# Table	of	Contents

# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# ANNUAL	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

	For	the	fiscal	year	ended	December	31,	2010

# TRANSITION	REPORT	PURSUANT	TO	SECTION	13	OR	15(d)	OF	THE	SECURITIES	EXCHANGE	ACT	OF	1934

Commission	File	Number	1-475

# A.	O.	Smith	Corporation

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	of	Incorporation)

11270	West	Park	Place,	Milwaukee,	Wisconsin

(Address	of	Principal	Executive	Office)

(I.R.S.	Employer	Identification	No.)

(Zip	Code)

Registrant's	telephone	number,	including	area	code

Securities	registered	pursuant	to	Section	12(b)	of	the	Act:

Securities	registered	pursuant	to	Section	12(g)	of	the	Act:	None.

Indicate	by	check	mark	if	the	registrant	is	a	well-known	seasoned	issuer,	as	defined	in	Rule	405	of	the	Securities	Act.

Indicate	by	check	mark	if	the	registrant	is	not	required	to	file	reports	pursuant	to	Section	13	or	Section	15(d)	of	the	Act.

Indicate	by	check	mark	whether	the	registrant	(1)	has	filed	all	reports	required	to	be	filed	by	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934	during	the preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was	required	to	file	such	reports),	and	(2)	has	been	subject	to	such	filing	requirements	for	the	past	90 days.

Indicate	by	check	mark	whether	the	registrant	has	submitted	electronically	and	posted	on	its	corporate	Web	site,	if	any,	every	Interactive	Data	File	required	to	be submitted	and	posted	pursuant	to	Rule	405	of	Regulation	S-T	(§232.405	of	this	chapter)	during	the	preceding	12	months	(or	for	such	shorter	period	that	the	registrant	was required	to	submit	and	post	such	files).

Indicate	by	check	mark	if	disclosure	of	delinquent	filers	pursuant	to	Item	405	of	Regulation	S-K	(§229.405	of	this	chapter)	is	not	contained	herein,	and	will	not	be contained,	to	the	best	of	registrant's	knowledge,	in	definitive	proxy	or	information	statements	incorporated	by	reference	in	Part	III	of	this	Form	10-K	or	any	amendment to	this	Form	10-K.																					þ

Indicate	by	check	mark	whether	the	registrant	is	a	large	accelerated	filer,	an	accelerated	filer,	or	a	non-accelerated	filer.	See	definition	of	"accelerated	filer	and	large accelerated	filer"	in	Rule	12b-2	of	the	Exchange	Act.	(Check	one):

The	aggregate	market	value	of	voting	stock	held	by	non-affiliates	of	the	registrant	was	$27,126,427	for	Class	A	Common	Stock	and	$783,934,922	for	Common	Stock	as of	June	30,	2010.

# DOCUMENTS	INCORPORATED	BY	REFERENCE

1. Portions	of	the	company's	definitive	Proxy	Statement	for	the	2011	Annual	Meeting	of	Stockholders	(to	be	filed	with	the	Securities	and	Exchange	Commission under	Regulation	14A	within	120	days	after	the	end	of	the	registrant's	fiscal	year	and,	upon	such	filing,	to	be	incorporated	by	reference	in	Part	III).

# Index	to	Form	10-K

| Item	1. | Business | 3 |
| :--- | :--- | :--- |
| Item\t1A. | Risk\tFactors | 5 |
| Item\t1B. | Unresolved\tStaff\tComments | 10 |
| Item\t2. | Properties | 10 |
| Item\t3. | Legal\tProceedings | 10 |
| Item\t4. | Submission\tof\tMatters\tto\ta\tVote\tof\tSecurity\tHolders | 10 |
| Part\tII |  |  |
| Item\t5. | Market\tfor\tRegistrant's\tCommon\tEquity,\tRelated\tStockholder\tMatters\tand\tIssuer\tPurchases\tof\tEquity\tSecurities | 13 |
| Item\t6. | Selected\tFinancial\tData | 15 |
| Item\t7. | Management's\tDiscussion\tand\tAnalysis\tof\tFinancial\tCondition\tand\tResults\tof\tOperations | 16 |
| Item\t7A. | Quantitative\tand\tQualitative\tDisclosures\tAbout\tMarket\tRisk | 24 |
| Item\t8. | Financial\tStatements\tand\tSupplementary\tData | 25 |
| Item\t9. | Changes\tin\tand\tDisagreements\twith\tAccountants\ton\tAccounting\tand\tFinancial\tDisclosure | 55 |
| Item\t9A. | Controls\tand\tProcedures | 55 |
| Item\t9B. | Other\tInformation | 55 |
| Part\tIII |  |  |
| Item\t10. | Directors,\tExecutive\tOfficers\tand\tCorporate\tGovernance | 57 |
| Item\t11. | Executive\tCompensation | 57 |
| Item\t12. | Security\tOwnership\tof\tCertain\tBeneficial\tOwners\tand\tManagement\tand\tRelated\tStockholder\tMatters | 57 |
| Item\t13. | Certain\tRelationships\tand\tRelated\tTransactions\tand\tDirector\tIndependence | 58 |
| Item\t14. | Principal\tAccounting\tFees\tand\tServices | 58 |
| Part\tIV |  |  |
| Item\t15. | Exhibits,\tFinancial\tStatement\tSchedules | 59 |

# PART	1

# ITEM	1	-	BUSINESS

We	are	a	leading	manufacturer	of	water	heating	equipment,	serving	a	diverse	mix	of	residential	and	commercial	end	markets	principally	in	the	United	States	with	a growing	international	presence.	Our	company	is	comprised	of	one	reporting	segment:	Water	Products.	Our	Water	Products	business	manufactures	and	markets	a comprehensive	line	of	residential	gas,	gas	tankless	and	electric	water	heaters,	standard	and	specialty	commercial	water	heating	equipment,	high-efficiency	copper-tube boilers,	water	treatment	products	and	water	systems	tanks.

On	December	12,	2010,	we	entered	into	a	definitive	agreement	to	sell	our	Electrical	Products	business	to	Regal	Beloit	Corporation	for	$700	million	in	cash	and approximately	2.83	million	shares	of	Regal	Beloit	Corporation	common	stock.	The	transaction	is	expected	to	close	in	the	first	half	of	2011,	subject	to	regulatory approvals	 and	 customary	 closing	 conditions.	 Due	 to	 the	 pending	 sale,	 our	 Electrical	 Products	 segment	 has	 been	 reflected	 as	 discontinued	 operations	 in	 the accompanying	financial	statements	for	all	periods	presented.	For	further	information	about	the	Electrical	Products	segment,	see	Note	2	to	the	Consolidated	Financial Statements,	entitled	"Discontinued	Operations"	which	appears	on	page	36.

The	following	table	summarizes	our	sales	from	continuing	operations.	This	summary	and	all	other	information	presented	in	this	section	should	be	read	in	conjunction with	the	Consolidated	Financial	Statements	and	Notes	to	Consolidated	Financial	Statements,	which	appear	in	Item	8	in	this	document.

|  | Years	Ended	December	31	(dollars	in	millions) | Years	Ended	December	31	(dollars	in	millions) | Years	Ended	December	31	(dollars	in	millions) | Years	Ended	December	31	(dollars	in	millions) |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2010 | 2009 | 2008 | 2007 | 2006 |
| Water\tProducts | $1,489.3 | $1,375.0 | $1,451.3 | $1,423.1 | $1,260.8 |

# WATER	PRODUCTS

In	our	Water	Products	business,	sales	increased	8	percent	or	$114.3	million	in	2010	compared	with	the	prior	year.	A	30	percent	increase	in	sales	of	water	heaters	in China	and	a	full	year	of	sales	from	our	2009	water	treatment	acquisition	represent	the	majority	of	the	increase.

We	serve	residential	and	commercial	end	markets	in	North	America	with	a	broad	range	of	products,	including:

Residential	gas,	gas	tankless	and	electric	water	heaters.	Our	residential	water	heaters	come	in	sizes	ranging	from	2.5	gallon	(point-of-use)	models	to	119	gallon appliances	with	varying	efficiency	ranges.	We	offer	electric,	natural	gas	and	liquid	propane	models	as	well	as	solar	tanks	and	gas	tankless	units	for	today's	energy efficient	homes.	North	American	residential	water	heater	sales	in	2010	were	approximately	$850	million	or	57	percent	of	company	revenues.

Commercial	(standard	and	specialty)	water	heaters.	Our	gas,	oil,	electric	and	tankless	water	heaters	come	in	capacities	ranging	from	6	gallons	to	594	gallons	and	are used	by	customers	who	require	a	consistent,	economical	source	of	hot	water.	Typical	applications	include	restaurants,	hotels	and	motels,	laundries,	car	washes	and	small businesses.

Our	Water	Products	business	also	manufactures	copper-tube	boilers	and	expansion	tanks	and	related	products	and	parts.

A	significant	portion	of	our	Water	Products	business	is	derived	from	the	replacement	of	existing	product,	and	we	believe	that	the	sale	of	product	to	the	North	American residential	new	housing	construction	market	represents	less	than	10	percent	of	the	segment's	total	residential	water	heater	sales.

We	are	the	largest	manufacturer	and	marketer	of	water	heaters	in	North	America,	and	we	have	a	leading	share	in	both	the	residential	and	standard	commercial	segments of	the	market.	As	the	leader	in	the	residential	water	heating	market	segment,	we	offer	an	extensive	line	of	high-efficiency	gas	and	electric	models.	In	the	commercial market	segment,	we	believe	our	comprehensive	product	line,	as	well	as	our	high-efficiency	products,	give	us	a	competitive	advantage	in	this	higher-margin	segment	of the	water	heating	industry.

Our	Water	Products	wholesale	distribution	channel	includes	more	than	1,100	independent	wholesale	plumbing	distributors	with	more	than	4,400	selling	locations serving	residential	and	commercial	markets.	We	also	sell	our	residential	water	heaters	through	the	retail	channel.	In	this	channel,	our	customers	include	five	of	the	seven largest	national	hardware	and	home	center	chains,	including	long-standing	exclusive	branding	relationships	with	both	Lowe's	Companies,	Inc.	and	Sears,	Roebuck	and Co.

We	entered	the	Chinese	water	heater	market	through	a	joint	venture	in	1995,	buying	out	our	partner	three	years	later.	Since	that	time,	we	have	been	aggressively expanding	our	presence	while	building	A.	O.	Smith	brand	recognition	in	the	Chinese	residential	and	commercial	markets.	In	2010,	the	Chinese	Water	Products	operation generated	sales	of	$287.9	million,	an	increase	of	30	percent,	compared	with	2009.	We	believe	we	are	one	of	the	leading	suppliers	of	water	heaters	to	the	residential market	in	China.

In	2008,	we	established	a	sales	office	in	India	and	began	importing	products	specifically	designed	for	India	from	our	Nanjing,	China	facility.	We	began	manufacturing water	heaters	in	India	in	the	second	quarter	of	2010.

In	November	2009,	we	purchased	80	percent	of	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.	of	Hong	Kong,	and	we	are	operating	the	business	as	the newly	formed	A.	O.	Smith	(Shanghai)	Water	Treatment	Products	Co.	Ltd.	Through	this	company	and	our	current	water	heater	distribution	channels,	we	manufacture and	supply	water	treatment	products	such	as	reverse	osmosis	units	to	the	China	residential	and	commercial	markets,	as	well	as	export	markets	throughout	the	world.	In the	fourth	quarter	of	2010,	we	purchased	the	remaining	20	percent	interest	in	Tianlong	Holding	Co.,	Ltd.	and	we	now	own	100	percent	of	the	company.

On	July	1,	2010,	we	acquired	the	rights	from	Takagi	Industrial	Co.,	Ltd.	of	Fuji-City,	Shizuoka,	Japan,	to	market	tankless	water	heaters	in	North	America	and	entered into	a	long-term	agreement	with	Takagi	Industrial	to	supply	tankless	water	heaters.	As	part	of	the	venture,	we	are	taking	over	the	management	of	Takagi's	North American	sales	and	distribution	organization.	Through	this	venture,	we	offer	a	full	line	of	tankless	gas	water	heaters	under	our	own	brands	in	association	with	the	Takagi brand.

Our	energy	efficient	product	offering	continues	to	be	a	growing	driver	of	our	business.	Our	Cyclone	product	family	now	represents	21%	of	our	tank-type	commercial product	unit	sales	in	the	U.S.,	and	it	offers	significant	energy	savings	and	a	short	payback	to	our	customers.	In	2010,	we	introduced	residential	solar	and	heat	pump	water heaters	in	the	U.S.	as	well	as	other	higher	efficiency	water	heating	solutions	to	round	out	our	energy	efficient	product	offering.	Globally,	we	offer	water	heating	products using	renewable	solar	and	heat	pump	technologies.

We	sell	our	water	heating	products	in	highly	competitive	markets.	We	compete	in	each	of	our	targeted	market	segments	based	on	product	design,	quality	of	products	and services,	performance	and	price.	Our	principal	water	heating	competitors	in	the	United	States	include	Rheem	Manufacturing	Company,	Bradford-White	Corporation	and Lochinvar	Corporation.	Our	primary	competitor	in	China	is	Haier	Appliances,	a	Chinese	company,	but	we	also	compete	with	Ariston,	Siemens	and	Midea	in	the	electric water	heater	market	and	Rinnai	and	Noritz	in	the	gas	instantaneous	water	heater	market.	Additionally,	we	compete	with	numerous	other	Chinese	private	and	state-owned water	heater	and	boiler	manufacturing	companies	in	China.

# RAW	MATERIAL

Raw	materials	for	our	manufacturing	operations,	which	consist	primarily	of	steel,	are	generally	available	from	several	sources	in	adequate	quantities.	A	portion	of	our customers	are	contractually	obligated	to	accept	price	changes	based	on	fluctuations	in	steel	prices.	Significant	volatility	in	steel	costs	has	occurred	over	the	last	several years.

# RESEARCH	AND	DEVELOPMENT

In	 order	 to	 improve	 competitiveness	 by	 generating	 new	 products	 and	 processes,	 we	 conduct	 research	 and	 development	 at	 our	 Corporate	Technology	 Center	 in Milwaukee,	Wisconsin	and	at	our	operating	locations.	Total	expenditures	for	research	and	development	in	2010,	2009	and	2008	were	$37.1,	$31.0	and	$28.8	million, respectively.

# PATENTS	AND	TRADEMARKS

We	own	and	use	in	our	businesses	various	trademarks,	trade	names,	patents,	trade	secrets	and	licenses.	We	do	not	believe	that	our	business	as	a	whole	is	materially dependent	upon	any	such	trademark,	trade	name,	patent,	trade	secret	or	license.	However,	our	trade	name	is	important	with	respect	to	our	products,	particularly	in	China.

# EMPLOYEES

Our	continuing	operations	employed	approximately	10,400	employees	as	of	December	31,	2010.

# BACKLOG

Due	to	the	short-cycle	nature	of	our	businesses,	none	of	our	operations	sustain	significant	backlogs.

# ENVIRONMENTAL	LAWS

Our	operations	are	governed	by	a	variety	of	federal,	state	and	local	laws	intended	to	protect	the	environment.	Compliance	with	the	environmental	laws	has	not	had	and	is not	expected	to	have	a	material	effect	upon	the	capital	expenditures,	earnings,	or	competitive	position	of	our	company.	See	Item	3.

# AVAILABLE	INFORMATION

We	maintain	a	website	with	the	address	www.aosmith.com.	The	information	contained	on	our	website	is	not	included	as	a	part	of,	or	incorporated	by	reference	into,	this Annual	Report	on	Form	10-K.	Other	than	an	investor's	own	internet	access	charges,	we	make	available	free	of	charge	through	our	website	our	Annual	Report	on	Form 10-K,	quarterly	reports	on	Form	10-Q,	current	reports	on	Form	8-K	and	amendments	to	these	reports	as	soon	as	reasonably	practical	after	we	have	electronically	filed such	material	with,	or	furnished	such	material	to,	the	Securities	and	Exchange	Commission.

The	company	is	committed	to	sound	corporate	governance	and	has	documented	its	corporate	governance	practices	by	adopting	the	A.	O.	Smith	Corporate	Governance Guidelines.	The	Corporate	Governance	Guidelines,	Criteria	for	Selection	of	Directors,	Financial	Code	of	Ethics,	the	A.	O.	Smith	Guiding	Principles,	as	well	as	the charters	for	the	Audit,	Personnel	and	Compensation,	Nominating	and	Governance	and	the	Investment	Policy	Committees	and	other	corporate	governance	materials	may be	viewed	on	the	company's	website.	Any	waiver	of	or	amendments	to	the	Financial	Code	of	Conduct	or	the	A.	O.	Smith	Guiding	Principles	also	would	be	posted	on this	website;	to	date	there	have	been	none.	Copies	of	these	documents	will	be	sent	to	stockholders	free	of	charge	upon	written	request	of	the	corporate	secretary	at	the address	shown	on	the	cover	page	of	this	Form	10-K.

# ITEM	1A	–	RISK	FACTORS

You	should	carefully	consider	the	risk	factors	set	forth	below	and	all	other	information	contained	in	this	Annual	Report	on	Form	10-K,	including	the	documents incorporated	by	reference,	before	making	an	investment	decision	regarding	our	common	stock.	If	any	of	the	events	contemplated	by	the	following	risks	actually	occurs, then	our	business,	financial	condition,	or	results	of	operations	could	be	materially	adversely	affected.	As	a	result,	the	trading	price	of	our	common	stock	could	decline, and	you	may	lose	all	or	part	of	your	investment.	The	risks	and	uncertainties	below	are	not	the	only	risks	facing	our	company.

•	 We	may	not	complete	the	sale	of	our	Electrical	Products	business	in	the	time	frame	or	on	the	terms	we	anticipate,	or	at	all

We	have	entered	into	an	agreement	to	sell	our	Electrical	Products	business	to	Regal	Beloit	Corporation	for	$700	million	in	cash	and	approximately	2.83	million	shares	of Regal	Beloit	Corporation	common	stock.	The	completion	of	the	transaction	is	subject	to	certain	conditions,	including	the	absence	of	a	material	adverse	change	in	the Electrical	Products	business	and	the	receipt	of	approvals,	non-objections	or	clearances	from	antitrust	regulators,	including	the	Federal	Trade	Commission	and	Antitrust Division	of	the	U.S.	Department	of	Justice	under	the	Hart-Scott-Rodino	Act.	We	cannot	assure	that	these	approvals,	non-objections	and	clearances	will	be	obtained	or,	if they	are	obtained,	that	they	will	not	impose	conditions	on,	or	require	divestitures	relating	to,	the	operations	or	assets	of	the	Electrical	Products	business	or	Regal	Beloit. These	conditions	or	divestitures	or	any	challenge	to	the	transaction	may	jeopardize	or	delay	the	completion	of	the	transaction,	result	in	additional	expenditures	of	money and	resources,	reduce	the	anticipated	benefits	of	the	transaction	or	materially	adversely	affect	the	stock	prices	of	our	company	and	Regal	Beloit.	These	and	other	factors could	cause	our	ability	to	complete	the	sale	on	the	terms	and	within	the	time	frames	anticipated	to	be	different	than	expected.	We	cannot	guarantee	that	we	will	complete the	sale	of	our	Electrical	Products	business	or	that	we	will	realize	the	expected	net	proceeds	from	the	sale	in	a	manner	that	allows	us	to	use	such	proceeds	to	repay	debt, make	a	contribution	to	our	pension	plan	and	pursue	acquisitions.

# •The	effects	of	the	global	economic	downturn	could	have	a	material	adverse	effect	on	our	business

The	U.S.	economy	is	improving	and	other	geographic	areas	in	which	we	operate	are	showing	signs	of	improvement	as	well.	The	global	credit	and	capital	markets	are	still showing	signs	of	stress,	however,	and	threaten	to	stall	or	reverse	the	course	of	the	recovery.	If	this	were	to	occur	it	could	adversely	affect	consumer	confidence	and spending	patterns	which	could	result	in	decreased	demand	for	the	products	we	sell,	a	delay	in	purchases,	increased	price	competition,	and	slower	adoption	of	energy efficient	products	which	could	negatively	impact	our	profitability	and/or	cash	flow.	In	addition,	a	deterioration	in	current	economic	conditions,	including	the	credit market	conditions,	could	negatively	impact	our	vendors	and	customers,	which	could	result	in	an	increase	in	bad	debt	expense,	customer	and	vendor	bankruptcies, interruption	or	delay	in	supply	of	materials,	and	increased	material	prices,	which	could	negatively	impact	our	ability	to	distribute,	market	and	sell	our	products	and	our financial	condition,	results	of	operations	and	cash	flows.

# •A	portion	of	our	business	could	continue	to	be	adversely	affected	by	a	decline	in	new	residential	or	commercial	construction

A	portion	of	our	products	are	sold	into	the	new	residential	and	commercial	construction	markets.	The	strength	of	these	markets	depends	on	new	housing	starts	and business	 investment,	 which	 are	 a	 function	 of	 many	 factors	 beyond	 our	 control,	 including	 interest	 rates,	 employment	 levels,	 availability	 of	 credit	 and	 consumer confidence.	Further	downturns	in	the	new	construction	markets	we	serve	could	result	in	lower	revenues	and	lower	profitability.	New	housing	starts	declined	in	2008	and 2009	and	were	flat	in	2010	and	may	continue	at	the	lower	levels	or	decline	further.	We	believe	that	less	than	ten	percent	of	our	Water	Products	residential	businesses	is affected	by	changes	in	the	residential	housing	construction	markets.	Commercial	construction	activity	could	continue	the	decline	that	began	in	the	second	half	of	2008 and	declined	further	in	2009	and	2010.	Furthermore,	though	we	believe	that	the	majority	of	the	commercial	business	we	serve	is	for	replacement,	we	could	also	be affected	by	changes	in	the	commercial	construction	market.

# •A	portion	of	our	business	could	be	affected	by	a	slowing	Chinese	economy

We	have	experienced	above	average	growth	in	sales	in	China.	If	the	Chinese	economy	were	to	experience	a	significant	slowdown	it	could	adversely	affect	our	financial condition,	results	of	operations	and	cash	flows.

# •A	material	loss,	cancellation,	reduction,	or	delay	in	purchases	by	one	or	more	of	our	largest	customers	could	harm	our	business

Net	sales	to	Water	Product's	five	largest	customers	represented	approximately	43	percent	of	2010	net	sales	from	continuing	operations.	We	expect	that	customer concentration	will	continue	for	the	foreseeable	future.	Our	dependence	on	sales	from	a	relatively	small	number	of	customers	makes	our	relationship	with	each	of	these customers	important	to	our	business.	We	cannot	assure	that	we	will	be	able	to	retain	our	largest	customers.	Some	of	our	customers	may	in	the	future	shift	their	purchases of	products	to	our	competitors	or	to	other	sources.	The	loss	of	one	or	more	of	our	largest	customers,	any	material	reduction	or	delay	in	sales	to	these	customers,	our inability	to	successfully	develop	relationships	with	additional	customers,	or	our	inability	to	execute	on	pricing	actions	could	have	a	material	adverse	effect	on	our financial	position,	results	of	operations	and	cash	flows.

# •Because	we	participate	in	markets	that	are	highly	competitive,	our	revenues	could	decline	as	we	respond	to	competition

We	sell	all	of	our	products	in	highly	competitive	markets.	We	compete	in	each	of	our	targeted	markets	based	on	product	design,	reliability,	quality	of	products	and services,	advanced	technologies,	product	performance,	maintenance	costs	and	price.	We	compete	against	manufacturers	located,	primarily,	in	North	America	and	China. Some	of	our	competitors	may	have	greater	financial,	marketing,	manufacturing,	research	and	development	and	distribution	resources	than	we	have.	We	cannot	assure that	our	products	and	services	will	continue	to	compete	successfully	with	those	of	our	competitors	or	that	we	will	be	able	to	retain	our	customer	base	or	improve	or maintain	our	profit	margins	on	sales	to	our	customers,	all	of	which	could	materially	and	adversely	affect	our	financial	condition,	results	of	operations	and	cash	flows.

•	 We	increasingly	manufacture	and	sell	our	products	outside	the	United	States,	which	may	present	additional	risks	to	our	business

Approximately	35.5	percent	of	our	2010	net	sales	were	attributable	to	products	manufactured	outside	of	the	United	States,	principally	in	China.	Approximately	5,900	of our	10,400	total	employees	from	continuing	operations	are	located	in	China.	In	2010,	we	opened	a	manufacturing	plant	in	India.	International	operations	generally	are subject	 to	 various	 risks,	 including	 political,	 religious,	 and	 economic	 instability,	 local	 labor	 market	 conditions,	 the	 imposition	 of	 foreign	 tariffs	 and	 other	 trade restrictions,	the	impact	of	foreign	government	regulations,	and	the	effects	of	income	and	withholding	tax,	governmental	expropriation,	and	differences	in	business practices.	We	may	incur	increased	costs	and	experience	delays	or	disruptions	in	product	deliveries	and	payments	in	connection	with	international	manufacturing	and sales	that	could	cause	loss	of	revenue.	Unfavorable	changes	in	the	political,	regulatory,	and	business	climate	could	have	a	material	adverse	effect	on	our	financial condition,	results	of	operations	and	cash	flows.

# •	 Our	international	operations	are	subject	to	risks	related	to	foreign	currencies

We	have	significant	operations	outside	of	the	United	States,	primarily	in	China	and	Canada	and	to	a	lesser	extent	India	and	Mexico,	and	therefore,	hold	assets,	incur liabilities,	earn	revenues	and	pay	expenses	in	a	variety	of	currencies	other	than	the	U.	S.	dollar.	The	financial	statements	of	our	foreign	subsidiaries	are	translated	into U.S.	dollars.	As	a	result,	we	are	subject	to	risks	associated	with	operating	in	foreign	countries,	including	fluctuations	in	currency	exchange	rates	and	interest	rates, imposition	or	increase	in	withholding	and	other	taxes	on	remittances	and	other	payments	by	foreign	subsidiaries,	labor	relations	problems,	hyperinflation	in	some foreign	countries	and	imposition	or	increase	of	investments	or	other	restrictions	by	foreign	governments	or	the	imposition	of	environmental	or	employment	laws. Furthermore,	we	typically	price	our	products	in	our	foreign	operations	in	local	currencies.	As	a	result,	an	increase	in	the	value	of	the	U.S.	dollar	relative	to	the	local currencies	of	profitable	foreign	subsidiaries	can	have	a	negative	effect	on	our	profitability.	In	addition	to	currency	translation	risks,	we	incur	a	currency	transaction	risk whenever	one	of	our	operating	subsidiaries	enters	into	either	a	purchase	or	sale	transaction	using	a	currency	different	from	the	operating	subsidiaries	functional	currency. The	above	mentioned	risks	in	North	America	and	Asia	may	hurt	our	ability	to	generate	revenue	and	profits	in	those	regions	in	the	future.

# •	 We	are	subject	to	regulation	of	our	international	operations	that	could	adversely	affect	our	business	and	results	of	operations

Due	to	our	global	operations,	we	are	subject	to	many	laws	governing	international	relations,	including	those	that	prohibit	improper	payments	to	government	officials	and restrict	where	we	can	do	business,	what	information	or	products	we	can	supply	to	certain	countries	and	what	information	we	can	provide	to	a	non–U.S.	government, including	but	not	limited	to	the	Foreign	Corrupt	Practices	Act	and	the	U.S.	Export	Administration	Act.	Violations	of	these	laws,	which	are	complex,	may	result	in criminal	penalties	or	sanctions	that	could	have	a	material	adverse	effect	on	our	business,	financial	condition	and	results	of	operations.

