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<SEC-DOCUMENT>0000950134-02-004004.txt : 20020422
<SEC-HEADER>0000950134-02-004004.hdr.sgml : 20020422
ACCESSION NUMBER:		0000950134-02-004004
CONFORMED SUBMISSION TYPE:	S-3/A
PUBLIC DOCUMENT COUNT:		4
FILED AS OF DATE:		20020422

FILER:

	COMPANY DATA:	
		COMPANY CONFORMED NAME:			SMITH A O CORP
		CENTRAL INDEX KEY:			0000091142
		STANDARD INDUSTRIAL CLASSIFICATION:	MOTORS & GENERATORS [3621]
		IRS NUMBER:				390619790
		STATE OF INCORPORATION:			DE
		FISCAL YEAR END:			1231

	FILING VALUES:
		FORM TYPE:		S-3/A
		SEC ACT:		1933 Act
		SEC FILE NUMBER:	333-86074
		FILM NUMBER:		02616421

	BUSINESS ADDRESS:	
		STREET 1:		P O BOX 245009
		CITY:			MILWAUKEE
		STATE:			WI
		ZIP:			53224-9509
		BUSINESS PHONE:		4143594000

	MAIL ADDRESS:	
		STREET 1:		P O BOX 245009
		CITY:			MILWAUKEE
		STATE:			WI
		ZIP:			53224-9509
</SEC-HEADER>
<DOCUMENT>
<TYPE>S-3/A
<SEQUENCE>1
<FILENAME>c68909as-3a.txt
<DESCRIPTION>AMENDMENT #1 TO REGISTRATION STATEMENT ON FORM S-3
<TEXT>
<PAGE>


     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 19, 2002



                                                      REGISTRATION NO. 333-86074

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ---------------------

                                AMENDMENT NO. 1


                                       TO


                                    FORM S-3
                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933
                             ---------------------
                            A. O. SMITH CORPORATION
             (Exact name of registrant as specified in its charter)

<Table>
<S>                                                      <C>
                        DELAWARE                                                39-061970
            (State or other jurisdiction of                                  (I.R.S. Employer
             incorporation or organization)                                Identification No.)
</Table>

                             11270 WEST PARK PLACE
                            MILWAUKEE, WI 53224-9508
                                 (414) 359-4000
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
                             ---------------------
                             W. DAVID ROMOSER, ESQ.
                 VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
                            A. O. SMITH CORPORATION
                             11270 WEST PARK PLACE
                            MILWAUKEE, WI 53224-9508
                           TELEPHONE: (414) 359-4000
                           FACSIMILE: (414) 359-4143
 (Name, address, including zip code, and telephone number, including area code,
                             of agent for service)
                             ---------------------
                                WITH A COPY TO:

<Table>
<S>                                                      <C>
                 PATRICK G. QUICK, ESQ.                                   TOD B. LINSTROTH, ESQ.
                    FOLEY & LARDNER                                      GEOFFREY R. MORGAN, ESQ.
               777 EAST WISCONSIN AVENUE                                  GREGORY J. LYNCH, ESQ.
               MILWAUKEE, WISCONSIN 53202                              MICHAEL BEST & FRIEDRICH LLP
               TELEPHONE: (414) 271-2400                                ONE SOUTH PINCKNEY STREET
               FACSIMILE: (414) 297-4900                                  MADISON, WI 53701-1806
                                                                        TELEPHONE: (608) 257-3501
                                                                        FACSIMILE: (608) 283-2275
</Table>

                             ---------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:  As soon as
practicable after this Registration Statement becomes effective.

If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.  [ ]

If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box.  [ ]

If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.  [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.  [ ]


                             ---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THIS OFFER OR SALE IS NOT PERMITTED.

- --------------------------------------------------------------------------------


                    SUBJECT TO COMPLETION -- APRIL 19, 2002


                                 [AOSMITH LOGO]

                        3,500,000 SHARES OF COMMON STOCK
                             ---------------------
      We are offering 3,500,000 shares of our common stock. We have two classes
of common equity: our common stock being offered by this prospectus and our
class A common stock. The holders of our common stock are entitled to elect 25
percent of the members of our board of directors and to one-tenth of one vote on
all other matters.

      Our common stock is listed on the New York Stock Exchange under the symbol
"AOS." The last reported sale price of our common stock on April 18, 2002 was
$29.15 per share.

      INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE
9.

<Table>
<Caption>
                                                        PER SHARE      TOTAL
                                                        ---------   -----------
<S>                                                     <C>         <C>
Public offering price.................................   $          $
Underwriting discounts and commissions................   $          $
Proceeds to A. O. Smith Corporation...................   $          $
</Table>

      We have granted the underwriters a 30-day option to purchase up to an
additional 525,000 shares to cover over-allotments.

      NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

                             ---------------------

ROBERT W. BAIRD & CO.
                         BANC OF AMERICA SECURITIES LLC
                                                        BEAR, STEARNS & CO. INC.
            , 2002
<PAGE>


OUTSIDE GATEFOLD:

                 "COMFORT, CONVENIENCE, SECURITY, AND FUN . . ."

"Every day, people come in contact with the quality products of A. O. Smith
Corporation.

Our electrical motors and water heaters help make your life a little more
comfortable, a little more convenient . . . and even more fun . . . where you
live, work, and play."

[LEGEND Logo], [STATE WATER HEATERS logo], [UNIVERSAL ELECTRIC logo], [A. O.
SMITH PROMAX logo], [A. O. SMITH WATER PRODUCTS COMPANY logo], [A. O. SMITH
CENTURY logo], [CYCLONE XHE logo], [A. O. SMITH MASTER-FIT PLUS logo], [SEALED
SHOT logo], [A. O. SMITH ELECTRICAL PRODUCTS COMPANY logo], [APCOM logo],
[DURA-MAX logo], and [A. O. SMITH logo].

INSIDE GATEFOLD - LEFT SIDE:

Top of page:
[A. O. Smith Logo]         "COMFORT, CONVENIENCE, SECURITY, AND FUN . . .

                            A. O. Smith At a Glance
         Quality products manufactured by A. O. Smith are found at home,
        at work, or just about anywhere that people live, work, or play."

[Page includes twelve separate descriptions and pictures of selected A. O. Smith
products. The descriptions and pictures are placed as follows around an
illustration of a single-family home that depicts the locations of each of the
twelve products in or around the home:

Product 1: "Precision hermetic motors for unitary air conditioning compressors";
[Picture of example product connected to a window air conditioner]

Product 2: "Cost-effective C-frame motors are used in residential ventilation
applications such as bathroom fans and range hood fans"; [Picture of example
product connected to a kitchen range hood]

Product 3: "Compact C-frame motors for appliances such as frost-free
refrigerators and humidifiers"; [Picture of example product connected to a
refrigerator]

Product 4: "Dependable fractional horsepower fan motors for attic fans and
whole-house fan applications"; [Picture of example product connected to an attic
fan]

Product 5: "Reversible garage door opener motors designed for frequent cycles in
all types of weather"; [Picture of example product connected to a garage door
opener]

Product 6: "Fractional horsepower electric motors are used on power sprayers and
small air compressors;" [Picture of example product connected to a portable air
compressor]


                                       E-1
<PAGE>


Product 7: "Manufacturers of swimming pool pumps use dependable A. O. Smith and
Century(R)two-compartment switched and switchless pump motors"; [Picture of
example product connected to a swimming pool pump]

Product 8: "A. O. Smith makes single-speed and two-speed motors for whirlpools,
spas, and jetted tubs"; [Picture of example product connected to a whirlpool
tub]

Product 9: "DC motors are used for treadmills and other exercise equipment";
[Picture of example product connected to a treadmill]

Product 10: "A. O. Smith has the right product and the right efficiency
residential water heater for any size home. Water heaters may be vented
conventionally or, for today's energy-efficient houses, direct vented or power
vented"; [Picture of example product connected to a residential water heater]

Product 11: "Durable pump motors for continuous-duty applications such as sump
pumps"; [Picture of example product connected to a sump pump]

Product 12: "Dependable fractional horsepower fan and blower motors for
furnaces, air conditioners, and heat pumps"; [Picture of example product
connected to a furnace]]

