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Document and Entity Information - USD ($)	12 Months Ended
Document and Entity Information - USD ($)	Dec. 31, 2010	Jan. 31, 2011	Jun. 30, 2010
Statement [Line Items]
Document Type	10-K
Amendment Flag	false
Document Period End Date	Dec. 31, 2010
Entity Registrant Name	SMITH A O CORP
Entity Central Index Key	0000091142
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2010
Document Fiscal Period Focus	FY
Entity Filer Category	Large Accelerated Filer
Entity Well-known Seasoned Issuer	Yes
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Class A Common Stock
Statement [Line Items]
Entity Common Stock, Shares Outstanding		7,449,153
Entity Public Float			$ 27,126,427
Common Stock
Statement [Line Items]
Entity Common Stock, Shares Outstanding		38,395,163
Entity Public Float			$ 783,934,922

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	12 Months Ended
CONSOLIDATED BALANCE SHEETS - USD ($) $ in Millions	Dec. 31, 2010	Dec. 31, 2009
Assets
Cash and cash equivalents	$ 118.9	$ 76.3
Receivables	313.3	275.6
Inventories	146.8	110.5
Deferred income taxes	27.3	25.8
Other current assets	17.4	24.5
Current assets - discontinued EPC operations	272.3	227.3
Total Current Assets	896.0	740.0
Net property, plant and equipment	258.4	249.0
Goodwill	323.8	319.9
Other intangibles	106.6	115.6
Deferred income taxes	89.7	93.9
Other assets	36.8	39.5
Long-term assets - discontinued EPC operations	400.7	416.6
Total Assets	2,112.0	1,974.5
Liabilities
Trade payables	263.0	236.8
Accrued payroll and benefits	37.2	39.3
Accrued liabilities	53.3	52.9
Product warranties	36.4	34.4
Income taxes	5.7	6.5
Long-term debt due within one year	18.6	21.1
Current liabilities - discontinued EPC operations	122.6	100.3
Total Current Liabilities	536.8	491.3
Long-term debt	242.4	232.1
Product warranties	75.8	74.2
Post-retirement benefit obligation	13.6	15.5
Pension liabilities	222.9	232.8
Other liabilities	61.9	67.1
Long-term liabilities - discontinued EPC operations	77.2	71.7
Total Liabilities	$ 1,230.6	$ 1,184.7
Commitments and contingencies
Stockholders' Equity
Preferred Stock
Class A Common Stock (shares issued 7,481,748 and 7,860,111)	37.4	39.3
Common Stock (shares issued 40,195,162 and 39,926,152)	40.2	39.9
Capital in excess of par value	655.7	636.9
Retained earnings	452.1	365.4
Accumulated other comprehensive loss	(229.4)	(230.9)
Treasury stock at cost	(74.6)	(79.9)
Noncontrolling interest		19.1
Total Stockholders' Equity	881.4	789.8
Total Liabilities and Stockholders' Equity	$ 2,112.0	$ 1,974.5

CONSOLIDATED BALANCE SHEETS (Parenthetical) - shares	Dec. 31, 2010	Dec. 31, 2009
Class A Common Stock
Statement [Line Items]
Class A Common Stock, shares issued	7,481,748	7,860,111
Common Stock
Statement [Line Items]
Common Stock, shares issued	40,195,162	39,926,152

CONSOLIDATED STATEMENT OF EARNINGS - USD ($) $ in Millions	12 Months Ended
CONSOLIDATED STATEMENT OF EARNINGS - USD ($) $ in Millions	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Continuing Operations
Net sales	$ 1,489.3	$ 1,375.0	$ 1,451.3
Cost of products sold	1,043.3	980.1	1,077.2
Gross profit	446.0	394.9	374.1
Selling, general and administrative expenses	328.7	291.8	283.3
Flood related expense	35.4
Restructuring, impairment and settlement income - net	0.1	1.3	2.4
Interest expense	6.9	7.2	11.0
Other expense - net	0.5	2.8	2.3
Earnings before provision for income taxes	74.4	91.8	75.1
Provision for income taxes	17.3	30.9	27.6
Earnings before equity loss in joint venture and discontinued operations	57.1	60.9	47.5
Equity loss in joint venture		(0.4)	(0.3)
Earnings from Continuing Operations	57.1	60.5	47.2
Discontinued Operations
Earnings from discontinued operations, less provision (benefit) for income taxes of $16.2 in 2010 and $(1.3) in 2009 and $(0.2) in 2008	54.4	29.1	30.1
Net Earnings	111.5	89.6	77.3
Net (earnings)/loss attributable to noncontrolling interest:
Continuing operations	0.2	(9.6)	(35.0)
Discontinued operations		1.3	(20.6)
Net earnings attributable to A. O. Smith Corporation	$ 111.7	$ 81.3	$ 21.7
Net Earnings Per Share of Common Stock
Continuing Operations	$ 1.25	$ 1.48	$ 0.86
Discontinued Operations	1.19	0.89	0.67
Net Earnings attributable to A. O. Smith Corporation	2.44	2.37	1.53
Diluted Net Earnings Per Share of Common Stock
Continuing Operations	1.24	1.48	0.86
Discontinued Operations	1.18	0.88	0.67
Net Earnings attributable to A. O. Smith Corporation	$ 2.42	$ 2.36	$ 1.53

