditures (4,228) (5,618)
-------------- --------------
Cash Used in Investing Activities (4,228) (5,618)
Cash Flow Before Financing Activities (4,003) 2,559
Financing Activities
Debt incurred 5,934 -
Debt retired - (1,311)
-------------- --------------
Cash Provided by (Used in) Financing Activities 5,934 (1,311)
Net increase in cash and cash equivalents 1,931 1,248
Cash and cash equivalents-beginning of period 5,102 2,671
-------------- --------------
Cash and Cash Equivalents - End Period $ 7,033 $ 3,919
============== ==============
See accompanying notes to unaudited condensed consolidated financial statements.
28
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Condensed Consolidated Financial Statements
September 29, 2001
(unaudited)
1. Basis of Presentation
The condensed consolidated financial statements presented herein are based
on interim figures and have not been audited. In the opinion of the
management of State Industries, Inc. (the Company), the accompanying
unaudited consolidated financial statements contain all adjustments which
the Company considers necessary for the fair presentation of its financial
position as of September 29, 2001, and the results of its operations and
cash flows for the nine-month periods ended September 30, 2000 and
September 29, 2001. Results for interim periods presented are not
necessarily indicative of results that may be expected for the entire year.
The consolidated financial statements included herein have been prepared in
accordance with generally accepted accounting principles and the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
certain information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America have been condensed or omitted.
These consolidated financial statements should be read in conjunction with
the Company's audited consolidated financial statements for the year ended
December 31, 2000 which are included with the historical financial
statements filed with this Form 8-K/A.
2. Inventories (Dollars in Thousands)
September 29, 2001
------------------
Finished product $14,491
Work in process 7,703
Raw materials 10,980
------------------
33,174
Allowance to state inventories at
LIFO cost 15,016
------------------
$18,158
==================
29
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Condensed Consolidated Financial Statements, Continued
September 29, 2001
(unaudited)
3. Long-Term Debt in Default
The provisions of the Company's debt agreements place certain restrictions
and limitations upon the Company and its subsidiaries. These include
maintenance of certain financial ratios and restrictions or limitations on
the payment of dividends, capital expenditures, advances to related parties
and affiliates, investments, sales or rentals of property, and additional
borrowings.
The Company was in violation of several covenants as of September 29, 2001.
On October 18, 2001, the Company negotiated a forbearance agreement with
its lenders to be in effect until January 1, 2002. Accordingly, all debt
has been classified as current as of September 29, 2001. See Note 5.
4. Recently Issued Accounting Standards
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards (SFAS) No. 141, "Business Combinations" and
No. 142, "Goodwill and Other Intangible Assets." Under the new rules,
goodwill and indefinite lived intangible assets are no longer amortized but
are reviewed annually for impairment. Separable intangible assets that are
not deemed to have an indefinite life will continue to be amortized over
their useful lives. The amortization provisions of SFAS No. 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With respect
to goodwill and intangible assets acquired prior to July 1, 2001, the
Company will apply the new accounting rules beginning January 1, 2002. The
Company is currently assessing the financial impact SFAS No. 141 and No.
142 will have on its Consolidated Financial Statements and anticipates the
impact will not be material.
5. Subsequent Events
On December 28, 2001, A .O. Smith Corporation acquired all of the issued
and outstanding shares of common stock of the Company from the Company's
parent, Ocelot Oil Corp., pursuant to a Stock Purchase and Sale Agreement
dated as of September 13, 2001. As consideration for the shares of common
stock of the Company, A. O. Smith Corporation paid $57.8 million in cash at
the closing of the acquisition and assumed bank debt and related
liabilities of the Company of $56.3 million. At the closing of the
acquisition, A. O. Smith Corporation retired all of the assumed bank debt.
30
STATE INDUSTRIES, INC. AND SUBSIDIARIES
(A Wholly-Owned Subsidiary of Ocelot Oil Corp.)
Notes to Condensed Consolidated Financial Statements, Continued
September 29, 2001
(unaudited)
6. Contingencies
The Company is a defendant in three lawsuits pending at September 29, 2001,
in state courts in Texas, California, and Alabama. The plaintiffs in each
of these lawsuits are claiming they purchased a water heater manufactured
by the Company which was defective, causing the plaintiffs to incur
expenses for repair, replacement, or property damages. The Company ceased
manufacturing this type of water heater in 1999. The plaintiffs in each
lawsuit are seeking class action status. The Texas lawsuit was certified by
the trial court as a class action in 1999. Subsequently, the Company and
the class representatives entered into a settlement agreement which
provided compensation for the class members. As a result of a class
member's objection to the settlement, the appellate court, in reviewing the
certification of the class and the objection to the settlement, overruled
the trial court and in 2001 ordered the decertification of the class
action. The Texas Supreme Court affirmed the appellate court decision. The
Company filed a separate lawsuit which is pending in the federal District
Court in Dallas, Texas, against the class representatives seeking to have
the court declare that the Company has no obligation under the settlement
agreement. The Company is vigorously contesting all of the claims in the
three lawsuits. The Company believes that were there to be an adverse
outcome with these lawsuits, it would not be material to the Company's
financial condition. The insurer of the Company is disputing the
insurability of these claims. The Company and its insurer are suing each
other in a lawsuit which is pending in the federal District Court in
Nashville, Tennessee, respectively seeking a declaration concerning the
coverage provided, if any, by the insurance policies for these claims.