INSIDE GATEFOLD - RIGHT SIDE:

[Page includes thirteen separate descriptions and pictures of selected A. O.
Smith products. The descriptions and pictures are placed as follows around an
illustration of a hotel that depicts the locations of each of the thirteen
products in or around the hotel:

Product 1: "A. O. Smith manufactures hermetic motors in sizes up to 400
horsepower for commercial air conditioning equipment and rooftop chillers";
[Picture of example product connected to an air conditioner]

Product 2: "Totally enclosed, drip-proof integral horsepower motors for
continuous-duty fan and blower applications, such as commercial air conditioning
equipment"; [Picture of example product connected to an air conditioner]

Product 3: "94 percent efficiency, zero-clearance to combustibles design, and
direct venting make the Cyclone XHE(R) water heater well-suited to many
commercial applications"; [Picture of example product connected to a commercial
water heater]

Product 4: "A. O. Smith supplies integral horsepower and fractional horsepower
electric motors for commercial washing machines and dryers"; [Picture of example
product connected to a commercial washing machine and a commercial dryer]

Product 5: "Submersible integral motors power hydraulic and inverter
traction-driven elevators. Reliable integral DC motors open elevator doors";
[Picture of example product connected to an elevator door]



                                       E-2
<PAGE>


Product 6: "Durable, reversible fractional horsepower motors for commercial gate
openers"; [Picture of example product connected to a commercial gate opener]

Product 7: "For applications that require large amounts of hot water or hot
water at multiple temperatures, including sanitizing water, A. O. Smith offers
custom-designed commercial water heaters and hot water storage tanks"; [Picture
of example product connected to a commercial hot water heater]

Product 8: "High-efficiency copper-tube boilers are used for large-volume hot
water applications for hydronic heating"; [Picture of example product connected
to a hydronic heater]

Product 9: "For continuous-duty applications, such as sump or sewage pumps,
customers rely on durable A. O. Smith fractional horsepower pump motors";
[Picture of example product connected to a sump pump]

Product 10: "Single-speed and two-speed two-compartment pool motors"; [Picture
of example product connected to a pool motor]

Product 11: "Fractional horsepower electric motors are used for pool sweepers
and related leisure-time equipment"; [Picture of example product connected to a
pool sweeper]

Product 12: "Fractional horsepower ventilation motors for commercial convection
ovens and commercial rangehood fans"; [Picture of example product connected to a
commercial convection oven]

Product 13: "Specialty motors for carbonated dispenser pumps and vending
machines"; [Picture of example product connected to a vending machine]]



                                      E-3
<PAGE>

                               TABLE OF CONTENTS


<Table>
<Caption>
                                    PAGE
                                    ----
<S>                                 <C>
Forward-Looking Statements........    i
Prospectus Summary................    1
Risk Factors......................    9
Use of Proceeds...................   13
Price Ranges of Common Stock and
  Class A Common Stock and
  Dividend Policy.................   14
Capitalization....................   15
Selected Historical Consolidated
  Financial Data..................   16
Business..........................   18
Management's Discussion and
  Analysis of Results of
  Operations and Financial
  Condition.......................   27
</Table>



<Table>
<Caption>
                                    PAGE
                                    ----
<S>                                 <C>
Management and Board of
  Directors.......................   36
Description of Capital Stock......   38
Underwriting......................   40
Where You Can Find More
  Information.....................   42
Incorporation of Information by
  Reference.......................   42
Legal Matters.....................   43
Experts...........................   43
Index to Historical Consolidated
  Financial Statements............  F-1
</Table>


    YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING
OFFERS TO BUY, SHARES OF OUR COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND
SALES ARE PERMITTED. YOU SHOULD ASSUME THAT THE INFORMATION IN THIS PROSPECTUS
AND THE DOCUMENTS INCORPORATED BY REFERENCE IS ACCURATE ONLY AS OF THE
RESPECTIVE DATES OF THOSE DOCUMENTS IN WHICH THE INFORMATION IS CONTAINED. OUR
BUSINESS, FINANCIAL CONDITION, RESULTS OF OPERATIONS, AND PROSPECTS MAY HAVE
CHANGED SINCE THOSE DATES.

    The underwriters are offering the shares subject to various conditions and
may reject all or part of any order. Delivery of the shares of our common stock
will be made on or about             , 2002.

    We have registered the following trademarks, which are used in this
prospectus: A. O. SMITH, BURKAY, CENTURY, CYCLONE XHE, DURA-MAX, LEGEND,
MASTER-FIT, PROMAX, and RELIANCE. We also own the following trademarks and trade
names, which are used in this prospectus: APCOM, SEALED SHOT, STATE, UNIVERSAL,
and UPPCO.


    Unless the context requires otherwise, references in this prospectus to
"we," "us," "our," or "ours" refer collectively to A. O. Smith Corporation and
its subsidiaries. Unless otherwise stated, the information contained in this
prospectus assumes the underwriters do not exercise the over-allotment option.

<PAGE>

                           FORWARD-LOOKING STATEMENTS

    This prospectus, including the information we incorporate by reference into
this prospectus, contains statements that we believe are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. All statements other than statements of historical facts, including
statements regarding our future financial position, business strategy, budgets,
projected sales, costs and earnings, and plans and objectives for future
operations, are forward-looking statements. Forward-looking statements generally
can be identified by the use of forward-looking 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 prospectus. Factors that could cause such a
variance are disclosed in the section "Risk Factors" and elsewhere in this
prospectus and include the following:

- -   instability in our electrical products and water systems markets

- -   our inability to timely and properly integrate our acquisition of State
    Industries, Inc.

- -   our inability to implement cost-reduction programs

- -   adverse changes in general economic conditions

- -   competitive pressures on our businesses

    The forward-looking statements included in this prospectus are made only as
of the date of this prospectus, and we undertake no obligation to update
publicly these statements to reflect subsequent events or circumstances. We urge
you to review carefully the section "Risk Factors" for a more complete
discussion of the risks of an investment in our common stock.

                                        i
<PAGE>

                               PROSPECTUS SUMMARY

    This summary highlights information contained elsewhere or incorporated by
reference in this prospectus. Because this is a summary, it is not complete and
does not contain all of the information that may be important to you. For a more
complete understanding of us and this offering of our common stock, we encourage
you to read this prospectus in its entirety and the other documents to which we
have referred you.

                            A. O. SMITH CORPORATION

OVERVIEW

    We are a leading manufacturer of electric motors and water heating
equipment, serving a diverse mix of residential, commercial, and industrial end
markets principally in the United States with a growing international presence.
Our company is organized in two segments: electrical products and water systems.
Our electrical products business manufactures and markets a comprehensive line
of hermetic motors, fractional horsepower alternating current (AC) and direct
current (DC) motors, and integral horsepower motors. Our water systems business
manufactures and markets a comprehensive line of residential gas and electric
water heaters, standard and specialty commercial water heating equipment,
high-efficiency copper-tube boilers, and water systems tanks. In 2001, on a pro
forma basis for our December 2001 acquisition of State Industries, Inc., we had
net sales of approximately $1.5 billion, with 55 percent attributable to our
electrical products business and 45 percent attributable to our water systems
business.

    Our electric motors are used in a wide variety of targeted applications,
including heating, ventilating and air conditioning systems, commonly known as
HVAC systems; pools, spas and water well pumps; garage door openers; overhead
cranes; elevators; and industrial pumps. We primarily sell our electric motors
directly to original equipment manufacturers, or OEMs. We also market our motor
products through wholesale distributors who sell to smaller OEMs and aftermarket
customers. Our residential and commercial water heaters are used in a wide
variety of targeted applications, including homes, apartments, schools,
hospitals, hotels, laundries, restaurants, stadiums and other large users of hot
water. Our water systems wholesale distribution channel includes more than 2,600
wholesale plumbing distributors that serve residential, commercial, and
industrial markets. We also sell our residential water heaters through the
retail channel. In this channel, our customers include four of the six largest
national hardware and home center chains, including a long-standing private
label relationship with Sears, Roebuck and Co.