CONSOLIDATED STATEMENT OF EARNINGS (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
CONSOLIDATED STATEMENT OF EARNINGS
Provision (benefit) for income taxes	$ 16.2	$ (1.3)	$ (0.2)

CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS (LOSS) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)
Net Earnings	$ 111.5	$ 89.6	$ 77.3
Other comprehensive earnings (loss)
Foreign currency translation adjustments	7.3	2.9	5.6
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax effect of $0.1 in 2010, $(35.0) in 2009 and $27.6 in 2008	(0.2)	54.7	(43.1)
Change in pension liability less related income tax effect of $2.7 in 2010, $4.3 in 2009 and $92.7 in 2008	(5.6)	(6.7)	(145.0)
Comprehensive gain (loss)		(20.6)	68.7
Reclass of accumulated comprehensive loss associated with noncontrolling interest		(179.7)
Comprehensive Earnings (Loss)	$ 113.0	$ (59.8)	$ (36.5)

CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS (LOSS) (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
CONSOLIDATED STATEMENT OF COMPREHENSIVE EARNINGS (LOSS)
Unrealized net gain (loss) on cash flow derivative instruments, related income tax effect	$ 0.1	$ (35.0)	$ 27.6
Change in pension liability, related income tax effect	$ 2.7	$ 4.3	$ 92.7

CONSOLIDATED STATEMENT OF CASH FLOWS - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Operating Activities
Net Earnings	$ 111.5	$ 89.6	$ 77.3
Less earnings from discontinued operations	(54.4)	(29.1)	(30.1)
Adjustments to reconcile earnings from continuing operations to cash provided by operating activities:
Depreciation and amortization	40.8	38.3	35.8
Loss on disposal of assets	11.7	0.9	(0.2)
Net changes in operating assets and liabilities, net of acquisitions:
Current assets and liabilities	(37.5)	46.8	12.0
Noncurrent assets and liabilities	(8.8)	(24.3)	(10.1)
Other		0.7	(3.1)
Cash Provided by Operating Activities - continuing operations	63.3	122.9	81.6
Cash Provided by Operating Activities - discontinued operations	61.5	140.0	19.4
Cash Provided by Operating Activities	124.8	262.9	101.0
Investing Activities
Acquisition of businesses	(11.8)	(71.4)
Proceeds from sale of investments	4.6	8.9	12.0
Proceeds on sale of assets	3.0	2.0	2.6
Net cash distributed with spinoff of discontinued SICO businesses		(7.1)
Capital expenditures	(53.5)	(42.7)	(41.2)
Cash Used in Investing Activities - continuing operations	(57.7)	(110.3)	(26.6)
Cash Used in Investing Activities - discontinued operations	(8.8)	(6.7)	(27.1)
Cash Used in Investing Activities	(66.5)	(117.0)	(53.7)
Financing Activities
Long-term debt incurred	5.0
Long-term debt repaid		(91.1)	(50.1)
Net proceeds from stock option activity	4.0	7.6	2.1
Dividends paid	(24.7)	(21.4)	(19.0)
Cash Used in Financing Activities - continuing operations	(15.7)	(104.9)	(67.0)
Cash Used in Financing Activities - discontinued operations
Cash Used in Financing Activities	(15.7)	(104.9)	(67.0)
Net increase (decrease) in cash and cash equivalents	42.6	41.0	(19.7)
Cash and cash equivalents-beginning of year	76.3	35.3	55.0
Cash and Cash Equivalents-End of Year	$ 118.9	$ 76.3	$ 35.3

