View Filing Data

Document and Entity Information - shares	3 Months Ended
Document and Entity Information - shares	Mar. 31, 2011	Apr. 30, 2011
Statement [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2011
Entity Registrant Name	SMITH A O CORP
Entity Central Index Key	0000091142
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q1
Entity Filer Category	Large Accelerated Filer
Class A Common Stock
Statement [Line Items]
Entity Common Stock, Shares Outstanding		7,442,347
Common Stock
Statement [Line Items]
Entity Common Stock, Shares Outstanding		38,750,057

Condensed Consolidated Statements of Earnings - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2011	Mar. 31, 2010
Continuing Operations
Net Sales	$ 417.4	$ 366.7
Cost of products sold	290.4	258.4
Gross Profit	127.0	108.3
Selling, general and administrative expenses	89.3	77.0
Interest expense	1.8	1.7
Other expense - net	2.2	0.5
Earnings before provision for income taxes	33.7	29.1
Provision for income taxes	9.5	7.7
Earnings before equity loss in joint venture	24.2	21.4
Equity (loss) in joint venture		(0.1)
Earnings from continuing operations	24.2	21.3
Discontinued Operations
Earnings from discontinued EPC operations, less provision for income taxes of $5.7 in 2011 and $3.7 in 2010	16.8	9.5
Net earnings	41.0	30.8
Net loss attributable to noncontrolling interest		0.1
Net earnings attributable to A. O. Smith Corporation	$ 41.0	$ 30.9
Net Earnings Per Share of Common Stock
Continuing Operations	$ 0.52	$ 0.47
Discontinued Operations	0.37	0.21
Net Earnings attributable to A. O. Smith Corporation	0.89	0.68
Diluted Net Earnings Per Share of Common Stock
Continuing Operations	0.52	0.46
Discontinued Operations	0.36	0.21
Net Earnings attributable to A. O. Smith Corporation	0.88	0.67
Dividends per Common Stock	$ 0.14	$ 0.13

Condensed Consolidated Statements of Earnings (Parenthetical) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2011	Mar. 31, 2010
Condensed Consolidated Statements of Earnings
Provision (benefit) for income taxes	$ 5.7	$ 3.7

Condensed Consolidated Balance Sheets - USD ($) $ in Millions	Mar. 31, 2011	Dec. 31, 2010
Assets
Cash and cash equivalents	$ 124.2	$ 118.9
Receivables	362.0	313.3
Inventories	160.8	146.8
Deferred income taxes	26.2	27.3
Other current assets	19.9	17.4
Current assets - discontinued EPC operations	293.9	272.3
Total Current Assets	987.0	896.0
Property, plant and equipment	541.3	524.9
Less accumulated depreciation	278.5	266.5
Net property, plant and equipment	262.8	258.4
Goodwill	325.3	323.8
Other intangibles	105.5	106.6
Deferred income taxes	91.3	89.7
Other assets	37.2	36.8
Long-term assets - discontinued EPC operations	396.2	399.3
Total Assets	2,205.3	2,110.6
Liabilities
Trade payables	279.3	263.0
Accrued payroll and benefits	28.6	37.2
Accrued liabilities	69.0	59.0
Product warranties	37.8	36.4
Long-term debt due within one year	18.6	18.6
Current liabilities - discontinued EPC operations	122.1	122.6
Total Current Liabilities	555.4	536.8
Long-term debt	321.2	242.4
Pension liabilities	179.4	222.9
Other liabilities	147.3	148.6
Long-term liabilities - discontinued EPC operations	80.1	78.5
Total Liabilities	1,283.4	1,229.2
Stockholders' Equity
Class A Common Stock, $5 par value: authorized 14,000,000 shares; issued 7,479,428 and 7,481,748	37.4	37.4
Common Stock, $1 par value: authorized 60,000,000 shares; issued 40,197,482 and 40,195,162	40.2	40.2
Capital in excess of par value	648.0	655.7
Retained earnings	486.6	452.1
Accumulated other comprehensive loss	(229.4)	(229.4)
Treasury stock at cost	(60.9)	(74.6)
Total Stockholders' Equity	921.9	881.4
Total Liabilities and Stockholders' Equity	$ 2,205.3	$ 2,110.6

