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A.O. Smith Earnings of $1.84 Per Share Set Record; Fourth Quarter Earnings Increase 18 Percent to $.45 Per Share

MILWAUKEE, Wis., Jan. 19 -- Propelled by the performance of its two largest operating units, A.O. Smith Corporation (NYSE: AOS; Amex: SMCA) today announced record 1998 earnings of $44.5 million or $1.84 per share.

Per share earnings were more than 38 percent higher than the $1.33 per share earned in 1997. Earnings from continuing operations increased nearly $7 million from 1997's total of $37.6 million. Sales for the year were $917.6 million, more than 10 percent higher than 1997 sales of $832.9 million.

For the fourth quarter, earnings from continuing operations were $10.7 million or $.45 per share, compared with fourth quarter 1997 earnings of $9.7 million or $.38 per share. Fourth quarter sales of $224.7 million were more than nine percent higher than fourth quarter 1997 sales of $205.8 million.

"Our Electric Motor Technologies platform achieved record sales and profits for the fourth consecutive year, while Water Systems Technologies' sales and profits improved over the prior year," Robert J. O'Toole, chairman and chief executive officer, observed. "Their performance enabled the company to overcome the difficulties we faced in our storage and fiberglass pipe markets in 1998."

Electric Motor Technologies, A.O. Smith's largest platform, benefited from the resurgence of the domestic air conditioning market in 1998, a full year of sales and profits from its UPPCO operations, acquired in March of 1997, and six months' sales and profits from its hermetic motor operations in Scottsville, Ky., acquired July 1, 1998. The platform's sales of $480 million were more than $89 million higher than the prior year, and operating profits increased more than 20 percent over the prior year.

A.O. Smith's sales of hermetic motors grew more than 48 percent over the prior year, benefiting from the record-setting performance of the domestic air conditioning industry as well as six months' sales from the Scottsville operation. Sales of fractional horsepower motors for the pump market segment and subfractional horsepower motors also grew over the prior year.

Water Systems Technologies' 1998 sales reached a record $294.8 million, approximately three percent higher than the prior year. Operating profits improved over the prior year, as higher volumes in the commercial water heating segment of the market and cost reductions helped to overcome pricing pressure in the residential segment and losses associated with the start-up of the company's operation in China.

A.O. Smith strengthened its leading position in the commercial water heating segment in 1998, with sales of commercial water heaters and boilers increasing more than eight percent. Water Systems Technologies took advantage of increased demand for replacement water heaters and a strong commercial construction market, as well as benefiting from continued growth of new products such as the Cyclone XHE® water heater.

Weakness in the petroleum production, chemical, and agricultural markets contributed to lower sales and profits for the Storage & Fluid Handling Technologies Platform in 1998. Low oil and chemical prices had an adverse impact on capital spending, resulting in reduced demand for storage tanks and fiberglass pipe. Sales declined more than seven percent in 1998 to $142.8 million. Operating profits were significantly lower than the prior year.

1999 Outlook

"Our outlook for the coming year remains the same as we have described it in prior public announcements," O'Toole said. "We believe the Electric Motors Technologies platform will have another good year, due to a full year of sales and profits from the Scottsville acquisition, the new Tier I agreement with York International, and the overall condition of the domestic air conditioning, heating, and refrigeration industry. We are cautiously optimistic about the domestic water heating market. The anticipated performance of these two units should help offset continued difficulties in Storage & Fluid Handling.

"We will continue to aggressively pursue acquisitions such as UPPCO and Scottsville in 1999 and consider that effort to be a very important element in our growth strategy. Although we believe 1999 per share earnings, excluding acquisitions, will increase over 1998, accretive acquisitions will be required to get us to our target of 15 percent annual growth in earnings per share," O'Toole concluded.

Forward-looking statements

This press release contains forward-looking statements. Although the company believes that its expectations are based upon reasonable assumptions within the bounds of its knowledge of its business, there can be no assurance that its financial goals will be realized. Although a significant portion of the company's sales are derived from the replacement of previously installed product, and such sales are therefore less volatile, numerous factors may affect actual results and cause results to differ materially from those expressed in forward-looking statements made by or on behalf of the company. Among such numerous factors, the company includes: the continued growth of the world-wide air conditioning, heating, and refrigeration market; the weather and its impact on the heating and air conditioning market; the pricing environment for residential water heaters; capital spending trends in the oil, petrochemical, and chemical markets; and the successful development of the company's business venture in China.