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009	Dec. 31, 2008
Statement [Line Items]
Balance at the beginning of the year	$ 789.8	$ 663.2
Net earnings	111.7	81.3	$ 21.7
Foreign currency translation adjustments	7.3	2.9	5.6
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax effect	(0.2)	54.7	(43.1)
Change in pension liability less related income tax effect	5.6	6.7	145.0
Balance at the end of the year	881.4	789.8	663.2
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Ending Balance	2,112.0	1,974.5
Class A Common Stock
Statement [Line Items]
Balance at the beginning of the year	39.3	60.4	60.4
Reverse acquisition of SICO		0.8
Conversion of Class A Common Stock	(1.9)	(21.9)
Balance at the end of the year	37.4	39.3	60.4
Common Stock
Statement [Line Items]
Balance at the beginning of the year	39.9	2.3	2.3
Reverse acquisition of SICO		33.3
Conversion of Class A Common Stock	0.3	4.3
Balance at the end of the year	40.2	39.9	2.3
Capital in Excess of Par Value
Statement [Line Items]
Balance at the beginning of the year	636.9	(62.4)	(62.4)
Reverse acquisition of SICO		676.1
Conversion of Class A Common Stock	1.6	17.6
Issuance of share units	(3.1)	(0.1)
Vesting of share units	(1.6)
Stock based compensation expense	6.1	3.5
Exercise of stock options	(1.2)	(0.9)
Tax benefit from exercise of stock options and vesting of share units	0.7	2.9
Stock incentives and directors' compensation	3.4	0.2
Buy out of Tianlong Holding Co., Ltd.	12.9
Balance at the end of the year	655.7	636.9	(62.4)
Retained Earnings
Statement [Line Items]
Balance at the beginning of the year	365.4	316.1	310.1
Net earnings	111.7	81.3	21.7
Effects of A.O. Smith Corporation stock options and stock compensation			0.7
Activity related to the spin off of SICO discontinued businesses		(32.8)
Change in redeemable stock			(12.6)
Cash dividends on stock	(25.0)	(11.8)	(3.8)
Reverse acquisition of SICO		12.6
Balance at the end of the year	452.1	365.4	316.1
Accumulated Other Comprehensive Loss
Statement [Line Items]
Balance at the beginning of the year	(230.9)	(89.8)	(31.7)
Effects of A.O. Smith Corporation stock options and stock compensation			0.1
Foreign currency translation adjustments	7.3	2.9	5.6
Unrealized net gain (loss) on cash flow derivative instruments, less related income tax effect	(0.2)	54.7	(43.1)
Change in pension liability less related income tax effect	(5.6)	(6.7)	(145.0)
Comprehensive gain (loss)		(12.3)	124.3
Reverse acquisition of SICO		(179.7)
Balance at the end of the year	(229.4)	(230.9)	(89.8)
Treasury Stock
Statement [Line Items]
Balance at the beginning of the year	(79.9)
Reverse acquisition of SICO		(84.3)
Exercise of stock options	4.6	4.4
Stock incentives and directors' compensation	0.3
Vesting of share units, net of shares surrendered to pay taxes	0.4
Balance at the end of the year	(74.6)	(79.9)
Noncontrolling Interest
Statement [Line Items]
Balance at the beginning of the year	19.1	436.6	515.0
Effects of A.O. Smith Corporation stock options and stock compensation			5.5
Net earnings		8.3	55.6
Comprehensive gain (loss)		12.3	(124.3)
Reverse acquisition of SICO		(449.4)
Cash dividends on stock		(7.8)	(15.2)
Acquisition of Tianlong Holding Co., Ltd.		19.2
Net earnings of Tianlong Holding Co., Ltd.	(0.2)	(0.1)
Buy out of Tianlong Holding Co., Ltd.	$ (18.9)
Balance at the end of the year		$ 19.1	$ 436.6

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Parenthetical) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2009
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Change in pension liability, related income tax effect	$ 2.7	$ 4.3
Exercise of stock options, shares		258,238
Unrealized net gain (loss) on cash flow derivative instruments, related income tax effect	$ 0.1	$ (35.0)
Vesting of share units, shares surrendered to pay taxes	27,561

Organization and Significant Accounting Policies

12 Months Ended

Dec. 31, 2010

Organization and Significant Accounting Policies

Organization and Significant Accounting Policies

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.

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
	Buy		Sell		Buy		Sell
Euro	$	-	$	2.2	$	-	$	1.5
Canadian dollar		-		35.4		-		18.9
Mexican peso		11.2		-		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
		2010			2009
Commodities contracts	Other current assets	$	0.8		$	0.1
Foreign currency contracts	Derivative contracts liability		(0.5	)		(0.5	)
	Other current assets		1.1			0.9
Interest rate swap contract	Derivative contracts liability		-			(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 flow hedging relationships	Amount of gain/(loss) recognized in OCI on derivative (effective portion)						Location of gain/ (loss) reclassified from Accumulated OCI into earnings (effective portion)	Amount of gain/(loss) reclassified from Accumulated OCI into earnings (effective portion)						Location of gain/ (loss) recognized in earnings on derivative (ineffective portion)	Amount of gain/(loss) recognized in earnings on a derivative (ineffective portion)
	2010			2009				2010			2009				2010		2009
Commodities contracts	$	10.2		$	32.0		Cost of products sold	$	1.1		$	(0.3	)	Cost of products sold	$	-	$	-
							Discontinued operations		12.4			(31.4	)	Discontinued operations		-		1.2
Foreign currency contracts		11.5			8.6		Cost of products sold		0.6			(3.0	)	N/A		-		-
							Discontinued operations		9.0			(13.7	)	Discontinued operations		-		-
Interest rate swap contract		(0.1	)		(0.3	)	Interest expense		(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, wh ich 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):


Fair Value Measurement Using	December 31, 2010		December 31, 2009
Quoted Prices in Active Markets for Identical Assets (Level 1)	$	0.8	$	0.1
Significant Other Observable Inputs (Level 2)		0.6		(0.6	)

Total Net Derivative Contracts	$	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 at beginning of year	$	108.6		$	105.6
Expense		62.7			68.9
Claims settled		(59.1	)		(65.9	)

Balance at end of year	$	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 for basic earnings per share - weighted-average shares outstanding		45,743,246		34,289,257		14,225,238
Effect of dilutive stock options, restricted stock and share units		419,469		187,599		-

Denominator for diluted earnings per share		46,162,715		34,476,856		14,225,238

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, respect ively. The cost of the money market instruments approximates fair value.