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2011	Dec. 31, 2010
Condensed Consolidated Balance Sheets
Class A Common Stock, par value	$ 5	$ 5
Class A Common Stock, shares authorized	14,000,000	14,000,000
Class A Common Stock, shares issued	7,479,428	7,481,748
Common Stock, par value	$ 1	$ 1
Common Stock, shares authorized	60,000,000	60,000,000
Common Stock, shares issued	40,197,482	40,195,162

Condensed Consolidated Statements of Cash Flows - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2011	Mar. 31, 2010
Operating Activities
Net earnings	$ 41.0	$ 30.8
Less earnings from discontinued operations	(16.8)	(9.5)
Adjustments to reconcile earnings from continuing operations to cash used in operating activities:
Depreciation and amortization	10.8	10.1
Loss on sale of assets	0.2
Net changes in operating assets and liabilities, net of acquisitions:
Current assets and liabilities	(45.8)	(42.8)
Noncurrent assets and liabilities	(41.7)	5.5
Cash Used in Operating Activities - continuing operations	(52.3)	(5.9)
Cash Provided by (Used in) Operating Activities - discontinued operations	0.1	(8.5)
Cash Used in Operating Activities	(52.2)	(14.4)
Investing Activities
Capital expenditures	(12.4)	(7.7)
Cash Used in Investing Activities - continuing operations	(12.4)	(7.7)
Cash Used in Investing Activities - discontinued operations	(3.1)	(2.6)
Cash Used in Investing Activities	(15.5)	(10.3)
Financing Activities
Short-term debt incurred - net		31.5
Long-term debt incurred	77.2
Common stock repurchase	(5.7)
Net proceeds from stock option activity	7.9	2.6
Dividends paid	(6.4)	(5.9)
Cash Provided by Financing Activities - continuing operations	73.0	28.2
Cash Provided by Financing Activities - discontinued operations
Cash Provided by Financing Activities	73.0	28.2
Net increase in cash and cash equivalents	5.3	3.5
Cash and cash equivalents - beginning of period	118.9	76.3
Cash and Cash Equivalents - End of Period	$ 124.2	$ 79.8

Basis of Presentation

3 Months Ended

Mar. 31, 2011

Basis of Presentation

Basis of Presentation

1.	Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (GAAP) for interim financial information and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2011 are not necessarily indicative of the results expected for the full year. It is suggested that the accompanying condensed consolidated financial statements be read in conjunction with the audited consolidated financial statements and the notes thereto included in the company's latest Annual Report on Form 10-K filed with the SEC on February 24, 2011.

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

Certain other prior year amounts have been reclassified to conform to the 2011 presentation.

Discontinued Operations

3 Months Ended

Mar. 31, 2011

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. The Regal Beloit stock was worth approximately $208.9 million and $189.0 million at March 31, 2011 and December 31, 2010, respectively. The sale is expected to occur mid-year 2011, subject to regulatory approvals and customary closing conditions.

The results of EPC have been reported separately as discontinued operations. Prior year quarterly condensed consolidated financial statements of the company have been restated to present EPC as discontinued.

