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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002.

OR

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

For the transition period from ________________ to _______________

Commission File Number 1-475


A. O. SMITH CORPORATION


Delaware 39-0619790
(State of Incorporation) (IRS Employer ID Number)

P. O. Box 245008, Milwaukee, Wisconsin 53224-9508
Telephone: (414) 359-4000


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No ___


Class A Common Stock Outstanding as of June 30, 2002 -- 8,635,289 shares

Common Stock Outstanding as of June 30, 2002 -- 20,002,122 shares

Exhibit Index Page 20


Index


A. O. Smith Corporation



Part I. Financial Information

Item 1. Financial Statements (Unaudited)

Condensed Consolidated Statements of Earnings
- Three and six months ended June 30, 2002 and 2001 3

Condensed Consolidated Balance Sheets
- June 30, 2002 and December 31, 2001 4

Condensed Consolidated Statements of Cash Flows
- Six months ended June 30, 2002 and 2001 5

Notes to Condensed Consolidated Financial Statements
- June 30, 2002 6-12

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13-16

Item 3. Quantitative and Qualitative Disclosure of Market Risk 16-17

Part II. Other Information

Item 1. Legal Proceedings 18

Item 4. Submission of Matters to a Vote of Security Holders 18-19

Item 5. Other Information 19

Item 6. Exhibits and Reports on Form 8-K 19

Signatures 20

Index to Exhibits 21

2

PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS


A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three and Six Months ended June 30, 2002 and 2001
(000 omitted except for per share data)
(unaudited)

Three Months Ended Six Months Ended
June 30 June 30
------------------------- -----------------------------
2002 2001 2002 2001
----------- ----------- ------------- ------------

Electrical Products $ 219,199 $ 221,630 $ 415,433 $ 447,883
Water Systems 167,085 86,618 342,778 178,600
----------- ----------- ------------- -------------
Net sales 386,284 308,248 758,211 626,483
Cost of products sold 304,856 249,663 599,882 509,103
----------- ----------- ------------- -------------
Gross profit 81,428 58,585 158,329 117,380
Selling, general and administrative expenses 50,198 36,338 103,402 74,461
Interest expense 3,683 3,901 7,860 8,702
Amortization of intangibles 60 1,734 141 3,467
Other (income) expense - net (193) 349 596 948
----------- ----------- ------------- -------------
27,680 16,263 46,330 29,802
Provision for income taxes 9,688 5,570 16,216 10,580
----------- ----------- ------------- -------------

Net Earnings $ 17,992 $ 10,693 $ 30,114 $ 19,222
=========== =========== ============= =============

Earnings per Common Share
Basic $0.68 $0.45 $1.20 $0.82
====== ====== ====== =====
Diluted $0.66 $0.45 $1.17 $0.81
====== ====== ====== =====

Dividends per Common Share $0.13 $0.13 $0.26 $0.26
====== ====== ====== =====



See accompanying notes to unaudited condensed consolidated financial statements.


3

PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS

A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2002 and December 31, 2001
(000 omitted)

(unaudited)
June 30, 2002 December 31, 2001
------------- -----------------
Assets
Current Assets

Cash and cash equivalents $ 26,443 $ 20,759
Receivables 239,030 209,871
Inventories 191,135 194,706
Deferred income taxes 22,374 22,403
Other current assets 11,373 28,039
Net current assets - discontinued operations - 1,796
--------------- --------------
Total Current Assets 490,355 477,574

Property, plant and equipment 652,266 637,503
Less accumulated depreciation 306,169 282,205
--------------- --------------
Net property, plant and equipment 346,097 355,298
Goodwill 295,693 295,073
Other intangibles 6,410 6,851
Other assets 172,561 159,127
--------------- --------------
Total Assets $ 1,311,116 $ 1,293,923
=============== ==============

Liabilities
Current Liabilities
Notes payable $ - $ 3,280
Trade payables 136,010 135,684
Accrued payroll and benefits 34,670 29,525
Accrued liabilities 52,915 53,832
Product warranty 19,546 19,470
Income taxes 2,382 887
Long-term debt due within one year 12,472 13,272
Net current liabilities - discontinued operations 2,690 -
--------------- --------------
Total Current Liabilities 260,685 255,950