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 a fter 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 effec tive 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.

Discontinued Operations

12 Months Ended

Dec. 31, 2010

Discontinued Operations

Discontinued Operations

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.

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


December 31 (dollars in millions)
	2010		2009
Assets
Current Assets
Trade receivables	$	110.8	$	98.0
Inventory		135.9		104.5
Deferred taxes		2.2		0.8
Derivative contracts asset		17.4		18.5
Other current assets		6.0		5.5

Total Current Assets		272.3		227.3

Net property, plant and equipment		148.1		163.3
Goodwill		248.4		247.9
Other intangibles		2.8		3.9
Other assets		1.4		1.5

Total Assets	$	673.0	$	643.9


Liabilities
Current Liabilities
Trade payables	$	89.5	$	76.1
Accrued payroll and benefits		15.2		12.3
Accrued liabilities		11.1		6.7
Product warranties		4.3		4.3
Income taxes		2.5		0.9

Total Current Liabilities		122.6		100.3

Deferred taxes		77.2		71.7

Total Liabilities		199.8		172.0

Total Net Assets	$	473.2	$	471.9

The condensed statement of earnings of the EPC discontinued operations is:


Years ended December 31 (dollars in millions, except per share amounts)
	2010			2009			2008
Net sales	$	701.8		$	616.5		$	853.6
Cost of products sold		544.0			510.5			730.0

Gross profit		157.8			106.0			123.6
Selling, general and administrative expenses		84.2			74.8			76.0
Restructuring and other		0.1			(1.6	)		8.7
Interest expense		3.6			4.7			8.8
Other (income) expense - net		(0.7	)		0.3			(0.3	)

		70.6			27.6			30.4
Provision (benefit) for income taxes		16.2			(1.3	)		-


Net earnings	$	54.4		$	29.1		$	30.4

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:


Years ended December 31 (dollars in millions)
	2010			2009			2008
Operating Activities
Earnings	$	54.4		$	29.1		$	30.4
Adjustments to reconcile earnings to net cash provided by discontinued operating activities:
Depreciation and amortization		26.1			29.2			30.4
Gain on sale of assets		(0.2	)		(2.0	)		4.5
Net changes in operating assets and liabilities
Current assets and liabilities		(23.3	)		74.5			(47.3	)
Noncurrent assets and liabilities		4.5			9.9			(1.8	)
Other		-			(0.7	)		0.6

Cash Provided by Discontinued Operating Activities		61.5			140.0			16.8

Investing Activities
Capital expenditures		(14.3	)		(14.3	)		(24.9	)
Proceeds on sale of assets		5.5			7.6			-

Cash Used in Discontinued Investing Activities		(8.8	)		(6.7	)		(24.9	)

Cash Flow Provided by (used in) Discontinued Operations	$	52.7		$	133.3		$	(8.1	)

Acquisitions	12 Months Ended
Acquisitions	Dec. 31, 2010
Acquisitions
Acquisitions	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 2 010, 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. 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.

Restructuring , Impairment, Other Charges and Settlement Income

12 Months Ended

Dec. 31, 2010

Restructuring , Impairment, Other Charges and Settlement Income

Restructuring , Impairment, Other Charges and Settlement Income

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 Costs		Intangible Impairment			Settlement Income			Other			Total
Balance at December 31, 2009	$	-	$	-		$	-		$	-		$	-
Expense (income) recognized		1.1		3.3			(5.0	)		0.7			0.1
Intangible/Asset write-down		-		(3.3	)		-			(0.1	)		(3.4	)
Settlement income		-		-			5.0			-			5.0

Balance at December 31, 2010	$	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 a t 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.

Statement of Cash Flows

12 Months Ended

Dec. 31, 2010

Statement of Cash Flows

Statement of Cash Flows

5. Statement of Cash Flows

Supplemental cash flow information is as follows:


Years ended December 31 (dollars in millions)	2010			2009			2008
Net change in current assets and liabilities, net of acquisitions:
Receivables	$	(33.2	)	$	(10.5	)	$	34.9
Inventories		(32.0	)		17.0			(5.3	)
Other current assets		(1.5	)		(1.0	)		(6.5	)
Trade payables		23.3			40.8			(6.3	)
Accrued liabilities, including payroll and benefits		(0.7	)		6.4			(4.2	)
Income taxes payable		6.6			(5.9	)		(0.6	)

	$	(37.5	)	$	46.8		$	12.0

Inventories

12 Months Ended

Dec. 31, 2010

Inventories

Inventories

6. Inventories


December 31 (dollars in millions)	2010		2009
Finished products	$	72.7	$	54.1
Work in process		14.4		11.3
Raw materials		82.7		66.2

Inventories, at FIFO cost		169.8		131.6
LIFO reserve		23.0		21.1

	$	146.8	$	110.5

The company recognized after-tax LIFO expense (income) of $0.3, $(0.6) and $(0.8) million in 2010, 2009 and 2008, respectively.