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


	(dollars in millions)
	(unaudited) March 31, 2011		December 31, 2010
Assets
Current Assets
Trade receivables	$	136.8	$	110.8
Inventory		132.2		135.9
Deferred taxes		3.1		2.2
Derivative contracts asset		15.2		17.4
Other current assets		6.6		6.0

Total Current Assets		293.9		272.3

Net property, plant and equipment		144.9		148.1
Goodwill		248.5		248.4
Other intangibles		2.8		2.8

Total Assets	$	690.1	$	671.6

Liabilities

Current Liabilities
Trade payables	$	92.0	$	89.5
Accrued payroll and benefits		11.0		15.2
Accrued liabilities		14.2		11.1
Product warranties		3.9		4.3
Income taxes		1.0		2.5

Total Current Liabilities		122.1		122.6

Deferred taxes		78.7		77.2
Other liabilities		1.4		1.3

Total Liabilities		202.2		201.1

Total Net Assets	$	487.9	$	470.5

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

Three months ended March 31 (dollars in millions) (unaudited)


	2011			2010
Net sales	$	200.4		$	156.7
Cost of products sold		155.2			120.4

Gross profit		45.2			36.3
Selling, general and administrative expenses		22.0			20.4
Restructuring and other		-			0.9
Interest expense		0.8			1.0
Other (income) expense - net		(0.1	)		0.8

		22.5			13.2
Provision for income taxes		5.7			3.7

Net earnings	$	16.8		$	9.5

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:

Three months ended March 31 (dollars in millions)


	2011			2010
Operating Activities
Earnings	$	16.8		$	9.5
Adjustments to reconcile earnings to net cash provided by discontinued operating activities:
Depreciation and amortization		6.5			6.7
Loss on sale of assets		-			0.2
Net changes in operating assets and liabilities
Current assets and liabilities		(23.5	)		(26.7	)
Noncurrent assets and liabilities		1.4			1.8
Other		(1.1	)		-

Cash Provided by (Used in) Discontinued Operating Activities		0.1			(8.5	)
Investing Activities
Capital expenditures		(3.1	)		(2.6	)

Cash Used in Discontinued Investing Activities		(3.1	)		(2.6	)

Cash Flow Used in Discontinued Operations	$	(3.0	)	$	(11.1	)

Inventories

3 Months Ended

Mar. 31, 2011

Inventories

Inventories

3.	Inventories (dollars in millions)


	March 31, 2011			December 31, 2010
Finished products	$	85.3		$	72.7
Work in process		12.9			14.4
Raw materials		85.6			82.7

		183.8			169.8
LIFO reserve		(23.0	)		(23.0	)

	$	160.8		$	146.8

Restricted Marketable Securities

3 Months Ended

Mar. 31, 2011

Restricted Marketable Securities

Restricted Marketable Securities

4.	Restricted Marketable Securities

The company acquired GSW Inc. (GSW) on April 3, 2006. GSW operated a captive insurance company (Captive) to provide product liability and general liability insurance to its subsidiary American Water Heater Company (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 was $11.8 million at March 31, 2011. The $11.8 million is invested in short-term securities and is included in other non-current assets on the company's balance sheet on March 31, 2011. The cost of the money market instruments approximate fair value.

Long-Term Debt

3 Months Ended

Mar. 31, 2011

Long-Term Debt

Long-Term Debt

5.	Long-Term Debt

The company has a $425 million multi-currency revolving credit agreement with nine banks. The facility expires on November 13, 2013 and has an accordion provision which allows it to be increased up to $525 million if certain conditions (including lender approval) are satisfied. Interest rates on borrowings under the facility are determined in part based upon the company's leverage ratio.

Borrowings under bank credit lines and commercial paper borrowings are supported by the $425 million 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 March 31, 2011.

Product Warranties

3 Months Ended

Mar. 31, 2011

Product Warranties

Product Warranties

6.	Product Warranties (dollars in millions)

The company offers warranties on the sales of certain of its products and records an accrual for the estimated future claims. The following table presents the company's warranty liability activity for the three months ended March 31, 2011 and 2010, respectively.


	2011				2010
Balance at January 1		$	112.1			$	108.6
Expense			18.2				19.5
Claims settled			(14.0	)			(17.2	)

Balance at March 31		$	116.3			$	110.9

The company has recorded a receivable of approximately $14.6 million at March 31, 2011 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.

