FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-475
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
A. O. Smith Profit Sharing Retirement Plan
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
A. O. Smith Corporation
11270 West Park Place
Milwaukee, WI 53224
REQUIRED INFORMATION
1. Not Applicable.
2. Not Applicable.
3. Not Applicable.
4. The A. O. Smith Profit Sharing Retirement Plan (the "Plan") is subject to
the requirements of the Employee Retirement Income Security Act of 1974
("ERISA"). Attached hereto is a copy of the most recent financial
statements and schedules of the Plan prepared in accordance with the
financial reporting requirements of ERISA.
Exhibits
- --------
23.1 Consent of Independent Auditors
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees (or other persons who administer the Plan) have duly caused this annual
report to be signed by the undersigned thereunto duly authorized.
A. O. Smith Profit Sharing Retirement Plan
Date: 06/25/1999 By: /s/Duane R. Carlson
Duane R. Carlson
Manager Pension and Savings Plan
CONTENTS
A. O. Smith Profit Sharing Retirement Plan:
Independent Auditors' Report
- ----------------------------
Financial Statements
- --------------------
Statement of Net Assets Available for Benefits 1
Statement of Changes in Net Assets Available for Benefits 2
Notes to Financial Statements 3-12
Supplementary Information
- -------------------------
A schedule of party-in-interest transactions has not been presented because
there were no party-in-interest transactions which are prohibited by ERISA
Section 406 and for which there is no statutory or administrative exemption.
INDEPENDENT AUDITORS' REPORT
Benefits Committee
A. O. Smith Profit Sharing
Retirement Plan
Milwaukee, Wisconsin
We have audited the accompanying statements of net assets available for benefits
of the A. O. Smith Profit Sharing Retirement Plan as of December 31, 1998 and
1997, and the related statement of changes in net assets available for benefits
for the years then ended. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements, referred to above, of the A. O. Smith
Profit Sharing Retirement Plan as of December 31, 1998 and 1997, and for the
years then ended present fairly, in all material respects, the net assets
available for benefits of the A. O. Smith Profit Sharing Retirement Plan as of
December 31, 1998 and 1997, and the changes in its net assets available for
benefits for the years then ended in conformity with generally accepted
accounting principles.
June 24, 1999 REILLY, PENNER & BENTON LLP
Milwaukee, Wisconsin
A. O. SMITH PROFIT SHARING RETIREMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
December 31,
-------------------------------
Assets: 1998 1997
-------------- ---------------
Investment in A. O. Smith Master
Trust at fair value (Notes 2 and 3) $ 174,643,787 $ 153,090,013
Participant loans at estimated fair value 3,113,126 2,518,338
-------------- ---------------
Total 177,756,913 155,608,351
Receivables:
Interest income 19,494 94,200
Company contribution 3,495,846 3,512,891
Participant contribution 173,362 -
-------------- ---------------
Total receivables 3,688,702 3,607,091
-------------- ---------------
Total Assets 181,445,615 159,215,442
Liabilities:
Due to broker for securities purchased 221,370 76,073
-------------- ---------------
Net assets available for benefits $ 181,224,245 $ 159,139,369
============== ===============
The accompanying notes to the financial statements are an
integral part of this statement.
1
A. O. SMITH PROFIT SHARING RETIREMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
Years ended December 31
-------------------------------
Increases: 1998 1997
-------------- --------------
Investment in A. O. Smith Master
Trust at fair value:
Net investment income $ 1,260,859 $ 2,483,372
Realized gain on investment transactions 20,939,144 33,671,864
Unrealized appreciation
(depreciation) on investments 4,472,555 (2,049,251)
-------------- --------------
Total 26,672,558 34,105,985
Interest income from participant loans 182,271 290,009
-------------- --------------
Total investment income 26,854,829 34,395,994
Contributions:
Company 3,495,846 3,512,891
Participants 5,096,618 5,596,596
Rollovers 255,310 1,286,032
-------------- --------------
Total contributions 8,847,774 10,395,519
Total increases 35,702,603 44,791,513
Decreases:
Benefit and withdrawal payments 14,102,221 14,249,182
-------------- --------------
Net increase before transfers 21,600,382 30,542,331
Transfers from (to) other plans 484,494 (53,337,450)
-------------- --------------
Increase (decrease) in net assets
available for benefits 22,084,876 (22,795,119)
Net assets available for benefits:
Beginning of the year 159,139,369 181,934,488
-------------- --------------
End of the year $ 181,224,245 $ 159,139,369
============== ==============
The accompanying notes to the financial statements are an
integral part of this statement.