Property, Plant and Equipment

12 Months Ended

Dec. 31, 2010

Property, Plant and Equipment

Property, Plant and Equipment

7. Property, Plant and Equipment


December 31 (dollars in millions)	2010		2009
Land	$	9.2	$	9.7
Buildings		121.8		117.1
Equipment		377.9		366.2
Software		16.0		4.5

		524.9		497.5
Less accumulated depreciation and amortization		266.5		248.5

	$	258.4	$	249.0

Goodwill

12 Months Ended

Dec. 31, 2010

Goodwill

Goodwill

8. Goodwill

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


(dollars in millions)	Water Products
Balance at December 31, 2008	$	257.1
Acquisition of businesses (see Note 3)		55.9
Currency translation adjustment		6.9

Balance at December 31, 2009		319.9
Adjustment to goodwill (see Note 3)		1.1
Currency translation adjustment		2.8

Balance at December 31, 2010	$	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.

Debt and Lease Commitments

12 Months Ended

Dec. 31, 2010

Debt and Lease Commitments

Debt and Lease Commitments

9. Debt and Lease Commitments


December 31 (dollars in millions)	2010		2009
Bank credit lines, average year-end interest rate of 5.1% for 2010 and 1.5% for 2009	$	6.5	$	17.9
Revolving credit agreement borrowings, average year-end interest rate of 1.8% for 2010 and 0.6% for 2009		115.0		70.0
Commercial paper, average year-end interest rate of 1.3% for 2009		-		1.8
Term notes with insurance companies, expiring through 2018, average year-end interest rate of 5.9% for 2010 and 2009		86.9		108.0
Canadian revolving credit agreement borrowings, average year-end interest rate of 2.7% for 2010 and 0.8% for 2009		22.6		27.0
Canadian term notes with insurance companies, expiring through 2018, average year-end interest rate of 5.3% for 2010 and 2009		30.0		28.5

		261.0		253.2
Less long-term debt due within one year		18.6		21.1

Long-term debt	$	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.

Scheduled maturities of long-term debt within each of the five years subsequent to December 31, 2010, are as follows: 2011-$18.6; 2012-$18.6; 2013-$162.6; 2014-$14.6; 2015-$14.6 million.

Future minimum payments under non-cancelable operating leases relating mostly to office, manufacturing and warehouse facilities total $30.2 million and are due as follows: 2011 -$7.2; 2012–$4.6; 2013–$3.3; 2014-$2.9; 2015-$2.5, and thereafter – $9.7 million. Rent expense, including payments under operating leases, was $13.9, $12.3 and $11.7 million in 2010, 2009 and 2008, respectively.

Interest paid by the company was $10.5, $11.9 and $19.9 million in 2010, 2009 and 2008, respectively.

Redeemable Stock	12 Months Ended
Redeemable Stock	Dec. 31, 2010
Redeemable Stock
Redeemable Stock	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.

Stockholders' Equity

12 Months Ended

Dec. 31, 2010

Stockholders' Equity

Stockholders' Equity

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.

During 2010 and 2009, 364,520 and 4,365,845 shares, respectively, of Class A Common Stock were converted into Common Stock. Regular dividends paid on the A. O. Smith Corporation Class A Common Stock and Common Stock amounted to $.54, $.51 and $.49 per share in 2010, 2009 and 2008, respectively.

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.

At December 31, 2010, 32,595 and 1,811,199 shares of Class A Common Stock and Common Stock, respectively, were held as treasury stock. At December 31, 2009, 32,595 and 2,027,261 shares of Class A Common Stock and Common Stock, respectively, were held as treasury stock.

Accumulated other comprehensive loss is as follows:


December 31 (dollars in millions)	2010			2009
Cumulative foreign currency translation adjustments	$	23.7		$	16.4
Unrealized net gain (loss) on cash flow derivative instruments (net of tax of $6.9 in 2010 and $7.0 in 2009)		10.7			10.9
Pension liability (net of tax of $(169.3) in 2010 and $(166.6) in 2009)		(263.8	)		(258.2	)

	$	(229.4	)	$	(230.9	)

Stock Based Compensation

12 Months Ended

Dec. 31, 2010

Stock Based Compensation

Stock Based Compensation

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.

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


									(dollars in millions)
	Weighted-Avg. Per Share		Years Ended December 31									Aggregate Intrinsic Value
	Exercise Price		2010			2009			2008
Outstanding at beginning of year		$20.12	$	1,630,751			1,933,601			1,676,151
Granted
2010--$27.93 per share				237,000
2009--$16.40 to $21.66 per share							506,400
2008--$21.34 to $23.76 per share										318,750
Exercised
2010--$9.04 to $25.84 per share				(240,801	)								$ 3.3
2009--$9.04 to $19.47 per share							(809,250	)					8.1
2008--$12.21 to $19.47 per share										(60,100	)		0.6
Terminated
2010--$19.00 to $27.93 per share				(3,849	)
2008--$23.76 per share										(1,200	)

Outstanding at end of year
(2010--$15.99 to $27.93 per share)		22.17		1,623,101			1,630,751			1,933,601