    During the past five years, we have significantly repositioned our company.
We have changed from a diversified manufacturer with five businesses, the
largest of which was our legacy automotive structural components business that
represented more than 50 percent of our total sales, to a company focused on our
electrical products and water systems businesses, which we believe offer the
opportunity for higher growth and more profitability. We divested our automotive
structural components business in 1997, realizing pre-tax proceeds of $770
million. By January 2001, we completed our repositioning with the divestiture of
our storage and fluid handling businesses. During this period of time, we also
made the following key acquisitions in our core electrical products and water
systems businesses, which significantly broadened our product offerings and
customer base:

- -   In March 1997, we acquired UPPCO, Inc., a manufacturer of C-frame
    sub-fractional horsepower AC motors, which had annual sales of approximately
    $70 million
                                        1
<PAGE>

- -   In July 1998, we acquired General Electric Company's domestic hermetic motor
    business, which had annual sales of approximately $120 million

- -   In August 1999, we acquired MagneTek, Inc.'s electric motor business, which
    had annual sales of approximately $380 million

- -   In December 2001, we nearly doubled the size of our water systems business
    by acquiring State Industries, a manufacturer of residential and commercial
    water heating systems, which had annual sales of approximately $320 million

OUR COMPETITIVE STRENGTHS

    With the completion of our repositioning, we believe we possess the scale
and competitive strengths necessary to continue to succeed in our targeted
markets. Our principal competitive strengths are set forth below.

    Market Leadership.  We are one of the three largest manufacturers of
electric motors in North America, having manufactured approximately 36 million
electric motors in 2001. We believe we are among the leaders in North America in
manufacturing and selling hermetic and fractional horsepower motors, and we have
the leading position in the pool and spa motors niche. We are one of the two
largest manufacturers of water heaters in North America, having produced more
than 3 million units on a pro forma basis in 2001. We have a leading position in
the higher-margin commercial water heater segment. With our acquisition of State
Industries, we are now positioned to expand our presence in the residential
market through the home center retail channel.

    Low-Cost Manufacturing Capabilities.  We have been, and will continue to be,
proactive in shifting our manufacturing operations to lower-cost locations. We
were one of the first United States manufacturers of electric motors and water
heaters to capitalize on the low-cost manufacturing potential of Mexico, and we
currently produce approximately 75 percent of our electric motors and 20 percent
of our residential water heaters in our 17 Mexican manufacturing facilities. In
addition to being low cost, we believe these facilities are widely regarded
within our industries as high-quality manufacturing operations. Our recent
acquisition of a motor manufacturer in China provides us with another platform
to manufacture products at lower costs.

    Comprehensive Product Offerings with Leading Brands.  We believe we offer
the most comprehensive product lines in our targeted markets. These offerings
give us a competitive advantage by enabling us to offer a broad range of
products that fulfill most electric motor and water heating needs of our
customers. Many of our brand names, including A. O. Smith, Reliance, and State,
are widely recognized within our industries and, we believe, are known for their
high quality, reliability, and performance. Our comprehensive product offerings
and strong brand identities have created customer loyalty and help us to
maintain existing business, as well as capture additional sales, particularly as
many of our customers seek to consolidate their supplier bases.

    Operational and Engineering Flexibility.  Our ability to offer fast,
innovative, and practical solutions to our customers is one of the reasons we
have achieved a leading position in many of our targeted markets. Our
engineering centers are staffed with highly qualified, experienced engineers
focused on quickly responding to our customers' needs by enhancing existing
products and developing new products on a timely basis. In addition, our
engineers work with our sales and marketing organization to develop new products
that meet our
                                        2
<PAGE>

customers' evolving application needs and cost requirements. During the last
three years, we have invested on average over $25 million annually in research
and development.

    Strong Relationships with Our Customers.  We have established long-standing,
strong relationships with leading OEM customers, distributors, and retailers.
For many of our customers, we supply all or substantially all of their
requirements for the products we offer, and several of our customer
relationships date back for more than 40 years. In our water systems business,
we believe we offer the most extensive aftermarket technical support program,
and most of our customers use our personnel to provide support directly to their
end users.

    Recurring Replacement Market Sales.  We sell electric motors and water
heaters to customers who often provide replacement products to end users. As a
result, a substantial portion of our sales are less susceptible to the
cyclicality inherent to many manufacturers because it is often essential to the
end user's business or home to make the replacement purchase. In 2001, we
believe approximately 50 percent of our electrical products segment's net sales
and 80 percent of our water systems segment's pro forma net sales resulted from
the replacement needs of end users.

    Experienced Management Team.  Our senior management team has significant
experience in manufacturing, marketing, and sales. In addition, this team is
experienced in the acquisition and integration of businesses, aggressive cost
management, global operations, and efficient manufacturing techniques, all of
which are critical to our long-term business strategy. We have a track record of
acquiring complementary businesses and product lines, integrating them into our
organization, and aggressively managing their cost structures.

OUR BUSINESS STRATEGY

    We intend to use our competitive strengths to increase sales and
profitability through the initiatives outlined below.

    Focus On Organic Growth.  We believe our "customer first" philosophy,
customer relationships, and product development capabilities will enable us to
grow our net sales. Our specific organic growth initiatives include the
following:

- -   Increase Sales to Existing Customers.  We are focused on securing additional
    sales to existing customers. Our relationships with leading multi-national
    manufacturers, distributors, and retailers, when combined with our expanded
    product offerings, provide us with opportunities for growth. For example, in
    2001, our net sales of electrical products to York International Corporation
    were $172 million, an increase of approximately 83 percent from $94 million
    in 1997. Similarly, in 2001, our pro forma net sales of water systems
    products to our top five wholesale distributors were $154 million, an
    increase of approximately 63 percent from $94 million in 1997 to these same
    customers. We expect that our expanded product offerings will allow us to
    continue to increase sales to existing customers.

- -   Introduce New Products.  We will continue to introduce differentiated
    products in our targeted markets. We work closely with our customers to
    develop new products or enhancements to existing products that improve
    performance and meet their needs. We pride ourselves on our ability to
    understand our customers' needs, and design, test, and build a product that
    matches those needs. For example, our electrical products business recently
    introduced two new lines of hermetic motors for use in commercial air
                                        3
<PAGE>

    conditioners. The first is a redesigned motor that provides 20 percent more
    horsepower with only an eight percent increase in motor size, while the
    second is a new line of motors for use in commercial scroll compressors. In
    addition, during the last five years, our water systems business added
    several new products, including our Cyclone XHE commercial water heater,
    Genesis Burkay copper-tube boiler, and Master-Fit line of commercial water
    heaters.

- -   Expand Internationally.  To complement our North American capabilities, we
    have established a manufacturing presence in Europe and Asia, and we are
    prepared to expand further to serve our OEM customers as they increase their
    focus on international markets. We also intend to continue to identify and
    directly serve niche markets outside of North America that we believe offer
    significant growth opportunities. For example, we began manufacturing and
    marketing water heaters in China in 1998 from our plant in Nanjing and have
    grown this business to approximately $26 million in sales in 2001. In
    addition, we have entered into a marketing agreement with Aquecedores
    Cumulus S/A, the second-largest water heater manufacturer in Brazil, which
    allows us to sell our high-efficiency commercial water heater products in
    that country.

    Continue to Lower Manufacturing Costs.  We are committed to being a low-cost
supplier. We continuously seek ways to lower costs, enhance product quality,
increase manufacturing efficiencies, and increase product throughput. The major
cost-saving initiatives that we have in process are:

- -   Complete the MagneTek Motor Operations Integration.  We have recently
    achieved our target of approximately $35 million of annualized cost savings
    in the areas of raw materials purchasing, facility and product line
    rationalization, and selling, general and administrative cost reductions
    since our acquisition of the MagneTek motor operations in 1999. We are in
    the process of transferring additional portions of our component and motor
    assembly operations to our lower-cost Mexican operations and plan to
    complete these transitions by the first quarter of 2003, which we expect
    will result in additional annual cost savings of approximately $2 million.