Long-term debt 242,044 390,385
Other liabilities 129,479 133,556
Deferred income taxes 73,896 62,154
--------------- --------------

Total Liabilities 706,104 842,045

Stockholders' Equity
Class A common stock, $5 par value: authorized
14,000,000 shares; issued 8,667,884 43,339 43,432
Common stock, $1 par value: authorized 60,000,000
shares; issued 23,881,478 23,881 23,863
Capital in excess of par value 74,244 54,785
Retained earnings 575,338 551,420
Accumulated other comprehensive loss (6,427) (6,858)
Treasury stock at cost (105,363) (214,764)
--------------- --------------

Total Stockholders' Equity 605,012 451,878
--------------- --------------
Total Liabilities and Stockholders' Equity $ 1,311,116 $ 1,293,923
=============== ==============



See accompanying notes to unaudited condensed consolidated financial statements

4

PART I--FINANCIAL INFORMATION
ITEM 1--FINANCIAL STATEMENTS

A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 2002 and 2001
(000 omitted)
(unaudited)

Six Months Ended
June 30
---------------------------------------
2002 2001
-------------- --------------
Operating Activities
Continuing

Net earnings $ 30,114 $ 19,222
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 24,400 18,725
Amortization 730 4,255
Net change in current assets and liabilities (2,337) (18,645)
Net change in other noncurrent assets and liabilities (3,623) (6,707)
Other 906 (49)
-------------- --------------

Cash Provided by Operating Activities 50,190 16,801

Investing Activities
Capital expenditures (16,363) (15,498)
Acquisition of business (2,169) -
-------------- --------------

Cash Used in Investing Activities (18,532) (15,498)

Cash Flow before Financing Activities 31,658 1,303

Financing Activities
Long-term debt retired (152,421) (40,484)
Net proceeds from sale of common stock 127,480 -
Other stock transactions 845 1,046
Dividends paid (6,196) (6,139)
-------------- --------------

Cash Used in Financing Activities (30,292) (45,577)

Cash Provided by Discontinued Operations 4,318 44,174
-------------- --------------

Net increase (decrease) in cash and cash equivalents 5,684 (100)
Cash and cash equivalents-beginning of period 20,759 15,287
-------------- --------------

Cash and Cash Equivalents - End of Period $ 26,443 $ 15,187
============== ==============



See accompanying notes to unaudited condensed consolidated financial statements.

5


PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS

A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2002
(unaudited)
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 for interim financial information and
pursuant to the rules and regulations of the Securities and Exchange
Commission. 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- and six-month periods ended June 30, 2002 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. Certain prior year amounts have been reclassified to
conform to the 2002 presentation.

2. Acquisitions
On December 28, 2001, A. O. Smith Corporation (the company) acquired all
of the outstanding stock of State Industries, Inc. (State) for an
aggregate purchase price of $117.6 million. This was comprised of $57.8
million for the outstanding stock, assumption of $56.3 million of debt,
and $3.5 million of acquisition costs, of which $2.2 million were paid
during the six-month period ended June 30, 2002. The purchase price was
allocated to the assets acquired and liabilities assumed based upon
current estimates of their respective fair values at the date of
acquisition. In connection with the State acquisition, additional purchase
liabilities of $3.9 million were recorded for employee severance. As of
June 30, 2002, total costs incurred and charged against this liability to
date totaled $1.8 million.

On August 2, 1999, the company acquired the assets of MagneTek, Inc.'s
(MagneTek) domestic electric motor business and six wholly owned foreign
subsidiaries for $244.6 million. In connection with the MagneTek
acquisition, the company recorded additional purchase liabilities of $17.9
million, which included employee severance and relocation, as well as
certain facility exit costs. The remaining balance of such purchase
liabilities at June 30, 2002 is $5.6 million.

3. Business Improvement Programs
In the fourth quarter of 2001, the company recorded restructuring and
other charges of $9.4 million. The charges included employee separation
costs of $7.7 million associated with product or component manufacturing
repositioning and the realignment of certain administrative functions. The
resulting reduction of workforce is approximately 150 salaried and 775
hourly employees. In addition, the company recorded facility impairment
and lease charges of $1.7 million representing estimated costs of
facilities to be vacated. The company

6


spent $2.0 million through June 30, 2002. At June 30, 2002, the company
estimates approximately 600 employees are yet to be impacted and plans to
be substantially completed with the realignment activities prior to June
30, 2003.