2
A. O. SMITH PROFIT SHARING RETIREMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
1. Basis of presentation and significant accounting policies
General - The A. O. Smith Profit Sharing Retirement Plan was established in
1956 to cover salaried or commissioned nonunion employees of the A. O.
Smith Corporation, its subsidiaries and affiliates. Employees are eligible
to participate in the Plan if they are scheduled to complete 1,000 hours of
service in a Plan year. Employees elect to participate by designating a
portion of their salary to be contributed to an account maintained on
behalf of the participant.
Investment valuation - All of the Plan's investments are invested in the A.
O. Smith Profit Sharing Retirement Master Trust (Master Trust) (Note 2)
which are valued at their market price. The financial statements of the
Master Trust are presented separately and are incorporated by reference to
the financial statements of this Plan. The investment in the A. O. Smith
Stable Asset Income Fund is valued at the redemption price established by
the trustee. Participant loans receivable are valued at cost which
approximates fair value.
Contributions and benefit and withdrawal payments - The Plan is a defined
contribution plan to which participants may make contributions of not less
than 1% or more than 16% of their compensation. The Plan provides for all
participant contributions to be made with tax-deferred dollars under
Section 401(k) of the Internal Revenue Code. These contributions are
excluded from the participant's current wages for federal income tax
purposes. The Internal Revenue Code has set a maximum of $10,000 and $9,500
for tax-deferred contributions that may be excluded for any individual
participant in 1998 and 1997, respectively. No federal income tax is paid
on the tax-deferred contributions and growth thereon until the participant
withdraws them from the Plan.
Contributions from participants are recorded when A. O. Smith Corporation
(the Company) makes payroll deductions from Plan participants.
Contributions from the Company are accrued in the period in which they
become obligations of the Company in accordance with terms of the Plan.
For each $1.00 of 401(k) Tax-Deferred contributions, up to 6% of a
participant's salary, the Company guarantees a contribution of $.35.
Additional Company contributions in excess of $.35 will be based on the
Company's return on net worth. The additional Company matching contribution
amount is $.05 times the return on net worth between 5% and 10%, plus $.10
times the return on net worth in excess of 10% up to a maximum of 18%.
Therefore, the guaranteed and additional contributions can combine for a
maximum Company contribution of $1.40 of participant contributions up to 6%
of salary.
3
1. Basis of presentation and significant accounting policies (continued)
Vesting - Participants of the Plan are 0% vested in employer contributions
with less than two years of participation, 40% vested after two years, 60%
after three years, 80% after four years and fully vested after five years
of participation. Participants are always fully vested in their own
contributions.
A separate account is maintained for each participant. The separate account
balances are adjusted periodically as follows:
a. Semi-monthly for participant's contributions.
b. Annually for Company contributions.
c. Daily for a proportionate share of increases and decreases in the fair
value of Plan assets.
d. The accounts are periodically adjusted for forfeitures which are
reallocated to participants in the same manner as if they were a
Company matching contribution for the Plan year.
e. Daily for benefit and withdrawal payments which consist of the
following:
i. Upon retirement, death, disability, or termination of employment
resulting from permanent reduction of personnel, an employee may
withdraw any amount or the entire account balance for any reason.
One withdrawal of this type is allowed per calendar year, up to
age 70 1/2. At 70 1/2 an account distribution election must be
made.
ii. Upon termination of employment for other reasons, the balance in
the separate account (reduced for nonvested Company contributions
and growth thereon based on years of service) may be paid in a
lump sum.
iii.An active participant age 59 1/2 or older may withdraw the balance
in the separate account. The balance in the separate account is
paid to the participant in a lump sum.
iv. A participant may withdraw all or any portion of the principal
balance attributable to after-tax contributions and earnings and
rollover contributions and earnings. All or any portion of the
balance attributable to Company contributions and earnings may
also be withdrawn if the participant has five full years of
employment with the Company.