- -   Further Reduce Costs in Our Electrical Products Operations.  In addition to
    the cost savings resulting from our MagneTek integration, during the fourth
    quarter of 2001, we initiated several cost-reduction programs in our
    electrical products business, including transferring six additional product
    manufacturing lines to our lower-cost Mexican operations, reducing the
    electrical products salaried workforce by 10 percent, and realigning our
    motor warehouse operations to improve distribution efficiencies. We believe
    these actions will enable us to achieve cost savings of more than $16
    million in 2002 and $20 to $25 million annually in subsequent years.

- -   Selectively Manufacture in China.  Although our Mexican operations, with
    their scale and production flexibility, will continue to be the best
    solution for supplying many of our customers, we believe that manufacturing
    in China offers an opportunity to complement our Mexican manufacturing for
    selected products, such as smaller size, higher order volume electric
    motors. With our December 2001 acquisition of Shenzhen Speeda Industrial
    Co., Ltd., a manufacturer of sub-fractional horsepower electric motors, we
    now have a platform to manufacture electric motors in China.

- -   Integrate State Industries and Realize Operating Synergies.  Our acquisition
    of State Industries provides us with access to new markets and an
    opportunity to improve the operations and efficiency of our overall water
    systems business. We are moving our water
                                        4
<PAGE>

    systems business headquarters to State Industries' headquarters in Ashland
    City, Tennessee, to facilitate the integration of State Industries with our
    existing water systems operations. Our integration plan will enable us to
    take advantage of the best practices of the two organizations to improve
    efficiencies, rationalize our product lines, and reduce costs in the
    business. We have identified immediate cost-reduction opportunities,
    including management reductions, raw materials purchasing savings, and
    freight and logistics savings, and we believe that these actions will enable
    us to realize cost savings of approximately $5 million in 2002, $10 to $12
    million in 2003, and over $15 million annually in subsequent years.

    Pursue Strategic Acquisitions.  We have been a consolidator in our targeted
markets, and we believe we have assembled the scale necessary to continue to
succeed in these markets. We will pursue complementary strategic acquisitions
that allow us to leverage the marketing, engineering, and manufacturing
strengths of our businesses. Our current acquisition criteria generally require
that a potential candidate participates in a market segment growing faster than
10 percent per year and offers attractive profit margins.

CORPORATE INFORMATION

    Our principal executive offices are located at 11270 West Park Place,
Milwaukee, Wisconsin 53224-9508, and our telephone number is (414) 359-4000. Our
website address is www.aosmith.com. However, the information contained on our
website is not part of this prospectus.
                                        5
<PAGE>

                                  THE OFFERING

Common stock offered by A. O.
Smith Corporation.............   3,500,000 shares

Common stock to be outstanding
after the offering............   18,718,012 shares

Class A common stock
outstanding before and after
the offering..................   8,638,989 shares

Common stock and class A
common stock outstanding after
the offering..................   27,357,001 shares

Use of proceeds...............   We expect to use the net proceeds of the
                                 offering to reduce debt under our multi-year
                                 credit facility

New York Stock Exchange symbol
of common stock...............   AOS

Risk factors..................   See the section entitled "Risk Factors" on page
                                 9 for a discussion of factors you should
                                 consider carefully before deciding to buy our
                                 common stock

    The number of shares of common stock and class A common stock outstanding
after this offering is based on the actual number of shares outstanding as of
March 31, 2002, and excludes:

- -   2,654,300 shares of common stock issuable upon exercise of options
    outstanding as of March 31, 2002, at a weighted average exercise price of
    $17.08 per share; and

- -   1,664,950 shares of common stock available for future grants under our stock
    option plans, including 1,500,000 shares available for future grants under
    the stock option plan that our stockholders adopted on April 8, 2002.

    The number of shares of common stock offered and to be outstanding assumes
that the underwriters have not exercised their over-allotment option. If the
underwriters exercise their over-allotment option in full, then we will issue
and sell an additional 525,000 shares of our common stock and will have
19,243,012 shares of our common stock outstanding after the offering.

    Each share of our class A common stock is convertible into one share of our
common stock at any time at the holder's option. See "Description of Capital
Stock."
                                        6
<PAGE>

                 SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA


    The following table presents summary historical consolidated financial data
as of and for each of the five years ended December 31, 2001, which have been
derived from our audited consolidated financial statements, and as of and for
each of the three months ended March 31, 2001 and 2002, which have been derived
from our unaudited interim consolidated financial statements. You should read
this information together with "Selected Historical Consolidated Financial
Data," "Management's Discussion and Analysis of Results of Operations and
Financial Condition," and our consolidated financial statements and related
notes included elsewhere in this prospectus (except for the consolidated
financial statements as of and for the years ended December 31, 1997 and 1998,
which are not included in this prospectus).


<Table>
<Caption>
                                                                                                         FOR THE THREE
                                                                                                            MONTHS
                                                       FOR THE YEARS ENDED DECEMBER 31,(1)              ENDED MARCH 31,
                                               ----------------------------------------------------   -------------------
                                               1997(2)   1998(3)   1999(4)      2000     2001(5)(6)   2001(6)      2002
                                               -------   -------   --------   --------   ----------   --------   --------
                                                                (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                            <C>       <C>       <C>        <C>        <C>          <C>        <C>
STATEMENT OF EARNINGS DATA(7):
Continuing Operations:
  Net sales..................................  $703.1    $800.8    $1,070.3   $1,247.9    $1,151.2    $  318.2   $  371.9
  Cost of products sold......................   543.4     623.2       839.5      999.8       948.8       259.4      295.0
                                               ------    ------    --------   --------    --------    --------   --------
  Gross profit...............................   159.7     177.6       230.8      248.1       202.4        58.8       76.9
  Selling, general and administrative
    expenses.................................   105.8     105.2       136.3      153.7       145.7        38.1       53.2
  Interest expense...........................     6.6       5.9        12.8       22.1        16.4         4.8        4.2
  Amortization of intangibles................     0.9       2.5         5.2        6.9         7.0         1.7        0.1
  Restructuring and other charges............      --        --          --         --         9.4          --         --
  Other (income) expense -- net..............    (6.7)     (2.9)       (0.6)       0.3         1.4         0.7        0.8
                                               ------    ------    --------   --------    --------    --------   --------
    Earnings before income taxes.............    53.1      66.9        77.1       65.1        22.5        13.5       18.6
  Provision for income taxes.................    18.4      23.2        26.8       23.4         8.0         5.0        6.5
                                               ------    ------    --------   --------    --------    --------   --------
  Earnings before equity in loss of joint
    ventures.................................    34.7      43.7        50.3       41.7        14.5         8.5       12.1
  Equity in loss of joint ventures...........    (2.6)     (3.0)         --         --          --          --         --
                                               ------    ------    --------   --------    --------    --------   --------
Earnings from continuing operations..........    32.1      40.7        50.3       41.7        14.5         8.5       12.1
Discontinued Operations:
  Operating earnings (loss)..................    20.7       3.8        (0.9)        --          --          --         --
  Gain (loss) on disposition.................   101.0        --        (7.0)     (11.9)         --          --         --
                                               ------    ------    --------   --------    --------    --------   --------
                                                121.7       3.8        (7.9)     (11.9)         --          --         --
                                               ------    ------    --------   --------    --------    --------   --------
Net earnings.................................  $153.8    $ 44.5    $   42.4   $   29.8    $   14.5    $    8.5   $   12.1
                                               ======    ======    ========   ========    ========    ========   ========
Basic Earnings (Loss) per Share:
  Continuing operations......................  $ 1.16    $ 1.73    $   2.17   $   1.78    $   0.61    $   0.36   $   0.51
  Discontinued operations....................    4.41      0.16       (0.34)     (0.51)         --          --         --
                                               ------    ------    --------   --------    --------    --------   --------
  Net earnings...............................  $ 5.57    $ 1.89    $   1.83   $   1.27    $   0.61    $   0.36   $   0.51
                                               ======    ======    ========   ========    ========    ========   ========
Diluted Earnings (Loss) per Share:
  Continuing operations......................  $ 1.14    $ 1.68    $   2.11   $   1.76    $   0.61    $   0.36   $   0.50
  Discontinued operations....................    4.32      0.16       (0.33)     (0.50)         --          --         --
                                               ------    ------    --------   --------    --------    --------   --------
  Net earnings...............................  $ 5.46    $ 1.84    $   1.78   $   1.26    $   0.61    $   0.36   $   0.50
                                               ======    ======    ========   ========    ========    ========   ========
Average Shares Outstanding(8):
  Basic......................................    27.6      23.6        23.2       23.4        23.6        23.5       23.8
  Diluted....................................    28.2      24.2        23.8       23.7        23.9        23.8       24.3
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents....................  $145.9    $ 37.7    $   14.8   $   15.3    $   20.8    $   13.1   $   21.9
Working capital..............................   237.8     155.2       217.7      227.0       221.6       238.0      224.1
Total assets.................................   682.8     736.6     1,065.6    1,064.9     1,293.9     1,052.2    1,305.2
Long-term debt...............................   101.0     131.2       351.3      316.4       390.4       295.7      378.9
Total stockholders' equity...................   399.7     401.1       431.1      448.4       451.9       452.7      466.1
OTHER FINANCIAL DATA(9):
Capital expenditures.........................  $ 37.4    $ 18.5    $   32.8   $   40.5    $   35.3    $    9.5   $    7.1
Depreciation and amortization................    21.6      26.5        37.3       45.1        47.1        11.4       12.3
EBITDA(10)...................................    72.4      95.6       125.8      131.6        85.7        29.6       35.0
Cash provided by (used in) operating
  activities.................................    73.5      65.6        47.8       75.2        49.8       (13.3)      22.9
</Table>