# •	 Our	operations	could	be	adversely	impacted	by	material	price	volatility	and	supplier	concentration

The	market	prices	for	certain	raw	materials	we	purchase,	primarily	steel,	have	been	very	volatile	in	the	recent	past.	While	our	company	periodically	enters	into	supply contracts	to	fix	the	cost	of	certain	raw	material	purchases,	significant	increases	in	the	cost	of	any	of	the	key	materials	we	purchase	could	increase	our	cost	of	doing business	and	ultimately	could	lead	to	lower	operating	earnings	if	we	are	not	able	to	recover	these	cost	increases	through	price	increases	to	our	customers.	Historically, there	has	been	a	lag	in	any	customer	recovery	of	increased	material	costs	which	could	negatively	impact	our	profitability.	In	addition,	in	some	cases	we	are	dependent	on a	limited	number	of	suppliers	for	some	of	the	raw	materials	and	components	required	in	the	manufacture	of	our	product.	A	significant	disruption	or	termination	of	the supply	from	one	of	these	suppliers	could	delay	sales	or	increase	cost	which	could	result	in	a	material	adverse	effect	on	our	financial	condition,	results	of	operations	and cash	flows.

# •	 Our	business	may	be	adversely	impacted	by	product	defects

Product	defects	can	occur	through	our	own	product	development	and	design	and	manufacturing	processes	or	through	our	reliance	on	third	parties	for	component	design and	manufacturing	activities.	We	may	incur	various	expenses	related	to	product	defects,	including	product	warranty	costs,	product	recall	and	retrofit	costs	and	product liability	costs.	While	we	maintain	a	reserve	for	our	product	warranty	costs	based	on	certain	estimates	and	our	knowledge	of	current	events	and	actions,	our	actual warranty	costs	may	exceed	our	reserve,	resulting	in	a	need	to	increase	our	accruals	for	warranty	charges.	In	addition,	the	reputation	of	our	brand	may	be	diminished	by product	defects	and	recalls.	Further,	our	inability	to	cure	a	product	defect	could	result	in	the	failure	of	a	product	line	or	the	temporary	or	permanent	withdrawal	from	a product	or	market.	Any	of	these	events	may	have	a	material	adverse	impact	on	our	financial	condition,	results	of	operations	and	cash	flow.

# •	 Our	underfunded	pension	plans	require	future	pension	contributions	which	could	limit	our	flexibility	in	managing	our	company

Due	to	the	negative	investment	returns	in	2008,	the	projected	benefit	obligations	of	our	defined	benefit	pension	plans	exceeded	the	fair	value	of	the	plan	assets	by	$221.3 million	at	December	31,	2010.	Beginning	in	2008,	the	minimum	required	contribution	equals	the	target	normal	cost	plus	a	seven	year	amortization	of	any	funding shortfall,	offset	by	any	ERISA	credit	balance.	The	company	is	required	to	make	a	minimal	contribution	to	the	plan	in	2011.	The	company	is	forecasting	contributions	of up	to	$200	million	in	2011	using	a	portion	of	the	cash	proceeds	from	the	expected	sale	of	the	Electrical	Products	business,	which	would	be	in	lieu	of	over	$200	million	in contributions	that	likely	would	have	to	be	made	over	the	next	five	years.	The	company	is	forecasting	no	contributions	in	2012.	However,	the	company	cannot	provide any	assurance	that	the	sale	of	the	Electrical	Products	business	will	be	completed	and	provide	the	funds	for	such	a	contribution	in	2011.	Among	the	key	assumptions inherent	in	the	actuarially	calculated	pension	plan	obligation	and	pension	plan	expense	are	the	discount	rate	and	the	expected	rate	of	return	on	plan	assets.	If	interest rates	and	actual	rates	of	return	on	invested	plan	assets	were	to	decrease	significantly,	our	pension	plan	obligations	could	increase	materially.	The	size	of	future	required pension	contributions	could	result	in	us	dedicating	a	substantial	portion	of	our	cash	flow	from	operations	to	making	the	contributions	which	could	negatively	impact	our flexibility	in	managing	the	company.

# •	 We	have	significant	goodwill	and	an	impairment	of	our	goodwill	could	cause	a	decline	in	our	net	worth

Our	total	assets	include	significant	goodwill.	The	goodwill	results	from	our	acquisitions,	representing	the	excess	of	the	purchase	price	we	paid	over	the	fair	value	of	the tangible	and	intangible	assets	we	acquired.	We	assess	whether	there	has	been	impairment	in	the	value	of	our	goodwill	during	the	fourth	quarter	of	each	calendar	year	or sooner	if	triggering	events	warrant.	If	future	operating	performance	at	our	business	does	not	meet	expectations,	we	may	be	required	to	reflect,	under	current	applicable accounting	rules,	a	non-cash	charge	to	operating	results	for	goodwill	impairment.	The	recognition	of	an	impairment	of	a	significant	portion	of	goodwill	would	negatively affect	our	results	of	operations	and	total	capitalization,	the	effect	of	which	could	be	material.	A	significant	reduction	in	our	stockholders'	equity	due	to	an	impairment	of goodwill	may	affect	our	ability	to	maintain	the	required	debt-to-capital	ratio	existing	under	our	debt	arrangements.	We	have	identified	the	valuation	of	goodwill	and indefinite-lived	intangible	assets	as	a	critical	accounting	policy.	See	"Management's	Discussion	and	Analysis	of	Financial	Condition	and	Results	of	Operations	–	Critical Accounting	Policies—Goodwill	and	Indefinite-lived	Intangible	Assets"	included	in	Item	7	of	this	Annual	Report	on	Form	10-K.

# •	 We	purchased	a	water	treatment	company	in	late	2009	and	we	may	encounter	additional	integration	or	operational	difficulties

We	purchased	80	percent	of	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.	of	Hong	Kong	in	November	2009,	and	purchased	the	remaining	20	percent	in	the fourth	quarter	of	2010.	We	are	operating	the	business	as	A.	O.	Smith	(Shanghai)	Water	Treatment	Products	Co.,	Ltd.	The	successful	integration	of	the	acquisition	will require	substantial	attention	from	our	management	and	the	management	of	the	acquired	business,	which	could	decrease	the	time	management	has	to	serve	and	attract customers.	We	cannot	provide	assurance	that	we	will	be	able	to	successfully	integrate	this	acquisition,	that	this	acquisition	will	operate	profitably	or	that	it	will	be	able	to achieve	the	financial	or	operational	success	we	expect	from	the	acquisition.	The	progress	of	our	water	treatment	business	has	been	slower	than	anticipated	due	to	a number	of	unforeseen	challenges,	and	we	incurred	a	small	loss	in	2010.	Our	financial	condition,	cash	flows	and	operational	results	could	be	adversely	affected	if	we	do not	successfully	integrate	the	acquired	business	or	if	our	other	businesses	suffer	on	account	of	the	increased	focus	on	the	acquired	business.

•A	substantial	contribution	to	our	financial	results	has	come	through	acquisitions	and	we	intend	to	grow	by	acquisitions	using	a	portion	of	the	cash	proceeds	from the	expected	sale	of	the	Electrical	Products	business,	and	we	may	not	be	able	to	identify	or	complete	future	acquisitions,	which	could	adversely	affect	our	future growth

Acquisitions	we	have	made	since	2001	have	had	a	significant	impact	on	our	results	of	operations.	While	we	will	continue	to	evaluate	potential	acquisitions	and	we intend	to	use	a	portion	of	the	cash	proceeds	from	the	expected	sale	of	the	Electrical	Products	business,	we	may	not	be	able	to	identify	and	successfully	negotiate	suitable acquisitions,	obtain	financing	for	future	acquisitions	on	satisfactory	terms,	utilize	cash	flow	from	operations,	obtain	regulatory	approval	for	certain	acquisitions,	or otherwise	complete	acquisitions	in	the	future.	If	we	complete	any	future	acquisitions,	then	we	may	not	be	able	to	successfully	integrate	the	acquired	businesses	or operate	them	profitably	or	accomplish	our	strategic	objectives	for	those	acquisitions.	Our	level	of	indebtedness	may	increase	in	the	future	if	we	finance	acquisitions	with debt,	which	would	cause	us	to	incur	additional	interest	expense	and	could	increase	our	vulnerability	to	general	adverse	economic	and	industry	conditions	and	limit	our ability	to	service	our	debt	or	obtain	additional	financing.	We	cannot	assure	you	that	future	acquisitions	will	not	have	a	material	adverse	affect	on	our	financial	condition, results	of	operations	and	cash	flows.

# •	 Our	results	of	operations	may	be	negatively	impacted	by	product	liability	lawsuits	and	claims

Our	water	heater	products	expose	us	to	potential	product	liability	risks	that	are	inherent	in	the	design,	manufacture,	sale	and	use	of	our	products.	While	we	currently maintain	what	we	believe	to	be	suitable	product	liability	insurance,	we	cannot	assure	you	that	we	will	be	able	to	maintain	this	insurance	on	acceptable	terms,	that	this insurance	will	provide	adequate	protection	against	potential	liabilities	or	that	our	insurance	providers	will	successfully	weather	the	current	economic	downturn.	In addition,	we	self-insure	a	portion	of	product	liability	claims.	A	series	of	successful	claims	against	us	could	materially	and	adversely	affect	our	reputation	and	our financial	condition,	results	of	operations	and	cash	flows.

# •	 Changes	in	regulations	or	standards	could	adversely	affect	our	business

Our	products	are	subject	to	a	wide	variety	of	statutory,	regulatory	and	industry	standards	and	requirements.	These	include	energy	efficiency,	climate	emissions,	labeling and	 safety-related	 requirements.	While	 we	 believe	 our	 products	 are	 currently	 some	 of	 the	 most	 efficient,	 safest,	 and	 environment-friendly	 products	 available,	 a significant	change	to	these	regulatory	requirements,	whether	federal,	state	or	local,	or	otherwise	to	industry	standards	could	substantially	increase	manufacturing	costs, impact	the	size	and	timing	of	demand	for	our	products,	or	put	us	at	a	competitive	disadvantage,	any	of	which	could	harm	our	business	and	have	a	material	adverse	effect on	our	financial	condition,	results	of	operations	and	cash	flow.

# •If	we	are	unable	to	develop	product	innovations	and	improve	our	technology	and	expertise,	we	could	lose	customers	or	market	share

Our	success	may	depend	on	our	ability	to	adapt	to	technological	changes	in	the	water	heating	and	water	treatment	industry.	If	we	are	unable	to	timely	develop	and introduce	new	products,	or	enhance	existing	products,	in	response	to	changing	market	conditions	or	customer	requirements	or	demands,	our	competitiveness	could	be materially	and	adversely	affected.

•	 Certain	members	of	the	founding	family	of	our	company	and	trusts	for	their	benefit	have	the	ability	to	influence	all	matters	requiring	stockholder	approval

We	have	two	classes	of	common	equity:	our	Common	Stock	and	our	Class	A	Common	Stock.	The	holders	of	Common	Stock	currently	are	entitled,	as	a	class,	to	elect only	one-third	of	our	board	of	directors.	The	holders	of	Class	A	Common	Stock	are	entitled,	as	a	class,	to	elect	the	remaining	directors.	Certain	members	of	the	founding family	of	our	company	and	trusts	for	their	benefit	(Smith	Family)	have	entered	into	a	voting	trust	agreement	with	respect	to	shares	of	our	Class	A	Common	Stock	and shares	of	our	Common	Stock	they	own.	As	of	December	31,	2010,	these	members	of	the	Smith	Family	own	approximately	56.33	percent	of	the	total	voting	power	of	our outstanding	shares	of	Class	A	Common	Stock	and	Common	Stock,	taken	together	as	a	single	class,	and	approximately	84.38	percent	of	the	voting	power	of	the outstanding	shares	of	our	Class	A	Common	Stock,	as	a	separate	class.	Due	to	the	differences	in	the	voting	rights	between	shares	of	our	Common	Stock	and	shares	of	our Class	A	Common	Stock,	the	Smith	Family	is	in	a	position	to	control	to	a	large	extent	the	outcome	of	matters	requiring	a	stockholder	vote,	including	the	adoption	of amendments	to	our	certificate	of	incorporation	or	bylaws	or	approval	of	transactions	involving	a	change	of	control.	This	ownership	position	may	increase	if	other members	of	the	Smith	Family	enter	into	the	voting	trust	agreement,	and	the	voting	power	relating	to	this	ownership	position	may	increase	if	shares	of	our	Class	A Common	Stock	held	by	stockholders	who	are	not	parties	to	the	voting	trust	agreement	are	converted	into	shares	of	our	Common	Stock.	The	voting	trust	agreement provides	that	in	the	event	one	of	the	parties	to	the	voting	trust	agreement	wants	to	withdraw	from	the	trust	or	transfer	any	of	its	shares	of	our	Class	A	Common	Stock, such	shares	of	our	Class	A	Common	Stock	are	automatically	exchanged	for	shares	of	our	Common	Stock	held	by	the	trust	to	the	extent	available	in	the	trust.	In	addition, the	trust	will	have	the	right	to	purchase	the	shares	of	our	Class	A	Common	Stock	and	our	Common	Stock	proposed	to	be	withdrawn	or	transferred	from	the	trust.	As	a result,	the	Smith	Family	members	that	are	parties	to	the	voting	trust	agreement	have	the	ability	to	maintain	their	collective	voting	rights	in	our	company	even	if	certain members	of	the	Smith	Family	decide	to	transfer	their	shares.

# ITEM	1B	-	UNRESOLVED	STAFF	COMMENTS

None.

# ITEM	2	-	PROPERTIES

Properties	utilized	by	the	company	at	December	31,	2010	were	as	follows:

This	segment	has	18	manufacturing	plants	located	in	6	states	and	5	non-USA	countries,	of	which	12	are	owned	directly	by	the	company	or	its	subsidiaries	and	6	are leased	from	outside	parties.	Lease	terms	generally	provide	for	minimum	terms	of	one	to	ten	years	and	have	one	or	more	renewal	options.	The	term	of	leases	in	effect	at December	31,	2010	expire	between	2011	and	2015.

# Electrical	Products	-	Discontinued	Operation

This	segment	has	19	manufacturing	plants	located	in	1	state	and	3	non-USA	countries,	of	which	10	are	owned	directly	by	the	company	or	its	subsidiaries	and	9	are leased	from	outside	parties.	Lease	terms	generally	provide	for	minimum	terms	of	one	to	ten	years	and	have	one	or	more	renewal	options.	The	term	of	leases	in	effect	at December	31,	2010	expire	between	2011	and	2015.

# Corporate	and	General

The	company	considers	its	plants	and	other	physical	properties	to	be	suitable,	adequate,	and	of	sufficient	productive	capacity	to	meet	the	requirements	of	its	business. The	manufacturing	plants	operate	at	varying	levels	of	utilization	depending	on	the	type	of	operation	and	market	conditions.	The	executive	offices	of	the	company,	which are	leased,	are	located	in	Milwaukee,	Wisconsin.

# ITEM	3	-	LEGAL	PROCEEDINGS

We	are	involved	in	various	unresolved	legal	actions,	administrative	proceedings	and	claims	in	the	ordinary	course	of	our	business	involving	product	liability,	property damage,	insurance	coverage,	exposure	to	asbestos	and	other	substances,	patents	and	environmental	matters,	including	the	disposal	of	hazardous	waste.	Although	it	is	not possible	to	predict	with	certainty	the	outcome	of	these	unresolved	legal	actions	or	the	range	of	possible	loss	or	recovery,	we	believe,	based	on	past	experience,	adequate reserves	and	insurance	availability,	that	these	unresolved	legal	actions	will	not	have	a	material	effect	on	our	financial	position	or	results	of	operations.	A	more	detailed discussion	of	certain	of	these	matters	appears	in	Note	16	of	Notes	to	Consolidated	Financial	Statements.

# ITEM	4	-	SUBMISSION	OF	MATTERS	TO	A	VOTE	OF	SECURITY	HOLDERS

No	matters	were	submitted	to	a	vote	of	the	security	holders	during	the	fourth	quarter	of	2010.

# EXECUTIVE	OFFICERS	OF	THE	COMPANY

Pursuant	to	General	Instruction	of	G(3)	of	Form	10-K,	the	following	is	a	list	of	the	executive	officers	which	is	included	as	an	unnumbered	Item	in	Part	I	of	this	report	in lieu	of	being	included	in	the	company's	Proxy	Statement	for	its	2011	Annual	Meeting	of	Stockholders.

# PART	II

# ITEM	5	-	MARKET	FOR	REGISTRANT'S	COMMON	EQUITY,	RELATED	STOCKHOLDER	MATTERS	AND	ISSUER	PURCHASES	OF	EQUITY SECURITIES

On	October	11,	2010,	the	company's	board	of	directors	declared	a	three-for-two	stock	split	of	the	company's	Class	A	Common	Stock	and	Common	Stock	in	the	form	of a	fifty	percent	stock	dividend	to	stock	holders	of	record	on	October	29,	2010	and	payable	on	November	15,	2010.	All	references	in	this	Item	5	to	number	of	A.	O.	Smith shares	or	price	per	share	have	been	adjusted	to	reflect	the	split.

(a) Market	Information.	The	company's	Common	Stock	is	listed	on	the	New	York	Stock	Exchange	under	the	symbol	AOS.	The	company's	Class	A	Common Stock	is	not	listed.	Wells	Fargo	Shareowner	Services,	N.A.,	P.O.	Box	64854,	St.	Paul,	Minnesota,	55164-0854	serves	as	the	registrar,	stock	transfer	agent	and the	dividend	reinvestment	agent	for	the	company's	Common	Stock	and	Class	A	Common	Stock.

# Quarterly	Common	Stock	Price	Range

(b) Holders.	As	of	January	31,	2011,	the	approximate	number	of	shareholders	of	record	of	Common	Stock	and	Class	A	Common	Stock	were	840	and	150, respectively.

(c) Dividends.	Dividends	declared	on	the	common	stock	are	shown	in	Note	18	of	Notes	to	Consolidated	Financial	Statements	appearing	elsewhere	herein.

(d) Stock	Repurchases.	On	December	14,	2007	and	further	ratified	on	December	14,	2010,	the	company's	board	of	directors	approved	a	stock	repurchase	program authorizing	the	purchase	of	up	to	1,500,000	shares	of	the	company's	common	stock.	This	stock	repurchase	authorization	remains	effective	until	terminated	by the	company's	board	of	directors.	As	of	December	31,	2010,	no	shares	were	repurchased	under	the	board	of	directors'	authorization.

(e) Performance	Graph.	The	following	information	in	this	Item	5	of	this	Annual	Report	on	form	10-K	is	not	deemed	to	be	"soliciting	material"	or	to	be	"filed" with	the	SEC	or	subject	to	Regulation	14A	or	14C	under	the	Securities	Exchange	Act	of	1934	or	to	the	liabilities	of	Section	18	of	the	Securities	Exchange	Act of	1934,	and	will	not	be	deemed	to	be	incorporated	by	reference	into	any	filing	under	the	Securities	Act	of	1933	or	the	Securities	Exchange	Act	of	1934, except	to	the	extent	we	specifically	incorporate	it	by	reference	into	such	a	filing.

The	graph	below	shows	a	five-year	comparison	of	the	cumulative	shareholder	return	on	the	Company's	Common	Stock	with	the	cumulative	total	return	of	the S&P	Small	Cap	600	Index	and	the	Russell	1000	Index,	both	of	which	are	published	indices.

# Comparison	of	Five-Year	Cumulative	Total	Return

# Assumes	$100	invested	with	Reinvestment	of	Dividends

|  | Period | INDEXED	RETURNS | INDEXED	RETURNS | INDEXED	RETURNS | INDEXED	RETURNS | INDEXED	RETURNS |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Company/Index | \t12/31/05 | \t12/31/06 | \t12/31/07 | \t12/31/08 | \t12/31/09 | \t12/31/10 |
| A\tO\tSMITH\tCORP | 100.0 | 108.7 | 103.3 | 88.8 | 133.6 | 178.8 |
| S&P\tSMALL\tCAP\t600\tINDEX | 100.0 | 115.1 | 114.8 | 78.1 | 98.0 | 123.8 |
| RUSSELL\t1000\tINDEX | 100.0 | 115.5 | 122.1 | 76.2 | 97.9 | 113.6 |

# ITEM	6	–	SELECTED	FINANCIAL	DATA

The	data	presented	below	includes	the	impact	of	the	company's	merger	transaction	with	Smith	Investment	Company	(SICO)	which	closed	on	April	22,	2009	and	is discussed	further	in	the	Consolidation	section	of	Note	1	of	the	Notes	to	Consolidated	Financial	Statements.

In	December	2010,	the	company	entered	into	an	agreement	to	sell	its	Electrical	Products	segment	which	is	reflected	as	discontinued	operation.

In	October	2010,	the	company	declared	a	50	percent	stock	dividend	to	holders	of	Common	Stock	and	Class	A	Common	Stock	which	is	not	included	in	cash dividends.	Basic	and	Diluted	earnings	per	share	are	calculated	using	the	weighted	average	shares	outstanding	which	were	restated	for	all	periods	presented	to reflect	the	stock	dividend.

In	November	2009,	the	company	acquired	an	80	percent	interest	in	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.	In	the	fourth	quarter	of	2010,	the company	acquired	the	remaining	20	percent	interest	in	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.	We	are	operating	the	business	as	A.	O.	Smith (Shanghai)	Water	Treatment	Products	Co.,	Ltd.

In	April	2006,	the	company	acquired	GSW	Inc.,	(GSW)	a	publicly	traded	Canadian	based	manufacturer	of	water	heaters	and	building	products.	In	December 2006,	the	company	sold	the	building	products	segment	of	this	business	which	was	treated	as	a	discontinued	operation.

Excludes	the	current	portion	of	long-term	debt.

# ITEM	7	-	MANAGEMENT'S	DISCUSSION	AND	ANALYSIS	OF	FINANCIAL	CONDITION	AND	RESULTS	OF	OPERATIONS

# OVERVIEW

A.	O.	Smith	Corporation	is	a	leading	manufacturer	of	water	heating	equipment	and	electric	motors,	serving	a	diverse	mix	of	residential,	commercial	and	industrial	end markets	 principally	 in	 the	 United	 States	 and	 China.	 Our	 company	 has	 been	 comprised	 of	 two	 reporting	 segments:	 Water	 Products	 and	 Electrical	 Products.	 On December	 12,	 2010,	 we	 entered	 into	 a	 definitive	 agreement	 to	 sell	 our	 Electrical	 Products	 Company	 to	 Regal	 Beloit	 Corporation	 for	 $700	 million	 in	 cash	 and approximately	2.83	million	shares	of	Regal	Beloit	common	stock.	The	transaction	is	expected	to	close	in	the	first	half	of	2011,	subject	to	regulatory	approvals	and customary	closing	conditions.	Due	to	the	pending	sale,	our	Electrical	Products	segment	has	been	reflected	as	discontinued	operations	in	the	accompanying	financial statements	for	all	periods	presented.	Our	Water	Products	business	manufactures	and	markets	a	comprehensive	line	of	residential	gas	and	electric	water	heaters,	standard and	specialty	commercial	water	heating	equipment,	high	efficiency	copper	tube	boilers,	water	treatment	products	and	water	system	tanks.	In	2010,	sales	for	our	Water Products	segment	were	$1,489.3	million	and	discontinued	operations	sales	for	our	Electrical	Products	segment	were	$701.8	million.

Our	Water	Products	water	heater	operations	in	China	grew	significantly	in	2010.	We	expect	this	growth	to	continue	at	a	rate	of	nearly	two	times	the	growth	in	China GDP	as	geographic	expansion,	market	share	gains	and	new	product	introductions	contribute	to	our	growth.	The	North	American	residential	and	commercial	markets	for our	Water	Products	segment	remain	weak	due	to	the	relatively	low	number	of	housing	starts	and	lack	of	commercial	construction	activity,	although	residential	and commercial	replacement	demand	significantly	supported	our	sales	in	2010.	Our	2010	North	American	residential	and	commercial	growth	in	sales	was	essentially	flat	for the	total	year.

Water	Products	recognized	a	pretax	charge	of	$35.4	million	in	2010	for	expenses	related	to	damages	to	its	water	heater	manufacturing	facility	located	in	Ashland	City, TN	caused	by	record	flooding	of	the	Cumberland	River.	This	facility	was	temporarily	shut	down	and	production	of	water	heaters	was	transferred	to	our	other	water heater	manufacturing	facilities	in	the	U.S.,	Canada	and	Mexico.	Our	recovery	from	the	flood	was	essentially	completed	by	year	end	2010.	We	lost	some	sales	orders	in 2010	due	to	the	flood,	however,	we	retained	all	customers	from	which	we	lost	orders.

We	purchased	the	remaining	20	percent	interest	in	A.	O.	Smith	(Shanghai)	Water	Treatment	Products	Co.,	Ltd.	(SWT)	from	our	partner	in	the	fourth	quarter	of	2010	and now	own	100	percent	of	this	company.	The	progress	of	our	water	treatment	business,	has	been	slower	than	anticipated	due	to	a	number	of	unforeseen	challenges,	and	we incurred	a	small	loss	in	2010.	We	continue	to	expect	strong	long	term	sales	growth	opportunities	in	the	water	treatment	industry	in	China.	We	introduced	A.	O.	Smith branded	water	treatment	products	into	our	China	retail	distribution	network	during	2010.

During	the	second	quarter	of	2010,	we	began	production	of	residential	water	heaters	for	the	Indian	market	at	our	new	plant	located	just	outside	of	Bangalore,	India.

On	July	1,	2010,	we	acquired	the	rights	from	Takagi	Industrial	Co.,	Ltd.	of	Fuji-City,	Shizuoka,	Japan,	to	market	tankless	water	heaters	in	North	America	and	entered into	a	long-term	agreement	with	Takagi	Industrial	to	supply	tankless	water	heaters.	As	part	of	the	venture,	we	are	taking	over	the	management	of	Takagi's	North American	sales	and	distribution	organization.	Through	this	venture,	we	offer	a	full	line	of	tankless	gas	water	heaters	under	our	own	brands	in	association	with	the	Takagi brand.	In	2010,	we	estimate	the	industry	sold	approximately	430,000	tankless	water	heaters	in	North	America	and	we	expect	the	market	to	grow	by	10	percent	in	each	of the	next	few	years.

On	October	11,	2010,	our	board	of	directors	declared	a	three-for-two	stock	split	of	our	Class	A	Common	Stock	and	Common	Stock	in	the	form	of	a	fifty	percent	stock dividend	to	stock	holders	of	record	on	October	29,	2010	and	payable	on	November	15,	2010.	All	references	in	this	Management's	Discussion	and	Analysis	of	Financial Condition	and	Results	of	Operations	to	number	of	shares	and	per	share	amounts	have	been	restated	to	reflect	the	split.

We	plan	to	take	advantage	of	our	strong	balance	sheet	and	the	proceeds	from	the	sale	of	Electrical	Products	Company	to	focus	on	a	number	of	strategic	initiatives.	We will	look	to	grow	our	core	residential	and	commercial	water	heating	and	water	treatment	businesses	into	fast-growing	geographic	markets.	We	will	continue	to	pursue acquisitions	in	markets	such	as	South	America,	Asia,	and	Africa.

We	also	intend	to	expand	our	core	product	line	by	looking	at	acquisitions,	joint	ventures,	or	other	business	relationships	that	will	allow	us	to	expand	our	product offerings	of	boilers,	heat	pumps,	and	other	high	efficiency	products.	Finally,	we	will	pursue	opportunities	in	new	and	unique	technologies	that	will	be	attractive	to	our customers	and	channel	partners	and	will	leverage	our	core	competencies	to	create	value	for	our	shareholders.