Exercisable at end of year		21.57		951,035			831,401			1,444,551

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:


Range of Exercise Prices	Options Outstanding at December 31, 2010	Weighted- Average Exercise Price		Options Exercisable at December 31, 2010	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life
$15.99 to $19.47	751,849		$ 18.63	427,050		$ 18.41		7 years
$21.34 to $24.02	413,302		23.33	301,385		21.92		7 years
$25.84 to $27.93	457,950		26.95	222,600		25.92		9 years

	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 life (years)	6.4	6.4	6.4
Risk-free interest rate	3.6%	2.8%	3.7%
Dividend yield	1.9%	2.8%	2.0%
Expected volatility	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:


	Number of Units			Weighted-Average Grant Date Value
Outstanding at January 1, 2010		476,243		$22.01

Granted		101,873		27.93

Vested		(101,400	)	24.37

Terminated		(3,278	)	24.44


Outstanding at December 31, 2010		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.

Pension and Other Post-retirement Benefits

12 Months Ended

Dec. 31, 2010

Pension and Other Post-retirement Benefits

Pension and Other Post-retirement Benefits

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.

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						Post-retirement Benefits
Years ended December 31 (dollars in millions)	2010			2009			2010			2009
Accumulated Benefit Obligation (ABO) at December 31	$	850.3		$	816.6			N/A			N/A

Change in benefit obligations (PBO)
PBO at beginning of year	$	(826.7	)	$	(782.8	)	$	(17.0	)	$	(16.9	)
Service cost		(8.6	)		(8.4	)		(0.2	)		(0.1	)
Interest cost		(46.7	)		(49.8	)		(0.8	)		(1.0	)
Participant contributions		-			-			(0.4	)		(0.3	)
Plan amendments		-			12.3			-			-
Actuarial (loss)/gain including assumption changes		(38.7	)		(57.2	)		2.1			-
Benefits paid		58.6			59.2			1.4			1.3

PBO at end of year	$	(862.1	)	$	(826.7	)	$	(14.9	)	$	(17.0	)


Change in Fair Value of Plan Assets
Plan assets at beginning of year	$	594.0		$	519.1		$	-		$	-
Actual return on plan assets		74.8			83.3			-			-
Contribution by the company		30.6			50.8			1.0			1.0
Participant contributions		-			-			0.4			0.3
Benefits paid		(58.6	)		(59.2	)		(1.4	)		(1.3	)

Plan assets at end of year	$	640.8		$	594.0		$	-		$	-


Funded status	$	(221.3	)	$	(232.7	)	$	(14.9	)	$	(17.0	)

Amount recognized in the balance sheet
Current liabilities	$	-		$	-		$	(1.3	)	$	(1.5	)
Non-current liabilities		(221.3	)		(232.7	)		(13.6	)		(15.5	)

Net pension liability at end of year	$	(221.3	)*	$	(232.7	)*	$	(14.9	)	$	(17.0	)


Amounts recognized in Accumulated Other Comprehensive Loss Before Tax
Net actuarial loss/(gain)	$	447.2		$	425.8		$	(3.3	)	$	(1.6	)
Prior service cost		(12.7	)		-			-			-

Total recognized in accumulated other comprehensive loss	$	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									Post-retirement Benefits
Years ended December 31 (dollars in millions)	2010			2009			2008			2010			2009		2008
Net periodic benefit cost
Service cost	$	8.6		$	8.4		$	8.9		$	0.2		$	0.2	$	0.2
Interest cost		46.7			49.8			49.1			0.8			1.0		1.0
Expected return on plan assets		(61.6	)		(60.8	)		(62.4	)		-			-		-
Amortization of unrecognized:
Net actuarial loss		17.7			10.6			7.8			(0.4	)		-		(0.1	)
Prior service cost		(0.9	)		0.3			0.6			-			-		-

Defined-benefit plan cost		10.5			8.3			4.0		$	0.6		$	1.2	$	1.1

Various U.S. defined contribution plans cost		5.8			6.5			5.4

	$	16.3	*	$	14.8	*	$	9.4	*

Other Changes in Plan Assets and Projected Benefit Obligation Recognized in Other Comprehensive Earnings
Net actuarial (gain) loss	$	25.4		$	34.8		$	246.1		$	(2.1	)	$	-	$	(0.6	)
Amortization of net actuarial loss		(17.7	)		(10.6	)		(7.8	)		0.4			-		0.1
Prior service cost		-			(12.4	)		0.1						-		-
Amortization of prior service cost		0.9			(0.3	)		(0.7	)		(0.1	)		-		-

Total recognized in other comprehensive earnings		8.6			11.5			237.7			(1.8	)		-		(0.5	)