4
1. Basis of presentation of significant accounting policies (continued)
v. A participant may withdraw at any time any amount attributable to
participant contributions and growth to purchase, prevent
eviction from or foreclosure on, a principal residence or to pay
certain expenses (namely post-secondary education and
unreimbursed medical expenses). Withdrawals may not include
earnings on 401(k) contributions posted to a participant's
account after 1988.
vi. No lump sum cash distribution in excess of $5,000 will be made
without the consent of the participant.
f. Daily for investment allocation changes made by participants.
Participants should refer to the Plan document for a more complete
description of the Plan's provisions.
Realized gains and losses - The realized gains and losses recognized on the
financial statements are calculated by comparing the sales proceeds to the
original cost of the investment as prescribed by generally accepted
accounting principles. The realized gains and losses recognized in the Form
5500 (annual federal filing) are recalculated by comparing the sales
proceeds to the value of the investment at the beginning of the plan year.
If the investment is purchased in the same year as the sale, the gain or
loss is calculated by comparing the sales proceeds to the purchase price.
2. A. O. Smith Profit Sharing Retirement Master Trust
The Plan assets are held in the A. O. Smith Profit Sharing Retirement
Master Trust at the Marshall and Ilsley Trust Company. The Plan offers
eight investment vehicles in which participants may invest their account
balances. The amount of Master Trust assets, income and change in value
which is allocated to the Plan is determined by the ratio of participant
account balances in the Plan to the total participant account balances of
all participating plans. The defined contribution plans participating in
the Master Trust at December 31, 1998, are the A. O. Smith Profit Sharing
Retirement Plan and the A. O. Smith Corporation Savings Plan.
5
2. A. O. Smith Profit Sharing Retirement Master Trust (continued)
Significant information related to the investments in the Master Trust as of and
for the year ended December 31, 1998, is as follows:
December 31, 1998 1998 Change
1998 Balance Income in Value
--------------------- ------------------- ----------------------
a. Registered Investment Company Mutual Funds:
American EuroPacific
Growth Fund $ 3,143,960 $ 483,112 $ (164,779)
* Firstar Growth and Income
Fund 24,928,210 4,805,025 3,724,128
Fidelity Aggressive Equity
Portfolio 54,809,424 13,350,136 6,005,498
Vanguard Institutional Index
Trust Fund 22,594,131 4,849,448 6,801,280
Vanguard Fixed Income
Short-term Corp. Fund 3,934,366 217,164 1,030,319
American Balanced Fund 9,752,324 954,398 917,960
--------------------- ------------------- ----------------------
Subtotal 119,162,415 24,659,283 18,314,406
--------------------- ------------------- ----------------------
b. Common/Collective Trusts:
A. O. Smith Stock Fund 3,204,849 (553,467) 740,063
A. O. Smith Stable Asset
Income Fund 60,173,052 3,050,555 29,558,769
--------------------- ------------------- ----------------------
Subtotal 63,377,901 2,497,088 30,298,832
--------------------- ------------------- ----------------------
c. Short-term, High quality
liquid securities:
A. O. Smith Income Fund - 269,178 (21,267,664)
--------------------- ------------------- ----------------------
d. Cash (66,066) - (66,066)
--------------------- ------------------- ----------------------
Total $ 182,474,250 $ 27,425,549 $ 27,279,508
===================== =================== ======================
* Portico Growth & Income Fund became Firstar Growth & Income Fund during 1998.