# LIQUIDITY	AND	CAPITAL	RESOURCES

We	achieved	net	earnings	inclusive	of	discontinued	operations	and	noncontrolling	interest	of	$111.7	million	or	$2.42	per	diluted	share	in	2010	compared	with	$81.3 million	or	$2.36	per	diluted	share	in	2009	and	$21.7	million	or	$1.53	per	diluted	share	in	2008.	Our	2010	earnings	include	an	after-tax	$21.6	million	or	$0.47	per	share charge	for	the	flooding	of	our	Ashland	City,	TN	water	heater	plant	in	May	2010.	Our	2009	and	2008	reported	earnings	and	earnings	per	share	under	GAAP	have	been impacted	by	required	accounting	related	to	our	transaction	with	Smith	Investment	Company	(SICO),	which	closed	on	April	22,	2009	and	is	discussed	in	more	detail	in Note	1	of	the	Notes	to	Condensed	Consolidated	Financial	Statements.	For	accounting	purposes,	the	former	controlling	shareholder,	SICO,	is	treated	as	the	acquirer	even though	we	(A.	O.	Smith	Corporation)	are	the	surviving	corporation	from	a	legal	standpoint.	2008	and	2009	earnings	and	earnings	per	share	amounts	reported	by	us include	SICO	earnings	and	shares	outstanding	as	adjusted	for	the	exchange	ratio	of	the	merger	transaction	prior	to	the	closing	date.

The	primary	accounting	impact	of	the	SICO	transaction	is	in	the	calculation	of	earnings	per	share	because	the	accounting	rules	require	the	use	of	SICO	adjusted	average shares	outstanding	prior	to	closing.	The	SICO	transaction	did	not	impact	2010	results.	Eliminating	the	impact	of	the	transaction	as	set	forth	in	the	table	below,	non- GAAP	net	earnings	(including	net	earnings	from	discontinued	operations)	in	2009	were	$89.7	million	or	$1.97	per	diluted	share	and	compare	with	non-GAAP	net earnings	(including	net	earnings	from	discontinued	operations)	of	$81.9	million	or	$1.80	per	diluted	share	in	2008.

We	believe	that	presenting	non-GAAP	financial	information	permits	investors	to	compare	our	financial	results	for	the	current	period	to	our	historical	results	for	the periods	reported.	Although	2010	financial	information	was	not	affected	by	the	transaction,	2009	full	year	and	previously	reported	periods	were	impacted.	Management also	uses	the	non-GAAP	information	for	all	internal	purposes	of	reporting	results	of	operations	including	return	on	investment	measures	utilized	in	determining	certain incentive-based	compensation	and	employee	profit	sharing	amounts.	Below	is	a	reconciliation	of	GAAP	to	non-GAAP	earnings	and	earnings	per	share	as	discussed above.

# Reconciliation	of	Non-GAAP	Data

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Net\tearnings,\tas\treported | $111.7 | $81.3 | $21.7 |
| Add:\tNon-GAAP\tadjustments\tattributable\tto\tnet\tearnings\tof\tnon-controlling\tinterest\tand\tSICO\texpenses | - | 8.4 | \t 60.2 |
| Adjusted\tearnings | $111.7 | $89.7 | $81.9 |
| Average\tCommon\tshares\toutstanding\tas\treported\t^(1) | 46.2 | \t 34.5 | \t 14.2 |
| Add:\tNon-GAAP\tadjustments\tto\tweighted\taverage\tCommon\tshares\tattributable\tto\tnon-controlling\tinterest | - | \t 11.0 | \t 31.2 |
| Adjusted\taverage\tCommon\tshares\toutstanding | 46.2 | \t 45.5 | \t 45.4 |
| Earnings\tper\tshare,\tas\treported | $2.42 | $2.36 | $1.53 |
| Adjusted\tEarnings\tper\tShare | $2.42 | $1.97 | $1.80 |

The	non-GAAP	presentation	of	adjusted	earnings	per	share	should	not	be	construed	as	an	alternative	to	the	results	reported	in	accordance	with	U.S.	GAAP.	It	is provided	solely	to	assist	in	the	investor's	understanding	of	the	impact	of	these	items	on	the	comparability	of	the	company's	operations

Reported	shares	are	calculated	as	the	weighted	average	of	SICO	shares	prior	to	the	closing	and	A.	O.	Smith	shares	after	the	closing.	All	share	amounts	were adjusted	to	retroactively	reflect	the	company's	October	11,	2010	fifty	percent	stock	dividend	in	all	periods	presented.

Our	results	of	continuing	operations	will	be	discussed	later	in	this	section	and	our	discontinued	operation's	financial	information	is	provided	in	Note	2	of	the	Notes	to Consolidated	Financial	Statements.

Our	working	capital	for	continuing	operations	was	$209.5	million	at	December	31,	2010	compared	with	$121.7	million	and	$129.2	million	at	December	31,	2009	and December	31,	2008	respectively.	The	$87.8	million	increase	in	working	capital	in	2010	resulted	from	higher	cash	levels	outside	the	United	States,	sales	related	increases late	in	the	quarter	in	accounts	receivable	and	higher	inventory	levels	to	support	higher	sales,	new	businesses	and	new	product	launches,	which	were	partially	offset	by higher	accounts	payable	balances	related	to	higher	sales.

Operating	cash	provided	by	continuing	operations	during	2010	was	$63.3	million	compared	with	$122.9	million	during	2009	and	$81.6	million	during	2008.	The increase	in	our	working	capital	needs	this	year	compared	with	a	decline	last	year	explain	the	majority	of	the	decline	in	2010	cash	flow.	Higher	net	earnings	in	2009 compared	with	2008	and	the	changes	in	cash-related	working	capital	accounts	described	above	explain	the	majority	of	the	improvement	in	2009.	We	expect	our operating	activities	from	continuing	operations	will	use	cash	of	approximately	$10	million	in	2011,	which	includes	a	tax	deductible	contribution	of	approximately	$200 million	to	our	pension	plan	subject	to	the	anticipated	closing	of	the	Electrical	Products	transaction.

Our	capital	expenditures	from	continuing	operations	were	$53.5	million	in	2010,	higher	than	the	$42.7	million	spent	in	2009	as	a	result	of	$18.5	million	in	capital spending	related	to	the	flooding	in	May.	Our	capital	spending	in	2008	was	$41.2	million.	We	are	projecting	2011	capital	expenditures	of	between	$70	and	$80	million and	2011	depreciation	and	amortization	of	approximately	$45	million.	2011	capital	spending	includes	approximately	$20	million	to	begin	construction	of	a	second	water heater	manufacturing	plant	in	Nanjing,	China.	The	new	plant	is	expected	to	add	50	percent	more	capacity	to	our	China	water	heater	operations.

In	November	2010,	we	completed	a	$425	million	multi-currency	three	year	revolving	credit	facility	with	a	group	of	nine	banks.	The	facility	has	an	accordion	provision which	allows	it	to	be	increased	up	to	$525	million	if	certain	conditions	(including	lender	approval)	are	satisfied.	Borrowing	rates	under	the	facility	are	determined	by	our leverage	ratio.	The	facility	requires	us	to	maintain	two	financial	covenants,	a	leverage	ratio	test	and	an	interest	coverage	test,	and	we	were	in	compliance	with	the covenants	as	of	December	31,	2010.

The	facility	backs	up	commercial	paper	and	credit	line	borrowings,	and	it	expires	on	November	12,	2013.	As	a	result	of	the	long-term	nature	of	this	facility,	the commercial	paper	and	credit	line	borrowings,	as	well	as	drawings	under	the	facility	are	classified	as	long-term	debt.	At	December	31,	2010,	we	had	available	borrowing capacity	of	$283.4	million	under	this	facility.	We	believe	that	the	combination	of	available	borrowing	capacity	and	operating	cash	flow	will	provide	sufficient	funds	to finance	our	existing	operations	for	the	foreseeable	future.

Our	total	debt	was	$261.0	million	at	the	end	of	December	2010	compared	with	$253.2	million	at	the	end	of	2009.	Our	leverage,	as	measured	by	the	ratio	of	total	debt	to total	capitalization,	was	22.8	percent	at	the	end	of	2010	and	24.3	percent	at	the	end	of	2009.	We	expect	to	use	a	portion	of	the	net	proceeds	from	the	expected	sale	of	our Electrical	Products	business	to	pay	down	existing	floating	rate	debt	of	approximately	$142	million.	The	sale	is	expected	to	close	in	the	first	half	of	2011,	subject	to regulatory	approvals.

GSW	operated	a	captive	insurance	company	to	provide	product	liability	and	general	liability	insurance	to	its	subsidiary,	American	Water	Heater	Company	(American). We	decided	to	cover	American's	liability	exposures	with	our	existing	insurance	programs	and	operate	the	captive	in	runoff	status	effective	July	1,	2006.	The	reinsurance company	restricts	the	amount	of	capital	which	must	be	maintained	by	the	captive.	At	December	31,	2010,	the	restricted	amount	was	$11.6	million	compared	with	$17.2 million	at	 the	end	of	2009	and	 is	 included	 in	other	non-current	assets.	The	restricted	assets	are	 invested	 in	short-term	securities.	During	2010,	 the	captive	sold approximately	$4.6	million	in	marketable	securities	and	paid	us	a	$4.6	million	dividend.	The	proceeds	of	this	dividend	were	used	to	pay	down	debt.

Our	U.S.	pension	plan	continues	to	meet	all	funding	requirements	under	ERISA	regulations.	While	we	were	required	to	make	a	minimal	contribution	to	the	plan	in	2010, we	elected	to	make	a	contribution	of	$30.6	million.	In	2011,	we	are	forecasting	tax	deductible	contributions	to	the	pension	plan	in	the	amount	of	$200	million,	subject	to the	anticipated	closing	of	our	Electrical	Products	segment	sale.	If	the	$200	million	contribution	is	made	in	2011,	we	expect	that	no	contributions	will	be	made	to	the	plan in	2012.	For	further	information	on	our	pension	plan,	see	Note	13	of	the	Notes	to	Consolidated	Financial	Statements.

In	 December,	 our	 board	 of	 directors	 ratified its	 authorization	 of	 a	 stock	 repurchase	 program in the	 amount	 of	 1.5	 million	 shares	 of	 our	 common	 stock.	As	 of December	31,	2010	no	shares	had	been	repurchased.

We	have	paid	dividends	for	71	consecutive	years	with	payments	increasing	each	of	the	last	19	years.	We	paid	total	dividends	of	$.54	per	share	in	2010	compared	with $.51	per	share	in	2009.

# Aggregate	Contractual	Obligations

A	summary	of	our	contractual	obligations	as	of	December	31,	2010,	is	as	follows:

| (dollars	in	millions) |  | Payments	due	by	period | Payments	due	by	period | Payments	due	by	period | Payments	due	by	period |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | Less\tThan | 1\t-\t3 | 3\t-\t5 | More\tthan |
| Contractual\tObligations | Total | 1\tyear | Years | Years | 5\tyears |
| Long-term\tDebt | $261.0 | $18.6 | $181.2 | $29.2 | $32.0 |
| Fixed\tRate\tInterest | 22.4 | 6.1 | 9.0 | 5.1 | 2.2 |
| Operating\tLeases | 30.2 | 7.2 | 7.9 | 5.4 | 9.7 |
| Purchase\tObligations | 45.5 | 45.5 | - | - | - |
| Total | $359.1 | $77.4 | $198.1 | $39.7 | $43.9 |

As	of	December	31,	2010,	the	liability	for	uncertain	income	tax	positions	was	$2.7	million.	Due	to	the	high	degree	of	uncertainty	regarding	timing	of	potential	future cash	flows	associated	with	these	liabilities,	we	are	unable	to	make	a	reasonably	reliable	estimate	of	the	amount	and	period	in	which	these	liabilities	might	be	paid.

We	utilize	blanket	purchase	orders	to	communicate	expected	annual	requirements	to	many	of	our	suppliers.	Requirements	under	blanket	purchase	orders	generally	do not	become	committed	until	several	weeks	prior	to	the	company's	scheduled	unit	production.	The	purchase	obligation	amount	presented	above	represents	the	value	of commitments	considered	firm.

# RESULTS	OF	OPERATIONS

Our	sales	from	continuing	operations	in	2010	were	$1,489.3	million	surpassing	2009	sales	of	$1,375.0	million	by	8.3	percent.	The	increase	in	sales	was	due	mostly	to significantly	higher	sales	in	our	water	heater	operations	in	China	resulting	from	geographic	expansion,	market	share	gains	and	new	product	introductions	as	well	as additional	sales	from	our	water	treatment	business	acquired	in	November,	2009.	Our	sales	from	continuing	operations	were	$1,451.3	million	in	2008.	The	$76.3	million decline	in	sales	from	2008	to	2009	was	due	to	lower	residential	and	commercial	volume	in	North	America,	reflecting	softness	in	the	domestic	housing	market	and	a slowdown	in	the	commercial	water	heater	business	and	was	partially	offset	by	strong	growth	in	water	heater	sales	in	China	and	improved	year	over	year	pricing.

On	December	13,	2010	we	entered	into	a	definitive	agreement	to	sell	our	Electrical	Products	Company	to	Regal	Beloit	Corporation	for	$700	million	in	cash	and approximately	2.83	million	shares	of	Regal	Beloit	common	stock.	The	transaction,	which	has	been	approved	by	both	companies'	board	of	directors,	is	expected	to	close in	the	first	half	of	2011.	Due	to	the	pending	sale,	our	Electrical	Products	segment	has	been	accorded	discontinued	operations	treatment	in	the	accompanying	financial statements.	Sales	in	2010,	including	sales	of	$701.8	million	for	our	Electrical	Products	segment,	were	$2,191.1	million.

Our	gross	profit	margin	for	continuing	operations	in	2010	was	29.9	percent,	compared	with	28.7	percent	in	2009	and	25.8	percent	in	2008.	The	improvement	in	margin from	2009	to	2010	was	due	to	increased	volume,	cost	containment	activities	and	lower	warranty	costs	which	more	than	offset	certain	inefficiencies	resulting	from	the May	flood	in	our	Ashland	City,	TN	water	heater	manufacturing	facility.	The	increase	in	profit	margin	from	2008	to	2009	resulted	from	increased	higher	margin	China water	heater	volume,	aggressive	cost	reduction	programs	and	lower	material	costs.

Selling,	general	and	administrative	expense	(SG&A)	was	$36.9	million	higher	in	2010	than	in	2009.	The	increased	SG&A,	the	majority	of	which	was	incurred	in	our China	water	heater	operation,	was	associated	with	selling	costs	to	support	higher	volume	and	new	product	lines.	Additional	SG&A	associated	with	our	2009	water treatment	acquisition	also	contributed	to	the	increase.	SG&A	was	$8.5	million	higher	in	2009	than	2008	resulting	mostly	from	an	$8.2	million	increase	in	our	China water	heater	operation	in	support	of	higher	volumes.

Pension	expense	for	continuing	operations	in	2010	was	$10.5	million	compared	to	$8.8	million	in	2009	and	$6.1	million	in	2008.	The	increase	in	pension	expense	from 2009	to	2010	was	due	to	a	decrease	in	the	discount	rate	and	increased	amortization	of	deferred	asset	losses.	The	increase	in	pension	expense	from	2008	to	2009	was	due to	lower	investment	returns	caused	by	a	decline	in	plan	assets	due	to	the	market	downturn	in	2008	and	the	associated	higher	amortization	of	deferred	asset	losses.

The	company	recognized	a	pretax	charge	of	$35.4	million	in	2010	for	flood	damage	to	our	water	heater	manufacturing	facility	located	in	Ashland	City,	TN	caused	by extremely	heavy	rainfall	in	May	2010.	This	facility	was	temporarily	shut	down	and	production	of	water	heaters	was	transferred	to	our	other	water	heater	manufacturing facilities	in	the	U.S.,	Canada	and	Mexico.	Site	cleanup	and	restoration	began	as	soon	as	the	flood	water	subsided.	The	total	direct	cost	for	the	flood	damage	was	$67.3 million	and	included:	repair	of	buildings	and	equipment,	site	cleanup	and	restoration	and	write-off	of	inventory	and	fixed	assets.	Insurance	proceeds	were	$31.9	million resulting	in	a	net	charge	for	direct	flood	related	expenses	of	$35.4	million.	Our	recovery	from	the	May	flooding	was	essentially	completed	by	year	end	2010.	Additional detail	is	provided	in	Note	14	of	the	Notes	to	Consolidated	Financial	Statements.

We	purchased	the	remaining	20	percent	interest	in	SWT	from	our	partner	in	the	fourth	quarter	of	2010	and	now	own	100	percent	of	this	water	treatment	company.	At	the same	time,	we	also	settled	certain	disputes	with	our	former	partner	relative	to	the	condition	of	SWT	on	the	date	of	purchase.	The	settlement	resulted	in	a	$5.0	million non-taxable	gain.	Additionally,	we	incurred	an	impairment	charge	of	$3.3	million	related	to	the	value	of	trademarks	we	received	as	part	of	the	SWT	acquisition.	We	also announced	plans	to	move	the	water	treatment	operations	to	Nanjing,	China	to	recognize	synergies	associated	with	our	strong	management	team	and	the	engineering center	in	place	at	our	water	heater	operations	in	that	city.	As	a	result	of	the	announced	relocation,	we	recorded	$1.8	million	in	moving	costs	during	the	fourth	quarter	of 2010.	The	net	impact	of	the	aforementioned	transactions	associated	with	our	SWT	operation	is	a	$0.1	million	pre-tax	expense	for	restructuring,	impairment	and settlement	income	in	2010.	Corporate	expense	in	2009	included	$1.3	million	of	restructuring	charges,	the	majority	of	which	were	associated	with	the	loss	on	sale	of	a vacated	facility	from	a	previously	owned	business.	The	$2.4	million	of	restructuring	expense	recorded	in	2008	included	$1.9	million	of	expenses	incurred	by	SICO relative	to	the	merger	transaction	and	$0.5	million	related	to	the	vacated	facility	sold	in	2009.

Interest	expense,	net	of	the	amount	allocated	to	discontinued	operations,	was	$6.9	million,	$7.2	million	and	$11.0	million	in	2010,	2009	and	2008,	respectively.	Interest expense	that	cannot	be	attributed	to	specific	entities	within	the	company	was	allocated	to	discontinued	operations	based	on	the	ratio	of	net	assets	to	be	sold	to	the	sum	of consolidated	net	assets	and	debt	exclusive	of	debt	attributable	to	specific	entities	of	the	company.	The	decline	in	continuing	interest	expense	in	2010	was	due	to	lower debt	levels	and	the	decline	in	2009	was	due	to	the	combination	of	lower	debt	levels	and	lower	interest	rates.

Net	other	expense	was	$0.5	million,	$2.8	million	and	$2.3	million	in	2010,	2009	and	2008,	respectively.	The	decline	in	other	expense	from	2010	to	2009	was	due	to	a $2.4	million	gain	on	the	sale	of	a	vacant	parcel	of	land	adjacent	to	our	Ashland	City,	TN	water	heater	plant	in	the	fourth	quarter	of	2010	which	was	partially	offset	by increased	bank	fees	associated	with	the	completion	of	a	new	revolving	credit	agreement	in	the	last	quarter	of	2010.	The	$0.5	million	increase	in	2009	other	expense	was due	to	a	reduction	in	interest	income	resulting	from	the	liquidation	of	short	term	securities	in	2009	and	2008	and	was	partially	offset	by	increased	exchange	losses	in 2009	as	foreign	currencies	strengthened	against	the	U.	S.	dollar.

Our	effective	tax	rate	for	continuing	operations	was	23.3	percent	in	2010,	33.7	percent	in	2009,	and	36.8	percent	in	2008.	The	significant	decline	in	the	effective	rate from	2008	and	2009	to	2010	was	due	to	lower	domestic	earnings	in	2010	as	a	result	of	the	$35.4	million	pre-tax	flood	related	expense	as	well	as	higher	2010	foreign earnings	which	are	in	low	tax	jurisdictions.

Our	2010	net	earnings	on	a	GAAP	basis	were	$111.7	million	or	$2.42	per	share	compared	with	$81.3	million	or	$2.36	per	share	in	2009	and	$21.7	million	or	$1.53	per share	in	2008.	On	a	non-GAAP	basis,	2009	earnings	were	$89.7	million	or	$1.97	per	share	and	2008	earnings	were	$81.9	million	or	$1.80	per	share.	Earnings	in	2010 were	not	affected	by	the	SICO	merger	transaction.	Please	refer	to	Liquidity	and	Capital	Resources	for	further	discussion	of	net	earnings.

Sales	activity	for	our	Water	Products	segment	was	discussed	in	the	first	paragraph	of	the	Results	of	Operations.

Operating	earnings	for	Water	Products	were	$132.9	million	in	2010	or	10.7	percent	less	than	earnings	of	$148.9	million	in	2009	The	lower	earnings	in	2010	resulted from	the	$35.4	million	pre-tax	flood	related	expense	which	more	than	offset	the	impact	of	increased	higher	margin	sales	of	water	heaters	in	China	and	higher	volume	in Canada	and	for	commercial	product.	Operating	earnings	in	2009	were	10.5	percent	higher	than	earnings	of	$134.7	million	in	2008.	The	improvement	in	2009	earnings resulted	from	increased	higher	margin	China	water	heater	volumes,	continued	aggressive	cost	reduction	programs	and	lower	material	costs.

# Critical	Accounting	Policies

Our	accounting	policies	are	described	in	Note	1	of	Notes	to	Consolidated	Financial	Statements.	Also	as	disclosed	in	Note	1,	the	preparation	of	financial	statements	in conformity	with	accounting	principles	generally	accepted	in	the	United	States	requires	the	use	of	estimates	and	assumptions	about	future	events	that	affect	the	amounts reported	in	the	financial	statements	and	accompanying	notes.	Future	events	and	their	effects	cannot	be	determined	with	absolute	certainty.	Therefore,	the	determination of	 estimates	 requires	 the	 exercise	 of	 judgment.	Actual	 results	 inevitably	 will	 differ	 from	 those	 estimates,	 and	 such	 differences	 may	 be	 material	 to	 the	 financial statements.

The	most	significant	accounting	estimates	inherent	in	the	preparation	of	our	financial	statements	include	estimates	associated	with	the	evaluation	of	the	impairment	of goodwill	and	indefinite-lived	intangible	assets,	as	well	as	significant	estimates	used	in	the	determination	of	liabilities	related	to	warranty	activity,	product	liability,	and pensions.	Various	assumptions	and	other	factors	underlie	the	determination	of	these	significant	estimates.	The	process	of	determining	significant	estimates	is	fact- specific	and	takes	into	account	factors	such	as	historical	experience	and	trends,	and	in	some	cases,	actuarial	techniques.	We	constantly	reevaluate	these	significant factors	and	adjustments	are	made	when	facts	and	circumstances	dictate.	Historically,	actual	results	have	not	significantly	deviated	from	those	determined	using	the estimates	described	above.

# Goodwill	and	Indefinite-lived	Intangible	Assets

In	conformity	with	U.S.	generally	accepted	accounting	principles,	goodwill	and	indefinite-lived	intangible	assets	are	tested	for	impairment	annually,	or	more	frequently if	events	or	changes	in	circumstances	indicate	that	the	assets	might	be	impaired.	We	perform	impairment	reviews	for	our	reporting	units	using	a	fair-value	method	based on	management's	judgments	and	assumptions.	The	fair	value	represents	the	estimated	amount	at	which	a	reporting	unit	could	be	bought	or	sold	in	a	current	transaction between	willing	parties	on	an	arms-length	basis.	The	estimated	fair	value	is	then	compared	with	the	carrying	amount	of	the	reporting	unit,	including	recorded	goodwill. We	are	subject	to	financial	statement	risk	to	the	extent	that	goodwill	and	indefinite-lived	intangible	assets	become	impaired.	Any	impairment	review	is,	by	its	nature, highly	judgmental	as	estimates	of	future	sales,	earnings	and	cash	flows	are	utilized	to	determine	fair	values.	However,	we	believe	that	we	conduct	annual	thorough	and competent	valuations	of	goodwill	and	indefinite-lived	intangible	assets	and	that	there	has	been	no	impairment	in	goodwill.	However,	in	the	fourth	quarter	of	2010,	we recorded	a	$3.3	million	impairment	charge	for	trademarks	recorded	as	part	of	the	SWT	acquisition.

# Product	warranty

Our	products	carry	warranties	that	generally	range	from	one	to	ten	years	and	are	based	on	terms	that	are	generally	accepted	in	the	market.	We	provide	for	the	estimated cost	of	product	warranty	at	the	time	of	sale.	The	product	warranty	provision	is	estimated	based	upon	warranty	loss	experience	using	actual	historical	failure	rates	and estimated	costs	of	product	replacement.	The	variables	used	in	the	calculation	of	the	provision	are	reviewed	on	a	periodic	basis.	At	times,	warranty	issues	may	arise	which are	beyond	the	scope	of	our	historical	experience.	While	our	warranty	costs	have	historically	been	within	calculated	estimates,	it	is	possible	that	future	warranty	costs could	differ	significantly	from	those	estimates.	We	provide	for	any	such	warranty	issues	as	they	become	known	and	estimable.	The	allocation	of	the	warranty	liability between	current	and	long-term	is	based	on	the	expected	warranty	liability	to	be	paid	in	the	next	year	as	determined	by	historical	product	failure	rates.

# Product	liability

Due	to	the	nature	of	our	products,	we	are	subject	to	product	liability	claims	in	the	normal	course	of	business.	A	majority	of	these	claims	involve	our	Water	Products business.	We	maintain	insurance	to	reduce	our	risk.	Most	insurance	coverage	includes	self-insured	retentions	that	vary	by	year.	As	of	December	31,	2010,	we	maintained a	self-insured	retention	of	$5.0	million	per	occurrence	with	an	aggregate	insurance	limit	of	$125.0	million	per	occurrence.

GSW	insurance	coverage	included	self-insurance	retentions	that	varied	by	business	segment	and	by	year.	Effective	April	3,	2006,	GSW	maintained	a	$25.0	million aggregate	 loss	retention	 through	self-insurance	and	captive	 insurance	company	coverage.	GSW	claims	occurring	on	or	after	July	1,	2006	are	covered	under	 the company's	insurance	program.

We	establish	product	liability	reserves	for	our	self-insured	retention	portion	of	any	known	outstanding	matters	based	on	the	likelihood	of	loss	and	our	ability	to reasonably	estimate	such	loss.	There	is	inherent	uncertainty	as	to	the	eventual	resolution	of	unsettled	matters	due	to	the	unpredictable	nature	of	litigation.	We	make estimates	based	on	available	information	and	our	best	judgment	after	consultation	with	appropriate	advisors	and	experts.	We	periodically	revise	estimates	based	upon changes	to	facts	or	circumstances.	We	also	use	an	actuary	to	calculate	reserves	required	for	estimated	incurred	but	not	reported	claims	as	well	as	to	estimate	the	effect	of adverse	development	of	claims	over	time.

# Pensions

We	have	significant	pension	benefit	costs	that	are	developed	from	actuarial	valuations.	The	valuations	reflect	key	assumptions	regarding,	among	other	things,	discount rates,	expected	return	on	assets,	retirement	ages,	and	years	of	service.	Consideration	is	given	to	current	market	conditions,	including	changes	in	interest	rates	in	making these	assumptions.	Our	assumption	for	the	expected	rate	of	return	on	plan	assets	is	8.75	percent	in	2010,	unchanged	from	2009.	The	discount	rate	used	to	determine	net periodic	pension	costs	decreased	from	6.60	percent	in	2009	to	5.80	percent	in	2010.	In	2011,	the	rate	of	return	on	plan	assets	is	8.75	percent	and	the	discount	rate	is	5.35 percent.