4. Inventories (000 omitted)


June 30, 2002 December 31, 2001
------------- -----------------

Finished products $ 127,172 $ 120,231
Work in process 35,755 40,210
Raw materials 52,318 58,375
----------- -----------
215,245 218,816
Allowance to state inventories
at LIFO cost 24,110 24,110
----------- -----------
$ 191,135 $ 194,706
=========== ===========


5. Goodwill and Other Intangible Assets
The company adopted Statement of Financial Accounting Standards (SFAS) No.
142, "Goodwill and Other Intangible Assets", effective January 1, 2002.
Under SFAS No. 142, goodwill and certain other intangible assets are no
longer amortized but are reviewed for impairment. In connection with the
adoption of SFAS No. 142, the company has completed the first step of the
transitional goodwill impairment test, which requires the company to
compare the fair value of its reporting units to the carrying value of the
net assets of the respective reporting units as of January 1, 2002. Based
on this analysis, the company has concluded that no impairment existed at
the time of adoption, and, accordingly, the company has not recognized any
transitional impairment loss.

Changes in the carrying amount of goodwill during the six-month period
ended June 30, 2002 consist of the following (000 omitted):



Electrical Water
Products Systems Total
------------ --------- ------------

Balance at December 31, 2001 $ 230,004 $ 65,069 $ 295,073
Adjustment to property, plant and equipment
and other assets (38) 260 222
Additional acquisition costs - 398 398
---------- --------- ----------
Balance at June 30, 2002 $ 229,966 $ 65,727 $ 295,693
======= ========= =======


As required by SFAS No. 142, the results of operations for periods prior
to its adoption have not been restated. The following table reconciles
reported net earnings and earnings per share to pro forma net earnings and
earnings per share that would have resulted for the six-month period ended
June 30, 2001 if SFAS No. 142 had been adopted effective January 1, 2001
(000 omitted, except per share amounts):

7



Three Months Ended Six Months Ended
June 30, 2001 June 30, 2001
------------------------- ----------------------

Net earnings as reported $ 10,693 $ 19,222
Goodwill amortization - after tax 1,044 2,039
Assembled workforce amortization - after tax 61 119
--------- ---------
Net earnings - pro forma 11,798 21,380
========= =========

Basic earnings per share:
As reported $ .45 $ 0.82
========= =========
Pro forma $ .50 $ 0.91
========= =========

Diluted earnings per share:
As reported $ .45 $ 0.81
========= =========
Pro forma $ .49 $ 0.90
========= =========

Other intangible assets at June 30, 2002 and December 31, 2001 consist of
the following (000 omitted):


June 30, 2002
-----------------------------------------------
Amortization Carrying Accumulated
Period Amount Amortization Net
----------------- ------- ------------ --------
Intangible assets
subject to amortization:

Patents 10 - 12 years $ 618 $ (140) $ 478
Customer lists 30 years 2,600 (253) 2,347
Other 5 - 15 years 996 (441) 555
------- ------ ------
4,214 (834) 3,380
Intangible assets not
subject to amortization:
Trademarks 3,030 - 3,030
----- ------ -----
Total intangible assets $ 7,244 $ (834) $ 6,410
======= ====== ======


December 31, 2001
-----------------------------------------------
Amortization Carrying Accumulated
Period Amount Amortization Net
----------------- ------- ------------ --------
Intangible assets
subject to amortization:

Patents 10 - 12 years $ 618 $ (111) $ 507
Customer lists 30 years 2,600 (209) 2,391
Other 5 - 15 years 1,296 (373) 923
------- ------ ------
4,514 (693) 3,821
Intangible assets not
subject to amortization:
Trademarks 3,030 - 3,030
----- ------ -----
Total intangible assets $ 7,544 $ (693) $ 6,851
======= ====== ======

8


Amortization expense is projected to be approximately $0.2 million for
each of the fiscal years ended December 31, 2002 through 2006.