Comprehensive Earnings

3 Months Ended

Mar. 31, 2011

Comprehensive Earnings

Comprehensive Earnings

7.	Comprehensive Earnings (dollars in millions)

The company's comprehensive earnings are comprised of net earnings, foreign currency translation adjustments, and realized and unrealized gains and losses on cash flow derivative instruments.


	Three Months Ended March 31
	2011			2010
Net Earnings		41.0			30.8
Other comprehensive earnings (loss):
Foreign currency translation adjustments		3.2			0.9
Unrealized net gain on cash flow derivative instruments less related income tax (benefit) provision of: $(2.1) in 2011 and $1.1 in 2010		(3.2	)		1.6
Comprehensive loss attributable to noncontrolling interest		—			0.1

Comprehensive Earnings	$	41.0		$	33.4

Earnings per Share of Common Stock

3 Months Ended

Mar. 31, 2011

Earnings per Share of Common Stock

Earnings per Share of Common Stock

8.	Earnings per Share of Common Stock

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:


	Three Months Ended March 31
	2011		2010
Denominator for basic earnings per share - weighted average shares		46,000,013		45,590,614
Effect of dilutive stock options		540,458		380,167

Denominator for diluted earnings per share		46,540,471		45,970,781

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 recast to reflect the split for all periods presented.

Stock Based Compensation

3 Months Ended

Mar. 31, 2011

Stock Based Compensation

Stock Based Compensation

9.	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, restricted stock or share units at March 31, 2011 was 1,926,654. Upon stock option exercise, restricted stock grant, or share unit vesting, shares are issued from treasury stock.

Total stock based compensation cost recognized in the three month periods ended March 31, 2011 and 2010 was $2.4 million and $1.7 million, respectively.

Stock Options

The stock options granted in the three month periods ended March 31, 2011 and 2010, have 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 2011 and 2010 expire ten years after date of grant. Options are expensed ratably over the three year vesting period. Stock based compensation cost attributable to stock options in the three month periods ended March 31, 2011 and 2010 was $1.2 million and $0.6 million, respectively. Included in the stock option expense for the three month periods ended March 31, 2011 and 2010 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 for the three months ended March 31, 2011:


	Weighted-Avg. Per Share Exercise Price		Three Months Ended March 31, 2011			Average Remaining Contractual Life	Aggregate Intrinsic Value (dollars in millions)

Outstanding at January 1, 2011	$	22.17		1,623,101

Granted		43.12		166,200

Exercised		20.47		(283,001	)


Outstanding at March 31, 2011		24.80		1,506,300		8 years	$	29.4

Exercisable at March 31, 2011	$	22.29		1,000,817		7 years	$	22.1

The weighted-average fair value per option at the date of grant during the three months ended March 31, 2011 and 2010 using the Black-Scholes option-pricing model was $16.50 and $10.19, respectively. Assumptions were as follows:


	Three Months Ended March 31,
	2011			2010
Expected life (years)		6.4			6.4
Risk-free interest rate		3.6	%		3.6	%
Dividend yield		1.3	%		1.9	%
Expected volatility		38.4	%		38.7	%

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 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 75,625 and 101,873 share units under the plan in the three month periods ended March 31, 2011 and 2010, respectively. The share units were valued at $2.7 million and $2.9 million at the date of issuance in 2011 and 2010, respectively, based on the company's stock price at the date of grant and will be recognized as compensation expense ratably over the three-year vesting period. Share based compensation expense attributable to share units of $1.2 million and $1.1 million was recognized in the three month periods ended March 31, 2011 and 2010, respectively. Share based compensation expense recognized in the three month periods ended March 31, 2011 and 2010 included expense associated with accelerated vesting of share unit awards for certain employees who either are retirement eligible or will 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
Issued and unvested at January 1, 2011		473,438		$	22.43

Granted		75,625			43.12

Vested		(193,967	)		22.59

Terminated/cancelled		(20,043	)		20.95


Issued and unvested at March 31, 2011		335,053		$	27.09

Pensions

3 Months Ended

Mar. 31, 2011

Pensions

Pensions

10.