In	developing	our	expected	long-term	rate	of	return	assumption,	we	evaluate	our	pension	plan's	target	asset	allocation,	the	historical	long-term	rates	of	return	of	equity and	bond	indices	and	the	actual	historical	returns	of	our	pension	plan.	Our	plan's	target	allocation	to	equity	managers	is	between	60	to	70	percent,	with	the	remainder allocated	primarily	to	bond	managers	and	a	small	allocation	to	private	equity	managers.	Our	actual	asset	allocation	as	of	December	31,	2010,	was	62	percent	to	equity managers,	30	percent	to	bond	managers,	six	percent	to	private	equity	managers	and	the	remainder	in	money	market	instruments.	We	regularly	review	our	actual	asset allocation	 and	 periodically	 rebalance	 our	 investments	 to	 our	 targeted	 allocation	 when	 considered	 appropriate.	 Our	 pension	 plan's	 historical	 10-year	 and	 25-year compounded	annualized	returns	are	4.6	percent	and	10.0	percent,	respectively.	We	believe	that	with	our	target	allocation	and	the	historical	long-term	returns	of	equity and	bond	indices	as	well	as	our	actual	historical	returns,	our	8.75	percent	expected	return	on	assets	for	2011	is	reasonable.

The	discount	rate	assumptions	used	to	determine	future	pension	obligations	at	December	31,	2010,	2009	and	2008	were	based	on	the	Hewitt	top	quartile	yield	Curve (HTQ),	which	was	designed	by	Hewitt	Associates	to	provide	a	means	for	plan	sponsors	to	value	the	liabilities	of	their	postretirement	benefit	plans.	The	HTQ	is	a hypothetical	double	A	yield	curve	represented	by	a	series	of	annualized	individual	discount	rates.	Each	bond	issue	underlying	the	HTQ	is	required	to	have	a	rating	of	Aa or	better	by	Moody's	Investor	Service,	Inc.	or	a	rating	of	AA	or	better	by	Standard	&	Poor's.	Because	of	the	volatile	bond	market,	we	adjusted	our	discount	rate	as	of December	31,	2008	to	take	into	account	the	effect	of	bonds	that	were	on	credit	watch	on	December	31,	2008	and	were	subsequently	downgraded	below	a	AA	rating before	January	15,	2009.	The	discount	rates	determined	on	the	basis	described	above	were	5.35	percent,	5.80	percent	and	6.60	percent	at	December	31,	2010,	2009	and 2008,	respectively.	We	will	continue	to	evaluate	our	actuarial	assumptions	at	least	annually,	and	we	will	adjust	the	assumptions	as	necessary.

We	estimate	that	we	will	recognize	approximately	$2.0	million	of	pension	expense	in	2011	compared	to	$10.5	million	in	2010.	The	decline	in	2011	is	due	to	a	planned $200	million	pension	contribution	in	2011	subject	to	the	anticipated	closing	of	the	Electrical	Products	segment	sale.	Lowering	the	expected	long-term	rate	of	return	on assets	by	25	basis	points	would	increase	our	net	pension	expense	for	2011	by	approximately	$1.7	million.	Lowering	the	discount	rate	by	25	basis	points	would	increase our	2011	net	pension	expense	by	approximately	$1.0	million.

# Recent	Accounting	Pronouncements

In	January	2010,	the	Financial	Accounting	Standards	Board	("FASB")	issued	an	amendment	to	Accounting	Codification	Statement	("ASC")	Topic	820,	"Fair	Value Measurements	and	Disclosures".	The	amendment	to	Topic	820	improves	disclosures	about	fair	value	measurements	by	requiring	disclosure	of	transfers	in	and	out	of levels	1	and	2	as	well	as	additional	disclosures	related	to	level	3	inputs.	We	adopted	the	amendment	to	ASC	820	on	January	1,	2010.	Adoption	of	this	amendment	did not	have	a	material	impact	on	our	consolidated	financial	condition,	results	of	operations	or	cash	flows.

In	May	2009,	the	FASB	issued	ASC	Sub-topic	855-10	(formerly	Statement	of	Financial	Accounting	Standards	("SFAS")	No.	165),	"Subsequent	Events."	Sub-topic 855-10	addresses	the	types	and	timing	of	events	that	should	be	reported	in	the	financial	statements	for	events	that	occur	between	the	balance	sheet	date	and	the	date	the financial	statements	are	issued	or	available	to	be	issued.	We	reviewed	events	for	possible	inclusion	in	the	financial	statements	through	the	date	the	financial	statements were	available	to	be	issued.

In	March	2008,	the	FASB	issued	ASC	Sub-topic	815-10,	"Derivatives	and	Hedging".	Sub-topic	815-10	(formerly	SFAS	No.	161,	"Disclosures	about	Derivative Instruments	and	Hedging	Activities,	an	Amendment	of	FASB	No.	133"),	is	intended	to	improve	transparency	in	financial	reporting	by	requiring	enhanced	disclosures	of an	entity's	derivative	instruments	and	hedging	activities	and	their	effects	on	the	entity's	financial	position,	financial	performance,	and	cash	flows.	ASC	815-10	applies	to all	derivative	instruments	within	the	scope	of	SFAS	No.	133,	"Accounting	for	Derivative	Instruments	and	Hedging	Activities,"	("SFAS	133").	It	also	applies	to	non- derivative	hedging	instruments	and	all	hedged	items	designated	and	qualifying	under	SFAS	133	and	is	effective	prospectively	for	financial	statements	issued	for	fiscal years	and	interim	periods	beginning	after	November	15,	2008,	with	early	application	encouraged.	This	pronouncement	encourages,	but	does	not	require,	comparative disclosures	for	periods	prior	to	its	initial	adoption.	We	adopted	ASC	815-10	on	January	1,	2009.	Adoption	of	this	statement	did	not	have	a	material	impact	on	our consolidated	financial	condition,	results	of	operations	or	cash	flows.

In	December	2007,	 the	FASB	 issued	ASC	Sub-topic	810-10-65,	"Consolidations",	(formerly	SFAS	No.	160,	"Noncontrolling	Interests	 in	Consolidated	Financial Statements,	an	amendment	of	ARB	No.	51").	This	pronouncement	changes	 the	accounting	and	reporting	for	minority	 interests,	which	will	be	recharacterized	as noncontrolling	interests	and	classified	as	a	component	of	equity.	This	new	consolidation	method	changes	the	accounting	for	transactions	with	minority	interest	holders and	is	effective	beginning	in	2009.	We	adopted	ASC	810-10-65	on	January	1,	2009.	Adoption	of	this	statement	has	impacted	our	accounting	for	the	SICO	transaction	as well	as	the	acquisition	of	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.	and	has	been	incorporated	in	the	accompanying	financial	statements.

In	December	2007,	the	FASB	issued	ASC	Sub-topic	805-10,	"Business	Combinations",	(formerly	SFAS	No.	141(R)).	ASC	805-10	requires	us	to	continue	to	follow prior	guidance	for	certain	aspects	of	business	combinations,	with	additional	guidance	provided	defining	the	acquirer,	recognizing	and	measuring	the	identifiable	assets acquired,	the	liabilities	assumed,	and	any	noncontrolling	interest	in	the	acquiree,	assets	and	liabilities	arising	from	contingencies,	defining	a	bargain	purchase	and recognizing	and	measuring	goodwill	or	a	gain	from	a	bargain	purchase.	In	addition,	certain	transaction	costs	previously	capitalized	as	part	of	the	purchase	price	will	be expensed	as	incurred.	Also,	under	ASC	805-10	adjustments	associated	with	changes	in	tax	contingencies	that	occur	after	the	one	year	measurement	period	are	recorded as	adjustments	to	income.	This	statement	is	effective	for	all	business	combinations	for	which	the	acquisition	date	is	on	or	after	the	beginning	of	an	entity's	first	fiscal year	that	begins	after	December	15,	2008;	however,	the	guidance	in	this	standard	regarding	the	treatment	of	income	tax	contingencies	is	retrospective	to	business combinations	completed	prior	to	January	1,	2009.	We	have	adopted	ASC	805-10	on	January	1,	2009	and	incorporated	the	impact	of	this	statement	in	the	accounting	for the	SICO	transaction	and	the	acquisition	of	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.

# Outlook

A.	O.	Smith	Corporation	believes	it	is	poised	for	growth	going	into	2011.	We	expect	to	benefit	from	continued	double	digit	growth	in	our	businesses	in	Asia.	We	also expect	to	benefit	from	the	new	high-efficiency	water	heating	products	introduced	last	year	along	with	new	product	introductions	in	North	America	and	China	scheduled for	2011.	We	believe	the	U.	S.	economy	will	continue	on	the	road	to	recovery,	although	we	do	not	anticipate	a	sizable	increase	in	the	U.S.	new	housing	or	commercial construction	markets	this	year.

Consequently,	we	forecast	earnings	from	continuing	operations,	excluding	the	impact	from	future	acquisitions,	of	between	$1.90	and	$2.10	per	share	in	2011.

# OTHER	MATTERS

# Environmental

Our	operations	are	governed	by	a	number	of	federal,	state,	local	and	foreign	environmental	laws	concerning	the	generation	and	management	of	hazardous	materials,	the discharge	of	pollutants	into	the	environment	and	remediation	of	sites	owned	by	the	company	or	third	parties.	We	have	expended	financial	and	managerial	resources complying	with	such	laws.	Expenditures	related	to	environmental	matters	were	not	material	in	2010	and	are	not	expected	to	be	material	in	any	single	year.	We	have accrued	amounts	associated	with	environmental	obligations	at	various	facilities	and	we	believe	these	reserves	are	sufficient	to	cover	reasonably	anticipated	remediation costs.	Although	we	believe	that	our	operations	are	substantially	in	compliance	with	such	laws	and	maintain	procedures	designed	to	maintain	compliance,	there	are	no assurances	that	substantial	additional	costs	for	compliance	will	not	be	incurred	in	the	future.	However,	since	the	same	laws	govern	our	competitors,	we	should	not	be placed	at	a	competitive	disadvantage.

# Market	Risk

We	are	exposed	in	continuing	operations	to	various	types	of	market	risks,	primarily	currency.	We	monitor	our	risks	in	such	areas	on	a	continuous	basis	and	generally enter	into	forward	contracts	to	minimize	such	exposures	for	periods	of	less	than	one	year.	We	do	not	engage	in	speculation	in	our	derivatives	strategies.	Further discussion	regarding	derivative	instruments	is	contained	in	Note	1	of	Notes	to	Consolidated	Financial	Statements.

We	enter	into	foreign	currency	forward	contracts	to	minimize	the	effect	of	fluctuating	foreign	currencies.	At	December	31,	2010,	we	had	net	foreign	currency	contracts outstanding	of	$48.8	million.	Assuming	a	hypothetical	ten	percent	movement	in	the	respective	currencies,	the	potential	foreign	exchange	gain	or	loss	associated	with	the change	in	rates	would	amount	to	$4.8	million.	It	is	important	to	note	that	gains	and	losses	from	our	forward	contract	activities	will	be	offset	by	gains	and	losses	in	the underlying	transactions	being	hedged.

Our	earnings	exposure	related	to	movements	in	interest	rates	is	primarily	derived	from	outstanding	floating-rate	debt	instruments	that	are	determined	by	short-term money	market	rates.	At	December	31,	2010,	we	had	$144.0	million	in	outstanding	floating-rate	debt	with	a	weighted-average	interest	rate	of	2.1	percent	at	year	end.	A hypothetical	ten	percent	annual	increase	or	decrease	in	the	year-end	average	cost	of	our	outstanding	floating-rate	debt	would	result	in	a	change	in	annual	pretax	interest expense	of	approximately	$0.3	million.

# Smith	Investment	Company	Transaction

On	December	9,	2008,	we	entered	into	a	merger	agreement	with	our	largest	stockholder,	Smith	Investment	Company	(SICO),	providing	for	SICO	to	become	a	wholly- owned	subsidiary	of	our	company	in	a	tax	free	exchange.	As	a	result	of	the	merger,	the	stockholders	of	SICO	now	own	shares	of	our	company	directly,	rather	than through	SICO.	Pursuant	to	the	merger	agreement,	stockholders	of	SICO	received	2.396	shares	of	our	Class	A	Common	Stock	and	0.463	shares	of	our	Common	Stock for	each	share	of	SICO	they	held,	subject	to	a	portion	of	the	Common	Stock	being	placed	in	escrow	to	satisfy	indemnity	claims	that	we	may	have	under	the	merger agreement.	Prior	to	the	merger,	SICO	owned	approximately	97.9	percent	of	our	outstanding	Class	A	Common	Stock	and	approximately	7.1%	of	our	outstanding Common	Stock.	The	merger	agreement	was	approved	by	our	stockholders	on	April	14,	2009	and	was	consummated	on	April	22,	2009.

The	transaction	with	SICO	has	been	accounted	for	as	a	reverse	acquisition	with	SICO	as	the	accounting	acquirer	and	our	company	(which	is	the	surviving	entity	for	legal purposes)	as	the	accounting	acquiree.	As	this	is	a	common	control	transaction	under	ASC	805	Business	Combinations	(formerly	FAS	141(R)),	the	transaction	is accounted	for	as	an	equity	transaction	under	ASC	810-10	Consolidations	(formerly	FAS	160).	The	acquisition	of	a	non-controlling	interest	does	not	require	purchase accounting.

Furthermore,	because	SICO	is	the	continuing	reporting	entity	for	accounting	purposes,	the	reports	filed	by	us	as	the	surviving	corporation	in	the	transaction	will	parallel the	financial	reporting	required	under	GAAP	and	SEC	reporting	rules	as	if	SICO	were	the	legal	successor	as	of	the	date	of	the	transaction.	Accordingly,	prior	period financial	information	presented	in	our	financial	statements	reflects	the	historical	activity	of	SICO.

On	January	19,	2009,	SICO	distributed	all	of	its	assets	and	liabilities	other	than	its	ownership	of	our	stock.	These	assets	and	liabilities	related	primarily	to	the	multicolor printing	 business	 conducted	 through	 Berlin	 Industries,	 Inc.	 and	 the	 commercial	 warehousing,	 trucking	 and	 packaging	 business	 conducted	 through	 Central	 States Distribution	 Service,	 Inc.	 For	 periods	 prior	 to	 this	 distribution,	 the	 results	 of	 operations,	 net	 assets	 and	 cash	 flows	 for	 these	 businesses	 have	 been	 classified	 as discontinued	operations	in	the	accompanying	financial	statements.

# Forward-Looking	Statements

This	filing	contains	statements	that	the	company	believes	are	"forward-looking	statements"	within	the	meaning	of	the	Private	Securities	Litigation	Reform	Act	of	1995. Forward-looking	statements	generally	can	be	identified	by	the	use	of	words	such	as	"may,"	"will,"	"expect,"	"intend,"	"estimate,"	"anticipate,"	"believe,"	"forecast," "guidance"	or	words	of	similar	meaning.	These	forward-looking	statements	are	subject	to	risks	and	uncertainties	that	could	cause	actual	results	to	differ	materially	from those	anticipated	as	of	the	date	of	this	filing.	Important	factors	that	could	cause	actual	results	to	differ	materially	from	these	expectations	include,	among	other	things, the	following:	the	failure	to	receive,	on	a	timely	basis	or	otherwise,	the	required	approvals	from	the	government	or	regulatory	agencies	(including	the	terms	of	such approvals)	pertaining	to	the	sale	of	Electrical	Products	Company;	and	the	risk	that	a	condition	to	closing	of	the	sale	may	not	be	satisfied;	the	ability	to	execute	our acquisition	strategy;	significant	volatility	in	raw	material	prices;	competitive	pressures	on	the	company's	businesses;	inability	to	implement	pricing	actions;	negative impact	of	future	pension	contributions	on	the	company's	ability	to	generate	cash	flow;	instability	in	the	company's	electric	motor	and	water	products	markets;	further weakening	in	housing	construction;	further	weakening	in	commercial	construction;	timing	of	any	recoveries	in	housing	or	commercial	construction;	a	slowdown	in	the Chinese	economy;	adverse	general	economic	conditions	and	capital	market	deterioration;	the	impact	of	acquisition	accounting	or	non-GAAP	financial	measures	on	the company's	financial	statements;	difficulties	in	integrating	the	A.	O.	Smith	(Shanghai)	Water	Treatment	Products	Co.	Ltd.	acquisition	or	the	North	American	tankless water	heater	venture;	difficulties	in	realizing	future	growth	and	profit	expectations	for	the	A.	O.	Smith	(Shanghai)	Water	Treatment	Products	Co.	Ltd.	acquisition	or	the North	American	tankless	venture	and	other	factors	set	forth	in	this	Annual	Report	on	Form	10-K	under	Item	1A,	Risk	Factors.	Forward-looking	statements	included	in this	press	release	are	made	only	as	of	the	date	of	this	release,	and	the	company	is	under	no	obligation	to	update	these	statements	to	reflect	subsequent	events	or circumstances.	All	subsequent	written	and	oral	forward-looking	statements	attributed	to	the	company,	or	persons	acting	on	its	behalf,	are	qualified	entirely	by	these cautionary	statements.

# ITEM	7A	–	QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET	RISK

See	"Market	Risk"	above.

# ITEM	8	–	FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# REPORT	OF	INDEPENDENT	REGISTERED	PUBLIC	ACCOUNTING	FIRM

# The	Board	of	Directors	and	Stockholders

We	have	audited	the	accompanying	consolidated	balance	sheets	of	A.	O.	Smith	Corporation	as	of	December	31,	2010	and	2009,	and	the	related	consolidated	statements of	earnings,	comprehensive	earnings,	stockholders'	equity	and	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2010.	Our	audits	also	included the	financial	statement	schedule	listed	in	the	index	at	Item	15(a).	These	financial	statements	and	schedule	are	the	responsibility	of	the	company's	management.	Our responsibility	is	to	express	an	opinion	on	these	financial	statements	and	schedule	based	on	our	audits.

We	conducted	our	audits	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	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	present	fairly,	in	all	material	respects,	the	consolidated	financial	position	of	A.	O.	Smith	Corporation	at December	31,	2010	and	2009,	and	the	consolidated	results	of	its	operations	and	its	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2010,	in conformity	with	U.S.	generally	accepted	accounting	principles.	Also,	in	our	opinion,	the	related	financial	statement	schedule,	when	considered	in	relation	to	the	basic financial	statements	taken	as	a	whole,	presents	fairly	in	all	material	respects	the	information	set	forth	therein.

As	discussed	in	Note	1	of	the	consolidated	financial	statements,	effective	January	1,	2009,	the	Company	changed	its	method	of	accounting	for	noncontrolling	interests	to conform	 with	 Accounting	 Codification	 Statement	 sub-topic 810-10-65, "Consolidations",	 (formerly	 Statement	 of	 Financial	 Accounting	 Standards	 No. 160 Noncontrolling	Interests	in	Consolidated	Financial	Statements,	an	amendment	of	ARB	No.	51").

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	A.	O.	Smith	Corporation's	internal	control over	financial	reporting	as	of	December	31,	2010,	based	on	criteria	established	in	Internal	Control	-	Integrated	Framework	issued	by	the	Committee	of	Sponsoring Organizations	of	the	Treadway	Commission	and	our	report	dated	February	24,	2011	expressed	an	unqualified	opinion	thereon.

# Ernst	&	Young	LLP

Milwaukee,	Wisconsin

# CONSOLIDATED	BALANCE	SHEETS

December	31	(dollars	in	millions)

|  | 2010 | 2009 |
| :--- | :--- | :--- |
| Assets |  |  |
| Current\tAssets |  |  |
| Cash\tand\tcash\tequivalents | $118.9 | $76.3 |
| Receivables | 313.3 | 275.6 |
| Inventories | 146.8 | 110.5 |
| Deferred\tincome\ttaxes | 27.3 | 25.8 |
| Other\tcurrent\tassets | 17.4 | 24.5 |
| Current\tassets\t-\tdiscontinued\tEPC\toperations | 272.3 | 227.3 |
| Total\tCurrent\tAssets | 896.0 | 740.0 |
| Net\tproperty,\tplant\tand\tequipment | 258.4 | 249.0 |
| Goodwill | 323.8 | 319.9 |
| Other\tintangibles | 106.6 | 115.6 |
| Deferred\tincome\ttaxes | 89.7 | 93.9 |
| Other\tassets | 36.8 | 39.5 |
| Long-term\tassets\t-\tdiscontinued\tEPC\toperations | 400.7 | 416.6 |
| Total\tAssets | $2,112.0 | $1,974.5 |
| Liabilities |  |  |
| Current\tLiabilities |  |  |
| Trade\tpayables | $263.0 | $236.8 |
| Accrued\tpayroll\tand\tbenefits | 37.2 | 39.3 |
| Accrued\tliabilities | 53.3 | 52.9 |
| Product\twarranties | 36.4 | 34.4 |
| Income\ttaxes | 5.7 | 6.5 |
| Long-term\tdebt\tdue\twithin\tone\tyear | 18.6 | 21.1 |
| Current\tliabilities\t-\tdiscontinued\tEPC\toperations | 122.6 | 100.3 |
| Total\tCurrent\tLiabilities | 536.8 | 491.3 |
| Long-term\tdebt | 242.4 | 232.1 |
| Product\twarranties | 75.8 | 74.2 |
| Post-retirement\tbenefit\tobligation | 13.6 | 15.5 |
| Pension\tliabilities | 222.9 | 232.8 |
| Other\tliabilities | 61.9 | 67.1 |
| Long-term\tliabilities\t-\tdiscontinued\tEPC\toperations | 77.2 | 71.7 |
| Total\tLiabilities | \t 1,230.6 | \t 1,184.7 |
| Commitments\tand\tcontingencies | - | - |
| Stockholders'\tEquity |  |  |
| Preferred\tStock | - | - |
| Class\tA\tCommon\tStock\t(shares\tissued\t7,481,748\tand\t7,860,111) | 37.4 | 39.3 |
| Common\tStock\t(shares\tissued\t40,195,162\tand\t39,926,152) | 40.2 | 39.9 |
| Capital\tin\texcess\tof\tpar\tvalue | 655.7 | 636.9 |
| Retained\tearnings | 452.1 | 365.4 |
| Accumulated\tother\tcomprehensive\tloss | (229.4) | (230.9) |
| Treasury\tstock\tat\tcost | (74.6) | (79.9) |
| Noncontrolling\tinterest | - | 19.1 |
| Total\tStockholders'\tEquity | 881.4 | 789.8 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $2,112.0 | $1,974.5 |

See	accompanying	notes	which	are	an	integral	part	of	these	statements.

# CONSOLIDATED	STATEMENT	OF	EARNINGS

Years	ended	December	31	(dollars	in	millions,	except	per	share	amounts)

# CONSOLIDATED	STATEMENT	OF	CASH	FLOWS

Years	ended	December	31	(dollars	in	millions)

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Net\tEarnings | $111.5 | $89.6 | $77.3 |
| Less\tearnings\tfrom\tdiscontinued\toperations | (54.4) | (29.1) | (30.1) |
| Adjustments\tto\treconcile\tearnings\tfrom\tcontinuing\toperations\tto\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 40.8 | 38.3 | 35.8 |
| Loss\ton\tdisposal\tof\tassets | 11.7 | 0.9 | (0.2) |
| Net\tchanges\tin\toperating\tassets\tand\tliabilities,\tnet\tof\tacquisitions: |  |  |  |
| Current\tassets\tand\tliabilities | (37.5) | 46.8 | 12.0 |
| Noncurrent\tassets\tand\tliabilities | (8.8) | (24.3) | (10.1) |
| Other | - | 0.7 | (3.1) |
| Cash\tProvided\tby\tOperating\tActivities\t–\tcontinuing\toperations | 63.3 | 122.9 | 81.6 |
| Cash\tProvided\tby\tOperating\tActivities\t–\tdiscontinued\toperations | 61.5 | 140.0 | 19.4 |
| Cash\tProvided\tby\tOperating\tActivities | \t 124.8 | 262.9 | \t 101.0 |
| Investing\tActivities |  |  |  |
| Acquisition\tof\tbusinesses | (11.8) | (71.4) | - |
| Proceeds\tfrom\tsale\tof\tinvestments | 4.6 | 8.9 | 12.0 |
| Proceeds\ton\tsale\tof\tassets | 3.0 | 2.0 | 2.6 |
| Net\tcash\tdistributed\twith\tspinoff\tof\tdiscontinued\tSICO\tbusinesses | - | (7.1) | - |
| Capital\texpenditures | (53.5) | (42.7) | (41.2) |
| Cash\tUsed\tin\tInvesting\tActivities\t–\tcontinuing\toperations | (57.7) | (110.3) | (26.6) |
| Cash\tUsed\tin\tInvesting\tActivities\t–\tdiscontinued\toperations | (8.8) | (6.7) | (27.1) |
| Cash\tUsed\tin\tInvesting\tActivities | (66.5) | (117.0) | (53.7) |
| Financing\tActivities |  |  |  |
| Long-term\tdebt\tincurred | 5.0 | - | - |
| Long-term\tdebt\trepaid | - | (91.1) | (50.1) |
| Net\tproceeds\tfrom\tstock\toption\tactivity | 4.0 | 7.6 | 2.1 |
| Dividends\tpaid | (24.7) | (21.4) | (19.0) |
| Cash\tUsed\tin\tFinancing\tActivities\t–\tcontinuing\toperations | (15.7) | (104.9) | (67.0) |
| Cash\tUsed\tin\tFinancing\tActivities\t–\tdiscontinued\toperations | - | - | - |
| Cash\tUsed\tin\tFinancing\tActivities | (15.7) | (104.9) | (67.0) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tcash\tequivalents | 42.6 | 41.0 | (19.7) |
| Cash\tand\tcash\tequivalents-beginning\tof\tyear | 76.3 | 35.3 | 55.0 |
| Cash\tand\tCash\tEquivalents-End\tof\tYear | $118.9 | $76.3 | $35.3 |

# CONSOLIDATED	STATEMENT	OF	STOCKHOLDERS'	EQUITY

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Class\tA\tCommon\tStock |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $39.3 | $60.4 | $60.4 |
| Reverse\tacquisition\tof\tSICO | - | 0.8 | - |
| Conversion\tof\tClass\tA\tCommon\tStock | (1.9) | (21.9) | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $37.4 | $39.3 | $60.4 |
| Common\tStock |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $39.9 | $2.3 | $2.3 |
| Reverse\tacquisition\tof\tSICO | - | 33.3 | - |
| Conversion\tof\tClass\tA\tCommon\tStock | 0.3 | 4.3 | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $40.2 | $39.9 | $2.3 |
| Capital\tin\tExcess\tof\tPar\tValue |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $636.9 | $(62.4) | $(62.4) |
| Buy\tout\tof\tTianlong\tHolding\tCo.,\tLtd. | 12.9 | - | - |
| Reverse\tacquisition\tof\tSICO | - | 676.1 | - |
| Conversion\tof\tClass\tA\tCommon\tStock | 1.6 | 17.6 | - |
| Issuance\tof\tshare\tunits | (3.1) | (0.1) | - |
| Vesting\tof\tshare\tunits | (1.6) | - | - |
| Stock\tbased\tcompensation\texpense | 6.1 | 3.5 | - |
| Exercise\tof\tstock\toptions | (1.2) | (0.9) | - |
| Tax\tbenefit\tfrom\texercise\tof\tstock\toptions\tand\tvesting\tof\tshare\tunits | 0.7 | 2.9 | - |
| Stock\tincentives\tand\tdirectors'\tcompensation | 3.4 | 0.2 | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $655.7 | $636.9 | $(62.4) |
| Retained\tEarnings |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $365.4 | $316.1 | $310.1 |
| Net\tearnings | 111.7 | 81.3 | 21.7 |
| Effects\tof\tA.O.\tSmith\tCorporation\tstock\toptions\tand\tstock\tcompensation | - | - | 0.7 |
| Activity\trelated\tto\tthe\tspin\toff\tof\tSICO\tdiscontinued\tbusinesses | - | (32.8) | - |
| Change\tin\tredeemable\tstock | - | - | (12.6) |
| Cash\tdividends\ton\tstock | (25.0) | (11.8) | (3.8) |
| Reverse\tacquisition\tof\tSICO | - | 12.6 | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $452.1 | $365.4 | $316.1 |
| Accumulated\tOther\tComprehensive\tLoss |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $(230.9) | $(89.8) | $(31.7) |
| Foreign\tcurrency\ttranslation\tadjustments | 7.3 | 2.9 | 5.6 |
| $27.6\tin\t2008 | (0.2) | 54.7 | (43.1) |
|  | (5.6) | (6.7) | (145.0) |
| Effects\tof\tA.O.\tSmith\tCorporation\tstock\toptions\tand\tstock\tcompensation | - | - | 0.1 |
| Less\tnoncontrolling\tinterest\tin\tother\tcomprehensive\tloss\t(gain) | - | (12.3) | 124.3 |
| Reverse\tacquisition\tof\tSICO | - | (179.7) | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $(229.4) | $(230.9) | $(89.8) |
| Treasury\tStock |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $(79.9) | $- | $- |
| Reverse\tacquisition\tof\tSICO | - | (84.3) | - |
| Exercise\tof\tstock\toptions,\tnet\tof\t258,238\tshares\tsurrendered\tas\tproceeds\tin\t2009 | 4.6 | 4.4 | - |
| Stock\tincentives\tand\tdirectors'\tcompensation | 0.3 | - | - |
| Vesting\tof\tshare\tunits,\tnet\tof\t27,561\tshares\tsurrendered\tto\tpay\ttaxes\tin\t2010 | 0.4 | - | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $(74.6) | $(79.9) | $- |
| Noncontrolling\tInterest |  |  |  |
| Balance\tat\tthe\tbeginning\tof\tthe\tyear | $19.1 | $436.6 | $515.0 |
| Net\tearnings | - | 8.3 | 55.6 |
| Cash\tdividends\ton\tstock | - | (7.8) | (15.2) |
| Comprehensive\tgain\t(loss) | - | 12.3 | (124.3) |
| Effects\tof\tA.O.\tSmith\tCorporation\tstock\toptions\tand\tstock\tcompensation | - | - | 5.5 |
| Reverse\tacquisition\tof\tSICO | - | (449.4) | - |
| Acquisition\tof\tTianlong\tHolding\tCo.,\tLtd. | - | 19.2 | - |
| Net\tearnings\tof\tTianlong\tHolding\tCo.,\tLtd. | (0.2) | (0.1) | - |
| Buy\tout\tof\tTianlong\tHolding\tCo.,\tLtd. | (18.9) | - | - |
| Balance\tat\tthe\tend\tof\tthe\tyear | $- | $19.1 | $436.6 |
| Total\tStockholders'\tEquity | $881.4 | $789.8 | $663.2 |

# NOTES	TO	CONSOLIDATED	FINANCIAL	STATEMENTS

# 1.				Organization	and	Significant	Accounting	Policies

Organization.		A.	O.	Smith	Corporation	(the	company)	is	a	manufacturer	serving	customers	worldwide.	The	company's	major	product	lines	include	residential	and commercial	gas,	gas	tankless	and	electric	water	heating	equipment	and	water	treatment	products.	The	company's	products	are	manufactured	and	marketed	primarily	in North	America	and	China.	Water	heaters	are	sold	through	both	wholesale	and	retail	channels	to	plumbing	wholesalers	and	retail	outlets.	On	December	13,	2010,	the company	entered	into	a	definitive	agreement	to	sell	the	Electrical	Products	segment	to	Regal	Beloit	Corporation	for	$700	million	in	cash	and	approximately	2.83	million shares	of	Regal	Beloit	common	stock.	Due	to	the	pending	sale,	the	Electrical	Products	segment	has	been	reported	separately	as	a	discontinued	operation.