                                        7
<PAGE>

- ------------------
(1)   We have accounted for our former fluid handling, liquid and dry storage,
      and automotive structural components businesses as discontinued operations
      in our consolidated financial statements. On April 18, 1997, we sold our
      automotive structural components business, exclusive of our Mexican
      automotive affiliate, and on October 1, 1997, we sold our 40 percent
      interest in our Mexican affiliate. On December 8, 2000, we sold our fluid
      handling business, and on January 10, 2001, we sold our storage business.
      See Note 3 to the consolidated financial statements included elsewhere in
      this prospectus.
(2)   On March 31, 1997, we acquired UPPCO, Inc. for $60.9 million.
(3)   On July 1, 1998, we acquired certain assets of General Electric Company's
      domestic hermetic motor business for $125.6 million.
(4)   On August 2, 1999, we acquired MagneTek, Inc.'s domestic electric motor
      business for $244.6 million. See Note 2 to the consolidated financial
      statements included elsewhere in this prospectus.

(5)   On December 28, 2001, we acquired all of the outstanding stock of State
      Industries, Inc. for an aggregate purchase price of $117.2 million, and in
      December 2001, we acquired 100 percent of the capital stock of Shenzhen
      Speeda Industrial Co., Ltd. for a total purchase price of $3.3 million.
      See Note 2 to the consolidated financial statements included elsewhere in
      this prospectus.


(6)   The statement of earnings data for the year ended December 31, 2001 and
      the three months ended March 31, 2001 do not include any results of
      operations of State Industries, Inc.

(7)   Includes the results of the acquired businesses from their respective
      dates of acquisition.
(8)   Adjusted for a three-for-two stock split in August 1998. Includes shares
      of common stock and class A common stock.
(9)   Data shown is for continuing operations only.
(10) EBITDA consists of earnings before income taxes plus depreciation and
     amortization and interest expense, less interest income. We have presented
     EBITDA information solely as a supplemental disclosure because we believe
     it allows for a more complete analysis of the results of our operations and
     enables investors to determine our ability to service or incur
     indebtedness. EBITDA should not be construed as an alternative to earnings
     from continuing operations, net earnings, or cash flows from operating
     activities, as determined in accordance with accounting principles
     generally accepted in the United States. In addition, not all companies
     that report EBITDA information calculate EBITDA in the same manner as we
     do, and accordingly, our calculation is not necessarily comparable to
     similarly entitled measures of other companies and may not be an
     appropriate measure for performance relative to other companies.
                                        8
<PAGE>

                                  RISK FACTORS

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

BECAUSE WE PARTICIPATE IN MARKETS THAT ARE HIGHLY COMPETITIVE, OUR REVENUES
COULD DECLINE AS WE RESPOND TO COMPETITION.

    We sell all of our products in highly competitive markets. We compete in
each of our targeted markets based on product design, quality of products and
services, product performance, maintenance costs, and price. We compete against
manufacturers located in the United States and throughout the world. We also
face potential competition from some OEMs to whom we sell our electrical
products and from our customers and the end users of our products, who
continually assess any costs that could be reduced by vertically integrating or
using other alternate sources for the products we manufacture. A few of our
competitors have greater financial, marketing, manufacturing, and distribution
resources than we have. We cannot assure you that our products and services will
continue to compete successfully with those of our competitors or that we will
be able to retain our customer base or improve or maintain our profit margins on
sales to our customers, all of which could materially and adversely affect our
financial condition, results of operations, and cash flows.

SOME OF OUR MARKETS ARE CYCLICAL, AND A DECLINE IN ANY OF THESE MARKETS COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.

    Our electrical products business is cyclical and dependent on consumer
spending and is therefore impacted by the strength of the economy generally,
interest rates, and other factors. Economic factors adversely affecting OEM
production and consumer spending could adversely impact our business. During
recessionary periods, we have been adversely affected by reduced demand for our
products. OEM production experienced a downturn in 2000 and 2001, which
adversely affected demand for our electrical products. This downturn may
continue or become more severe.

WE DEPEND ON REVENUES FROM A FEW SIGNIFICANT CUSTOMERS, AND ANY LOSS,
CANCELLATION, REDUCTION, OR DELAY IN PURCHASES BY THESE CUSTOMERS COULD HARM OUR
BUSINESS.

    Sales to York International, our largest customer, represented 11.7 percent
of pro forma 2001 net sales, and collectively net sales to our four largest
customers represented approximately 25 percent of pro forma 2001 net sales. Our
success will depend on our continued ability to develop and manage relationships
with significant customers. We expect that significant customer concentration
will continue for the foreseeable future. Our dependence on sales from a
relatively small number of customers makes our relationship with each of these
customers important to our business. We cannot assure you that we will be able
to retain our largest customers. Some of our customers may in the future shift
their purchases of products from us to our competitors or to other sources. The
loss of one or more of our largest customers, any reduction or delay in sales to
these customers, our inability to

                                        9
<PAGE>

successfully develop relationships with additional customers, or future price
concessions that we may make could significantly harm our business.

WE INCREASINGLY MANUFACTURE OUR PRODUCTS OUTSIDE THE UNITED STATES, WHICH MAY
PRESENT ADDITIONAL RISKS TO OUR BUSINESS.

    A significant portion of our 2001 net sales were attributable to products
manufactured outside of the United States, principally in Mexico, and expanding
international manufacturing capacity in Mexico and China is part of our strategy
to reduce costs. Approximately 7,000 of our 15,000 total employees and 17 of our
41 manufacturing facilities are located in Mexico. Approximately 800 employees
and two manufacturing facilities are located in China. International operations
generally are subject to various risks, including political, religious, and
economic instability, local labor market conditions, the imposition of foreign
tariffs and other trade restrictions, the impact of foreign government
regulations, and the effects of income and withholding tax, governmental
expropriation, and differences in business practices. We may incur increased
costs and experience delays or disruptions in product deliveries and payments in
connection with international manufacturing and sales that could cause loss of
revenue. Unfavorable changes in the political, regulatory, and business climate
could have a material adverse effect on our financial condition, results of
operations, and cash flows.

WE MANUFACTURE A SIGNIFICANT PORTION OF OUR PRODUCTS IN MEXICO, WHICH EXPOSES US
TO THE RISK OF INCREASED LABOR COSTS DUE TO BOTH WAGE INFLATION IN MEXICO AND
STABILITY OR INCREASES IN THE VALUE OF THE MEXICAN PESO RELATIVE TO THE U.S.
DOLLAR.