Total Recognized in Net Periodic Cost and Other Comprehensive Earnings	$	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						Post-retirement Benefits
	2010			2009			2010			2009
Discount rate		5.35	%		5.80	%		5.35	%		5.80	%
Average salary increases		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									Post-retirement Benefits
Years ended December 31	2010			2009			2008			2010			2009			2008
Discount rate		5.80	%		6.60	%		6.50	%		5.80	%		6.60	%		6.50	%
Expected long-term return on plan assets		8.75	%		8.75	%		8.75	%		n/a			n/a			n/a
Rate of compensation increase		4.00	%		4.00	%		4.00	%		4.00	%		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 care cost trend rate assumed for next year		10.00	%		10.00	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)		5.00	%		5.00	%
Year that the rate reaches the ultimate trend rate		2015			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 securities		62	%		60	%
Debt securities		30			30
Private equity		6			5
Other		2			5

		100	%		100	%

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


			Fair Value Measurements Using
Asset Category	Total		Quoted Prices in Active Markets for Identical Contracts (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Nonobservable Inputs (Level 3)

Short-term investments	$	12.8	$	-	$	0.1	$	12.7

Equity Securities
Common stocks		279.0		279.0		-		-
Preferred Stocks		0.1		0.1		-		-
Commingled equity funds		121.3		-		121.3		-

Fixed Income Securities
U.S. Treasury securities		42.2		42.2		-		-
Government agency securities		6.5		-		6.5		-
Corporate asset backed securities		3.1		-		3.1		-
Corporate CMBS and CMO Securities		2.4		-		2.4		-
Other fixed income securities		31.1		-		30.9		0.2
Commingled fixed income funds		104.1		-		104.1		-

Other types of investments
Private equity		37.7		-		-		37.7


Total fair value of plan asset investments	$	640.3	$	321.3	$	268.4	$	50.6

Non-investment plan assets		0.5

Total plan assets	$	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 Investments			Other Fixed Income Securities		Private Equity			Total
Balance at December 31, 2009	$	28.2		$	-	$	29.4		$	57.6

Actual return on plan assets:
Relating to assets still held at the reporting date		-			-		4.0			4.0
Relating to assets sold during the period		-			-		(0.1	)		(0.1	)
Purchases, sales and settlements		(15.5	)		-		4.4			(11.1	)
Transfers in and/or out of Level 3		-			0.2		-			0.2

Balance at December 31, 2010	$	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 as set/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:


Years ending December 31 (dollars in millions)	Pension Benefits	Post-retirement Benefits
2011	$ 59.7	$ 1.3
2012	59.5	1.3
2013	59.5	1.3
2014	59.4	1.2
2015	59.4	1.2
Years 2016 – 2020	295.8	5.5

Ashland City, TN Facility Flood

12 Months Ended

Dec. 31, 2010

Ashland City, TN Facility Flood

Ashland City, TN Facility Flood

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:


Repair or write off of buildings and equipment	$	36.1
Net inventory loss		16.4
Site cleanup and restoration		14.8

		67.3
Less: insurance proceeds		31.9

Total flood related expense	$	35.4

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.

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.

Income Taxes

12 Months Ended

Dec. 31, 2010

Income Taxes

Income Taxes

15. Income Taxes

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


Years ended December 31 (dollars in millions)	2010			2009			2008
Current:
Federal	$	(2.9	)	$	16.0		$	11.7
State		2.4			2.9			2.9
International		14.1			12.9			10.1
Deferred:
Federal		7.0			3.2			4.1
State		0.5			(1.1	)		(0.3	)
International		(3.8	)		(3.0	)		(0.9	)

	$	17.3		$	30.9		$	27.6

The provision for income taxes differs from the U.S. federal statutory rate due to the following items:


Years ended December 31	2010			2009			2008
Provision at U.S. federal statutory rate		35.0	%		35.0	%		35.0	%
State income and franchise taxes, net of federal benefit		1.6			2.9			2.9
International income tax rate differential		(13.4	)		(6.2	)		(3.8	)
Research tax credits		(0.4	)		(0.7	)		(0.5	)
U.S. manufacturing deduction		-			-			(0.3	)
Other		0.5			2.7			3.5

		23.3	%		33.7	%		36.8	%

Components of earnings from continuing operations before income taxes were as follows:


Years ended December 31 (dollars in millions)	2010		2009		2008
United States	$	12.4	$	48.9	$	35.6
International		62.0		42.9		39.5

	$	74.4	$	91.8	$	75.1

Total taxes paid by the company amounted to $12.3, $5.6, and $15.7 million in 2010, 2009 and 2008, respectively.

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:

December 31 (dollars in millions)


	2010					2009
	Assets			Liabilities		Assets			Liabilities
Employee benefits	$	93.3		$	-	$	98.3		$	-
Product liability and warranties		58.9			-		59.5			-
Inventories		-			3.5		-			4.1
Property, plant and equipment		-			30.2		-			28.8
Intangibles		-			28.7		-			31.4
Restructuring		0.1			-		0.2			-
Environmental		3.5			-		3.7			-
Derivative instruments		-			0.1		0.2			-
Tax loss and credit carryovers		16.0			-		14.1			-
All other		9.6			-		9.5			-
Valuation allowance		(1.9	)		-		(1.5	)		-


	$	179.5		$	62.5	$	184.0		$	64.3


Net asset				$	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 deferred income tax assets	$	27.3	$	25.8
Long-term deferred income tax assets		89.7		93.9


Net asset	$	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 at January 1	$	4.5		$	5.5
Additions based on tax positions related to the current year		0.1			1.8
Reductions for tax positions of prior years		(1.9	)		(2.8	)

Balance at December 31	$	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.