6. Long-Term Debt
The company's credit agreement and term notes contain certain conditions
and provisions which restrict the company's payment of dividends. Under
the most restrictive of these provisions, retained earnings of $196.6
million were unrestricted as of June 30, 2002.

7. Common Stock Issuance
On May 10, 2002, the company completed the sale of 4,776,065 shares of its
common stock held in treasury. The $127.5 million net proceeds from the
offering were used to reduce long-term debt.

8. Comprehensive Earnings (000 omitted)
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. Also included in
comprehensive earnings for the six-month period ended June 30, 2001 was a
cumulative loss adjustment on cash flow hedges of approximately $0.6
million in connection with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities", as amended, on January 1, 2001.



Three Months Ended Six Months Ended
June 30 June 30
------------------------- -------------------------
2002 2001 2002 2001
------------ ---------- ----------- ----------

Net Earnings $ 17,992 $ 10,693 $ 30,114 $ 19,222

Other comprehensive earnings (loss):
Foreign currency translation adjustments 2,375 650 2,099 (1,167)
Unrealized net gains (losses) on cash flow
derivative instruments less related income
tax (provision) benefit: 2002 - $3,828 &
$1,347; 2001 - $(928) & $(1,137) (5,987) 1,453 (1,668) 1,779
---------- --------- -------- ---------

Comprehensive Earnings $ 14,380 $ 12,796 $ 30,545 $ 19,834
========== ========= ======== =========




9

9. 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 Six Months Ended
June 30 June 30
-------------------------------- ------------------------------
2002 2001 2002 2001
-------------------------------- -------------- --------------

Denominator for basic earnings
per share
- weighted-average shares 26,486,407 23,644,889 25,136,771 23,578,440

Effect of dilutive stock options 745,678 267,289 645,508 292,127
------------ ------------ ------------ -------------

Denominator for diluted earnings
per share 27,232,085 23,912,178 25,782,279 23,870,567
========== ========== ========== ==========


10. Operations by Segment (000 omitted)



Three Months Ended Six Months Ended
June 30 June 30
---------------------------------------------------------------
2002 2001 2002 2001
------------ ----------- ------------ -----------

Net sales
Electrical Products $ 219,199 $ 221,630 $ 415,433 $ 447,883
Water Systems 167,085 86,618 342,778 178,600
---------- ---------- ---------- ----------
$ 386,284 $ 308,248 $ 758,211 $ 626,483
========== ========== ========== ==========

Earnings before interest and taxes
Electrical Products $ 20,524 $ 15,379 $ 35,686 $ 29,403
Water Systems 16,594 9,885 30,172 19,736
---------- ---------- ---------- ----------
37,118 25,264 65,858 49,139

Corporate expenses (5,755) (5,100) (11,668) (10,635)
Interest expense (3,683) (3,901) (7,860) (8,702)
---------- ---------- ---------- ----------
Earnings before income taxes 27,680 16,263 46,330 29,802
Provision for income taxes (9,688) (5,570) (16,216) (10,580)
---------- ---------- ---------- --------
Net earnings $ 17,992 $ 10,693 $ 30,114 $ 19,222
========== ========== ========== ==========


Intersegment sales, which are immaterial, have been excluded from segment
revenues.

10

11. Accounting for Derivative Instruments

The company utilizes certain derivative instruments to enhance its ability
to manage currency exposures and raw materials price risks. 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 company has hedged certain of its forecasted exposures.
Greater than 98 percent of these contracts expire by December 31, 2003.
The contracts are executed with major financial institutions with no
credit loss anticipated for failure of the counterparties to perform.

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 and certain intercompany transactions in the normal course of
business. Contracts typically have maturities of a year or less. Principal
currencies include the Mexican peso, Hungarian forint, British pound, Euro
and U.S. dollar.

Forward contracts are accounted for as cash flow hedges of a forecasted
transaction. The fair value of these currency derivatives of $2.8 million
has been recorded in accrued liabilities as of June 30, 2002. A fair value
of $6.6 million for currency derivatives has been recorded in other
current assets as of December 31, 2001. Gains and losses on these
instruments are recorded in other comprehensive income (loss) until the
underlying transaction is recorded in earnings. When the hedged item is
realized, gains or losses are reclassified from accumulated other
comprehensive income (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 perfectly effective.

