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

OR

Commission File Number 1-475

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     

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act)   Yes  X   No      ___

Class A Common Stock Outstanding as of March 31, 2005 -- 8,484,517 shares

Common Stock Outstanding as of March 31, 2005 — 21,197,333 shares

Exhibit Index Page 18

Index

A. O. Smith Corporation

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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
Three Months ended March 31, 2005 and 2004
(dollars in millions, except for per share data)
(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2005 and December 31, 2004
(dollars in millions)

See accompanying notes to unaudited condensed consolidated financial statements

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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

A.O. SMITH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 2005 and 2004
(dollars in millions)
(unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

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PART I — FINANCIAL INFORMATION
ITEM 1 — FINANCIAL STATEMENTS

A. O. SMITH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
(unaudited)

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PART I — FINANCIAL INFORMATION

ITEM 2 —MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS
FIRST THREE MONTHS OF 2005 COMPARED TO 2004

Net sales for the first quarter of 2005 were $409.2 million or $7.3 million lower than sales of $416.5 million in the first quarter of 2004. Price increases implemented in both of our businesses to offset higher material and freight costs were more than offset by lower unit volumes resulting in a 1.8 percent decline in net sales.

Our gross profit margin increased from 18.8 percent in the first quarter of 2004 to 21.5 percent in the first quarter of 2005. The increase in margin occurred in our Water Systems business and reflects the effectiveness of the aforementioned price increases and the absence of inefficiencies associated with several conversion projects in the first quarter of 2004.

Selling, general and administrative expense for the first quarter of 2005 was $62.4 million or $3.8 million higher than the $58.6 million in the first quarter of 2004. The increase was due primarily to higher selling and advertising costs in China and higher pension and corporate expense.

Interest expense in the first quarter of 2005 increased slightly to $3.4 million from $3.2 million in the first quarter of 2004 due to higher interest rates.

We have significant pension benefit costs and credits that are developed from actuarial valuations. The valuations reflect key assumptions regarding, among other things, discount rates, expected return on assets, retirement ages, and years of service. Consideration is given to current market conditions, including changes in interest rates, in making these assumptions. Our assumptions for the expected rate of return on plan assets decreased from 9.0 percent in 2004 to 8.75 percent in 2005. The discount rate used to determine net periodic pension costs and credits decreased from 6.25 percent in 2004 to 6.0 percent in 2005. Pension expense in the first quarter of 2005 was $0.9 million and compares to $1.8 million of pension income in the first quarter of 2004 resulting in a $2.7 million year over year increase in pretax expense. Our pension costs and credits are reflected in cost of products sold and selling, general and administrative expense.

Net earnings in the first quarter of 2005 were $14.3 million, an increase of $3.5 million or 32 percent over net earnings of $10.8 million in last year’s first quarter. On a per share basis, first quarter earnings were $.48 in 2005 compared with $.36 in the first quarter of 2004. The increase in earnings was due primarily to improved pricing in both of our segments, better operating performance at Water Systems and a positive $3 million adjustment to the warranty reserve which more than offset the effect of the lower sales volumes.

Electrical Products

First quarter net sales for our Electrical Products segment were $207.1 million, a decline of $16.5 million from sales of $223.6 million in the same period last year. The lower sales resulted from 2004 fourth quarter customer pre-buys preceding the January 2005 price increase, the loss of a significant contract by a major OEM customer during the first quarter of 2004 and reduced customer demand which in some cases was due to the January price increase.

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Operating earnings for our Electrical Products segment in the first quarter declined to $12.5 million from $17.1 million in the first quarter of 2004. The impact of improved pricing was more than offset by increased steel and material costs and reduced unit volume.

Early in the second quarter of 2005, Electrical Products announced their intention to close the motor operation in Bray, Ireland which supplies large commercial hermetic motors to European air conditioning and refrigeration customers. This decision was based on the fact that it is no longer economically feasible to supply this product from Ireland and accordingly, this market will be served from other hermetic motor operations in China and North America. 2005 sales volume will be adversely affected by approximately $10.0 million, which is expected to be recouped in 2006. The Bray closure is expected to be completed by the end of the second quarter of this year.

In the second quarter, we will recognize an $8.5 million non-deductible charge to cover employee severance, lease costs and the relocation of machinery. The Bray closure is expected to generate annual savings of more than $3.0 million.

An additional $3.0 million pretax charge will be recognized throughout 2005 associated with the acceleration of planned repositioning programs at other domestic motor plants. Restructuring expense of $0.9 million was recorded in the first quarter with $1.4 million anticipated in the second quarter and the remainder occurring in the last half of 2005. Annual pretax savings associated with this element of the motors restructuring is anticipated to be approximately $3.5 million.

Water Systems

First quarter net sales for our Water Systems segment were $202.5 million or five percent higher than sales of $192.9 million in the same period last year. The sales increase was due to improved pricing in the U.S. and higher sales at our Chinese operation. North American unit sales for both residential and commercial water heaters were lower than in the first quarter of 2004. A portion of the reduction in unit volume was due to a fourth quarter pre-buy related to the January 2005 price increase.

Operating earnings for our Water Systems segment in the first quarter of 2005 increased significantly to $20.8 million from $8.8 million in the first quarter of 2004. The $12.0 million increase resulted from improved operating efficiency, a more normalized relationship between product price and material cost and a $3.0 million favorable adjustment to our warranty reserve. The warranty reserve adjustment was due to a change in customer return policies partially offset by steel cost increases.