31
A. O. SMITH CORPORATION
Pro Forma Condensed Consolidated
Financial Statements
(Unaudited)
The following unaudited pro forma condensed consolidated statements of earnings
for the year ended December 31, 2000 and for the nine months ended September 30,
2001 (collectively, the Pro Forma Statements) were prepared to illustrate the
estimated effects of the acquisition (the Acquisition) of all of the issued and
outstanding shares of common stock of State Industries, Inc. (State Industries)
by A. O. Smith Corporation (the Company), as if the acquisition had occurred as
of the beginning of the respective periods presented.
The Pro Forma Statements do not purport to represent what the Company's results
of operations would actually have been if the Acquisition in fact had occurred
as of the beginning of the periods indicated, or to project the Company's
results of operations for any future date or period.
The pro forma adjustments are based upon available information and upon certain
assumptions that the Company believes are reasonable. The Pro Forma Statements
and accompanying notes should be read in conjunction with the historical
consolidated financial statements of the Company, including the notes thereto,
included in its Annual Report on Form 10-K for the year ended December 31, 2001.
The Acquisition will be accounted for using the purchase method of accounting.
The total purchase price of $117.2 million will be allocated to the assets and
liabilities of State Industries based upon their respective fair values, with
the remainder allocated to goodwill. For purposes of the Pro Forma Statements,
such allocation has been made based upon valuations and other studies, which may
be subject to adjustment. Accordingly, the allocation of purchase price included
in the accompanying Pro Forma Statements is preliminary.
The Company included the assets and liabilities of State Industries in its
Consolidated Balance Sheet at December 31, 2001 included in the Company's Annual
Report on Form 10-K for the year ended December 31, 2001, filed on February 21,
2002.
32
Unaudited Pro Forma Condensed Consolidated
Statement of Earnings
Year ended December 31, 2000
(Dollars in Thousands, Except Per Share Amounts)
Historical Pro Forma Adjustments
---------------------------------- ---------------------------------
Eliminate
The Company State State France Other
Industries S.A.(1) Adjustments Pro Forma
---------------------------------- ----------------------------------------------------------
Net sales $1,247,945 $320,598 $(12,367) $16,441 (2) $1,572,617
Cost of products sold 999,821 272,396 (9,692) 13,815 (2) 1,276,340
------------------------------------------------------------------------------------------------
Gross profit 248,124 48,202 (2,675) 2,626 296,277
Selling, general and
Administrative expenses 153,695 54,218 (3,035) (1,946) (2),(4) 202,932
Interest expense 22,102 5,796 (3) 2,059 (3) 29,954
Amortization of intangibles 6,932 - 341 (4) 7,273
Impairment of assets - 10,357 (7,798) - 2,559
Other expense - net 307 4,438 (184) (2,998) (3) 1,563
------------------------------------------------------------------------------------------------
65,088 (26,607) 8,345 5,170 51,996
Provision for (benefit from)
income taxes 23,432 (5,954) (12) 958 (5) 18,424
------------------------------------------------------------------------------------------------
Earnings from continuing
operations $ 41,656 $ (20,653) $ 8,357 $ 4,212 $ 33,572
================================================================================================
Earnings per share of
common stock
Basic $ 1.78 $ 1.43
Diluted $ 1.76 $ 1.42
=========== ===========
See accompanying notes to unaudited pro forma condensed consolidated statements
of earnings.