    We currently manufacture approximately 75 percent of our electric motors and
20 percent of our residential water heaters in Mexico. The costs we incur
manufacturing these products are directly related to changes in labor costs in
Mexico and fluctuations in exchange rates of the Mexican peso relative to the
U.S. dollar because the labor costs we incur measured in U.S. dollars are based
on the cost of labor in Mexican pesos and the exchange rate of the Mexican peso
relative to the U.S. dollar. Historically, Mexico has had higher wage inflation
than the United States has had. That inflation does not adversely affect our
costs when there is a corresponding decrease in the value of the Mexican peso
relative to the U.S. dollar. However, during periods in which the value of the
Mexican peso increases or remains stable relative to the U.S. dollar, higher
wage inflation in Mexico results in an increase in our labor costs because we
are not able to offset any increases in labor costs in Mexico when the cost of
such labor in Mexican pesos is measured in U.S. dollars.


OUR OPERATIONS WILL SUFFER IF WE ARE UNABLE TO COMPLETE OUR INTERNAL COST
REDUCTION PROGRAMS.

    We are implementing a cost reduction program in our electrical products
business, which includes a transfer of portions of our manufacturing and
assembly work from six of our existing United States fabrication and motor
assembly plants to our operations in Mexico; a 10 percent reduction in the
electrical products salaried workforce; and a consolidation of several warehouse
facilities. As of March 31, 2002, we had charged $1.5 million against the
reserve we established for this program. In implementing this program, we may
not be able to successfully consolidate management, operations, product lines,
distribution networks, and manufacturing facilities, and we could experience a
disruption in our inventory and product supply or in administrative services. In
addition, we may not be able to complete this program without unexpected costs
or delays, or the need for increased management time and

                                        10
<PAGE>

effort. If we do not successfully implement this program on a timely basis, we
will not achieve the planned operational efficiencies and cost savings, and
there could be an adverse impact on ongoing relationships with our customers,
all of which would impact our profitability.

FAILURE TO INTEGRATE STATE INDUSTRIES WOULD ADVERSELY AFFECT OUR OPERATIONS.

    We completed our acquisition of State Industries on December 28, 2001.
Realization of the benefits of this acquisition requires the integration of
State Industries' sales and marketing, distribution, manufacturing, engineering,
and administrative organization. The successful integration of State Industries
will require substantial attention from our senior management, which will
decrease the time that they have to serve and attract customers and develop new
products and services. We cannot assure you that we will be able to integrate
successfully State Industries, that we will operate the acquired business
profitably, or that we will obtain the beneficial effect from this acquisition.
Our financial condition, results of operations, and cash flows could be
materially and adversely affected if we do not successfully integrate State
Industries.

A SUBSTANTIAL PORTION OF OUR RESULTS HAS COME THROUGH ACQUISITIONS, AND WE MAY
NOT BE ABLE TO IDENTIFY OR COMPLETE FUTURE ACQUISITIONS, WHICH COULD ADVERSELY
AFFECT OUR FUTURE GROWTH.

    Acquisitions we have made since 1997 have had a significant impact on our
results of operations during that period. While we will continue to evaluate
potential acquisitions, we may not be able to identify and successfully
negotiate suitable acquisitions, obtain financing for future acquisitions on
satisfactory terms, obtain regulatory approval for certain acquisitions, or
otherwise complete acquisitions in the future. If we complete any future
acquisitions, then we may not be able to successfully integrate the acquired
businesses or operate them profitably or accomplish our strategic objectives for
those acquisitions. Our level of indebtedness may increase in the future if we
finance acquisitions with debt, which would cause us to incur additional
interest expense and could increase our vulnerability to general adverse
economic and industry conditions and limit our ability to service our debt or
obtain additional financing. We cannot assure you that future acquisitions will
not have a material adverse effect on our financial condition, results of
operations, and cash flows.

OUR SALES OF ELECTRICAL PRODUCTS INCORPORATED INTO HVAC SYSTEMS ARE AFFECTED BY
THE WEATHER, AND MILD OR COOLER WEATHER COULD HAVE AN ADVERSE EFFECT ON OUR
OPERATING PERFORMANCE.

    Many of our electrical products are incorporated into HVAC systems that OEMs
sell to end users. The number of installations of new and replacement HVAC
systems or components is higher during the spring and summer seasons due to the
increased use of air conditioning during warmer months. Mild or cooler weather
conditions during the spring and summer seasons often result in end users
deferring the purchase of new or replacement HVAC systems or components. As a
result, prolonged periods of mild or cooler weather conditions in the spring or
summer seasons in broad geographical areas could have a negative impact on the
demand for our electrical products and, therefore, could have an adverse effect
on our operating performance. In addition, due to variations in weather
conditions from year to year, our operating performance in any single year may
not be indicative of our performance in any future year.

                                        11
<PAGE>

OUR RESULTS OF OPERATIONS MAY BE NEGATIVELY IMPACTED BY PRODUCT LIABILITY
LAWSUITS.

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

WE HAVE A $33.4 MILLION ASSET RELATING TO DIP TUBE LITIGATION THAT WE MAY NOT BE
ABLE TO COLLECT.


    We and other water heater manufacturers settled in 1999 a class action
lawsuit relating to water heaters that contained a dip tube (a water heater
component) manufactured, designed, supplied, or sold by Perfection Corporation
between August 1993 and October 1996. Following settlement of the class action
lawsuit, we joined together with the other water heater manufacturers in an
action against Perfection Corporation and other related parties and their
insurers seeking to recover the damages we sustained as a result of the class
action settlement and other damages. As of March 31, 2002, we recorded a
long-term receivable of $33.4 million related to repair claims, administrative
costs, legal fees, and related expenses arising out of the settlement of the
class action lawsuit. Although we expect that we will recover all or a
substantial portion of this amount from Perfection Corporation, other related
parties, their insurers, or our insurers, we cannot assure you that we will do
so.


ONE STOCKHOLDER HAS VOTING CONTROL OF THE COMPANY.

    We have two classes of common equity: our common stock, which we are
offering by this prospectus; and our class A common stock. Currently and
immediately after the offering, the holders of common stock are entitled, as a
class, to elect only 25 percent of our board of directors. Currently and
immediately after the offering, the holders of class A common stock are
entitled, as a class, to elect the remaining directors. As of March 31, 2002,
pro forma for the issuance of our common stock in the offering, a single
stockholder, Smith Investment Company, effectively controlled 75 percent of our
board of directors and our operations because it beneficially owned
approximately 93 percent of our class A common stock. Due to the differences in
the voting rights between shares of our common stock and shares of our class A
common stock, Smith Investment Company is and immediately after the offering
will be in a position to control to a large extent the outcome of matters
requiring a stockholder vote, including the adoption of amendments to our
certificate of incorporation or bylaws or approval of transactions involving a
change of control. The differences in the voting rights between shares of our
common stock and our class A common stock could have the effect of delaying,
deterring, or preventing a change of control. As of March 31, 2002, pro forma
for the issuance of our common stock in the offering, Smith Investment Company
beneficially owned approximately 35 percent of the total number of outstanding
shares of our common stock and class A common stock.

                                        12
<PAGE>

                                USE OF PROCEEDS


    Based on an assumed offering price of $29.15 per share, we estimate that we
will receive approximately $96.3 million of net proceeds in this offering, after
deducting the underwriting discount and estimated offering expenses payable by
us. We intend to use the net proceeds from this offering to repay debt under our
$250 million multi-year revolving credit facility, which expires on August 2,
2004. The interest we pay under this credit facility was 2.4 percent per annum
as of March 31, 2002 and varies monthly with the London Interbank Offered Rate
and our debt to total capitalization ratio. As of March 31, 2002, we had $120.0
million of total debt outstanding under this credit facility, $118.0 million of
which we incurred in 2001 in connection with our acquisitions of State
Industries and Shenzhen Speeda.


                                        13
<PAGE>

                        PRICE RANGES OF COMMON STOCK AND
                    CLASS A COMMON STOCK AND DIVIDEND POLICY

    Our common stock is traded on the New York Stock Exchange under the symbol
"AOS," and our class A common stock is traded on the American Stock Exchange
under the symbol "SMCA." The following table sets forth the high and low sale
prices of our common stock and class A common stock as reported by the New York
Stock Exchange and the American Stock Exchange for the stated quarter.