Commodity Future Contracts
In addition to entering into supply arrangements in the normal course of
business, the company also enters into future contracts to fix the cost of
certain raw material purchases, principally copper and aluminum, with the
objective of minimizing changes in inventory cost due to market price
fluctuations.

The commodity future contracts are designated as cash flow hedges of a
forecasted transaction. Derivative commodity assets for copper of $0.2
million are recorded in other current assets as of June 30, 2002.
Derivative commodity liabilities for copper of $6.2 million are recorded
in accrued liabilities as of December 31, 2001. Derivative commodity
liabilities for aluminum of $0.3 million and $0.7 million are recorded in
accrued liabilities as of June 30, 2002 and December 31, 2001,
respectively. Overall, the value of the effective portions of the
commodity contracts of $0.1 million and ($6.9) million are recorded in
accumulated other comprehensive income (loss) as of June 30, 2002 and
December 31, 2001, respectively, and reclassified into cost of products
sold in the period in which the underlying transaction is recorded in
earnings. Ineffective portions of the commodity hedges are recorded into
earnings in the period in which the ineffectiveness occurs. Hedge

11


ineffectiveness and impact on earnings was not material for the three- and
six-month periods ended June 30, 2002 and 2001, respectively.

The majority of the amounts in accumulated other comprehensive earnings
(loss) for cash flow hedges are expected to be reclassified into earnings
within one year.

12. Subsequent Event
On July 1, 2002, the company completed the purchase of the hermetic motor
assets of the Athens Products division of Electrolux Group for
approximately $11 million.


12

PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
SECOND QUARTER AND FIRST SIX MONTHS OF 2002 COMPARED TO 2001

Sales were $386.3 million in the second quarter of 2002, $78.1 million, or 25
percent higher than sales of $308.2 million recorded in the second quarter of
2001. Sales for the first half of 2002 were $758.2 million or 21 percent higher
than sales of $626.5 million in the same period last year. The increase in
second quarter sales was due primarily to our State Industries Inc. (State)
water heater operation acquired in December 2001, while the increase in the
first half was due to State partially offset by lower sales of electric motors.

Our gross profit margin for the second quarter of 2002 increased from 19.0
percent in 2001 to 21.1 percent. Our year to date gross profit margin in 2002
was 20.9 percent compared with 18.7 percent in the same period in 2001. The
improved margins in both the second quarter and first half of 2002 resulted from
product repositioning at Electrical Products, the addition of State Industries
and material cost savings at both businesses.

Selling, general and administrative (SG&A) expenses in the second quarter and
first half of 2002 were higher than the same periods in 2001 by $13.9 million
and $28.9 million, respectively, as a result of the incremental SG&A associated
with our State acquisition. On a year-to-date basis SG&A was 13.6 percent of
sales compared with 11.9 percent of sales for the first six months of 2001. The
increase in SG&A relative to sales resulted from our Water Systems business
which has higher SG&A levels and has grown from 28.5 percent of total company
sales in the first half of 2001 to 45.2 percent of total company sales in the
first half of 2002.

Interest expense for the second quarter and first half of 2002 was lower than
the comparable periods in 2001 by $.2 million and $.8 million, respectively, due
to lower interest rates and reduced debt levels resulting from our stock
offering (see Note 7 of notes to consolidated financial statements).

We have significant pension benefit costs and credits that are developed from
actuarial valuation. The valuations reflect key assumptions regarding, among
other things, discount rates, expected return on plan assets, retirement ages,
and years of service. Consideration is given to current market conditions,
including changes in interest rates, in making these assumptions. During the
second quarter of 2002, we reduced our assumption for expected rate of return on
plan assets from 10.0 percent to 9.75 percent. The amount of pension credit
recognized in the second quarter and first half of 2002 was $4.1 million and
$8.6 million, respectively, and compared with $5.6 million and $10.1 million in
the comparable periods of 2001. The second quarter and first half of 2002
included $.5 million and $1.0 million for pension expense associated with our
State acquisition. The pension credits are reflected as offsets to cost of
products sold and SG&A.