33
Unaudited Pro Forma Condensed Consolidated
Statement of Earnings
Nine Months ended September 30, 2001
(Dollars in Thousands, Except Per Share Amounts)
Historical Pro Forma Adjustments
---------------------------------- ---------------------------------
Eliminate
The Company State State France Other
Industries S.A.(1) Adjustments Pro Forma
---------------------------------- ----------------------------------------------------------
Net sales $895,615 $235,143 $(10,013) $10,732 (2) $1,131,477
Cost of products sold 735,599 193,707 (7,872) 9,775 (2) 931,209
------------------------------------------------------------------------------------------------
Gross profit 160,016 41,436 (2,141) 957 200,268
Selling, general and
Administrative expenses 109,837 36,764 (1,992) (1,681) (2),(4) 142,928
Interest expense 12,867 3,991 (38) 495 (3) 17,315
Amortization of intangibles 5,200 - 255 (4) 5,455
Other expense - net 1,711 2,530 (25) (2,234) (3) 1,982
------------------------------------------------------------------------------------------------
30,401 (1,849) (86) 4,122 32,588
Provision for (benefit from)
Income taxes 10,793 (773) (10) 1,620 (5) 11,630
------------------------------------------------------------------------------------------------
Earnings from continuing
operations $ 19,608 $ (1,076) $ (76) $ 2,502 $ 20,958
================================================================================================
Earnings per share of
common stock
Basic $ 0.83 $ 0.89
Diluted $ 0.82 $ 0.88
=========== ===========
See accompanying notes to unaudited pro forma condensed consolidated statements
of earnings.
34
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Earnings
(Dollars in Thousands)
(1) Eliminates the accounts of State France S.A., a wholly owned subsidiary of
State Industries, which was not part of the Acquisition.
(2) Represents adjustments to net sales, cost of products sold and selling,
general and administrative expenses which are comprised of the following:
Nine months
Year ended ended
December 31, 2000 September 30, 2001
--------------------------------------
Depreciation of property, plant and equipment (a)
Cost of products sold $ 7,123 $ 5,496
Selling, general and administrative expenses 977 580
Elimination of historical depreciation of property,
plant and equipment
Cost of products sold (9,749) (6,453)
Selling, general and administrative expenses (1,337) (681)
Reclassification of certain expenses to conform
to the Company's presentation (b)
Net sales (16,441) (10,732)
Cost of products sold 16,441 10,732
Elimination of certain expenses that will not be
incurred in the future (c)
Selling, general and administrative expenses (1,345) (1,400)
(a) The valuation of property, plant and equipment is based on a
third-party appraisal of the fair value of such assets. Depreciation
is computed over the remaining estimated useful lives of the
respective assets. The lives of the assets acquired have been adjusted
to reflect the estimated remaining useful lives.
(b) Freight costs incurred by State Industries to deliver product to the
customer have been reclassified to properly reflect such expenses as
costs of products sold rather than as a reduction of sales.
(c) Certain previous owners of State Industries were employees of the
business and are not being retained or replaced in kind, and
therefore, payroll and other expenses associated with these
individuals will not be incurred in the future.
35
Notes to Unaudited Pro Forma Condensed Consolidated Statements of Earnings,
Continued
(Dollars in Thousands)
(3) Represents incremental interest expense based upon the pro forma debt of
the Company following the Acquisition, at the average interest rates of
5.06% and 6.70% for the nine months and year ended September 30, 2001 and
December 31, 2000 respectively, as if the Acquisition had been consummated
as of the beginning of the periods presented. In addition, State Industries
recorded as "Other Expense" a management fee charged by its parent for
interest requirements and other costs incurred relative to the parent's
debt.
(4) Approximately $3.9 million of the purchase price has been allocated to
identifiable intangible assets of which $3.0 million was assigned to the
trademarks that are not subject to amortization. The amortization of the
remaining intangible assets is based on lives which range from 5 to 15
years. Additionally, amortization of State Industries intangible assets of
$241 thousand and $180 thousand for the year ended December 31, 2000 and
the nine months ended September 29, 2001, respectively, has been
reclassified from selling, general and administrative expense to conform to
the Company's presentation.
(5) Represents adjustment to the provision for income taxes on a pro forma
basis to reflect the expected State Industries effective tax rate of
38.25%.
36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: March 12, 2002
A. O. Smith Corporation
By: /s/ John J. Kita
----------------------------
John J. Kita
Vice President, Treasurer and Controller
37
A. O. SMITH CORPORATION
Exhibit Index to Current Report on Form 8-K
Dated December 28, 2001
Exhibit
Number Description
- ------- -----------
(2) Stock Purchase and Sale Agreement, dated as of September 13, 2001, by
and among the shareholders of Ocelot Oil Corp., the beneficiaries of
the Herbert W. Lindahl, Jr. State Industries Trust and the John
Lindahl State Industries Trust, State Industries, Inc. Ocelot Oil
Corp., John R. Lindahl, Herbert W. Lindahl, Jr. and A. O. Smith
Corporation.* [Previously filed with this Current Report on Form 8-K]
(23) Consent of Independent Auditors
- ---------------------------
*The schedules and exhibits to this document are not being filed herewith. The
registrant agrees to furnish supplementally a copy of any such schedule or
exhibit to the Securities and Exchange Commission upon request.
38