<Table>
<Caption>
                                                                                  CLASS A
                                                          COMMON STOCK          COMMON STOCK
                                                        ----------------      ----------------
                                                         HIGH      LOW         HIGH      LOW
                                                        ------    ------      ------    ------
<S>                                                     <C>       <C>         <C>       <C>
2000
  First Quarter.......................................  $23.13    $14.94      $22.00    $15.50
  Second Quarter......................................   22.81     17.81       22.44     17.88
  Third Quarter.......................................   21.38     11.19       17.25     12.00
  Fourth Quarter......................................   17.25     12.50       16.88     12.75
2001
  First Quarter.......................................  $20.10    $15.88      $19.80    $15.88
  Second Quarter......................................   19.53     16.40       19.20     16.50
  Third Quarter.......................................   18.50     15.25       18.30     16.00
  Fourth Quarter......................................   19.75     14.67       18.90     14.50
2002
  First Quarter.......................................  $28.50    $19.00      $27.60    $19.25
  Second Quarter (through April 18, 2002).............  $29.60    $25.30      $28.55    $26.00
</Table>



    On April 18, 2002, the last reported sale price for our common stock on the
New York Stock Exchange was $29.15, and the last reported sale price for our
class A common stock on the American Stock Exchange was $28.50.


    We paid cash dividends of $.52 per share on our common stock and class A
common stock in 2001 and dividends of $.50 per share in 2000.

    On April 9, 2002, our board of directors declared a quarterly cash dividend
of $.13 per share on our common stock and class A common stock payable on May
15, 2002, to shareholders of record on April 30, 2002. Holders of shares
purchased in this offering will not be entitled to receive this dividend on the
purchased shares.

    We have paid cash dividends for 62 consecutive years. We currently intend to
declare and pay dividends on a regular basis at a minimum of the current rate.
However, the payment and amount of future dividends is at the discretion of our
board of directors and will depend upon future earnings, capital requirements,
our general financial condition, general business conditions, and other factors.
In addition, the terms of our credit agreement contain certain conditions and
provisions that restrict our ability to pay quarterly dividends. Under the most
restrictive of these provisions, retained earnings of $66.6 million were
available for the payment of dividends as of March 31, 2002.

    Whenever we pay cash dividends on our class A common stock, each share of
common stock is entitled to receive a dividend at least equal to the dividend
per share on our class A common stock. We may pay cash dividends to holders of
common stock in excess of dividends paid, or without paying dividends, to
holders of class A common stock.

                                        14
<PAGE>

                                 CAPITALIZATION


    The following table sets forth our consolidated capitalization as of March
31, 2002, on an actual basis and as adjusted to give effect to our sale of
3,500,000 shares of common stock at an assumed public offering price of $29.15
per share, after deducting the underwriting discount and estimated offering
expenses and after applying the net proceeds in this offering as we intend. You
should read this table together with "Management's Discussion and Analysis of
Results of Operations and Financial Condition," "Description of Capital Stock,"
and our consolidated financial statements and related notes included elsewhere
in this prospectus.



<Table>
<Caption>
                                                                       AS OF
                                                                  MARCH 31, 2002
                                                              -----------------------
                                                               ACTUAL     AS ADJUSTED
                                                              ---------   -----------
                                                               (DOLLARS IN MILLIONS)
<S>                                                           <C>         <C>
Total debt(1)...............................................  $ 392,139    $ 295,845
                                                              =========    =========
Total stockholders' equity:
  Preferred stock, 3,000,000 shares authorized; 0 shares
     outstanding............................................  $       -    $       -
  Class A common stock, $5 par value; 14,000,000 shares
     authorized; 8,671,584 shares issued and 8,638,989
     shares outstanding(2)..................................     43,358       43,358
  Common stock, $1 par value; 60,000,000 shares authorized;
     23,877,778 shares issued and 15,218,012 shares
     outstanding; 23,877,778 shares issued and 18,718,012
     shares outstanding as adjusted.........................     23,878       27,378
Capital in excess of par value..............................     55,697       70,215
Retained earnings...........................................    560,448      560,448
Accumulated other comprehensive loss........................     (2,815)      (2,815)
Treasury stock, at cost, 32,595 shares of class A common
  stock and 8,659,766 shares of common stock; 32,595 shares
  of class A common stock and 5,159,766 shares of common
  stock as adjusted.........................................   (214,417)    (136,141)
                                                              ---------    ---------
     Total stockholders' equity.............................    466,149      562,443
                                                              ---------    ---------
       Total capitalization.................................  $ 858,288    $ 858,288
                                                              =========    =========
</Table>


- ------------------
(1) Total debt includes long-term debt and long-term debt due within one year.
(2) Each share of our class A common stock is convertible into one share of our
    common stock at any time at the holder's option.

                                        15
<PAGE>

                SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA


    The following table presents selected historical consolidated financial data
as of and for each of the five years ended December 31, 2001, which have been
derived from our audited consolidated financial statements, and as of and for
each of the three months ended March 31, 2001 and 2002, which have been derived
from our unaudited interim consolidated financial statements. You should read
this information together with "Management's Discussion and Analysis of Results
of Operations and Financial Condition," and our consolidated financial
statements and the related notes included elsewhere in this prospectus (except
for the consolidated financial statements as of and for the years ended December
31, 1997 and 1998, which are not included in this prospectus).


<Table>
<Caption>
                                                                                                            FOR THE
                                                                                                         THREE MONTHS
                                                       FOR THE YEARS ENDED DECEMBER 31,(1)              ENDED MARCH 31,
                                               ----------------------------------------------------   -------------------
                                               1997(2)   1998(3)   1999(4)      2000     2001(5)(6)   2001(6)      2002
                                               -------   -------   --------   --------   ----------   --------   --------
                                                                (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                            <C>       <C>       <C>        <C>        <C>          <C>        <C>
STATEMENT OF EARNINGS DATA(7):
Continuing Operations:
  Net sales..................................  $703.1    $800.8    $1,070.3   $1,247.9    $1,151.2    $  318.2   $  371.9
  Cost of products sold......................   543.4     623.2       839.5      999.8       948.8       259.4      295.0
                                               ------    ------    --------   --------    --------    --------   --------
  Gross profit...............................   159.7     177.6       230.8      248.1       202.4        58.8       76.9
  Selling, general and administrative
    expenses.................................   105.8     105.2       136.3      153.7       145.7        38.1       53.2
    Interest expense.........................     6.6       5.9        12.8       22.1        16.4         4.8        4.2
  Amortization of intangibles................     0.9       2.5         5.2        6.9         7.0         1.7        0.1
  Restructuring and other charges............       -         -           -          -         9.4           -          -
  Other (income) expense--net................    (6.7)     (2.9)       (0.6)       0.3         1.4         0.7        0.8
                                               ------    ------    --------   --------    --------    --------   --------
      Earnings before income taxes...........    53.1      66.9        77.1       65.1        22.5        13.5       18.6
  Provision for income taxes.................    18.4      23.2        26.8       23.4         8.0         5.0        6.5
                                               ------    ------    --------   --------    --------    --------   --------
  Earnings before equity in loss of joint
    ventures.................................    34.7      43.7        50.3       41.7        14.5         8.5       12.1
  Equity in loss of joint ventures...........    (2.6)     (3.0)          -          -           -           -          -
                                               ------    ------    --------   --------    --------    --------   --------
Earnings from continuing operations..........    32.1      40.7        50.3       41.7        14.5         8.5       12.1
Discontinued Operations:
  Operating earnings (loss)..................    20.7       3.8        (0.9)         -           -           -          -
  Gain (loss) on disposition.................   101.0         -        (7.0)     (11.9)          -           -          -
                                               ------    ------    --------   --------    --------    --------   --------
                                                121.7       3.8        (7.9)     (11.9)          -           -          -
                                               ------    ------    --------   --------    --------    --------   --------
  Net earnings...............................  $153.8    $ 44.5    $   42.4   $   29.8    $   14.5    $    8.5   $   12.1
                                               ======    ======    ========   ========    ========    ========   ========
Basic Earnings (Loss) per Share:
  Continuing operations......................  $ 1.16    $ 1.73    $   2.17   $   1.78    $   0.61    $   0.36   $   0.51
  Discontinued operations....................    4.41      0.16       (0.34)     (0.51)          -           -          -
                                               ------    ------    --------   --------    --------    --------   --------
  Net earnings...............................  $ 5.57    $ 1.89    $   1.83   $   1.27    $   0.61    $   0.36   $   0.51
                                               ======    ======    ========   ========    ========    ========   ========
Diluted Earnings (Loss) per Share:
  Continuing operations......................  $ 1.14    $ 1.68    $   2.11   $   1.76    $   0.61    $   0.36   $   0.50
  Discontinued operations....................    4.32      0.16       (0.33)     (0.50)          -           -          -
                                               ------    ------    --------   --------    --------    --------   --------
  Net earnings...............................  $ 5.46    $ 1.84    $   1.78   $   1.26    $   0.61    $   0.36   $   0.50
                                               ======    ======    ========   ========    ========    ========   ========
Average Shares Outstanding(8):
  Basic......................................    27.6      23.6        23.2       23.4        23.6        23.5       23.8
  Diluted....................................    28.2      24.2        23.8       23.7        23.9        23.8       24.3
BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents....................  $145.9    $ 37.7    $   14.8   $   15.3    $   20.8    $   13.1   $   21.9
Working capital..............................   237.8     155.2       217.7      227.0       221.6       238.0      224.1
Total assets.................................   682.8     736.6     1,065.6    1,064.9     1,293.9     1,052.2    1,305.2
Long-term debt...............................   101.0     131.2       351.3      316.4       390.4       295.7      378.9
Total stockholders' equity...................   399.7     401.1       431.1      448.4       451.9       452.7      466.1
OTHER FINANCIAL DATA(9):
Capital expenditures.........................  $ 37.4    $ 18.5    $   32.8   $   40.5    $   35.3    $    9.5   $    7.1
Depreciation and amortization................    21.6      26.5        37.3       45.1        47.1        11.4       12.3
EBITDA(10)...................................    72.4      95.6       125.8      131.6        85.7        29.6       35.0
Cash provided by (used in) operating
  activities.................................    73.5      65.6        47.8       75.2        49.8       (13.3)      22.9
</Table>