Our effective tax rate for the second quarter and first half of 2002 was 35.0
percent. Our effective tax rates for the second quarter and first half of 2001
were 34.2 percent and 35.5

13


percent, respectively. The second quarter of 2001 benefitted from a year-to-date
favorable adjustment related to the implementation of a more efficient tax
structure for international operations.

Net earnings for the second quarter were $18.0 million, surpassing the same
quarter last year by $7.3 million and establishing a record for the second
quarter. Net earnings of $30.1 million for the first half of 2002 were $10.9
million higher than net earnings of $19.2 million in the first half of 2001. The
increase in earnings was attributable to lower manufacturing costs and the
elimination of goodwill amortization at Electrical Products; synergies from our
State acquisition; and higher sales volume in our base Water Systems business.
On a diluted per share basis, second quarter earnings increased from $.45 in
2001 to $.66 in 2002, while for the first half per share earnings increased from
$.81 in 2001 to $1.17 in 2002. The 2002 second quarter and first half earnings
per share amounts were diluted by approximately $.06 and $.07, respectively, as
a result of increased shares outstanding associated with our stock offering.

Electrical Products
Second quarter sales for our Electrical Products segment were $219.2 million,
modestly lower than sales of $221.6 million in the second quarter of 2001. Year
to date sales for this segment were $415.4 million, a decline of $32.5 million
from 2001 first half sales of $447.9 million. The decline in sales for the
second quarter and first half occurred mostly in our heating, ventilation and
air conditioning business.

Second quarter operating earnings for our Electrical Products business increased
from $17.1 million in 2001 (as adjusted to exclude $1.7 million of goodwill
amortization) to $20.5 million in 2002. Earnings for the first six months were
$35.7 million or $3.0 million higher than 2001 first half earnings of $32.7
million (as adjusted to exclude $3.3 million of goodwill amortization). The
favorable trend in earnings reflects the impact of product repositioning and
other cost reduction programs.

On July 1, 2002, we purchased the hermetic motor assets of the Athens Products
division of the Electrolux Group for approximately $11 million. This purchase is
expected to add at least $30 million in annual sales and generate modest
incremental earnings in 2003.

Water Systems
Second quarter and first half sales for our Water Systems segment increased by
$80.5 million and $164.2 million, respectively over the comparable periods in
2001. Sales in 2002 associated with our State acquisition were $77.9 million for
the second quarter and $162.0 million for the first half, accounting for most of
the year over year increase.

Operating profits for Water Systems were $16.6 million in the second quarter of
2002 reflecting a $6.7 million increase over the same period last year. For the
first half of 2002, earnings were $30.2 million as compared to $19.7 million in
the first six months of 2001. The improved earnings performance in the second
quarter and first half of 2002 compared with the same periods in 2001 was the
result of State Industries and the synergies associated with this acquisition;
and improved profitability in our China operation.

14


Critical Accounting Policies
Our accounting policies are described in Note 1 of notes to consolidated
financial statements as disclosed in the Form 10-K for the fiscal year ended
December 31, 2001. As disclosed in Note 1 of notes to consolidated financial
statements, the preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires the use
of estimates and assumptions about future events that affect the amounts
reported in the financial statements and accompanying notes. Future events and
their effects cannot be determined with absolute certainty. Therefore, the
determination of estimates requires the exercise of judgment. Actual results
inevitably will differ from those estimates, and such differences may be
material to the financial statements.

The most significant accounting estimates inherent in the preparation of our
financial statements include estimates associated with the evaluation of the
recoverability of certain assets including goodwill and receivables resulting
from the payment of claims associated with the dip tube class action lawsuit
(see Note 13 of notes to consolidated financial statements in the Form 10-K for
the fiscal year ended December 31, 2001) as well as those estimates used in the
determination of liabilities related to warranty activity, litigation, product
liability, environmental matters and pensions and other post-retirement
benefits. Various assumptions and other factors underlie the determination of
these significant estimates. The process of determining significant estimates is
fact specific and takes into account factors such as historical experience and
trends, and in some cases, actuarial techniques. We constantly reevaluate these
significant factors and adjustments are made when facts and circumstances
dictate. Historically, actual results have not significantly deviated from those
determined using the estimates described above.