Commitments and Contingencies	12 Months Ended
Commitments and Contingencies	Dec. 31, 2010
Commitments and Contingencies
Commitments and Contingencies	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.

Operations by Segment

12 Months Ended

Dec. 31, 2010

Operations by Segment

Operations by Segment

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.

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 Sales
Years ended December 31 (dollars in millions)	2010			2009			2008			2010		2009		2008
Water Products	$	132.9		$	148.9		$	134.7		$	1,489.3	$	1,375.0	$	1,451.3

General corporate and research and development expenses		(51.6	)		(50.3	)		(48.9	)
Interest expense		(6.9	)		(7.2	)		(11.0	)


Earnings before income taxes		74.4			91.4			74.8
Provision for income taxes		(17.3	)		(30.9	)		(27.6	)


Earnings from continuing operations	$	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


	Total Assets (December 31)						Depreciation and Amortization (Years Ended December 31)						Capital Expenditures (Years Ended December 31)
(dollars in millions)	2010		2009		2008		2010		2009		2008		2010		2009		2008
Water Products	$	1,168.0	$	1,095.9	$	984.9	$	40.2	$	37.8	$	35.3	$	51.6	$	42.0	$	40.9
Corporate assets		271.0		234.7		202.5		0.6		0.5		0.5		1.9		0.7		0.3
EPC discontinued operations		673.0		643.9		763.4		-		-		-		-		-		-
SICO discontinued operations		-		-		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.


	Long-lived Assets							Net Sales
(dollars in millions)	2010		2009		2008			2010		2009		2008

United States	$	173.2	$	169.2	$	169.2	United States	$	960.4	$	959.0	$	1,072.9

Mexico		14.6		15.3		16.4	China		304.4		222.0		186.5

China		57.1		53.3		51.5	Canada		160.4		150.4		143.6

Canada		22.2		22.5		21.3	Other Foreign		64.1		43.6		48.3


Other Foreign		16.6		11.1		1.5	Total		$1,489.3		$1,375.0		$1,451.3


Total	$	283.7	$	271.4	$	259.9

Quarterly Results of Operations

12 Months Ended

Dec. 31, 2010

Quarterly Results of Operations

Quarterly Results of Operations

18. Quarterly Results of Operations (Unaudited)


(dollars in millions, except per share amounts)
	1st Quarter					2nd Quarter						3rd Quarter				4th Quarter
		2010		2009			2010			2009			2010		2009		2010		2009
Net sales	$	366.7	$	339.0		$	375.0		$	337.1		$	377.4	$	336.7	$	370.2	$	362.2
Gross profit		108.3		86.3			114.2			69.2			107.2		128.4		116.3		111.0
Earnings
Continuing operations		21.3		10.3			(0.9	)		18.2			16.2		14.5		20.5		17.5
Discontinued operations		9.5		(1.7	)		17.5			5.6			15.8		20.1		11.6		5.1

Net earnings		30.8		8.6			16.6			23.8			32.0		34.6		32.1		22.6
Net (earnings)/loss attributable to noncontrolling interest
Continuing operations		0.1		(6.9	)		-			(2.8	)		-		-		0.1		0.1
Discontinued operations		-		1.0			-			0.3			-		-		-		-

Net earnings attributable to A. O. Smith Corporation	$	30.9	$	2.7		$	16.6		$	21.3		$	32.0	$	34.6	$	32.2	$	22.7


Basic earnings per share
Continuing operations		0.47		0.36			(0.02	)		0.42			0.35		0.32		0.45		0.39
Discontinued operations		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 earnings per share
Continuing operations		0.46		0.36			(0.02	)		0.42			0.35		0.32		0.44		0.39
Discontinued operations		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 dividends declared		0.13		0.127			0.13			0.127			0.14		0.13		0.14		0.13

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.

Schedule II - Valuation and Qualifying Accounts

12 Months Ended

Dec. 31, 2010

Schedule II - Valuation and Qualifying Accounts

Schedule II - Valuation And Qualifying Accounts

SCHEDUL E II - VALUATION AND QUALIFYING ACCOUNTS

(In millions)

Years ended December 31, 2010, 2009 and 2008


Description	Balance at Beginning of Year		Charged to Costs and Expenses¹		Acquisition of Businesses		Deductions²			Balance at End of Year
2010:
Valuation allowance for trade and notes receivable	$	3.4	$	0.2	$	-	$	(0.1	)	$	3.5

2009:
Valuation allowance for trade and notes receivable	$	2.8	$	1.7	$	-	$	(1.1	)	$	3.4

2008:
Valuation allowance for trade and notes receivable	$	2.6	$	0.3	$	-	$	(0.1	)	$	2.8

¹	Provision based upon estimated collection.

²	Uncollectible amounts/expenditures or adjustments charged against the reserve.