Consolidation.	The	 consolidated	 financial	 statements include the	 accounts	 of the	 company	 and its	 wholly	 owned	 subsidiaries	 after	 elimination	 of intercompany transactions.

On	April	22,	2009,	A.	O.	Smith	Corporation	(the	company)	closed	on	a	merger	transaction	with	Smith	Investment	Company	(SICO).	The	merger	was	approved	by	the company's	stockholders	on	April	14,	2009.

The	transaction	between	the	company	and	SICO	has	been	accounted	for	as	a	reverse	acquisition	with	SICO	as	the	accounting	acquirer	and	the	company	(which	is	the surviving	entity	for	legal	purposes)	as	the	accounting	acquiree.	As	this	is	a	common	control	transaction	under	Accounting	Standards	Codification	("ASC")	805	Business Combinations	(formerly	FAS	141(R)),	the	transaction	is	accounted	for	as	an	equity	transaction	under	ASC	810-10	Consolidations	(formerly	FAS	160).	The	acquisition of	a	noncontrolling	interest	does	not	require	purchase	accounting.

Furthermore,	because	SICO	is	the	continuing	reporting	entity	for	accounting	purposes,	the	reports	filed	by	the	company	as	the	surviving	corporation	in	the	transaction will	parallel	the	financial	reporting	required	under	GAAP	and	SEC	reporting	rules	as	if	SICO	were	the	legal	successor	as	of	the	date	of	the	transaction.	Accordingly, prior	period	financial	information	presented	in	the	company's	financial	statements	reflects	the	historical	activity	of	SICO.

On	January	19,	2009,	SICO	distributed	all	of	its	assets	and	liabilities	other	than	its	ownership	of	A.	O.	Smith	stock.	These	assets	and	liabilities	related	primarily	to	the multicolor	printing	business	conducted	through	Berlin	Industries	and	the	commercial	warehousing,	trucking	and	packaging	business	conducted	through	Central	States Distribution	Service,	Inc.

Except	when	otherwise	indicated,	amounts	reflected	in	the	financial	statements	or	the	notes	thereto	relate	to	the	company's	continuing	operations.

Use	of	estimates.	The	preparation	of	financial	statements	in	conformity	with	accounting	principles	generally	accepted	in	the	United	States	requires	management	to	make estimates	and	assumptions	that	affect	the	amounts	reported	in	the	accompanying	financial	statements	and	notes.	Actual	results	could	differ	from	those	estimates.

Fair	value	of	financial	instruments.	The	carrying	amounts	of	cash	and	cash	equivalents,	receivables,	floating	rate	debt	and	trade	payables	approximated	fair	value	as	of December	31,	2010	and	2009,	due	to	the	short	maturities	or	frequent	rate	resets	of	these	instruments.	The	fair	value	of	term	notes	with	insurance	companies	was approximately	$127.3	million	as	of	December	31,	2010	compared	with	the	carrying	amount	of	$117.0	million	for	the	same	date.	The	fair	value	is	estimated	based	on current	rates	offered	for	debt	with	similar	maturities.

Foreign	currency	translation.	For	all	subsidiaries	outside	the	United	States,	with	the	exception	of	its	Mexican	operation,	the	company	uses	the	local	currency	as	the functional	currency.	For	those	operations	using	a	functional	currency	other	than	the	U.S.	dollar,	assets	and	liabilities	are	translated	into	U.S.	dollars	at	year-end	exchange rates,	and	revenues	and	expenses	are	translated	at	weighted-average	exchange	rates.	The	resulting	translation	adjustments	are	recorded	as	a	separate	component	of stockholders'	equity.	The	Mexican	operation	uses	the	U.S.	dollar	as	the	functional	currency	as	such	operations	are	a	direct	and	integral	component	of	the	company's	U.S. operations.	Gains	and	losses	from	foreign	currency	transactions	are	included	in	net	earnings.

# 1.				Organization	and	Significant	Accounting	Policies	(continued)

Cash	and	cash	equivalents.	The	company	considers	all	highly	liquid	investments	with	a	maturity	of	three	months	or	less	when	purchased	to	be	cash	equivalents.

Inventory	valuation.	Inventories	are	carried	at	lower	of	cost	or	market.	Cost	is	determined	on	the	last-in,	first-out	(LIFO)	method	for	substantially	all	domestic inventories,	which	comprise	60	percent	and	61	percent	of	the	company's	total	inventory	at	December	31,	2010	and	2009,	respectively.	Inventories	of	foreign	subsidiaries and	supplies	are	determined	using	the	first-in,	first-out	(FIFO)	method.

Property,	plant	and	equipment.	Property,	plant	and	equipment	are	stated	at	cost.	Depreciation	is	computed	primarily	by	the	straight-line	method.	The	estimated	service lives	used	to	compute	depreciation	are	generally	25	to	50	years	for	buildings,	3	to	20	years	for	equipment	and	3	to	7	years	for	software.	Maintenance	and	repair	costs	are expensed	as	incurred.

Goodwill	and	other	intangibles.	Goodwill	and	indefinite-lived	intangible	assets	are	not	amortized	but	are	reviewed	for	impairment	on	an	annual	basis.	Indefinite-lived assets	totaled	$42.9	million	and	$45.2	million	at	December	31,	2010	and	2009,	respectively.	In	2010,	the	company	recognized	an	impairment	charge	related	to	A.	O. Smith	(Shanghai)	Water	Treatment	Products	Co.,	Ltd's	(SWT)	trademarks	of	$3.3	million	(See	Note	4).	In	2009,	intangible	assets	of	$42.2	million	including	$8.2 million	with	an	indefinite	life	were	recorded	as	a	part	of	the	acquisition	of	the	water	treatment	business	of	Tianlong	Holding	Co.,	Ltd.	(see	Note	3).	The	remaining increase	in	2010	and	2009	was	due	to	currency	translation	adjustments.	Separable	intangible	assets	primarily	comprised	of	customer	relationships	that	are	not	deemed	to have	an	indefinite	life	are	amortized	on	a	straight-line	basis	over	their	estimated	useful	lives	which	range	from	10	to	25	years.	Amortization	of	$7.1	million,	$3.9	million and	$3.8	million	was	recorded	in	2010,	2009	and	2008,	respectively.	In	the	future,	amortization	should	approximate	$7.1	million	annually	and	the	intangible	assets	will be	amortized	over	a	weighted	average	period	of	11	years.	Total	accumulated	amortization	at	December	31,	2010	and	2009	was	$21.4	million	and	$14.3	million, respectively.

Impairment	of	long-lived	and	amortizable	intangible	assets.	Property,	plant	and	equipment	and	intangible	assets	subject	to	amortization	are	reviewed	for	impairment whenever	events	or	changes	in	circumstances	indicate	that	the	carrying	amount	may	not	be	recoverable.	If	the	sum	of	the	expected	undiscounted	cash	flows	is	less	than the	carrying	value	of	the	related	asset	or	group	of	assets,	a	loss	is	recognized	for	the	difference	between	the	fair	value	and	carrying	value	of	the	asset	or	group	of	assets. Such	analyses	necessarily	involve	significant	judgment.

Derivative	instruments.	ASC	815	Derivatives	and	Hedging	(formerly	SFAS	No.	133),	as	amended,	requires	that	all	derivative	instruments	be	recorded	on	the	balance sheet	at	fair	value	and	establishes	criteria	for	designation	and	effectiveness	of	the	hedging	relationships.	The	accounting	for	changes	in	the	fair	value	of	a	derivative instrument	depends	on	whether	it	has	been	designated	and	qualifies	as	a	part	of	a	hedging	relationship	and	further,	on	the	type	of	hedging	relationship.	For	those derivative	instruments	that	are	designated	and	qualify	as	hedging	instruments,	the	company	must	designate	the	hedging	instrument,	based	upon	the	exposure	hedged,	as	a fair	value	hedge,	cash	flow	hedge,	or	a	hedge	of	a	net	investment	in	a	foreign	operation.

The	company	designates	that	all	of	its	hedging	instruments	are	cash	flow	hedges.	For	derivative	instruments	that	are	designated	and	qualify	as	a	cash	flow	hedge	(i.e., hedging	the	exposure	to	variability	in	expected	future	cash	flows	that	is	attributable	to	a	particular	risk),	the	effective	portion	of	the	gain	or	loss	on	the	derivative instrument	is	reported	as	a	component	of	other	comprehensive	income	(OCI),	net	of	tax,	and	is	reclassified	into	earnings	in	the	same	line	item	associated	with	the forecasted	transaction	and	in	the	same	period	or	periods	during	which	the	hedged	transaction	affects	earnings.	The	amount	by	which	the	cumulative	change	in	the	value of	the	hedge	more	than	offsets	the	cumulative	change	in	the	value	of	the	hedged	item	(i.e.,	the	ineffective	portion)	is	recorded	in	earnings,	net	of	tax,	in	the	period	the ineffectiveness	occurs.

The	company	utilizes	certain	derivative	instruments	to	enhance	its	ability	to	manage	currency	and	interest	rate	exposures	as	well	as	raw	materials	price	risk.	Derivative instruments	are	entered	into	for	periods	consistent	with	the	related	underlying	exposures	and	do	not	constitute	positions	independent	of	those	exposures.	The	company does	not	enter	into	contracts	for	speculative	purposes.	The	contracts	are	executed	with	major	financial	institutions	with	no	credit	loss	anticipated	for	failure	of	the counterparties	to	perform.

# Commodity	Futures	Contracts

In	addition	to	entering	into	supply	arrangements	in	the	normal	course	of	business,	the	company,	primarily	for	its	discontinued	operation,	also	enters	into	futures	contracts to	fix	the	cost	of	certain	raw	material	purchases,	principally	copper	and	aluminum,	with	the	objective	of	minimizing	changes	in	cost	due	to	market	price	fluctuations.	The hedging	strategy	for	achieving	this	objective	is	to	purchase	commodities	futures	contracts	on	the	open	market	of	the	London	Metals	Exchange	(LME)	or	over	the	counter contracts	based	on	the	LME.

With	one	of	its	brokers,	the	company	is	required	to	make	cash	deposits	on	unrealized	losses	on	commodity	derivative	contracts	that	exceed	$10.0	million.

The	after-tax	gain	of	the	effective	portion	of	the	contracts	of	$5.8	million	as	of	December	31,	2010	was	recorded	in	accumulated	other	comprehensive	loss,	and	will	be reclassified	into	cost	of	products	sold	or	earnings	from	discontinued	operations	in	the	period	in	which	the	underlying	transaction	is	recorded	in	earnings.	The	effective portion	of	the	contracts	will	be	reclassified	within	one	year.	Contracts	related	to	the	company's	discontinued	operation	that	expire	after	the	expected	closing	date	no longer	qualify	for	hedge	accounting,	therefore	the	change	in	valuation	from	the	announcement	of	the	sale	to	year	end	of	$0.7	million	was	recorded	in	earnings	from discontinued	operations.	Commodity	hedges	outstanding	at	December	31,	2010	are	a	total	of	approximately	10.9	million	pounds	of	copper	and	aluminum.

# Foreign	Currency	Forward	Contracts

The	company	is	exposed	to	foreign	currency	exchange	risk	as	a	result	of	transactions	in	currencies	other	than	the	functional	currency	of	certain	subsidiaries.	The company	 utilizes	 foreign	 currency	 forward	 purchase	 and	 sale	 contracts	 to	 manage	 the	 volatility	 associated	 with	 foreign	 currency	 purchases,	 sales	 and	 certain intercompany	transactions	in	the	normal	course	of	business.	Principal	currencies	include	the	Mexican	peso,	Canadian	dollar	and	Euro.

Gains	and	losses	on	these	instruments	are	recorded	in	accumulated	other	comprehensive	loss,	net	of	tax,	until	the	underlying	transaction	is	recorded	in	earnings.	When the	hedged	item	is	realized,	gains	or	losses	are	reclassified	from	accumulated	other	comprehensive	loss	to	the	statement	of	earnings.	The	assessment	of	effectiveness	for forward	contracts	is	based	on	changes	in	the	forward	rates.	These	hedges	have	been	determined	to	be	effective.

The	majority	of	the	amounts	in	accumulated	other	comprehensive	loss	for	cash	flow	hedges	is	expected	to	be	reclassified	into	earnings	within	one	year	and	all	of	the hedges	will	be	reclassified	into	earnings	no	later	than	September	4,	2012.	Contracts	related	to	the	company's	discontinued	operation	that	expire	after	the	expected closing	date	no	longer	qualify	for	hedge	accounting,	therefore	the	change	in	valuation	from	the	announcement	of	the	sale	to	year	end	of	$0.4	million	was	recorded	in earnings	from	discontinued	operations.

The	following	table	summarizes,	by	currency,	the	contractual	amounts	of	the	company's	foreign	currency	forward	contracts	for	continuing	operations.

| December	31	(dollars	in	millions) | 2010 |  | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
|  | Buy | Sell | Buy | Sell |
| Euro | $- | $2.2 | $- | $1.5 |
| Canadian\tdollar | - | \t 35.4 | - | \t 18.9 |
| Mexican\tpeso | \t 11.2 | - | \t 10.9 | - |
| Total | $11.2 | $37.6 | $10.9 | $20.4 |

# Interest	Rate	Swap	Agreement

The	company	is	exposed	to	interest	rate	risk	as	a	result	of	its	floating	rate	borrowings	under	its	revolving	credit	facility.	The	company	used	interest	rate	swaps	to	manage this	risk.	The	company's	one	interest	rate	swap	in	the	amount	of	$25	million	expired	in	November	2010.

The	interest	rate	swap	was	designated	and	accounted	for	as	a	cash	flow	hedge	of	floating	rate	debt.	A	derivative	interest	rate	liability	of	$1.0	million	as	of	December	31, 2009	was	recorded	in	accrued	liabilities.	Gains	and	losses	on	this	instrument	were	recorded	in	accumulated	other	comprehensive	loss,	net	of	tax,	until	the	underlying transaction	was	recorded	in	earnings.	When	the	hedged	item	was	realized,	gains	or	losses	were	reclassified	from	accumulated	other	comprehensive	loss	to	the	statement of	earnings.	The	assessment	of	effectiveness	for	the	interest	rate	swap	was	based	on	changes	in	floating	rate	interest	rates.	This	swap	was	determined	to	be	perfectly effective.

The	impact	of	cash	flow	hedges	on	the	company's	financial	statements	is	as	follows	(dollars	in	millions):

Fair	value	of	derivative	instruments	in	continuing	operations.

| December	31,	(dollars	in	millions) | Balance	Sheet	Location | Fair	Value | Fair	Value |
| :--- | :--- | :--- | :--- |
|  |  | 2010 | 2009 |
| Commodities\tcontracts | Other\tcurrent\tassets | $0.8 | $0.1 |
| Foreign\tcurrency\tcontracts | Derivative\tcontracts\tliability | (0.5) | (0.5) |
|  | Other\tcurrent\tassets | 1.1 | 0.9 |
| Interest\trate\tswap\tcontract | Derivative\tcontracts\tliability | - | (1.0) |
| Total |  | $1.4 | $(0.5) |

The	effect	of	derivative	instruments	on	the	Statement	of	Earnings	for	continuing	and	discontinued	operations.

# Year	ended	December	31,

| Derivatives	in	ASC	815	cash<br>flow	hedging	relationships | Amount	of<br>gain/(loss)<br>recognized	in<br>OCI	on<br>derivative<br>(effective<br>portion) | Amount	of<br>gain/(loss)<br>recognized	in<br>OCI	on<br>derivative<br>(effective<br>portion) | Location	of	gain/<br>(loss)	reclassified<br>from	Accumulated<br>OCI	into	earnings<br>(effective	portion) | reclassified<br>from<br>Accumulated<br>OCI	into<br>earnings<br>(effective<br>portion) | reclassified<br>from<br>Accumulated<br>OCI	into<br>earnings<br>(effective<br>portion) | Location	of	gain/<br>(loss)	recognized	in<br>earnings	on<br>derivative<br>(ineffective	portion) | Amount	of<br>gain/(loss)<br>recognized	in<br>earnings	on	a<br>derivative<br>(ineffective<br>portion) | Amount	of<br>gain/(loss)<br>recognized	in<br>earnings	on	a<br>derivative<br>(ineffective<br>portion) |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2010 | 2009 |  | 2010 | 2009 |  | 2010 | 2009 |
| Commodities\tcontracts | $10.2 | $32.0 | Cost\tof\tproducts\tsold | $1.1 | $(0.3) | Cost\tof\tproducts\tsold | $-\t\t\t\t $- | $-\t\t\t\t $- |
|  |  |  | Discontinued\toperations | \t 12.4 | (31.4) | Discontinued\toperations | - | 1.2 |
| Foreign\tcurrency\tcontracts | \t 11.5 | 8.6 | Cost\tof\tproducts\tsold | 0.6 | (3.0) | N/A | - | - |
|  |  |  | Discontinued\toperations | 9.0 | (13.7) | Discontinued\toperations | - | - |
| Interest\trate\tswap\tcontract | (0.1) | (0.3) | Interest\texpense | (1.1) | (1.1) | N/A | - | - |
|  | $21.6 | $40.3 |  | $22.0 | $(49.5) |  | $- | $ 1.2 |

Fair	Value	Measurements.	The	company	adopted	ASC	820	Fair	Value	Measurements	and	Disclosures	(formerly	SFAS	157)	on	January	1,	2008.	ASC	820,	among other	things,	defines	fair	value,	establishes	a	consistent	framework	for	measuring	fair	value	and	expands	disclosure	for	each	major	asset	and	liability	category	measured at	fair	value	on	either	a	recurring	basis	or	nonrecurring	basis.	ASC	820	clarifies	that	fair	value	is	an	exit	price,	representing	the	amount	that	would	be	received	to	sell	an asset	or	paid	to	transfer	a	liability	in	an	orderly	transaction	between	market	participants.	As	such	fair	value	is	a	market-based	measurement	that	should	be	determined based	on	assumptions	that	market	participants	would	use	in	pricing	an	asset	or	liability.	As	a	basis	for	considering	such	assumptions,	ASC	820	establishes	a	three-tier fair	value	hierarchy,	which	prioritizes	the	inputs	used	in	measuring	fair	value	as	follows:	(Level	1)	observable	inputs	such	as	quoted	prices	in	active	markets;	(Level	2) inputs,	other	than	the	quoted	prices	in	active	markets,	that	are	observable	either	directly	or	indirectly;	and	(Level	3)	unobservable	inputs	in	which	there	is	little	or	no market	data,	which	require	the	reporting	entity	to	develop	its	own	assumptions.

Assets	and	liabilities	measured	at	fair	value	are	based	on	the	market	approach	which	are	prices	and	other	relevant	information	generated	by	market	transactions	involving identical	or	comparable	assets	or	liabilities.

Continuing	assets	measured	at	fair	value	on	a	recurring	basis	are	as	follows	(dollars	in	millions):

|  | December	31, | December	31, |
| :--- | :--- | :--- |
| Fair\tValue\tMeasurement\tUsing | 2010 | 2009 |
| Quoted\tPrices\tin\tActive\tMarkets\tfor\tIdentical\tAssets\t(Level\t1) | $0.8 | $0.1 |
| Significant\tOther\tObservable\tInputs\t(Level\t2) | 0.6 | (0.6) |
| Total\tNet\tDerivative\tContracts | $1.4 | $(0.5) |

There	were	no	changes	in	our	valuation	techniques	used	to	measure	fair	values	on	a	recurring	basis	as	a	result	of	adopting	ASC	820.

Revenue	recognition.	The	company	recognizes	revenue	upon	transfer	of	title,	which	occurs	upon	shipment	of	the	product	to	the	customer	except	for	certain	export	sales where	transfer	of	title	occurs	when	the	product	reaches	the	customer	destination.

Contracts	and	customer	purchase	orders	are	used	to	determine	the	existence	of	a	sales	arrangement.	Shipping	documents	are	used	to	verify	shipment.	The	company assesses	whether	the	selling	price	is	fixed	or	determinable	based	upon	the	payment	terms	associated	with	the	transaction	and	whether	the	sales	price	is	subject	to	refund or	adjustment.	The	company	assesses	collectability	based	on	the	creditworthiness	of	the	customer	as	determined	by	credit	checks	and	analysis,	as	well	as	the	customer's payment	history,	and	does	not	require	collateral	on	sales	in	most	cases.	The	allowance	for	doubtful	accounts	was	$3.5	million	and	$3.4	million	at	December	31,	2010 and	2009,	respectively.

Accruals	for	customer	returns	for	defective	product	are	based	on	historical	experience	with	similar	types	of	sales.	Accruals	for	rebates	and	incentives	are	based	on pricing	agreements	and	are	tied	to	sales	volume.	Changes	in	such	accruals	may	be	required	if	future	returns	differ	from	historical	experience	or	if	actual	sales	volume differs	from	estimated	sales	volume.	Rebates	and	incentives	are	recognized	as	a	reduction	of	sales.

Shipping	and	handling	costs	billed	to	customers	are	included	in	net	sales	and	the	related	costs	are	included	in	cost	of	products	sold.

Advertising.	The	majority	of	advertising	costs	are	charged	to	operations	as	incurred	and	amounted	to	$47.9,	$41.0	and	$38.9	million	during	2010,	2009	and	2008, respectively.

Research	and	development.	Research	and	development	costs	are	charged	to	operations	as	incurred	and	amounted	to	$37.1,	$31.0	and	$28.8	million	during	2010,	2009 and	2008,	respectively.

Product	warranties.	The	company's	products	carry	warranties	that	generally	range	from	one	to	ten	years	and	are	based	on	terms	that	are	generally	accepted	in	the market.	The	company	records	a	liability	for	the	expected	cost	of	warranty-related	claims	at	the	time	of	sale.	The	allocation	of	our	warranty	liability	between	current	and long-term	is	based	on	expected	warranty	claims	to	be	paid	in	the	next	year	as	determined	by	historical	product	failure	rates.

The	following	table	presents	the	company's	product	warranty	liability	activity	in	2010	and	2009:

| Years	ended	December	31	(dollars	in	millions) | 2010 | 2009 |
| :--- | :--- | :--- |
| Balance\tat\tbeginning\tof\tyear | $108.6 | $105.6 |
| Expense | 62.7 | 68.9 |
| Claims\tsettled | (59.1) | (65.9) |
| Balance\tat\tend\tof\tyear | $112.2 | $108.6 |

At	December	31,	2010	and	2009,	the	company	had	a	$13.8	million	and	$8.0	million	receivable,	respectively,	relating	to	certain	costs	it	expects	to	recover	from	a	vendor under	an	arrangement	which	existed	prior	to	entering	into	litigation	with	the	vendor	in	Tennessee	State	Court.	The	company	believes	collection	of	the	receivable	and	any future	amounts	to	be	recovered	related	to	this	litigation	is	probable.	Possible	future	amounts	could	reach	an	additional	$6.0	million	to	$17.0	million.

Environmental	costs.	The	company	accrues	for	losses	associated	with	environmental	obligations	when	such	losses	are	probable	and	reasonably	estimable.	Costs	of estimated	future	expenditures	are	not	discounted	to	their	present	value.	Recoveries	of	environmental	costs	from	other	parties	are	recorded	as	assets	when	their	receipt	is considered	probable.	The	accruals	are	adjusted	as	facts	and	circumstances	change.

Stock-based	compensation.	The	company	follows	ASC	718,	Compensation	-	Stock	Compensation	(formerly	SFAS	123(R)).	Compensation	cost	is	recognized	using	the straight-line	method	over	the	vesting	period	of	the	award.	ASC	718	also	requires	the	benefits	of	tax	deductions	in	excess	of	recognized	compensation	cost	to	be	reported as	a	financing	cash	flow,	rather	than	as	an	operating	cash	flow	as	required	under	prior	literature.	Excess	tax	deductions	of	$0.7	million,	$2.9	million	and	$1.1	million were	recognized	as	a	financing	cash	flow	in	2010,	2009	and	2008,	respectively.