Outlook

We issued a forecast for 2005 of earnings of between $1.45 and $1.65 per share which includes the combined after tax charge of $10.5 million for restructuring at Electrical Products. Excluding the restructuring expense, our forecast is $1.80 to $2.00 per share. Earnings were $1.18 per share in 2004.

The increase in earnings will be driven by improved operating performance at Water Systems, and pricing levels that are returning gross margins to their historical levels. Offsetting these improvements is potential volume softness in our motor operation.

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Liquidity & Capital Resources

Our working capital at March 31, 2005 was $339.3 million, essentially the same level as at December 31, 2004. However, increases in accounts receivable and inventories, primarily at our Electrical Products unit, were offset by increases in accounts payable and decreases in cash levels. Cash provided by operating activities during the first quarter of 2005 was a $23.9 million improvement over the $10.9 million of cash used in operating activities during the first quarter of 2004, as a result of higher earnings and a smaller investment in working capital this year compared with the same period in 2004. We expect cash provided by operating activities for the total year 2005 to be $120 to $130 million before capital expenditures.

Our capital expenditures during the first quarter of 2005 totaled $7.4 million compared with $10.5 million one year ago. We are projecting 2005 capital spending to be between $50 and $55 million, similar to depreciation and amortization. The majority of the capital spending is expected to occur in the second half of the year and will include spending for the recently announced expansion of our Nanjing water heater operation. This expansion project, the first phase of which will be completed by the end of the first half of 2006, will more than double the capacity of our Nanjing manufacturing facility.

We believe that our present facilities and planned capital expenditures are sufficient to provide adequate capacity for our operations in 2005.

Our total debt decreased $15.3 million from $281.1 million at December 31, 2004 to $265.8 million at March 31, 2005. Our leverage as measured by the ratio of total debt to total capitalization was 31%, down slightly from 32% at the end of 2004. We did not enter into any significant operating leases during the first quarter of 2005. At March 31, 2005, our company had available borrowing capacity of $167.1 million under our credit facility. We believe that the combination of available borrowing capacity and operating cash flow will provide sufficient funds to finance our existing operations for the foreseeable future.

On April 12, 2005, our board of directors declared a regular quarterly dividend of $.16 per share on our Common stock and Class A common stock, which is payable on May 16, 2005 to shareholders of record on April 29, 2005.

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, 2004. Also as disclosed in Note 1, the preparation of financial statements in conformity with accounting principles generally accepted in the United States requires the use of estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment. Actual results inevitably will differ from those estimates, and such differences may be material to the financial statements.

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The most significant accounting estimates inherent in the preparation of our financial statements include estimates associated with the evaluation of the impairment of goodwill, as well as the recoverability of receivables resulting from the payment of claims associated with the dip tube class action lawsuit. There are also significant 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.

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ITEM 4 – CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures

The chief executive officer and chief financial officer have evaluated the effectiveness of the company’s disclosure controls and procedures as of March 31, 2005 and have concluded that these disclosure controls and procedures were adequate and effective to ensure that material information relating to the company and its consolidated subsidiaries would be made known to them by others within those entities.

Changes in internal controls

Other than changing the frequency of the finished goods physical inventory count from a quarterly to an annual process at our Water Systems segment, there were no significant changes in our internal controls over financial reporting or in other factors that could significantly affect our disclosure controls and procedures nor were there any significant deficiencies or material weaknesses in our internal controls. As a result, no corrective actions were required or undertaken. The frequency of the finished goods physical inventory count at Water Systems was changed to an annual process as there were no significant adjustments resulting from the three previous quarterly physical inventory counts. Additionally, various monitoring metrics and related goals have been implemented over the course of the past twelve months as an enhancement to the internal control environment surrounding finished goods inventory at Water Systems. Water Systems has been consistently achieving the established goals.

Forward Looking Statements

This filing 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 filing. Factors that could cause such a variance include the following: significant increases in raw material prices; competitive pressures on the company’s businesses; instability in the company’s electric motor and water products markets; adverse changes in general economic conditions; 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 filing are made only as of the date of this filing, and our company is under no obligation to update these statements to reflect subsequent events or circumstances. All subsequent written and oral forward-looking statements attributed to A. O. Smith, or persons acting on its behalf, are qualified entirely by these cautionary statements.

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PART II — OTHER INFORMATION
ITEM 1 — LEGAL PROCEEDINGS

In the legal matters discussed 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, 2004, which are incorporated herein by reference, the Company reported that the State of Colorado had appealed the trial court’s decision to dismiss the State’s claims against the Company to recover its costs associated with remediation of a mine site that was operated by a corporation in which the Company owned stock from 1936 to 1942 and that the Court of Appeals reversed that dismissal order and remanded the matter back to the trial court. At the end of the first quarter, the trial court again granted summary judgment in favor of the Company and dismissed all of the claims against the Company.

Except with respect to this matter, there have been no material changes in the legal or environmental matters that were previously reported.

ITEM 4 — SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

ITEM 5 — OTHER INFORMATION

None

ITEM 6 — EXHIBITS AND REPORTS ON FORM 8-K

On January 21, 2005, the Company filed a Current Report on Form 8-K, reporting under Items 2.02 and 9.01, announcing the Company’s 2004 earnings.

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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.

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INDEX TO EXHIBITS

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