A.O. Smith Corporation is a diversified manufacturer with headquarters in Milwaukee, Wis. Its major product line include: fractional horsepower, hermetic, and subfractional horsepower electric motors; residential and commercial water heaters; municipal, industrial, and agricultural storage tanks; and fiberglass reinforced plastic pipe.

                   A.O.  SMITH CORPORATION AND SUBSIDIARIES
               (condensed consolidated financial statements --
                     $000 omitted except per share data)

Statement of Earnings

Three Months ended Year ended Continuing December 31 December 31 Sales 1998 1997 1998 1997 Electric Motor Technologies $119,043 $91,970 $479,956 $390,749 Water Systems Technologies 74,298 76,240 294,832 287,458 Storage & Fluid Handling Technologies 31,339 37,577 142,781 154,730 Net Sales 224,680 205,787 917,569 832,937

Costs and Expenses Cost of Products Sold 178,298 165,421 730,543 662,227 Selling, General and Administrative 26,017 24,748 106,622 106,999 Interest Expense 1,696 1,160 6,887 7,762 Interest Income (549) (2,665) (3,828) (9,035) Other Expense 2,041 1,243 4,382 3,328 Tax Provision 5,696 5,356 25,283 21,359 Total Costs and Expenses 213,199 195,263 869,889 792,640

Earnings Before Equity in Loss of Joint Ventures 11,481 10,524 47,680 40,297 Equity in Loss of Joint Ventures (771) (779) (3,189) (2,744) Earnings from Continuing Operations 10,710 9,745 44,491 37,553

Continuing Earnings Per Share of Common Stock (Diluted) $.45 $.38 $1.84 $1.33

Average Common Shares Outstanding (000's omitted) 23,791 25,918 24,184 28,191

A.O. SMITH CORPORATION Balance Sheet

December 31 December 31 1998 1997 ASSETS:

Cash and cash equivalents $37,666 $145,896 Receivables 133,764 126,232 Inventories 99,984 79,049 Deferred income taxes 11,376 11,849 Other current assets 4,599 2,702

Total Current Assets 287,389 365,728

Net property, plant and equipment 248,770 207,756 Investments in and advances to joint ventures 2,449 25,605 Goodwill 146,901 51,783 Other assets 81,923 65,644

Total Assets $767,432 $716,516

LIABILITIES AND STOCKHOLDERS' EQUITY:

Trade payables $57,429 $61,299 Accrued payroll and benefits 31,385 26,397 Product warranty 7,892 7,972 Income taxes 6,786 6,607 Long-term debt due within one year 4,629 5,590 Other current liabilities 24,036 20,017

Total Current Liabilities 132,157 127,882

Long-term debt 131,203 100,972 Other liabilities 60,636 59,515 Deferred income taxes 42,343 28,442 Stockholders' equity 401,093 399,705

Total Liabilities and Stockholders' Equity $767,432 $716,516

A.O. SMITH CORPORATION STATEMENT OF CASH FLOWS

Year ended December 31 1998 1997 Operating Activities Continuing Net earnings $44,491 $37,553

Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation & amortization 30,105 26,286 Equity in loss of joint ventures 3,189 2,744 Net change in current assets and liabilities (3,564) 7,212 Net change in noncurrent assets and liabilities 1,719 4,958 Other 1,659 1,495 Cash Provided by Operating Activities 77,599 80,248

Investing Activities Capital expenditures (27,876) (44,886) Capitalized purchased software costs (2,139) (1,295) Investment in joint ventures (7,138) (13,719) Acquisition of business (126,273) (60,918) Cash Used by Investing Activities (163,426) (120,818)

Cash Used by Continuing Operations before Financing Activities (85,827) (40,570)

Discontinued Cash Provided / (Used) by Discontinued Operations before Financing Activities (2,941) 508,463

Financing Activities Long-term debt incurred 30,028 -- Long-term debt retired (5,590) (143,816) Purchase of common stock held in treasury (33,288) (176,550) Proceeds from common stock options exercised 271 3,757 Tax benefit from exercise of stock options 168 884 Dividends paid (11,051) (12,677) Cash Used by Financing Activities (19,462) (328,402)

Net increase/(decrease) in cash and cash equivalents (108,230) 139,491 Cash and cash equivalents - beginning of period 145,896 6,405

Cash and Cash Equivalents - End of Period $37,666 $145,896

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