Earnings	per	share	of	common	stock.	The	company	is	not	required	to	use	the	two-class	method	of	calculating	earnings	per	share	since	its	Class	A	Common	Stock	and Common	Stock	have	equal	dividend	rights.	The	numerator	for	the	calculation	of	basic	and	diluted	earnings	per	share	is	net	earnings.	The	following	table	sets	forth	the computation	of	basic	and	diluted	weighted-average	shares	used	in	the	earnings	per	share	calculations:

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Denominator\tfor\tbasic\tearnings\tper\tshare\t-\tweighted-average\tshares\toutstanding | \t45,743,246 | \t34,289,257 | \t14,225,238 |
| Effect\tof\tdilutive\tstock\toptions,\trestricted\tstock\tand\tshare\tunits | 419,469 | 187,599 | - |
| Denominator\tfor\tdiluted\tearnings\tper\tshare | \t46,162,715 | \t34,476,856 | \t14,225,238 |

On	October	11,	2010,	the	company's	board	of	directors	declared	a	three-for-two	stock	split	of	the	company's	Class	A	Common	Stock	and	Common	Stock	in	the	form	of a	fifty	percent	stock	dividend	to	stock	holders	of	record	on	October	29,	2010	and	payable	on	November	15,	2010.	Shares	held	in	treasury	by	the	company	were	not impacted	by	the	split.	All	references	in	the	financial	statements	to	number	of	shares	outstanding,	price	per	share,	per	share	amounts	and	stock	based	compensation	data have	been	retroactively	restated	to	reflect	the	split	for	all	periods	presented.

The	weighted	average	shares	presented	above	have	been	impacted	by	the	accounting	treatment	of	the	company's	transaction	with	SICO	which	closed	on	April	22,	2009 and	is	discussed	in	more	detail	earlier	in	Note	1	to	the	Notes	to	Consolidated	Financial	Statements.	The	primary	accounting	impact	of	the	SICO	transaction	is	in	the calculation	of	earnings	per	share	since	the	accounting	rules	require	the	use	of	SICO	adjusted	average	shares	outstanding	rather	than	A.	O.	Smith	Corporation	average shares	outstanding	prior	to	the	closing.	The	SICO	average	shares	outstanding	reflect	the	historical	shares	of	SICO	multiplied	by	their	exchange	ratio	from	the	April	22, 2009	merger	transaction.	Subsequent	to	the	closing,	A.	O.	Smith	Corporation	average	shares	are	used	in	the	calculation.

Restricted	marketable	securities.	The	company	acquired	GSW	Inc.	in	2006.	GSW	Inc.	operated	a	captive	insurance	company	to	provide	product	liability	and	general liability	insurance	to	its	subsidiary	American	Water	Heater	Co.	(American).	The	company	decided	to	cover	American's	prospective	liability	exposures	with	its	existing insurance	programs	and	all	product	liability	claims	for	events	which	occurred	prior	to	July	1,	2006	will	be	financed	by	the	captive.	The	reinsurance	company	restricts	the amount	of	capital	which	must	be	maintained	by	the	captive	and	this	restricted	amount	is	$11.6	million	and	$17.2	million	at	December	31,	2010	and	2009,	respectively. The	$11.6	million	and	$17.2	million	of	restricted	money	market	instruments	are	included	in	other	assets	on	the	company's	balance	sheet	at	December	31,	2010	and 2009,	respectively.	The	cost	of	the	money	market	instruments	approximates	fair	value.

# 2.				Discontinued	Operations

On	December	12,	2010,	the	company	entered	into	a	definitive	agreement	to	sell	its	Electrical	Products	segment	(EPC)	to	Regal	Beloit	Corporation	for	$700	million	in cash	and	approximately	2.83	million	shares	of	Regal	Beloit	Corporation	common	stock.	At	December	31,	2010	 the	value	of	 the	Regal	Beloit	stock	was	worth approximately	$189.0	million.	The	sale	is	expected	to	occur	during	the	first	half	of	2011,	subject	to	regulatory	approvals	and	customary	closing	conditions.

The	results	of	EPC	have	been	reported	separately	as	discontinued	operations.	Prior	year	consolidated	financial	statements	of	the	company	have	been	restated	to	present EPC	as	discontinued.	In	addition	2008	includes	minimal	discontinued	operations	related	to	the	SICO	transaction.

# 2.				Discontinued	Operations	(continued)

The	components	of	the	net	assets	of	EPC	discontinued	operations	included	in	the	consolidated	balance	sheets	are:

Consolidated	interest	expense	not	directly	attributable	to	other	operations	was	allocated	to	discontinued	operations	based	on	the	ratio	of	EPC	net	assets	to	be	sold	to	the sum	of	consolidated	net	assets	plus	consolidated	debt	not	directly	attributable	to	other	operations.

The	cash	flow	provided	by	EPC	discontinued	operations	is	as	follows:

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Operating\tActivities |  |  |  |
| Earnings | $54.4 | $29.1 | $30.4 |
| Adjustments\tto\treconcile\tearnings\tto\tnet\tcash\tprovided\tby\tdiscontinued\toperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 26.1 | 29.2 | 30.4 |
| Gain\ton\tsale\tof\tassets | (0.2) | (2.0) | 4.5 |
| Net\tchanges\tin\toperating\tassets\tand\tliabilities |  |  |  |
| Current\tassets\tand\tliabilities | (23.3) | 74.5 | (47.3) |
| Noncurrent\tassets\tand\tliabilities | 4.5 | 9.9 | (1.8) |
| Other | - | (0.7) | 0.6 |
| Cash\tProvided\tby\tDiscontinued\tOperating\tActivities | 61.5 | \t 140.0 | 16.8 |
| Investing\tActivities |  |  |  |
| Capital\texpenditures | (14.3) | (14.3) | (24.9) |
| Proceeds\ton\tsale\tof\tassets | 5.5 | 7.6 | - |
| Cash\tUsed\tin\tDiscontinued\tInvesting\tActivities | (8.8) | (6.7) | (24.9) |
| Cash\tFlow\tProvided\tby\t(used\tin)\tDiscontinued\tOperations | $52.7 | $133.3 | $(8.1) |

# 3.				Acquisitions

In	November	2009,	the	company	acquired	a	majority	interest	in	the	water	treatment	business	of	Tianlong	Holding	Co.	Ltd.	of	Hong	Kong,	with	operations	based	in Shanghai,	China.	A	newly	formed	company,	SWT,	holds	the	assets	of	the	business,	which	manufactures	and	supplies	reverse	osmosis	units	and	other	water	treatment products	to	the	China	residential	and	commercial	markets	as	well	as	export	markets	around	the	world.

The	company	acquired	an	80	percent	interest	in	SWT	at	a	total	cost	of	$76.7	million,	including	fixed	future	payments	of	$5.7	million,	subject	to	reductions	for	claims	the company	may	make	if	there	are	any	breaches	of	the	representations	and	warranties	made	by	the	selling	shareholder	under	the	acquisition	agreement.	As	required	under ASC	805	the	company	recorded	100%	of	the	fair	value	of	the	assets	and	liabilities	as	of	the	date	of	acquisition,	with	the	20	percent	noncontrolling	interest	recorded	in the	equity	section	of	the	company's	balance	sheet.	The	acquisition	value	exceeded	the	fair	value	of	the	assets	acquired	by	$90.6	million,	of	which	$55.4	million	was recorded	as	goodwill	and	$42.2	million	was	recorded	as	intangible	assets	in	the	Water	Products	segment.	In	addition,	$7.0	million	of	deferred	tax	liability	associated with	the	intangible	assets	was	recorded.	In	2010,	the	company	made	a	goodwill	adjustment	of	$1.1	million	related	to	inventory	valuation.	The	company	purchased	the remaining	20	percent	interest	in	SWT	for	$6	million	from	its	partner	in	the	fourth	quarter	of	2010	and	the	company	now	owns	100	percent	of	SWT.	The	difference between	the	amount	paid	and	the	carrying	value	of	the	noncontrolling	interest	was	recorded	to	additional	paid-in	capital.	The	$5.7	million	payment	mentioned	above	was not	paid	due	to	breaches	of	representations	and	warranties	and	was	recognized	as	a	gain	as	part	of	a	settlement	with	the	former	owner	(see	Note	4).

In	July	2010,	the	company	purchased	the	U.S.	assets	and	the	right	to	market	and	sell	tankless	water	heaters	in	North	America	from	Takagi	Industrial	Co,	Ltd	(Takagi)	of Fuji-city,	Shizuoka,	Japan	for	$5.5	million.	Through	the	venture,	the	company	offers	a	full	line	of	tankless	water	heaters	under	its	own	brands	in	association	with	the Takagi	brand.

In	the	fourth	quarter	of	2010,	the	company	purchased	the	remaining	50	percent	share	of	its	China	joint	venture	that	manufactures	combi-boilers	for	the	residential	market in	China	for	$0.3	million.	The	joint	venture	was	formed	in	December,	2007.

In	April	2009,	the	company	acquired	the	assets	of	Applied	Energy	Recovery	Systems	Inc.,	a	manufacturer	of	commercial	and	residential	heat	pump	water	heater products	located	in	Norcross,	Ga.	The	purchase	price	for	the	assets	totaled	$0.7	million,	including	a	fixed	payment	of	$0.1	million	made	in	2010	and	contingent	future payments	totaling	$0.2	million	due	during	the	period	2010	through	2013	based	on	achievement	of	sales	projections.	No	contingent	payments	were	made	in	2010.	All future	payments	are	subject	to	reductions	for	claims	the	company	may	make	if	there	are	any	breaches	of	the	representations	and	warranties	made	by	the	seller	under	the asset	purchase	agreement.	The	purchase	price	exceeded	the	fair	value	of	the	assets	acquired	by	$0.5	million	which	was	recorded	as	goodwill	in	the	Water	Products segment.

# 3.				Acquisitions	(continued)

The	acquisitions	were	accounted	for	under	the	purchase	accounting	method,	and	accordingly,	the	results	of	operations	are	included	in	the	company's	financial	statements from	the	date	of	acquisition.

# 4.				Restructuring,	Impairment,	Other	Charges	and	Settlement	Income

# Water	Products	Restructuring,	Impairment	and	Settlement	Income,	Net

In	2010,	Water	Products	recognized	a	$3.3	million	impairment	charge	related	to	SWT's	trademarks.	The	company	announced	plans	to	move	the	water	treatment operations	to	Nanjing,	China	to	recognize	synergies	associated	with	the	company's	strong	management	team	and	the	engineering	center	in	place	at	the	company's	water heater	operations	in	that	city.	A	restructuring	charge	of	$1.8	million	was	recognized	relative	to	the	move	for	severance,	lease	termination	and	asset	impairment	costs.	The charges	were	largely	offset	by	a	$5.0	million	gain	on	settlement	of	disputes	with	the	prior	owner	relative	to	breaches	of	representations	and	warranties	regarding	the condition	of	SWT	on	the	date	of	purchase.

The	following	table	presents	an	analysis	of	the	company's	Water	Products	restructuring,	impairment	and	settlement	reserve	as	of	and	for	the	year	ended	December	31, 2010	(dollars	in	millions):

|  | Severance | Intangible | Settlement |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Costs | Impairment | Income | Other | Total |
| Balance\tat\tDecember\t31,\t2009 | $- | $- | $- | $- | $- |
| Expense\t(income)\trecognized | 1.1 | 3.3 | (5.0) | 0.7 | 0.1 |
| Intangible/Asset\twrite-down | - | (3.3) | - | (0.1) | (3.4) |
| Settlement\tincome | - | - | 5.0 | - | 5.0 |
| Balance\tat\tDecember\t31,\t2010 | $1.1 | $- | $- | $0.6 | $1.7 |

# Other	Charges	–	Tower	Automotive,	Inc.

The	company	was	the	primary	lessee	on	a	facility	lease	in	Corydon,	Indiana	related	to	a	business	sold	to	Tower	Automotive,	Inc.	(Tower)	in	1997.	The	company	entered into	a	sublease	arrangement	with	Tower	in	1997	with	the	same	terms	and	conditions	as	the	company's	lease.	Tower	filed	for	bankruptcy	on	February	2,	2005	and subsequently	notified	the	company	that	it	would	reject	the	sublease	arrangement	effective	October	1,	2005.	In	order	to	minimize	costs,	the	company	purchased	the Corydon	facility	for	$4.5	million	on	October	11,	2005.	The	company	recognized	$0.5	million	of	expense	in	2008	related	to	facility	maintenance	and	the	company's estimate	of	its	ultimate	net	loss	upon	disposition	of	this	facility.	On	March	26,	2009,	the	company	sold	the	Corydon	facility	for	$2.0	million	which	resulted	in	a	$0.9 million	loss	that	was	recognized	at	the	time	of	the	sale.

# Other	Charges

The	company	recognized	$0.4	million	of	expense	in	2009,	associated	with	retained	liabilities	of	previously	owned	businesses	which	were	sold	by	the	company	between 1997	–	2001.	The	majority	of	the	$0.4	million	recognized	in	2009	is	related	to	ongoing	environmental	liabilities.	In	2008,	the	company	recognized	$1.9	million	of expense	incurred	by	SICO	relative	to	the	merger	transaction.

# 5.				Statement	of	Cash	Flows

Changes	in	the	carrying	amount	of	goodwill	during	the	years	ended	December	31,	2010	and	2009,	consisted	of	the	following:

| Changes	in	the	carrying	amount	of	goodwill	during	the	years	ended	December	31,	2010	and	2009,	consisted	of	the	following: |  |
| :--- | :--- |
|  | Water |
| (dollars\tin\tmillions) | Products |
| Balance\tat\tDecember\t31,\t2008 | $257.1 |
| Acquisition\tof\tbusinesses\t(see\tNote\t3) | 55.9 |
| Currency\ttranslation\tadjustment | 6.9 |
| Balance\tat\tDecember\t31,\t2009 | 319.9 |
| Adjustment\tto\tgoodwill\t(see\tNote\t3) | 1.1 |
| Currency\ttranslation\tadjustment | 2.8 |
| Balance\tat\tDecember\t31,\t2010 | $323.8 |

The	company	concluded	that	no	impairment	existed	at	the	time	of	the	annual	impairment	tests	which	were	performed	in	the	fourth	quarters	of	2010,	2009	and	2008.

# 9.				Debt	and	Lease	Commitments

| December	31	(dollars	in	millions) | 2010 | 2009 |
| :--- | :--- | :--- |
| Bank\tcredit\tlines,\taverage\tyear-end\tinterest\trate |  |  |
| of\t5.1%\tfor\t2010\tand\t1.5%\tfor\t2009 | $6.5 | $17.9 |
| Revolving\tcredit\tagreement\tborrowings,\taverage |  |  |
|  | \t 115.0 | 70.0 |
| Commercial\tpaper,\taverage\tyear-end\tinterest\trate |  |  |
| of\t1.3%\tfor\t2009 | - | 1.8 |
| Term\tnotes\twith\tinsurance\tcompanies,\texpiring\tthrough |  |  |
|  | 86.9 | \t 108.0 |
| Canadian\trevolving\tcredit\tagreement\tborrowings,\taverage\tyear-end |  |  |
| interest\trate\tof\t2.7%\tfor\t2010\tand\t0.8%\tfor\t2009 | 22.6 | 27.0 |
| Canadian\tterm\tnotes\twith\tinsurance\tcompanies,\texpiring\tthrough |  |  |
|  | 30.0 | 28.5 |
|  | \t 261.0 | \t 253.2 |
| Less\tlong-term\tdebt\tdue\twithin\tone\tyear | 18.6 | 21.1 |
| Long-term\tdebt | $242.4 | $232.1 |

The	company	has	a	$425	million	multi-year	multi-currency	revolving	credit	agreement	with	a	group	of	nine	banks,	which	expires	on	November	13,	2013.	The	facility has	an	accordion	provision	which	allows	it	to	be	increased	up	to	$525	million	if	certain	conditions	(including	lender	approval)	are	satisfied.	Borrowings	under	the company's	bank	credit	lines	and	commercial	paper	borrowings	are	supported	by	the	revolving	credit	agreement.	As	a	result	of	the	long-term	nature	of	this	facility,	the commercial	paper	and	credit	line	borrowings	are	classified	as	long-term	debt	at	December	31,	2010	and	2009.	At	its	option,	the	company	maintains	either	cash	balances or	pays	fees	for	bank	credit	and	services.

# 10.				Redeemable	Stock

SICO	had	an	agreement,	which	was	terminated	in	2009,	with	a	stockholder	to	redeem	common	stock	tendered	by	the	estate	of	the	stockholder,	when	deceased,	sufficient to	provide	funds	for	estate	taxes	and	expenses.	The	redemption	price	was	based	on	the	valuation	used	for	federal	estate	tax	purposes	and	could	be	satisfied	in	either	cash or	an	equivalent	amount	of	A.	O.	Smith	Common	Stock	based	on	the	market	value	at	the	date	of	redemption.	The	redemption	agreement	included	a	provision	whereby SICO	was	not	obligated	to	make	a	redemption	if	it	would	cause	a	violation	of	any	provision	of	the	company's	credit	agreements	or	term	loans.	A	debt	agreement	in	place through	October	30,	2008	included	a	covenant	that	limited	SICO's	cumulative	redemptions	to	$0.2	million.

At	 December	 31,	 2008,	 the	 aggregate	 number	 of	 outstanding	 shares	 covered	 by	 the	 redemption	 agreement	 was	 167,173.	 In	 accordance	 with	 EITF	Topic	 D-98, "Classification	and	Measurement	of	Redeemable	Securities",	the	redeemable	Common	Stock	was	recorded	outside	of	stockholders'	equity	at	December	31,	2008	based on	the	closing	stock	price	of	SICO's	Common	Stock.

# 11.				Stockholders'	Equity

The	stockholders'	equity	presented	in	the	consolidated	financial	statements	has	been	impacted	by	the	accounting	treatment	of	the	company's	transaction	with	SICO which	closed	on	April	22,	2009	and	is	discussed	in	more	detail	in	Note	1	to	the	Notes	to	Consolidated	Financial	Statements.	The	primary	impact	on	stockholders'	equity is	that	the	accounting	rules	require	the	presentation	of	SICO's	stockholders'	equity	prior	to	the	transaction.	Subsequent	to	the	transaction,	A.	O.	Smith	Corporation stockholders'	equity	activity	is	presented.

SICO's	authorized	capital	consisted	of	10	million	shares	of	Common	Stock	$.10	par	value.

The	Class	A	Common	Stock	and	Common	Stock	presented	for	2008	reflect	a	stock	split	such	that	SICO	Common	Stock	is	converted	into	its	controlling	interest	in A.	O.	Smith	Corporation.	The	adjustment	converts	SICO	Common	Stock	into	shares	of	A.	O.	Smith	Class	A	Common	Stock	and	A.	O.	Smith	Common	Stock	that	SICO owns	as	of	December	31,	2008.

The	company's	authorized	capital	consists	of	3	million	shares	of	Preferred	Stock	$1	par	value,	14	million	shares	of	Class	A	Common	Stock	$5	par	value,	and	60	million shares	of	Common	Stock	$1	par	value.	The	Common	Stock	has	equal	dividend	rights	with	Class	A	Common	Stock	and	is	entitled,	as	a	class,	to	elect	one-third	of	the Board	of	Directors	and	has	1/10th	vote	per	share	on	all	other	matters.	Class	A	Common	Stock	is	convertible	to	Common	Stock	on	a	one	for	one	basis.

In	December	2007,	the	company's	Board	of	Directors	authorized,	and	ratified	on	December	14,	2010,	the	purchase	of	1,500,000	shares	of	its	outstanding	Common Stock.	No	shares	were	purchased	in	2010,	2009	or	2008.

Accumulated	other	comprehensive	loss	is	as	follows:

# 12.				Stock	Based	Compensation

The	company	adopted	the	A.	O.	Smith	Combined	Incentive	Compensation	Plan	(the	"plan")	effective	January	1,	2007.	The	plan	is	a	continuation	of	the	A.	O.	Smith Combined	Executive	Incentive	Compensation	Plan	which	was	originally	approved	by	shareholders	in	2002.	At	the	company's	annual	meeting	of	stockholders	on April	14,	2009,	an	amendment	to	the	plan	was	approved	to	increase	the	authorized	shares	of	Common	Stock	under	the	plan	by	1,875,000.	The	number	of	shares available	for	granting	of	options	or	share	units	at	December	31,	2010,	was	2,148,585.	Upon	stock	option	exercise,	restricted	stock	grant,	or	share	unit	vesting,	shares	are issued	from	Treasury	stock.

Total	stock	based	compensation	cost	from	continuing	operations	recognized	in	2010,	2009	and	2008	was	$5.4,	$5.1	and	$4.7	million,	respectively.

# Stock	options

The	stock	options	granted	in	2010,	2009	and	2008	have	a	three	year	pro	rata	vesting	from	the	date	of	grant.	Stock	options	are	issued	at	exercise	prices	equal	to	the	fair value	of	Common	Stock	on	the	date	of	grant.	For	active	employees,	all	options	granted	in	2010,	2009	and	2008	expire	ten	years	after	date	of	grant.	Stock	option compensation	recognized	in	2010,	2009	and	2008	was	$2.2,	$2.2	and	$1.8	million,	respectively.	Included	in	the	stock	option	expense	recognized	in	2010,	2009	and	2008 is	expense	associated	with	the	accelerated	vesting	of	stock	option	awards	for	certain	employees	who	either	are	retirement	eligible	or	become	retirement	eligible	during the	vesting	period.

# 12.				Stock	Based	Compensation	(continued)

Changes	in	option	shares,	all	of	which	are	Common	Stock,	were	as	follows:

(dollars	in	millions)

|  | Per	Share | Years	Ended	December	31 | Years	Ended	December	31 | Years	Ended	December	31 | Intrinsic	Value |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Exercise\tPrice | 2010 | 2009 | 2008 |  |
| Outstanding\tat\tbeginning\tof\tyear | $20.12 | $1,630,751 | \t1,933,601 | \t1,676,151 |  |
| Granted |  |  |  |  |  |
| 2010--$27.93\tper\tshare |  | 237,000 |  |  |  |
| 2009--$16.40\tto\t$21.66\tper\tshare |  |  | 506,400 |  |  |
| 2008--$21.34\tto\t$23.76\tper\tshare |  |  |  | 318,750 |  |
| Exercised |  |  |  |  |  |
| 2010--$9.04\tto\t$25.84\tper\tshare |  | (240,801) |  |  | $\t\t3.3 |
| 2009--$9.04\tto\t$19.47\tper\tshare |  |  | (809,250) |  | 8.1 |
| 2008--$12.21\tto\t$19.47\tper\tshare |  |  |  | (60,100) | 0.6 |
| Terminated |  |  |  |  |  |
| 2010--$19.00\tto\t$27.93\tper\tshare |  | (3,849) |  |  |  |
| 2008--$23.76\tper\tshare |  |  |  | (1,200) |  |
| Outstanding\tat\tend\tof\tyear\n(2010--$15.99\tto\t$27.93\tper\tshare) | 22.17 | \t 1,623,101 | \t1,630,751 | \t1,933,601 |  |
| Exercisable\tat\tend\tof\tyear | 21.57 | 951,035 | 831,401 | \t1,444,551 |  |

The	aggregate	 intrinsic	value	for	 the	outstanding	and	exercisable	options	as	of	December	31,	2010 is	$12.5	million	and	$6.4	million,	respectively.	The	average remaining	contractual	life	for	outstanding	and	exercisable	options	is	8	years	and	7	years,	respectively.

The	following	table	summarizes	weighted-average	information	by	range	of	exercise	prices	for	stock	options	outstanding	and	exercisable	at	December	31,	2010:

|  | Options | Weighted- | Options | Weighted- | Average |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Outstanding\tat | Average | Exercisable\tat | Average | Remaining |
| \t\t\t\t\t\t\t\tRange\tof | December\t31, | Exercise | December\t31, | Exercise | Contractual |
| \t\t\t\tExercise\tPrices | 2010 | Price | 2010 | Price | Life |
| $15.99\tto\t$19.47 | \t\t\t751,849 | \t$\t\t18.63 | 427,050 | \t$\t\t18.41 | 7\tyears |
| $21.34\tto\t$24.02 | \t\t\t413,302 | 23.33 | 301,385 | 21.92 | 7\tyears |
| $25.84\tto\t$27.93 | \t\t\t457,950 | 26.95 | 222,600 | 25.92 | 9\tyears |
|  | 1,623,101 |  | 951,035 |  |  |

The	weighted-average	fair	value	per	option	at	the	date	of	grant	during	2010,	2009	and	2008,	using	the	Black-Scholes	option-pricing	model,	was	$10.19,	$5.47	and	$7.73, respectively.	Assumptions	were	as	follows:

|  | 2010 | 2009 | 2008 |
| :--- | :--- | :--- | :--- |
| Expected\tlife\t(years) | 6.4 | 6.4 | 6.4 |
| Risk-free\tinterest\trate | \t\t3.6% | \t\t2.8% | \t\t3.7% |
| Dividend\tyield | \t\t1.9% | \t\t2.8% | \t\t2.0% |
| Expected\tvolatility | 38.7% | 35.0% | 35.1% |

The	expected	life	is	based	on	historical	exercise	behavior	and	the	projected	exercise	of	unexercised	stock	options.	The	risk	free	interest	rate	is	based	on	the	U.S.	Treasury yield	curve	in	effect	on	the	date	of	grant	for	the	respective	expected	life	of	the	option.	The	expected	dividend	yield	is	based	on	the	expected	annual	dividends	divided	by the	grant	date	market	value	of	our	common	stock.	The	expected	volatility	is	based	on	the	historical	volatility	of	our	common	stock.

# Restricted	stock	and	share	units

Participants	may	also	be	awarded	shares	of	restricted	stock	or	share	units	under	the	plan.	The	company	granted	101,873,	159,801	and	216,012	share	units	under	the	plan in	2010,	2009	and	2008,	respectively.	Included	in	the	2008	grant	are	share	units	granted	on	April	30,	2008	which	were	subject	to	performance	conditions	and	vested	on December	31,	2010.	The	number	of	share	units	that	vested	was	76,376	based	on	the	average	of	the	company's	annual	return	on	equity	for	the	eleven	quarters	ending December	31,	2010.	Compensation	expense	was	recognized	ratably	over	the	vesting	period.

The	share	units	were	valued	at	$2.9,	$3.0	and	$4.9	million	at	the	date	of	issuance	in	2010,	2009	and	2008,	respectively,	and	will	be	recognized	as	compensation	expense ratably	over	the	three-year	vesting	period.	Compensation	expense	of	$3.2,	$2.9	and	$2.9	million	was	recognized	in	2010,	2009	and	2008,	respectively.	Included	in	share based	compensation	 is	expense	associated	with	 the	accelerated	vesting	of	share	unit	awards	for	certain	employees	who	either	are	retirement	eligible	or	become retirement	eligible	during	the	vesting	period.

A	summary	of	share	unit	activity	under	the	plan	is	as	follows:

|  |  | Weighted-Average |
| :--- | :--- | :--- |
|  | Number\tof\tUnits | Grant\tDate\tValue |
| Outstanding\tat\tJanuary\t1,\t2010 | 476,243 | $22.01 |
| Granted | 101,873 | \t\t27.93 |
| Vested | (101,400) | \t\t24.37 |
| Terminated | (3,278) | \t\t24.44 |
| Outstanding\tat\tDecember\t31,\t2010 | 473,438 | $22.43 |

Total	compensation	expense	for	share	units	not	yet	recognized	is	$2.7	million	at	December	31,	2010.	The	weighted	average	period	over	which	the	expense	is	expected	to be	recognized	is	nine	months.

# 13.				Pension	and	Other	Post-retirement	Benefits

The	company	provides	retirement	benefits	for	all	United	States	employees	including	benefits	for	employees	of	previously	owned	businesses	which	were	earned	up	to	the date	of	sale.	The	company	also	has	several	foreign	pension	plans,	none	of	which	are	material	to	the	company's	financial	position.

The	company	had	a	defined	contribution	profit	sharing	and	retirement	plan	covering	 the	majority	of	 its	salaried	nonunion	employees	which	provided	for	annual company	contributions	of	35	percent	to	140	percent	of	qualifying	contributions	made	by	participating	employees.	This	plan	was	terminated	on	December	31,	2009	and was	replaced	by	a	plan	which	matches	100	percent	of	the	first	one	percent	of	contributions	made	by	participating	employees	and	matches	50	percent	of	the	next	five percent	of	employee	contributions.	The	new	plan	became	effective	on	January	1,	2010.	The	company	also	has	defined	contribution	plans	for	certain	hourly	employees which	provide	for	matching	company	contributions.