2. A. O. Smith Profit Sharing Retirement Master Trust (continued)
Significant information related to the investments in the Master Trust as
of and for the year ended December 31, 1997, is as follows:
December 31, 1997 1997 Change
1997 Balance Income in Value
--------------------- ------------------- ----------------------
a. Registered Investment Company Mutual Funds:
American EuroPacific
Growth Fund $ 3,308,738 $ 573,595 $ (3,791,930)
Firstar Growth and Income
Fund 21,204,082 6,717,437 (8,843,942)
Fidelity Aggressive Equity
Portfolio 48,803,925 16,690,296 (47,408,098)
Vanguard Institutional Index
Trust Fund 15,792,851 4,887,792 (5,881,172)
Vanguard Fixed Income Short-
term Corp. Fund 2,904,048 258,695 (4,536,895)
American Balanced Fund 8,834,364 1,938,404 (7,312,409)
--------------------- ------------------- ----------------------
Subtotal 100,848,008 31,066,219 (77,774,446)
--------------------- ------------------- ----------------------
b. Common/Collective Trusts:
A. O. Smith Stock Fund 2,464,786 698,209 1,415,710
A. O. Smith Stable Asset
Income Fund 30,614,283 1,957,453 (19,415,303)
--------------------- ------------------- ----------------------
Subtotal 33,079,069 2,655,662 (17,999,593)
--------------------- ------------------- ----------------------
c. Short-term, High quality
liquid securities:
A. O. Smith Income Fund 21,267,665 1,554,005 (41,034,025)
--------------------- ------------------- ----------------------
d. Cash 18,200 - 18,200
--------------------- ------------------- ----------------------
Total $155,212,942 $35,275,886 $(136,789,864)
===================== =================== ======================
At December 31, 1998 and 1997, the Plan was allocated 95.701% and 98.632%,
respectively, of the Master Trust assets.
7
3. Investments
Investments held by the Plan at December 31, are as follows:
1998 1997
-------------------------------------------- --------------------------------------------
Fair Fair
Cost Value Cost Value
-------------------- --------------------- --------------------- ---------------------
Investments:
A. O. Smith Profit Sharing
Retirement Master Trust:
Cash $ (49,218) $ (49,218) $ 15,086 $ 15,086
American EuroPacific
Growth Fund 3,006,103 3,127,368 3,349,632 3,297,575
A. O. Smith Stock Fund 3,332,591 3,204,849 2,088,401 2,464,786
A. O. Smith Income Fund - - 19,703,210 19,703,210 (1)
* Portico Growth and
Income Fund 20,395,692 24,647,005 (1) 16,158,520 21,063,483 (1)
Fidelity Aggressive
Equity Portfolio 33,768,100 53,470,170 (1) 32,663,677 48,600,401 (1)
Vanguard Institutional
Index Trust Fund 16,256,965 20,901,926 (1) 12,342,664 15,704,496 (1)
Vanguard Fixed Income
Short-Term Corp. Fund 3,883,144 3,890,406 2,880,398 2,900,137
American Balanced Fund 8,848,245 8,955,555 (1) 8,465,120 8,780,279 (1)
A. O. Smith Stable
Asset Income Fund 53,791,788 56,495,726 (1) 28,485,483 30,560,560 (1)
-------------------- --------------------- --------------------- ---------------------
Total $ 143,233,410 $ 174,643,787 $ 126,152,191 $ 153,090,013
==================== ===================== ===================== =====================
(1) - Investments representing at least 5% of the net assets available for
benefits.
* Portico Growth & Income became Firstar Growth & Income during 1998.
8
3. Investments (continued)
During 1998 and 1997, the Plan's investments appreciated (depreciated) in
fair value by $4,472,555 and ($2,049,251), respectively as follows:
1998 1997
-------------------- -------------------
Investments:
A. O. Smith Profit Sharing
Retirement Master Trust:
American EuroPacific Growth Fund $ 173,322 $ (301,107)
A. O. Smith Stock Fund (504,126) 313,180
A. O. Smith Income Fund - -
* Portico Growth and Income Fund (653,650) 1,778,512
Fidelity Aggressive Equity Portfolio 3,765,346 (4,419,766)
Vanguard Institutional Index Trust Fund 1,283,129 858,203
Vanguard Fixed Income Short-Term
Corp. Fund (12,477) 5,461
American Balanced Fund (207,849) (14,611)
A. O. Smith Stable Asset Income Fund 628,860 (269,123)
-------------------- -------------------
Total $ 4,472,555 $ (2,049,251)
==================== ===================
* Portico Growth & Income became Firstar Growth & Income during 1998.