Recent Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 143, "Accounting for Asset Retirement
Obligations," and SFAS No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets." SFAS No. 143 will become effective for us on January 1,
2003. Adoption of this statement is not expected to have a material impact on
our consolidated financial statements. SFAS No. 144, which was adopted on
January 1, 2002, has not had a material impact on our consolidated financial
statements since its adoption.

Outlook
We continue to monitor conditions in our served markets and remain cautious
about sales volumes for the rest of the year. However, as a result of the strong
performance during the first half of the year, and the expectation for continued
success in our cost reduction programs, we improved our full year 2002 earnings
guidance to $1.70 to $1.80 per share, from our previous guidance of $1.60 to
$1.70 per share.

Liquidity & Capital Resources
Our working capital for continuing operations was $232.4 million at June 30,
2002, $12.5 million higher than at December 31, 2001. A sales-related increase
in accounts receivable of $29.2 million was partially offset by a reduction in
our other current assets account as a result of receiving an expected $12.4
million tax refund. Cash provided by our operations during the first half of
2002 was $50.2 million compared with $16.8 million during the same period one
year ago. We had higher earnings and smaller increases to working capital during
the first half of
15


2002 compared with the first half of 2001. We project operating cash flow of $80
to $85 million for the full year.

Our capital expenditures during the first half of 2002 totaled $16.3 million,
which was slightly more than the $15.5 million spent in the first half of 2001.
The increase in capital spending is associated with our recent acquisition of
State Industries. Our company is projecting 2002 capital expenditures of
approximately $45 million, an increase over 2001 primarily due to the
acquisition of State. We expect the level of 2002 capital expenditures to be
marginally lower than 2002 depreciation expense and that cash flow during 2002
will adequately cover planned capital expenditures. We believe that our present
facilities and planned capital expenditures are sufficient to provide adequate
capacity for our operations in 2002.

On May 10, 2002, we completed the sale of 4.8 million shares of our common stock
through a public offering at a price of $28.25 per share. With the $127.5
million net proceeds from our stock offering and operating cash flow, we reduced
our long-term debt by $148.4 million from $390.4 million at December 31, 2001 to
$242.0 million at June 30, 2002. Our leverage as measured by the ratio of total
debt to total capitalization was 30 percent, down significantly from 47 percent
at the end of 2001. Excluding potential acquisitions, we expect 2002 cash flow
to result in a year-end leverage ratio slightly below current levels. We did not
enter into any significant operating leases during the first six months of 2002.
We expect to have adequate liquidity in 2002 as we have a minimal amount of
long-term debt maturing, and we have adequate credit facilities to support our
short-term borrowing needs. At June 30, 2002, our company had available
borrowing capacity of $228.2 million under our credit facilities. We believe
that the combination of available borrowing capacity and operating cash flow
will provide sufficient funds to finance our existing operations for the
foreseeable future.

In connection with our acquisition of State in December 2001, we recorded
additional purchase liabilities of approximately $3.9 million associated with
employee severance costs. As of June 30, 2002, we have charged $1.8 million
against this reserve. In addition, we recorded purchase liabilities of $17.9
million in 1999 associated with our MagneTek motor acquisition, which included
employee severance and relocation, as well as certain facility costs. The
balance of the MagneTek purchase liabilities was $5.6 million at June 30, 2002.
We expect the majority of these activities to be completed within the next year.

On July 9, 2002, our board of directors increased the quarterly dividend on our
common stock and Class A common stock by 8 percent to $.14 per share. The
dividend is payable on August 15, 2002 to stockholders of record on July 31,
2002.

ITEM 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
As is more fully described in our annual report on Form 10-K for the year ended
December 31, 2001, we are exposed to various types of market risks, primarily
currency and certain commodities. We monitor our risks in these areas on a
continuous basis and generally enter into forward and futures contracts to
minimize these exposures for periods of less than one year. Our company does not
engage in speculation in our derivative strategies. It is important to note that
gains and losses from our forward and futures contract activities are offset by
changes in the underlying costs of the transactions being hedged.