The	company	also	has	a	defined	benefit	plan	for	salaried	employees	and	its	non-union	hourly	workforce.	In	the	fourth	quarter	of	2009,	the	company	announced employees	hired	after	Jan.	1,	2010,	will	not	participate	in	the	defined	benefit	plan,	and	benefit	accruals	for	current	salaried	and	non-union	hourly	employees	will	stop	at the	end	of	2014.	This	change	resulted	in	a	plan	curtailment	and	reduced	the	plan's	liability	by	$12.3	million.	No	curtailment	gain	was	recognized	because	the	reduction	in liability	was	offset	by	existing	unrecognized	losses.	An	additional	company	contribution	will	be	made	to	the	defined	contribution	plan	in	lieu	of	participation	in	a	defined benefit	plan.	The	company	also	has	defined	benefit	and	contribution	plans	for	certain	union	hourly	employees.

# 13.				Pension	and	Other	Post-retirement	Benefits	(continued)

The	company	has	unfunded	defined-benefit	post-retirement	plans	covering	certain	hourly	and	salaried	employees	that	provide	medical	and	life	insurance	benefits	from retirement	to	age	65.	Certain	hourly	employees	retiring	after	January	1,	1996,	are	subject	to	a	maximum	annual	benefit	and	salaried	employees	hired	after	December	31, 1993,	are	not	eligible	for	post-retirement	medical	benefits.

# Obligations	and	Funded	Status

# Pension	and	Post-Retirement	Disclosure	Information	Under	ASC	715

The	following	tables	present	the	changes	in	benefit	obligations,	plan	assets	and	funded	status	for	domestic	pension	and	post-retirement	plans	and	the	components	of	net periodic	benefit	costs.

|  | Pension	Benefits | Pension	Benefits | Post-retirement	Benefits | Post-retirement	Benefits |
| :--- | :--- | :--- | :--- | :--- |
| Years\tended\tDecember\t31\t(dollars\tin\tmillions) | 2010 | 2009 | 2010 | 2009 |
| Accumulated\tBenefit\tObligation\t(ABO)\tat\tDecember\t31 | $850.3 | $816.6 | N/A | N/A |
| Change\tin\tbenefit\tobligations\t(PBO) |  |  |  |  |
| PBO\tat\tbeginning\tof\tyear | $(826.7) | $(782.8) | $(17.0) | $(16.9) |
| Service\tcost | (8.6) | (8.4) | (0.2) | (0.1) |
| Interest\tcost | (46.7) | (49.8) | (0.8) | (1.0) |
| Participant\tcontributions | - | - | (0.4) | (0.3) |
| Plan\tamendments | - | 12.3 | - | - |
| Actuarial\t(loss)/gain\tincluding\tassumption\tchanges | (38.7) | (57.2) | 2.1 | - |
| Benefits\tpaid | 58.6 | 59.2 | 1.4 | 1.3 |
| PBO\tat\tend\tof\tyear | $(862.1) | $(826.7) | $(14.9) | $(17.0) |
| Change\tin\tFair\tValue\tof\tPlan\tAssets |  |  |  |  |
| Plan\tassets\tat\tbeginning\tof\tyear | $594.0 | $519.1 | $- | $- |
| Actual\treturn\ton\tplan\tassets | 74.8 | 83.3 | - | - |
| Contribution\tby\tthe\tcompany | 30.6 | 50.8 | 1.0 | 1.0 |
| Participant\tcontributions | - | - | 0.4 | 0.3 |
| Benefits\tpaid | (58.6) | (59.2) | (1.4) | (1.3) |
| Plan\tassets\tat\tend\tof\tyear | $640.8 | $594.0 | $- | $- |
| Funded\tstatus | $(221.3) | $(232.7) | $(14.9) | $(17.0) |
| Amount\trecognized\tin\tthe\tbalance\tsheet |  |  |  |  |
| Current\tliabilities | $- | $- | $(1.3) | $(1.5) |
| Non-current\tliabilities | (221.3) | (232.7) | (13.6) | (15.5) |
| Net\tpension\tliability\tat\tend\tof\tyear | $(221.3)* | $(232.7)* | $(14.9) | $(17.0) |
| Amounts\trecognized\tin\tAccumulated\tOther\tComprehensive\tLoss |  |  |  |  |
| Before\tTax |  |  |  |  |
| Net\tactuarial\tloss/(gain) | $447.2 | $425.8 | $(3.3) | $(1.6) |
| Prior\tservice\tcost | (12.7) | - | - | - |
| Total\trecognized\tin\taccumulated\tother\tcomprehensive\tloss | $434.5 | $425.8 | $(3.3) | $(1.6) |

* In	addition	the	company	has	recorded	a	liability	for	a	foreign	pension	plan	of	$1.6	million	and	$0.1	million	at	December	31,	2010	and	2009,	respectively	and	an accumulated	other	comprehensive	loss	of	$1.9	and	$0.5	million	at	December	31,	2010	and	2009,	respectively.

|  | Pension	Benefits | Pension	Benefits | Pension	Benefits | Post-retirement	Benefits | Post-retirement	Benefits | Post-retirement	Benefits |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Years\tended\tDecember\t31\t(dollars\tin\tmillions) | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 |
| Net\tperiodic\tbenefit\tcost |  |  |  |  |  |  |
| Service\tcost | $8.6 | $8.4 | $8.9 | $0.2 | $0.2 | $0.2 |
| Interest\tcost | 46.7 | 49.8 | 49.1 | 0.8 | 1.0 | 1.0 |
| Expected\treturn\ton\tplan\tassets | (61.6) | (60.8) | (62.4) | - | - | - |
| Amortization\tof\tunrecognized: |  |  |  |  |  |  |
| Net\tactuarial\tloss | 17.7 | 10.6 | 7.8 | (0.4) | - | (0.1) |
| Prior\tservice\tcost | (0.9) | 0.3 | 0.6 | - | - | - |
| Defined-benefit\tplan\tcost | 10.5 | 8.3 | 4.0 | $0.6 | $1.2 | $1.1 |
| Various\tU.S.\tdefined\tcontribution\tplans\tcost | 5.8 | 6.5 | 5.4 |  |  |  |
|  | $16.3* | $14.8* | $9.4* |  |  |  |
| Other\tChanges\tin\tPlan\tAssets\tand\tProjected\tBenefit\tObligation |  |  |  |  |  |  |
| Recognized\tin\tOther\tComprehensive\tEarnings |  |  |  |  |  |  |
| Net\tactuarial\t(gain)\tloss | $25.4 | $34.8 | $246.1 | $(2.1) | $- | $(0.6) |
| Amortization\tof\tnet\tactuarial\tloss | (17.7) | (10.6) | (7.8) | 0.4 | - | 0.1 |
| Prior\tservice\tcost | - | (12.4) | 0.1 |  | - | - |
| Amortization\tof\tprior\tservice\tcost | 0.9 | (0.3) | (0.7) | (0.1) | - | - |
| Total\trecognized\tin\tother\tcomprehensive\tearnings | 8.6 | 11.5 | \t 237.7 | (1.8) | - | (0.5) |
| Total\tRecognized\tin\tNet\tPeriodic\tCost\tand\tOther\tComprehensive\tEarnings | $19.1 | $19.8 | $241.8 | $(1.2) | $1.2 | $0.6 |

The	estimated	net	actuarial	loss	and	prior	service	cost	for	the	pension	plans	that	will	be	amortized	from	accumulated	other	comprehensive	loss	into	net	periodic	benefit cost	during	2011	are	$22.7	million	and	$(0.9)	million,	respectively.	The	estimated	net	actuarial	loss	and	prior	year	service	cost	for	the	post-retirement	benefit	plans	that will	be	amortized	from	accumulated	other	comprehensive	loss	into	net	periodic	benefit	cost	during	2011	are	each	less	than	$0.3	million.	As	permitted	under	ASC	715, (formerly	FASB	Statement	No.	87	and	paragraph	53	of	Statement	No.	106),	the	amortization	of	any	prior	service	cost	is	determined	using	a	straight-line	amortization	of the	cost	over	the	average	remaining	service	period	of	employees	expected	to	receive	benefits	under	the	plan.

The	2010	and	2009	after	tax	adjustments	for	additional	minimum	pension	liability	resulted	in	other	comprehensive	loss	of	$5.6	million	and	$6.7	million,	respectively.

* Includes	$0,	$0.5	million	and	$2.1	million	of	defined	benefit	plan	income	and	$1.2	million,	$1.7	million	and	$1.5	million	of	defined	contribution	plans	cost	that	were included	in	earnings	from	discontinued	operations	for	2010,	2009	and	2008,	respectively.

# Assumptions

Actuarial	assumptions	used	to	determine	benefit	obligations	at	December	31	are	as	follows:

|  | Pension	Benefits | Pension	Benefits | Post-retirement	Benefits | Post-retirement	Benefits |
| :--- | :--- | :--- | :--- | :--- |
|  | 2010 | 2009 | 2010 | 2009 |
| Discount\trate | 5.35% | 5.80% | 5.35% | 5.80% |
| Average\tsalary\tincreases | 4.00% | 4.00% | 4.00% | 4.00% |

Actuarial	assumptions	used	to	determine	net	periodic	benefit	cost	for	the	year	ended	December	31	are	as	follows:

|  | Pension	Benefits | Pension	Benefits | Pension	Benefits | Post-retirement	Benefits | Post-retirement	Benefits | Post-retirement	Benefits |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Years\tended\tDecember\t31 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 |
| Discount\trate | \t5.80% | \t6.60% | \t6.50% | \t 5.80% | \t 6.60% | 6.50% |
| Expected\tlong-term\treturn\ton\tplan\tassets | \t8.75% | \t8.75% | \t8.75% | n/a | n/a | n/a |
| Rate\tof\tcompensation\tincrease | \t4.00% | \t4.00% | \t4.00% | \t 4.00% | \t 4.00% | 4.00% |

In	developing	the	expected	long-term	rate	of	return	assumption,	the	company	evaluated	its	pension	plan's	target	and	actual	asset	allocation	and	historical	long-term	rates of	return	of	equity	and	bond	indices.	The	company	also	considered	its	pension	plan's	historical	10-year	and	25-year	compounded	annualized	returns	of	4.6	percent	and 10.0	percent,	respectively.

# Assumed	health	care	cost	trend	rates

Assumed	health	care	cost	trend	rates	as	of	December	31	are	as	follows:

|  | 2010 | 2009 |
| :--- | :--- | :--- |
| Health\tcare\tcost\ttrend\trate\tassumed\tfor\tnext\tyear | \t10.00% | \t10.00% |
| Rate\tto\twhich\tthe\tcost\ttrend\trate\tis\tassumed\tto\tdecline\t(the\tultimate\ttrend\trate) | 5.00% | 5.00% |
| Year\tthat\tthe\trate\treaches\tthe\tultimate\ttrend\trate | \t 2015 | \t 2015 |

A	one-percentage-point	change	in	the	assumed	health	care	cost	trend	rates	would	not	result	in	a	material	impact	on	the	company's	consolidated	financial	statements.

# Plan	Assets

The	company's	pension	plan	weighted	asset	allocations	as	of	December	31	by	asset	category	are	as	follows:

| Asset	Category | 2010 | 2009 |
| :--- | :--- | :--- |
| Equity\tsecurities | 62% | 60% |
| Debt\tsecurities | 30 | 30 |
| Private\tequity | 6 | 5 |
| Other | 2 | 5 |
|  | \t 100% | \t 100% |

The	following	table	presents	the	fair	value	measurement	of	plan	assets	as	of	December	31,	2010	(dollars	in	millions)

| Asset	Category | Total | Quoted	Prices	in<br>Active	Markets	for<br>Identical	Contracts<br>(Level	1) | Significant	Other<br>Observable	Inputs<br>(Level	2) | Significant<br>Nonobservable<br>Inputs	(Level	3) |
| :--- | :--- | :--- | :--- | :--- |
| Short-term\tinvestments | $12.8 | $- | $0.1 | $12.7 |
| Equity\tSecurities |  |  |  |  |
| Common\tstocks | \t 279.0 | 279.0 | - | - |
| Preferred\tStocks | 0.1 | 0.1 | - | - |
| Commingled\tequity\tfunds | \t 121.3 | - | 121.3 | - |
| Fixed\tIncome\tSecurities |  |  |  |  |
| U.S.\tTreasury\tsecurities | 42.2 | 42.2 | - | - |
| Government\tagency\tsecurities | 6.5 | - | 6.5 | - |
| Corporate\tasset\tbacked\tsecurities | 3.1 | - | 3.1 | - |
| Corporate\tCMBS\tand\tCMO\tSecurities | 2.4 | - | 2.4 | - |
| Other\tfixed\tincome\tsecurities | 31.1 | - | 30.9 | 0.2 |
| Commingled\tfixed\tincome\tfunds | \t 104.1 | - | 104.1 | - |
| Other\ttypes\tof\tinvestments\nPrivate\tequity | 37.7 | - | - | 37.7 |
| Total\tfair\tvalue\tof\tplan\tasset\tinvestments | $640.3 | $321.3 | $268.4 | $50.6 |
| Non-investment\tplan\tassets | 0.5 |  |  |  |
| Total\tplan\tassets | $640.8 |  |  |  |

The	following	table	presents	a	reconciliation	of	the	fair	value	measurements	using	significant	unobservable	inputs	(Level	3)	as	of	December	31,	2010	(dollars	in millions):

|  | Short	Term | Income | Private |  |
| :--- | :--- | :--- | :--- | :--- |
|  | Investments | Securities | Equity | Total |
| Balance\tat\tDecember\t31,\t2009 | $28.2 | $- | $29.4 | $57.6 |
| Actual\treturn\ton\tplan\tassets: |  |  |  |  |
| Relating\tto\tassets\tstill\theld\tat\tthe\treporting\tdate | - | - | 4.0 | 4.0 |
| Relating\tto\tassets\tsold\tduring\tthe\tperiod | - | - | (0.1) | (0.1) |
| Purchases,\tsales\tand\tsettlements | (15.5) | - | 4.4 | (11.1) |
| Transfers\tin\tand/or\tout\tof\tLevel\t3 | - | 0.2 | - | 0.2 |
| Balance\tat\tDecember\t31,\t2010 | $12.7 | $0.2 | $37.7 | $50.6 |

The	company's	investment	policies	employ	an	approach	whereby	a	diversified	blend	of	equity	and	bond	investments	is	used	to	maximize	the	long–term	return	of	plan assets	 for	 a	 prudent	 level	 of	 risk.	 Equity	 investments	 are	 diversified	 across	 domestic	 and	 non–domestic	 stocks,	 as	 well	 as	 growth,	 value,	 and	 small	 to	 large capitalizations.	Bond	 investments	 include	corporate	and	government	 issues,	with	short–,	mid–	and	 long–term	maturities,	with	a	focus	on	 investment	grade	when purchased.	The	company's	target	allocation	to	equity	managers	is	between	60	and	70	percent	with	the	remainder	allocated	primarily	to	bonds	and	a	small	allocation	to private	equity	managers.	Investment	and	market	risks	are	measured	and	monitored	on	an	ongoing	basis	through	regular	investment	portfolio	reviews,	annual	liability measurements	and	periodic	asset/liability	studies.

The	company's	actual	asset	allocations	are	in	line	with	target	allocations.	The	company	regularly	reviews	its	actual	asset	allocation	and	periodically	rebalances	its investments	to	the	targeted	allocation	when	considered	appropriate.

There	were	48,584	shares	of	the	company's	Class	A	Common	Stock	and	6,205	shares	of	Common	Stock	included	in	plan	assets	at	December	31,	2010.	The	total	market value	of	these	shares	at	December	31,	2010	is	$2.1	million.

# Cash	Flows

In	2010,	the	company	made	contributions	of	$30.6	million	and	is	required	to	make	a	minimal	contribution	in	2011.

# Estimated	Future	Payments

The	following	benefit	payments,	which	reflect	expected	future	service,	as	appropriate,	are	expected	to	be	paid:

|  |  | Post-retirement |
| :--- | :--- | :--- |
| Years\tending\tDecember\t31\t(dollars\tin\tmillions) | Pension\tBenefits | Benefits |
| 2011 | $\t\t\t\t\t\t59.7 | $\t\t\t\t\t\t\t1.3 |
| 2012 | \t\t59.5 | 1.3 |
| 2013 | \t\t59.5 | 1.3 |
| 2014 | \t\t59.4 | 1.2 |
| 2015 | \t\t59.4 | 1.2 |
| Years\t2016\t–\t2020 | \t\t295.8 | 5.5 |

# 14.		Ashland	City,	TN	Facility	Flood

Starting	May	3,	2010,	production	at	the	company's	largest	water	heater	manufacturing	plant	located	in	Ashland	City,	TN	was	temporarily	shut	down	due	to	record flooding	of	the	Cumberland	River.	Water	heater	production	was	shifted	to	other	company	plants	located	in	the	United	States,	Canada	and	Mexico.	The	company	resumed production	at	the	Ashland	City,	TN	plant	in	June	2010	and	has	reached	production	levels	which	align	with	demand.	Recovery	from	the	flood	was	essentially	completed by	year	end	2010.

As	of	December	31,	2010,	the	company	recorded	flood	related	expense	of	$35.4	million,	net	of	insurance	proceeds,	consisting	of	the	following:

The	buildings	and	equipment	of	the	Ashland	City,	TN	plant	sustained	damages	due	to	the	severe	flooding.	As	of	December	31,	2010,	restoration	of	manufacturing equipment	is	complete	and	office	space	is	nearing	completion.	The	carrying	value	of	fixed	assets	destroyed	in	the	flood	was	written	off,	totaling	$14.0	million.	An additional	$22.1	million	was	expensed	to	repair	and	refurbish	damaged	equipment	to	pre-flood	condition.

The	net	inventory	loss,	totaling	$16.4	million,	includes	the	cost	of	raw	materials,	work-in-process	and	finished	good	inventories	that	were	not	able	to	be	used	or	sold	due to	flood	damage.

# 14.		Ashland	City,	TN	Facility	Flood	(continued)

Site	cleanup	and	restoration	began	as	soon	as	the	flood	waters	subsided.	The	company	engaged	outside	contractors	to	pump	out	water	and	clean	and	sanitize	the	facilities and	the	grounds	of	the	manufacturing	facility	prior	to	access	by	company	personnel.	Employees	normally	engaged	in	the	production	of	water	heaters	were	utilized	in	the cleanup	and	repair	of	the	facility	and	equipment,	assessment	and	recovery	of	inventories	and	other	aspects	of	the	site	restoration.	Internal	and	external	costs	associated with	site	restoration	and	cleanup	totaled	$14.8	million.

# Insurance	proceeds

The	company	maintains	property	damage	and	business	interruption	insurance	coverage	applicable	to	its	Ashland	City,	TN	plant	totaling	$30	million.	The	company	also has	federal	flood	insurance	policies	and	$1.9	million	was	recovered.	As	of	December	31,	2010	the	company	has	received	insurance	proceeds	of	$31.9	million.

# Government	Assistance

In	addition,	the	company	received	assistance	from	the	State	of	Tennessee	as	well	as	local	governmental	agencies	as	incentive	to	reinvest	in	the	Ashland	City	facility. Those	incentives	are	in	the	form	of	grants,	future	tax	credits	and	the	purchase	of	certain	property.	The	benefits,	collectively,	totaled	approximately	$7	million	in	2010,	of which	$1.4	million	of	income	was	recorded	in	cost	of	goods	sold	in	the	third	quarter	of	2010.	In	the	fourth	quarter	of	2010,	$5.6	million	was	recorded	including	$1.3 million	in	cost	of	goods	sold,	$2.3	million	in	other	income	and	$2.0	million	as	an	offset	to	direct	flood	related	expenses.

The	components	of	the	provision	for	income	taxes	from	continuing	operations	consisted	of	the	following:

# 15.		Income	Taxes	(continued)

No	provision	for	U.S.	income	taxes	or	foreign	withholding	taxes	has	been	made	on	the	undistributed	earnings	of	foreign	subsidiaries	as	such	earnings	are	considered	to be	permanently	invested.	At	December	31,	2010,	the	undistributed	earnings	amounted	to	$408.8	million.	Determination	of	the	amount	of	unrecognized	deferred	tax liability	on	the	undistributed	earnings	is	not	practicable.	In	addition,	no	provision	or	benefits	for	U.S.	income	taxes	have	been	made	on	foreign	currency	translation	gains or	losses.

The	tax	effects	of	temporary	differences	of	assets	and	liabilities	between	income	tax	and	financial	reporting	are	as	follows:

|  | 2010 | 2010 | 2009 | 2009 |
| :--- | :--- | :--- | :--- | :--- |
|  | Assets | Liabilities | Assets | Liabilities |
| Employee\tbenefits | $93.3 | $- | $98.3 | $- |
| Product\tliability\tand\twarranties | 58.9 | - | 59.5 | - |
| Inventories | - | 3.5 | - | 4.1 |
| Property,\tplant\tand\tequipment | - | 30.2 | - | 28.8 |
| Intangibles | - | 28.7 | - | 31.4 |
| Restructuring | 0.1 | - | 0.2 | - |
| Environmental | 3.5 | - | 3.7 | - |
| Derivative\tinstruments | - | 0.1 | 0.2 | - |
| Tax\tloss\tand\tcredit\tcarryovers | 16.0 | - | 14.1 | - |
| All\tother | 9.6 | - | 9.5 | - |
| Valuation\tallowance | (1.9) | - | (1.5) | - |
|  | $179.5 | $62.5 | $184.0 | $64.3 |
| Net\tasset |  | $117.0 |  | $119.7 |

These	deferred	tax	assets	and	liabilities	are	classified	in	the	balance	sheet	as	current	or	long-term	based	on	the	balance	sheet	classification	of	the	related	assets	and liabilities	as	follows:

| December	31	(dollars	in	millions) | 2010 | 2008 |
| :--- | :--- | :--- |
| Current\tdeferred\tincome\ttax\tassets | $27.3 | $25.8 |
| Long-term\tdeferred\tincome\ttax\tassets | 89.7 | 93.9 |
| Net\tasset | $117.0 | $119.7 |

The	company	has	foreign	net	operating	loss	carryovers	with	tax	benefits	of	$1.5	million	that	expire	in	2014	thru	2018.	Based	on	future	realizability,	a	valuation allowance	of	$1.5	million	has	been	established	against	the	foreign	net	operating	loss	carryover	tax	benefits.

The	company	has	a	$6.6	million	charitable	contribution	carryover	of	which	$4.8	million	expire	in	2013	and	$1.8	million	expire	in	2014.	The	company	also	has	$1.3 million	of	research	tax	credit	carryovers	that	expire	in	2029	thru	2030	and	an	alternative	minimum	tax	credit	carryover	of	$0.2	million	that	does	not	expire.	The company	also	has	state	and	local	net	operating	loss	carryovers	having	a	tax	value	of	$8.1	million	and	state	and	local	tax	credit	carryovers	of	$1.0	million.	These carryovers	 expire	 between	 2011	 and	 2030.	 No	 valuation	 allowance	 has	 been	 established	 against	 the	 charitable	 contribution	 carryover.	A	 $0.4	 million	 valuation allowance	has	been	established	against	the	state	and	local	carryover	tax	benefits.

The	valuation	allowance	increased	by	$0.4	million	for	2010	for	current	year	tax	benefit	of	foreign	loss	carryovers.

A	reconciliation	of	the	beginning	and	ending	amount	of	unrecognized	benefits	is	as	follows:

| (Dollars	in	millions) | 2010 | 2009 |
| :--- | :--- | :--- |
| Balance\tat\tJanuary\t1 | $4.5 | $5.5 |
| Additions\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tyear | 0.1 | 1.8 |
| Reductions\tfor\ttax\tpositions\tof\tprior\tyears | (1.9) | (2.8) |
| Balance\tat\tDecember\t31 | $2.7 | $4.5 |

The	amount	of	unrecognized	tax	benefits	that,	if	recognized,	would	affect	the	effective	tax	rate	is	$2.2	million.	The	company	recognizes	potential	interest	and	penalties related	to	unrecognized	tax	benefits	as	a	component	of	tax	expense.	At	January	1,	2010	there	was	$0.5	million	of	interest	and	penalties	accrued.	There	was	a	$0.2	million decrease	to	the	interest	and	penalty	accrual	during	2010.	It	is	anticipated	there	will	be	a	$0.2	million	decrease	in	total	amount	of	unrecognized	tax	benefits	in	the	next	12 months.	The	company's	U.S.	federal	tax	returns	for	2007-2010	are	subject	to	audit.	The	company	is	subject	to	state	and	local	audits	for	tax	years	2004-2010.	The company	is	subject	to	non-U.S.	income	tax	examinations	for	years	2004-2010.

# 16.		Commitments	and	Contingencies

The	company	is	a	potentially	responsible	party	in	fourteen	judicial	and	administrative	proceedings	initiated	on	behalf	of	various	state	and	federal	regulatory	agencies seeking	to	clean	up	sites	which	have	been	environmentally	impacted	and	to	recover	costs	they	have	incurred	or	will	incur	as	to	the	sites.

The	company	has	established	reserves	for	the	sites	and	insurance	proceeds	and	potential	recovery	from	third	parties	are	available	to	cover	a	portion	of	the	company's potential	liability.	The	company	believes	that	any	environmental	claims	for	these	sites	in	excess	of	reserves,	insurance	proceeds	and	indemnified	amounts	will	not	have	a material	effect	on	its	financial	position	or	results	of	operations.

The	company	is	subject	to	various	claims	and	pending	lawsuits	for	product	liability	and	other	matters	arising	out	of	the	conduct	of	the	company's	business.	With	respect to	product	liability	claims,	the	company	has	self-insured	a	portion	of	its	product	liability	loss	exposure	for	many	years.	The	company	has	established	reserves	which	it believes	are	adequate	to	cover	incurred	claims.	For	the	years	ended	December	31,	2010	and	2009,	the	company	had	$125	million	of	product	liability	insurance	for individual	losses	in	excess	of	$5	million.	The	company	periodically	reevaluates	its	exposure	on	claims	and	lawsuits	and	makes	adjustments	to	its	reserves	as	appropriate. The	company	believes,	based	on	current	knowledge,	consultation	with	counsel,	adequate	reserves	and	insurance	coverage,	that	the	outcome	of	such	claims	and	lawsuits will	not	have	a	material	adverse	effect	on	the	company's	financial	position,	results	of	operations	or	cash	flows.

On	June	30,	2009,	the	company	commenced	legal	action	in	Tennessee	State	Court,	located	in	Johnson	City,	Washington	County,	against	a	supplier	seeking	recovery	of increased	costs	and	damages	that	the	company	incurred	due	to	an	issue	with	a	component	part	that	the	vendor	supplied	that	affects	certain	products	that	the	company sold.	The	company	has	set	up	a	portion	of	these	costs	as	a	receivable,	and	believes	it	will	likely	recover	these	costs	and	damages	in	the	litigation.

# 17.		Operations	by	Segment

The	company	has	one	reportable	segment:	Water	Products.	The	Water	Products	segment	manufactures	residential	and	commercial	gas	and	electric	water	heaters	used	in a	wide	range	of	applications	including	hotels,	laundries,	car	washes,	factories	and	large	institutions.	In	addition,	the	Water	Products	segment	manufactures	copper	tube boilers	used	in	large-volume	hot	water	and	hydronic	heating	applications	as	well	as	water	treatment	products.