Pensions (dollars in millions)

The following table presents the components of the company's net pension expense.


	Three Months Ended March 31
	2011				2010
Service cost		$	2.4			$	2.4
Interest cost			11.2				11.7
Expected return on plan assets			(17.5	)			(15.2	)
Amortization of unrecognized loss			5.7				4.4
Amortization of prior service cost			(0.2	)			-

Defined benefit plan expense		$	1.6			$	3.2

The company made contributions totaling $30.6 million in 2010 and is required to make a minimal contribution in 2011. The company made contributions totaling $45 million in the three months ended March 31, 2011 and anticipates making an additional $130 million contribution in 2011. Included in the table above is $0.5 million and $0.4 million of defined benefit plan expense associated with the company's discontinued operations for the three months ended March 31, 2011 and 2010, respectively.

Operations by Segment

3 Months Ended

Mar. 31, 2011

Operations by Segment

Operations by Segment

11.

Operations by Segment (dollars in millions)


	Three Months Ended March 31
	2011				2010
Net sales
Water Products		$	417.4			$	366.7
Operating earnings
Water Products⁽¹⁾		$	48.9			$	43.9
Corporate expenses			(13.4	)			(13.2	)
Interest expense			(1.8	)			(1.7	)

Earnings before income taxes			33.7				29.0
Provision for income taxes			9.5				7.7

Earnings from continuing operations		$	24.2			$	21.3

⁽¹⁾ Includes equity loss in joint venture of		$	-			$	(0.1	)

Fair Value Measurements

3 Months Ended

Mar. 31, 2011

Fair Value Measurements

Fair Value Measurements

12. Fair Value Measurements

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

Continuing 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.

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


Fair Value Measurement Using	March 31, 2011		December 31, 2010
Quoted Prices in Active Markets for Identical Assets (Level 1)		$(0.2)		$0.6
Significant Other Observable Inputs (Level 2)		(1.2)		0.8

Total Net Derivative Contracts		$(1.4)		$1.4

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

Derivative Instruments

3 Months Ended

Mar. 31, 2011

Derivative Instruments

Derivative Instruments

13. 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, except for its equity collar contract relating to Regal Beloit stock, 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 and equity investment volatility. 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 $3.5 million as of March 31, 2011 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 operations that expire after the expected closing date no longer qualify for hedge accounting; therefore, the change in valuation during the three months ended March 31, 2011 of $(0.6) million was recorded in earnings from discontinued operations. Commodity hedges outstanding at March 31, 2011 are a total of approximately 10.3 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 December 28, 2012. Contracts related to the company's discontinued operations that expire after the expected closing date no longer qualify for hedge accounting; therefore, the change in valuation during the three months ended March 31, 2011 of $2.3 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.


March 31(dollars in millions)	2011						2010
	Buy			Sell			Buy			Sell
Euro		$	2.8		$	1.7		$	4.4		$	1.1
Canadian dollar			-			41.9			-			20.2
Mexican peso			8.8			-			11.7			-

Total		$	11.6		$	43.6		$	16.1		$	21.3

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 has 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. 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.

Equity Collar Contract

As discussed in Note 2, as a part of the definitive agreement to sell its Electrical Products segment to Regal Beloit Corporation, the company will receive approximately 2.83 million shares of Regal Beloit stock at closing. The value of the shares has appreciated since the date of the definitive agreement. During the first quarter, the company purchased an equity collar contract for fifty percent of the expected shares to protect a portion of that appreciation. The put strike price of the equity collar is $63.29 and the call strike price of the collar is $77.32. The collar does not qualify for hedge accounting and therefore is adjusted to fair value through earnings from continuing operations. The company is required to make cash or stock deposits on unrealized losses on the equity collar that exceed $25.0 million. The collar expires in March 2012.