9
3. Investments (continued)
The Plan provides that contributions to the Plan will be invested in certain
individual programs as directed by each participant. Amounts included in net
assets and changes in net assets in the accompanying financial statements by
investment programs at December 31, are as follows:
1998
-----------------------------------------------------------------------------------------
Investment Benefits
at Fair Investment Paid to
Value Income Contributions Participants
-------------------- -------------------- -------------------- ---------------------
Cash $ (49,218) $ - $ - $ -
American EuroPacific
Growth Fund 3,127,368 482,423 189,683 253,817
A. O. Smith Stock Fund 3,204,849 (553,467) 277,223 73,751
Vanguard Fixed Income
Short-term Corp. Fund 3,890,406 216,358 167,740 193,184
Fidelity Aggressive
Equity Portfolio 53,470,170 13,171,411 2,543,480 3,888,932
A. O. Smith Stable
Asset Income Fund 56,495,726 2,921,622 1,862,533 5,968,503
Vanguard Institutional
Index Trust Fund 20,901,926 4,647,343 1,003,064 1,461,287
A. O. Smith Income Fund - 280,150 1,104,132 652,870
American Balanced Fund 8,955,555 920,373 484,094 227,852
* Firstar Growth and
Income Fund 24,647,005 4,768,616 1,215,825 1,382,025
-------------------- -------------------- -------------------- ---------------------
Total $ 174,643,787 $ 26,854,829 $ 8,847,774 $ 14,102,221
==================== ==================== ==================== =====================
* Portico Growth & Income Fund became Firstar Growth & Income Fund during
1998.
10
3. Investments (continued)
1997
-----------------------------------------------------------------------------------------
Investment Benefits
at Fair Investment Income Paid to
Value Contributions Participants
-------------------- -------------------- -------------------- ---------------------
Cash $ 15,086 $ - $ - $ -
American EuroPacific
Growth Fund 3,297,575 557,578 244,934 326,806
A. O. Smith Stock Fund 2,464,786 698,209 192,129 65,441
Vanguard Fixed Income
Short-term Corp. Fund 2,900,137 251,680 183,497 570,706
Fidelity Aggressive
Equity Portfolio 48,600,401 16,309,168 3,198,871 3,833,643
A. O. Smith Stable
Asset Income Fund 30,560,560 1,941,677 1,439,489 3,822,278
Vanguard Institutional
Index Trust Fund 15,704,496 4,798,346 1,023,585 560,106
A. O. Smith Income Fund 19,703,210 1,372,228 2,258,541 2,651,060
American Balanced Fund 8,780,279 1,868,376 604,442 897,757
Portico Growth and
Income Fund 21,063,483 6,598,732 1,250,031 1,521,385
-------------------- -------------------- -------------------- ---------------------
Total $ 153,090,013 $ 34,395,994 $ 10,395,519 $ 14,249,182
==================== ==================== ==================== =====================
11
4. Income tax status
The Plan obtained its latest determination letter on April 27, 1995, in
which the Internal Revenue Service stated the Plan as then designed, was in
compliance with the applicable requirements of the Internal Revenue Code.
The Plan has been amended since receiving the determination letter.
However, the Plan administrator and the Plan's tax counsel believe that the
Plan is currently designed and being operated in compliance with the
applicable requirements of the Internal Revenue Code. Therefore, no
provision for income taxes has been included in the Plan's financial
statements.
5. Plan termination
While the Company has not expressed any intent to terminate the Plan, it is
free to do so at any time. In the event of termination, each participant
automatically becomes vested to the extent of the balance in his separate
account.
6. 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 in the financial statements.
Actual results could differ from those estimates.
7. Sale of a major division
On April 18, 1997, A. O. Smith Corporation sold its Automotive Products
Company to Tower Automotive. All account balances of the Automotive
Products Company employees, which had been previously invested in the A. O.
Smith Profit Sharing Retirement Master Trust, including in addition all
accounts of the A. O. Smith Employee Savings Plan, the A. O. Smith Employee
401(k) Savings Plan, and the A. O. Smith Saving and Investment Plan, were
transferred to Tower Automotive's defined contribution plan by September
30, 1997.
12