16


Forward Looking Statements
This document contains statements that we believe are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Forward-looking statements generally can be identified by the use of
words such as "may," "will,""expect," "intend," "estimate," "anticipate,"
"believe," "continue," or words of similar meaning. These forward-looking
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those anticipated as of the date of this
release. Factors that could cause such a variance include the following:
instability in the company's electric motor and water products markets;
inability to timely and properly integrate the acquisition of State Industries;
the inability to implement cost-reduction programs; adverse changes in general
economic conditions; significant increases in raw material prices; competitive
pressures on the company's businesses; and the potential that assumptions on
which the company based its expectations are inaccurate or will prove to be
incorrect.

Forward-looking statements included in this document are made only as of the
date of this filing, and the company is under no obligation to update these
statements to reflect subsequent events or circumstances. All subsequent written
and oral forward-looking statements attributable to the company, or persons
acting on its behalf, are qualified in their entirety by these cautionary
statements.



17

PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS

There have been no material changes in the legal and environmental matters
previously reported in Part 1, Item 3 and Note 12 of the Notes to Consolidated
Financial Statements in the company's Form 10-K Report for the year ended
December 31, 2001, and Part 2, Item 1 in the quarterly report on Form 10-Q for
the quarter ended March 31, 2002, which are incorporated herein by reference.

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

On March 4, 2002, the company mailed a proxy statement to its stockholders
relating to the annual meeting of stockholders on April 8, 2002. The annual
meeting included the election of directors, the consideration and action upon a
proposal to approve the adoption of the A. O. Smith Combined Executive Incentive
Compensation Plan and the reservation of 1,500,000 shares of Common Stock under
the Plan, and the ratification of Ernst & Young LLP as the independent auditors
of the company for 2002.

Directors are elected by a plurality of votes cast, by proxy or in person, with
the holders voting as separate classes. A plurality of votes means that the
nominees who receive the greatest number of votes cast are elected as directors.
Consequently, any shares which are not voted, whether by abstention, broker
nonvotes or otherwise, will have no effect on the election of directors.

For all other matters considered at the meeting, both classes of stock vote
together as a single class, with the Class A Common Stock entitled to one vote
per share and the Common Stock entitled to 1/10th vote per share. All such other
matters are decided by a majority of the votes cast. On such other matters, an
abstention will have the same effect as a "no" vote but, because shares held by
brokers will not be considered to vote on matters as to which the brokers
withhold authority, a broker nonvote will have no effect on the vote.

1. Election of Directors

Class A Common Stock Directors Votes For Votes Withheld

Glen R. Bomberger 8,515,191 1,118
Ronald D. Brown 8,515,115 1,194
Robert J. O'Toole 8,515,115 1,194
Dr. Agnar Pytte 8,514,196 2,114
Bruce M. Smith 8,515,191 1,118
Mark D. Smith 8,515,191 1,118


Common Stock Directors Votes For Votes Withheld

William F. Buehler 13,708,998 119,174
Kathleen J. Hempel 13,549,354 278,818


18


2. Approve the adoption of the A. O. Smith Combined Executive Incentive
Compensation Plan and reservation of 1,500,000 shares of Common Stock under the
Plan


Broker Broker
COMBINED CLASS VOTE: Votes For Votes Against Abstentions Non Votes


Class A Common Stock and
Common Stock (1/10th vote) 9,334,587 221,970 53,323 289,247



3. Ratification of Ernst & Young LLP as Independent Auditors



Broker
COMBINED CLASS VOTE: Votes For Votes Against Abstentions


Class A Common Stock and
Common Stock (1/10th vote) 9,873,365 24,946 815



ITEM 5 - OTHER INFORMATION

None.

ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

A current report on Form 8-K was filed by the company on April 12, 2002. The
Form 8-K announced a strong first quarter performance of $.50 per share earnings
and an improved earnings projection to a range of $1.60 to $1.70 per share.






19

SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has authorized this report to be signed on its behalf by the
undersigned.


A. O. SMITH CORPORATION




July 23,2002 /s/John J. Kita
-------------------------------
John J. Kita
Vice President,
Treasurer and Controller




July 23, 2002 /s/Kenneth W. Krueger
-------------------------------
Kenneth W. Krueger
Senior Vice President
and Chief Financial Officer






20


INDEX TO EXHIBITS




Exhibit
Number Description

None









21