# 17.		Operations	by	Segment	(continued)

The	accounting	policies	of	the	reportable	segment	are	the	same	as	those	described	in	the	"Summary	of	Significant	Accounting	Policies"	outlined	in	Note	1.	Operating earnings,	defined	by	the	company	as	earnings	before	interest,	taxes,	general	corporate	and	corporate	research	and	development	expenses,	is	used	to	measure	the performance	of	the	segment.

|  | Net	Earnings | Net	Earnings | Net	Earnings | Net	Sales | Net	Sales | Net	Sales |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Years\tended\tDecember\t31\t(dollars\tin\tmillions) | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 |
| Water\tProducts | $132.9 | $148.9 | $134.7 | $1,489.3 | $1,375.0 | $1,451.3 |
| General\tcorporate\tand\tresearch\tand\tdevelopment\texpenses | (51.6) | (50.3) | (48.9) |  |  |  |
| Interest\texpense | (6.9) | (7.2) | (11.0) |  |  |  |
| Earnings\tbefore\tincome\ttaxes | 74.4 | 91.4 | 74.8 |  |  |  |
| Provision\tfor\tincome\ttaxes | (17.3) | (30.9) | (27.6) |  |  |  |
| Earnings\tfrom\tcontinuing\toperations | $57.1 | $60.5 | $47.2 |  |  |  |

Sales	to	a	major	customer	within	the	Water	Products	segment	totaled	$239.5	and	$246.7	million	in	2010	and	2009,	respectively	which	is	16%	and	18%	of	the	company's net	sales,	respectively.	Water	Products	operating	earnings	includes	an	equity	loss	in	joint	venture	of	$0.4	million	and	$0.3	million	in	2009	and	2008,	respectively.

# Assets,	depreciation	and	capital	expenditures	by	segment

|  |  |  |  | Depreciation	and | Depreciation	and |  |  | Capital |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  | Amortization |  |  | Expenditures |  |
|  | (December\t31) | Total\tAssets |  | December\t31) | (Years\tEnded |  | December\t31) | (Years\tEnded |  |
| (dollars\tin\tmillions) | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 | 2010 | 2009 | 2008 |
| Water\tProducts | $1,168.0 | $1,095.9 | $984.9 | $40.2 | $37.8 | $35.3 | $51.6 | $42.0 | $40.9 |
| Corporate\tassets | 271.0 | 234.7 | 202.5 | 0.6 | 0.5 | 0.5 | 1.9 | 0.7 | 0.3 |
| EPC\tdiscontinued\toperations | 673.0 | 643.9 | 763.4 | - | - | - | - | - | - |
| SICO\tdiscontinued\toperations | - | - | 31.9 | - | - | - | - | - | - |
| Total | $2,112.0 | $1,974.5 | $1,982.7 | $40.8 | $38.3 | $35.8 | $53.5 | $42.7 | $41.2 |

The	majority	of	corporate	assets	consists	of	cash	and	cash	equivalents	and	deferred	income	taxes.

# Net	sales	and	long-lived	assets	by	geographic	location

The	following	data	by	geographic	area	includes	net	sales	based	on	product	shipment	destination	and	long-lived	assets	based	on	physical	location.	Long-lived	assets include	net	property,	plant	and	equipment	and	other	long-term	assets	and	long-lived	assets	of	previously	owned	businesses.

# 18.		Quarterly	Results	of	Operations	(Unaudited)

(dollars	in	millions,	except	per	share	amounts)

|  | 1st	Quarter | 1st	Quarter | 2nd	Quarter | 2nd	Quarter | 3rd	Quarter | 3rd	Quarter | 4th	Quarter | 4th	Quarter |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | 2010 | 2009 |
| Net\tsales | $366.7 | $339.0 | $375.0 | $337.1 | $377.4 | $336.7 | $370.2 | $362.2 |
| Gross\tprofit | \t 108.3 | 86.3 | \t 114.2 | 69.2 | \t 107.2 | \t 128.4 | \t 116.3 | \t 111.0 |
| Earnings |  |  |  |  |  |  |  |  |
| Continuing\toperations | 21.3 | 10.3 | (0.9) | 18.2 | 16.2 | 14.5 | 20.5 | 17.5 |
| Discontinued\toperations | 9.5 | (1.7) | 17.5 | 5.6 | 15.8 | 20.1 | 11.6 | 5.1 |
| Net\tearnings | 30.8 | 8.6 | 16.6 | 23.8 | 32.0 | 34.6 | 32.1 | 22.6 |
| Net\t(earnings)/loss\tattributable\tto\tnoncontrolling\tinterest |  |  |  |  |  |  |  |  |
| Continuing\toperations | 0.1 | (6.9) | - | (2.8) | - | - | 0.1 | 0.1 |
| Discontinued\toperations | - | 1.0 | - | 0.3 | - | - | - | - |
| Net\tearnings\tattributable\tto\tA.\tO.\tSmith\tCorporation | $30.9 | $2.7 | $16.6 | $21.3 | $32.0 | $34.6 | $32.2 | $22.7 |
| Basic\tearnings\tper\tshare |  |  |  |  |  |  |  |  |
| Continuing\toperations | 0.47 | 0.36 | (0.02) | 0.42 | 0.35 | 0.32 | 0.45 | 0.39 |
| Discontinued\toperations | 0.21 | (0.08) | 0.38 | 0.16 | 0.35 | 0.44 | 0.25 | 0.11 |
| Net | 0.68 | 0.28 | 0.36 | 0.58 | 0.70 | 0.76 | 0.70 | 0.50 |
| Diluted\tearnings\tper\tshare |  |  |  |  |  |  |  |  |
| Continuing\toperations | 0.46 | 0.36 | (0.02) | 0.42 | 0.35 | 0.32 | 0.44 | 0.39 |
| Discontinued\toperations | 0.21 | (0.08) | 0.38 | 0.16 | 0.34 | 0.44 | 0.25 | 0.11 |
| Net | 0.67 | 0.28 | 0.36 | 0.58 | 0.69 | 0.76 | 0.69 | 0.50 |
| Common\tdividends\tdeclared | 0.13 | \t 0.127 | 0.13 | \t 0.127 | 0.14 | 0.13 | 0.14 | 0.13 |

# 18.		Quarterly	Results	of	Operations	(Unaudited)	(continued)

Net	earnings	per	share	are	computed	separately	for	each	period	and,	therefore,	the	sum	of	such	quarterly	per	share	amounts	may	differ	from	the	total	for	the	year.

# ITEM	9	–	CHANGES	IN	AND	DISAGREEMENTS	WITH	ACCOUNTANTS	ON	ACCOUNTING	AND	FINANCIAL	DISCLOSURE

# ITEM	9A	–	CONTROLS	AND	PROCEDURES

# Disclosure	Controls	and	Procedures

The	Company's	management,	with	the	participation	of	the	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer,	have	evaluated	the	effectiveness	of	the Company's	disclosure	controls	and	procedures	(as	such	term	is	defined	in	Rules	13a-15(e)	under	the	Securities	Exchange	Act	of	1934,	as	amended	("the	Exchange	Act")) as	of	the	end	of	the	period	covered	by	this	report.	Based	on	such	evaluations,	the	Company's	Chief	Executive	Officer	and	Chief	Financial	Officer	have	concluded	that, as	of	the	end	of	such	period,	the	Company's	disclosure	controls	and	procedures	are	effective	in	recording,	processing,	summarizing,	and	reporting,	on	a	timely	basis, information	 required	 to	 be	 disclosed	 by	 the	 Company	 in	 the	 reports	 that	 it	 files	 or	 submits	 under	 the	 Exchange	Act,	 and	 that	 information	 is	 accumulated	 and communicated	to	the	Chief	Executive	Officer	and	Chief	Financial	Officer,	as	appropriate,	to	allow	timely	discussions	regarding	required	disclosure.

# Management	Report	on	Internal	Control	Over	Financial	Reporting

The	Company's	management	is	responsible	for	establishing	and	maintaining	adequate	internal	control	over	financial	reporting,	as	such	term	is	defined	in	Exchange	Act Rule	 13a-15(f).	 The	 Company's	 management,	 with	 the	 participation	 of	 the	 Company's	 Chief	 Executive	 Officer	 and	 Chief	 Financial	 Officer,	 has	 evaluated	 the effectiveness	of	the	Company's	internal	control	over	financial	reporting	based	on	the	framework	in	Internal	Control-Integrated	Framework	issued	by	the	Committee	of Sponsoring	Organizations	of	the	Treadway	Commission.	Based	on	this	evaluation,	the	company's	management	has	concluded	that,	as	of	December	31,	2010,	the Company's	internal	control	over	financial	reporting	was	effective.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of	effectiveness to	future	periods	are	subject	to	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or procedures	may	deteriorate.

Ernst	and	Young	LLP,	an	independent	registered	public	accounting	firm,	has	audited	the	Company's	consolidated	financial	statements	and	the	effectiveness	of	internal controls	over	financial	reporting	as	of	December	31,	2010	as	stated	in	their	report	which	is	included	herein.

# Changes	in	Internal	Control	Over	Financial	Reporting

There	has	not	been	any	change	in	the	Company's	internal	control	over	financial	reporting	during	the	quarter	ended	December	31,	2010,	that	has	materially	affected,	or	is reasonable	likely	to	materially	affect,	the	Company's	internal	control	over	financial	reporting.

# ITEM	9B	-	OTHER	INFORMATION

We	have	audited	A.O.	Smith	Corporation's	internal	control	over	financial	reporting	as	of	December	31,	2010,	based	on	criteria	established	in	Internal	Control— Integrated	Framework	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission	(the	COSO	criteria).	A.O.	Smith	Corporation's	management is	responsible	for	maintaining	effective	internal	control	over	financial	reporting,	and	for	its	assessment	of	the	effectiveness	of	internal	control	over	financial	reporting included	in	the	accompanying	Management's	Report	on	Internal	Control	over	Financial	Reporting.	Our	responsibility	is	to	express	an	opinion	on	the	company's	internal control	over	financial	reporting	based	on	our	audit.

We	conducted	our	audit	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States).	Those	standards	require	that	we	plan	and perform	the	audit	to	obtain	reasonable	assurance	about	whether	effective	internal	control	over	financial	reporting	was	maintained	in	all	material	respects.	Our	audit included	obtaining	an	understanding	of	internal	control	over	financial	reporting,	assessing	the	risk	that	a	material	weakness	exists,	testing	and	evaluating	the	design	and operating	effectiveness	of	internal	control	based	on	the	assessed	risk,	and	performing	such	other	procedures	as	we	considered	necessary	in	the	circumstances.	We	believe that	our	audit	provides	a	reasonable	basis	for	our	opinion.

A	company's	internal	control	over	financial	reporting	is	a	process	designed	to	provide	reasonable	assurance	regarding	the	reliability	of	financial	reporting	and	the preparation	of	financial	statements	for	external	purposes	in	accordance	with	generally	accepted	accounting	principles.	A	company's	internal	control	over	financial reporting	includes	those	policies	and	procedures	that	(1)	pertain	to	the	maintenance	of	records	that,	in	reasonable	detail,	accurately	and	fairly	reflect	the	transactions	and dispositions	of	the	assets	of	the	company;	(2)	provide	reasonable	assurance	that	transactions	are	recorded	as	necessary	to	permit	preparation	of	financial	statements	in accordance	with	generally	accepted	accounting	principles,	and	that	receipts	and	expenditures	of	the	company	are	being	made	only	in	accordance	with	authorizations	of management	 and	 directors	 of	 the	 company;	 and	 (3)	 provide	 reasonable	 assurance	 regarding	 prevention	 or	 timely	 detection	 of	 unauthorized	 acquisition,	 use,	 or disposition	of	the	company's	assets	that	could	have	a	material	effect	on	the	financial	statements.

Because	of	its	inherent	limitations,	internal	control	over	financial	reporting	may	not	prevent	or	detect	misstatements.	Also,	projections	of	any	evaluation	of	effectiveness to	future	periods	are	subject	to	the	risk	that	controls	may	become	inadequate	because	of	changes	in	conditions,	or	that	the	degree	of	compliance	with	the	policies	or procedures	may	deteriorate.

In	our	opinion,	A.O.	Smith	Corporation	maintained,	in	all	material	respects,	effective	internal	control	over	financial	reporting	as	of	December	31,	2010,	based	on	the COSO	criteria.

We	also	have	audited,	in	accordance	with	the	standards	of	the	Public	Company	Accounting	Oversight	Board	(United	States),	the	consolidated	balance	sheets	of	A.O. Smith	Corporation	as	of	December	31,	2010	and	2009,	and	the	related	consolidated	statements	of	earnings,	comprehensive	earnings,	stockholders'	equity,	and	cash flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2010	and	our	report	dated	February	24,	2011	expressed	an	unqualified	opinion	thereon.

# PART	III

# ITEM	10	-	DIRECTORS,	EXECUTIVE	OFFICERS	AND	CORPORATE	GOVERNANCE

The	information	included	under	the	headings	"Election	of	Directors"	and	"Board	Committees"	in	the	company's	definitive	Proxy	Statement	for	the	2011	Annual Meeting	of	Stockholders	(to	be	filed	with	the	Securities	and	Exchange	Commission	under	Regulation	14A	within	120	days	after	the	end	of	the	registrant's	fiscal	year)	is incorporated	herein	by	reference.	The	information	required	regarding	Executive	Officers	of	the	company	is	included	in	Part	I	of	this	Annual	Report	on	Form	10-K	under the	caption	"Executive	Officers	of	the	Company."

The	company	has	a	separately	designated	Audit	Committee	on	which	Gene	C.	Wulf,	Gloster	B.	Current,	Jr.,	Mark	D.	Smith	and	Idelle	K.	Wolf	serve,	with	Mr.	Wulf,	as Chairperson.	All	members	are	independent	under	applicable	SEC	and	NYSE	rules;	Ms.	Wolf	and	Mr.	Wulf	are	"audit	committee	financial	experts"	in	accordance	with SEC	rules.

The	company	has	adopted	a	Financial	Code	of	Ethics	applicable	to	its	principal	executive	officer,	principal	financial	officer	and	principal	accounting	officer.	As	a	best practice,	this	code	has	been	executed	by	all	other	company	officers	and	key	financial	and	accounting	personnel	as	well.	In	addition,	the	company	has	adopted	a	general code	of	business	conduct	for	its	directors,	officers	and	all	employees,	which	is	known	as	the	A.	O.	Smith	Guiding	Principles.	The	Financial	Code	of	Ethics,	the A.	O.	Smith	Guiding	Principles	and	other	company	corporate	governance	matters	are	available	on	the	company's	website	at	www.aosmith.com.	The	company	is	not including	the	information	contained	on	its	website	as	a	part	of	or	incorporating	it	by	reference	into,	this	Form	10-K.	The	company	intends	to	disclose	on	this	website	any amendments	to,	or	waivers	from,	the	Financial	Code	of	Ethics	or	the	A.	O.	Smith	Guiding	Principles	that	are	required	to	be	disclosed	pursuant	to	SEC	rules.	There	have been	no	waivers	of	the	Financial	Code	of	Ethics	or	the	A.	O.	Smith	Guiding	Principles.	Stockholders	may	obtain	copies	of	any	of	these	corporate	governance	documents free	of	charge	by	writing	to	the	Corporate	Secretary	at	the	address	on	the	cover	page	of	this	Form	10-K.

The	information	included	under	the	heading	"Compliance	with	Section	16(a)	of	the	Securities	Exchange	Act"	in	the	company's	definitive	Proxy	Statement	for	the	2011 Annual	Meeting	of	Stockholders	(to	be	filed	with	the	Securities	and	Exchange	Commission	under	Regulation	14A	within	120	days	after	the	end	of	the	registrant's	fiscal year)	is	incorporated	herein	by	reference.

# ITEM	11	-	EXECUTIVE	COMPENSATION

The	information	included	under	the	headings	"Executive	Compensation,"	"Director	Compensation,"	"Report	of	the	Personnel	and	Compensation	Committee"	and "Compensation	Committee	Interlocks	and	Insider	Participation"	in	the	company's	definitive	Proxy	Statement	for	the	2011	Annual	Meeting	of	Stockholders	(to	be	filed with	the	Securities	and	Exchange	Commission	under	Regulation	14A	within	120	days	after	the	end	of	the	registrant's	fiscal	year)	is	incorporated	herein	by	reference.

# ITEM	12	-	SECURITY	OWNERSHIP	OF	CERTAIN	BENEFICIAL	OWNERS	AND	MANAGEMENT	AND	RELATED	STOCKHOLDER	MATTERS

The	information	included	under	the	headings	"Principal	Stockholders"	and	"Security	Ownership	of	Directors	and	Management"	in	the	company's	definitive	Proxy Statement	for	the	2011	Annual	Meeting	of	Stockholders	(to	be	filed	with	the	Securities	and	Exchange	Commission	under	Regulation	14A	within	120	days	after	the	end of	the	registrant's	fiscal	year)	is	incorporated	herein	by	reference.

# Equity	Compensation	Plan	Information

The	following	table	provides	information	about	the	company's	equity	compensation	plans	as	of	December	31,	2010.

|  | Number	of	securities |  | future	issuance	under |
| :--- | :--- | :--- | :--- |
|  | to\tbe\tissued\tupon |  | equity\tcompensation |
|  | the\texercise\tof | Weighted-average\texercise | plans\t(excluding |
|  | outstanding\toptions, | price\tof\toutstanding\toptions, | securities\treflected\tin |
| Plan\tCategory | warrants\tand\trights | warrants\tand\trights | the\tfirst\tcolumn) |
| Equity\tcompensation\tplans\tapproved\tby\tsecurity |  |  |  |
| holders | 1,623,101 | 22.17 | 2,622,023 |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tsecurity |  |  |  |
| holders | \t\t\t\t\t\t\t\t\t\t\t\t\t\t- | \t\t\t\t\t\t\t\t- | \t\t\t\t\t\t\t\t\t\t\t\t\t\t- |
| Total | 1,623,101 | 22.17 | 2,622,023 |

# ITEM	13	-	CERTAIN	RELATIONSHIPS,	RELATED	TRANSACTIONS	AND	DIRECTOR	INDEPENDENCE

The	information	included	under	the	headings	"Director	Independence	and	Financial	Literacy",	"Compensation	Committee	Interlocks	and	Insider	Participation"	and "Procedure	for	Review	of	Related	Party	Transactions"	in	the	company's	definitive	Proxy	Statement	for	the	2011	Annual	Meeting	of	Stockholders	(to	be	filed	with	the Securities	and	Exchange	Commission	under	Regulation	14A	within	120	days	after	the	end	of	the	registrant's	fiscal	year)	is	incorporated	herein	by	reference.

# ITEM	14	-	PRINCIPAL	ACCOUNTANT	FEES	AND	SERVICES

The	information	included	under	the	heading	"Report	of	the	Audit	Committee"	in	the	company's	definitive	Proxy	Statement	for	the	2011	Annual	Meeting	of	Stockholders (to	be	filed	with	the	Securities	and	Exchange	Commission	under	Regulation	14A	within	120	days	after	the	end	of	the	registrant's	fiscal	year)	required	by	this	Item	14	is incorporated	herein	by	reference.

# PART	IV

# ITEM	15	-	EXHIBITS,	FINANCIAL	STATEMENT	SCHEDULES

# (a) The	following	documents	are	filed	as	part	of	this	Annual	Report	on	Form	10-K:

# 1. Financial	Statements	of	the	Company

Schedules	not	included	have	been	omitted	because	they	are	not	applicable.

3. Exhibits	-	see	the	Index	to	Exhibits	on	pages	61	-	62	of	this	report.	Each	management	contract	or	compensatory	plan	or	arrangement	required	to be	filed	as	an	exhibit	to	this	report	on	Form	10-K	are	listed	as	Exhibits	10(a)	through	10(m)	in	the	Index	to	Exhibits.

Pursuant	to	the	requirements	of	Rule	14a-3(b)(10)	of	the	Securities	Exchange	Act	of	1934,	as	amended,	the	company	will,	upon	request	and upon	payment	of	a	reasonable	fee	not	to	exceed	the	rate	at	which	such	copies	are	available	from	the	Securities	and	Exchange	Commission, furnish	copies	to	its	security	holders	of	any	exhibits	listed	in	the	Index	to	Exhibits.

# SIGNATURES

Pursuant	to	the	requirements	of	Section	13	or	15(d)	of	the	Securities	Exchange	Act	of	1934,	the	registrant	has	duly	caused	this	report	to	be	signed	on	behalf	of	the undersigned,	thereunto	duly	authorized.

Paul	W.	Jones

Chief	Executive	Officer

Pursuant	to	the	requirements	of	the	Securities	Exchange	Act	of	1934,	this	report	has	been	signed	below	as	of	February	24,	2011	by	the	following	persons	on	behalf	of	the registrant	and	in	the	capacities	and	on	the	dates	indicated.

IDELLE	K.	WOLF Director /s/	Idelle	K.	Wolf Idelle	K.	Wolf

# INDEX	TO	EXHIBITS

(2)(ii) Asset	and	Stock	Purchase	Agreement,	dated	as	of	December	12,	2010,	by	and	between	A.	O.	Smith	Corporation	and	Regal	Beloit Corporation,	incorporated	by	reference	to	the	current	report	on	Form	8-K	dated	December	12,	2010.

(3)(i) Amended	and	Restated	Certificate	of	Incorporation	of	A.	O.	Smith	Corporation	as	amended	April	22,	2009,	incorporated	by	reference	to the	current	report	on	Form	8-K	dated	April	22,	2009.

(3)(ii) By-laws	of	A.	O.	Smith	corporation	as	amended	April	11,	2006,	incorporated	by	reference	to	the	current	report	on	Form	8-K	dated	April 22,	2009.

(4) (a) Amended	and	Restated	Certificate	of	Incorporation	of	A.	O.	Smith	Corporation	as	amended	April	22,	2009,	incorporated	by	reference	to the	quarterly	report	on	Form	10-Q	for	the	quarter	ended	June	30,	2009.

(b) Credit	Agreement,	dated	as	of	November	12,	2010,	among	A.	O.	Smith	Corporation,	A.	O	Smith	Enterprises	Ltd.,	A.	O.	Smith International	Holdings	B.V.,	and	the	financial	institutions	and	agents	party	thereto,	incorporated	by	reference	to	the	current	report	on Form	8-K	dated	November	12,	2010.

(c) The	corporation	has	instruments	that	define	the	rights	of	holders	of	long-term	debt	that	are	not	being	filed	with	this	Registration Statement	in	reliance	upon	Item	601(b)(4)(iii)	of	Regulation	S-K.	The	Registrant	agrees	to	furnish	to	the	Securities	and	Exchange Commission,	upon	request,	copies	of	these	instruments.

# (10) Material	Contracts

(a) A.	O.	Smith	Combined	Incentive	Compensation	Plan,	incorporated	by	reference	as	Exhibit	A	to	the	Proxy	Statement	filed	on	March	5, 2009	for	the	2009	Annual	Meeting	of	Stockholders.

(b) A.	O.	Smith	Corporation	Executive	Life	Insurance	Plan,	as	amended	January	1,	2009,	incorporated	by	reference	to	the	annual	report	on Form	10-K	for	the	fiscal	year	ended	December	31,	2008.

(c) A.	O.	Smith	Nonqualified	Deferred	Compensation	Plan,	adopted	December	1,	2008,	incorporated	by	reference	to	the	annual	report	on Form	10-K	for	the	fiscal	year	ended	December	31,	2008.

(d) A.	O.	Smith	Corporation	Executive	Supplemental	Pension	Plan,	as	amended	January	1,	2009,	incorporated	by	reference	to	the	annual report	on	Form	10-K	for	the	fiscal	year	ended	December	31,	2008.

(e) A.	O.	Smith	Corporation	Executive	Incentive	Compensation	Award	Agreement,	incorporated	by	reference	to	the	Form	S-8	Registration Statement	filed	by	the	corporation	on	July	30,	2007	(Reg.	No.	333-144950).

(f) Offer	Letter	to	Paul	W.	Jones,	dated	December	9,	2003,	incorporated	by	reference	to	the	annual	report	on	Form	10-K	for	the	fiscal	year ended	December	31,	2007.

(g) Offer	Letter	to	Terry	M.	Murphy,	dated	October	17,	2005,	incorporated	by	reference	to	the	annual	report	on	Form	10-K	for	the	fiscal	year ended	December	31,	2007.

(h) Offer	Letter	to	Ajita	G.	Rajendra,	dated	September	20,	2004,	incorporated	by	reference	to	the	annual	report	on	Form	10-K	for	the	fiscal year	ended	December	31,	2007.

(i) Amendment	to	Offer	Letter	to	Ajita	G.	Rajendra	dated	February	25,	2009,	incorporated	by	reference	to	the	annual	report	on	Form	10-K for	the	fiscal	year	ended	December	31,	2008.

# INDEX	TO	EXHIBITS	(continued)

Exhibit

# Number Description

(j) Form	of	A.	O.	Smith	Corporation	Special	Retention	Award	Agreement	awarded	on	April	30,	2008,	incorporated	by	reference	to	the quarterly	report	on	Form	10-Q	for	the	quarter	ended	March	31,	2008.

(k) Summary	of	Directors'	Compensation,	effective	July	12,	2010,	incorporated	by	reference	to	the	quarterly	report	on	Form	10-Q	for	the quarter	ended	June	30,	2010.

(l) A.	O.	Smith	Corporation	Incentive	Compensation	Award	Agreement,	entered	into	with	Paul	W.	Jones,	dated	November	5,	2008, incorporated	by	reference	to	the	annual	report	on	Form	10-K	for	the	fiscal	year	ended	December	21,	2008.

(m) A.	O.	Smith	Corporation	Senior	Leadership	Severance	Plan,	incorporated	by	Reference	to	the	quarterly	report	for	Form	10-Q	for	the quarter	ended	June	30,	2009.

(n) Stockholder	Agreement	dated	as	of	December	9,	2008,	between	A.	O.	Smith	Corporation	and	each	Smith	Investment	Company stockholder	who	becomes	a	signatory	thereto,	incorporated	by	reference	to	the	current	report	on	Form	8-K	dated	December	9,	2008.

(101) The	following	materials	from	A.	O.	Smith	Corporation's	Annual	Report	on	Form	10-K	for	the	fiscal	year	ended	December	31,	2010	are furnished	herewith,	formatted	in	XBRL	(Extensive	Business	Reporting	Language):	(i)	the	Consolidated	Balance	Sheets	as	of	December 31,	2010	and	2009,	(ii)	the	Consolidated	Statement	of	Earnings	for	the	three	years	ended	December	31,	2010,	(iii)	the	Consolidated Statement	of	Cash	Flows	for	the	three	years	ended	December	31,	2010,	(iv)	the	Consolidated	Statement	of	Stockholders'	Equity	for	the three	years	ended	December	31,	2010	and	(iv)	the	Notes	to	Consolidated	Financial	Statements.

# SCHEDULE	II	-	VALUATION	AND	QUALIFYING	ACCOUNTS

# (In	millions)

|  | Balance	at | Charged	to | Acquisition |  | Balance	at |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Beginning | Costs\tand | of |  | End\tof |
| Description | of\tYear | Expenses^1 | Businesses | Deductions^2 | Year |
| 2010: |  |  |  |  |  |
| Valuation\tallowance |  |  |  |  |  |
| for\ttrade\tand\tnotes |  |  |  |  |  |
| receivable | $3.4 | $0.2 | $- | $(0.1) | $3.5 |
| 2009: |  |  |  |  |  |
| Valuation\tallowance |  |  |  |  |  |
| for\ttrade\tand\tnotes |  |  |  |  |  |
| receivable | $2.8 | $1.7 | $- | $(1.1) | $3.4 |
| 2008: |  |  |  |  |  |
| Valuation\tallowance |  |  |  |  |  |
| for\ttrade\tand\tnotes |  |  |  |  |  |
| receivable | $2.6 | $0.3 | $- | $(0.1) | $2.8 |

Uncollectible	amounts/expenditures	or	adjustments	charged	against	the	reserve.



Question: what was the difference in the cumulative total return for a o smith corp and the s&p small cap 600 index for the five year period ended 12/31/10?
Calculation: company_return = 178.8
index_return = 123.8
difference = company_return - index_return
answer = difference / 100 * 100
Answer: 55%