The impact of derivative contracts on the company's financial statements is as follows (dollars in millions):

Fair value of derivatives designated as hedging instruments under ASC 815 in continuing operations:


		Fair Value
(dollars in millions)	Balance Sheet Location	March 31, 2011				December 31, 2010

Commodities contracts	Other current assets		$	0.4			$	0.8
Foreign currency contracts	Derivative contracts liability			(1.6	)			(0.5	)
	Other current assets			1.4				1.1

Total derivatives designated as hedging instruments			$	0.2			$	1.4

Fair value of derivative not designated as a hedging instrument under ASC 815 in continuing operations:


		Fair Value
(dollars in millions)	Balance Sheet Location	March 31, 2011				December 31, 2010

Equity collar contract	Other current liabilities			(1.6	)			-

Total derivatives not designated as hedging instruments			$	(1.6	)		$	-

The effect of derivatives designated as hedging instruments under ASC 815 on the Statement of Earnings for continuing and discontinued operations:

Year to date March 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)
	2011				2010					2011			2010						2011			2010
Commodities contracts		$	(0.1	)		$	2.0		Cost of products sold		$	0.3		$	0.3			Cost of products sold		$	-		$	-
									Discontinued operations			3.5			3.3			Discontinued operations			-			-
Foreign currency contracts			0.5				5.6		Cost of products sold			-			0.1			N/A			-			-
									Discontinued operations			1.9			1.5			Discontinued operations			-			-
Interest rate swap contract			-				-		Interest expense			-			(0.3	)		N/A			-			-

		$	0.4			$	7.6				$	5.7		$	4.9					$	-		$	-


Derivatives not designated as a hedging instrument under ASC 815	Location of loss recognized in earnings from continuing operations on derivative		Amount of loss recognized in earnings from continuing operations on derivative
				2011			2010
Equity collar contract		Other expense - net	$	(1.6	)	$	-

Income Taxes	3 Months Ended
Income Taxes	Mar. 31, 2011
Income Taxes
Income Taxes	14. Income Taxes The effective tax rate for the three months ended March 31, 2011 was 28.2 percent versus 26.5 percent for the first three months of 2010. The company estimates that the tax rate for all of 2011 will be consistent with the first quarter of 2011. The full year effective tax rate in 2010 of 23.3 percent benefited from lower domestic earnings in 2010 as a result of flood related expense. As of March 31, 2011 and December 31, 2010, the company had $2.7 million of unrecognized tax benefits of which $2.2 million would affect its effective tax rate if recognized. The company recognizes potential interest and penalties related to unrecognized tax benefits as a component of tax expense. 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 also subject to non-U.S. income tax examinations for years 2004-2010.

Subsequent Events	3 Months Ended
Subsequent Events	Mar. 31, 2011
Subsequent Events
Subsequent Events	15. Subsequent Events On May 5, 2011, the company entered into an agreement with a supplier settling a legal action that the company commenced on June 30, 2009, in Tennessee State Court, seeking recovery for costs and damages due to an issue with a component part supplied by the vendor. Under the terms of the settlement agreement, the vendor and the vendor's supplier will pay to the company in the aggregate $35.5 million in cash for past costs previously expensed by the company, to satisfy in full a receivable recorded by the company, and for future costs associated with the inclusion of the affected components on company products. In the second quarter of 2011, the company expects to report a pretax benefit of approximately $11 million, for reimbursement of related costs expensed in previous accounting periods. See Note 6 for more information regarding the receivable and related matters. The agreement requires the vendor and its supplier to make the settlement payment in the second quarter of 2011. While the amount of any resulting expenses is not reasonably estimable at this time, the company is also evaluating a separate component quality issue that may, in the second quarter, involve expenses that offset in whole or in part the amount of the estimated pretax benefit on the settlement.