                                        16
<PAGE>

- ------------------
 (1) We have accounted for our former fluid handling, liquid and dry storage,
     and automotive structural components businesses as discontinued operations
     in our consolidated financial statements. On April 18, 1997, we sold our
     automotive structural components business, exclusive of our Mexican
     automotive affiliate, and on October 1, 1997, we sold our 40 percent
     interest in our Mexican affiliate. On December 8, 2000, we sold our fluid
     handling business, and on January 10, 2001, we sold our storage business.
     See Note 3 to the consolidated financial statements included elsewhere in
     this prospectus.
 (2) On March 31, 1997, we acquired UPPCO, Inc. for $60.9 million.
 (3) On July 1, 1998, we acquired certain assets of General Electric Company's
     domestic hermetic motor business for $125.6 million.
 (4) On August 2, 1999, we acquired MagneTek, Inc.'s domestic electric motor
     business for $244.6 million. See Note 2 to the consolidated financial
     statements included elsewhere in this prospectus.

 (5) On December 28, 2001, we acquired all of the outstanding stock of State
     Industries, Inc. for an aggregate purchase price of $117.2 million, and in
     December 2001, we acquired 100 percent of the capital stock of Shenzhen
     Speeda Industrial Co., Ltd. for a total purchase price of $3.3 million. See
     Note 2 to the consolidated financial statements included elsewhere in this
     prospectus.


 (6) The statement of earnings data for the year ended December 31, 2001 and the
     three months ended March 31, 2001 do not include any results of operations
     of State Industries, Inc.

 (7) Includes the results of the acquired businesses from their respective dates
     of acquisition.
 (8) Adjusted for a three-for-two stock split in August 1998. Includes shares of
     common stock and class A common stock.
 (9) Data shown is for continuing operations only.
(10) EBITDA consists of earnings before income taxes plus depreciation and
     amortization and interest expense, less interest income. We have presented
     EBITDA information solely as a supplemental disclosure because we believe
     it allows for a more complete analysis of the results of our operations and
     enables investors to determine our ability to service or incur
     indebtedness. EBITDA should not be construed as an alternative to earnings
     from continuing operations, net earnings, or cash flows from operating
     activities, as determined in accordance with accounting principles
     generally accepted in the United States. In addition, not all companies
     that report EBITDA information calculate EBITDA in the same manner as we
     do, and accordingly, our calculation is not necessarily comparable to
     similarly entitled measures of other companies and may not be an
     appropriate measure for performance relative to other companies.

                                        17
<PAGE>

                                    BUSINESS

OUR COMPANY

    We are a leading manufacturer of electric motors and water heating
equipment, serving a diverse mix of residential, commercial, and industrial end
markets principally in the United States with a growing international presence.
Our company is organized in two segments: electrical products and water systems.
Our electrical products business manufactures and markets a comprehensive line
of hermetic motors, fractional horsepower AC and DC motors, and integral
horsepower motors. Our water systems business manufactures and markets a
comprehensive line of residential gas and electric water heaters, standard and
specialty commercial water heating equipment, high-efficiency copper-tube
boilers, and water systems tanks. In 2001, on a pro forma basis for our December
2001 acquisition of State Industries, we had net sales of approximately $1.5
billion, with 55 percent attributable to our electrical products business and 45
percent attributable to our water systems business.

    Our electric motors are used in a wide variety of targeted applications,
including HVAC systems; pools, spas and water well pumps; garage door openers;
overhead cranes; elevators; and industrial pumps. We primarily sell our electric
motors directly to OEMs. We also market our motor products through wholesale
distributors who sell to smaller OEMs and aftermarket customers. Our residential
and commercial water heaters are used in a wide variety of targeted
applications, including homes, apartments, schools, hospitals, hotels,
laundries, restaurants, stadiums, and other large users of hot water. Our water
systems wholesale distribution channel includes more than 2,600 wholesale
plumbing distributors that serve residential, commercial, and industrial
markets. We also sell our residential water heaters through the retail channel.
In this channel, our customers include four of the six largest national hardware
and home center chains, including a long-standing private label relationship
with Sears.

    During the past five years, we have significantly repositioned our company.
We have changed from a diversified manufacturer with five businesses, the
largest of which was our legacy automotive structural components business that
represented more than 50 percent of our total sales, to a company focused on our
electrical products and water systems businesses, which we believe offer the
opportunity for higher growth and more profitability. We divested our automotive
structural components business in 1997, realizing pre-tax proceeds of $770
million. By January 2001, we had completed our repositioning with the
divestiture of our storage and fluid handling businesses. During this period, we
also made key acquisitions, including:

<Table>
<Caption>
                                                        ANNUAL
                                           YEAR       REVENUES AT
BUSINESS                                 ACQUIRED     ACQUISITION                  PRODUCTS
- --------                                 --------   ---------------                --------
                                                     (IN MILLIONS)
<S>                                      <C>        <C>               <C>
ELECTRICAL PRODUCTS
UPPCO, Inc. ...........................    1997          $ 70         C-Frame sub-fractional horsepower
                                                                      AC motors
General Electric Company's domestic
  hermetic motors business.............    1998          $120         Hermetic motors for HVAC and
                                                                      refrigeration
MagneTek, Inc.'s motor business........    1999          $380         Fractional horsepower, integral AC
                                                                      and DC motors
WATER SYSTEMS
State Industries, Inc..................    2001          $320         Residential and commercial gas and
                                                                      electric water heaters, tanks,
                                                                      parts and accessories
</Table>

                                        18
<PAGE>

    The following competitive strengths contribute to the success of our
business:

- -   We are among the leaders in North America in the electric motor and water
    heating market segments that we target, and we have the scale to increase
    our leadership positions

- -   We have established a presence in Mexico and China to capitalize on the
    low-cost manufacturing potential of each region

- -   Our comprehensive product offerings and strong brand identities have created
    customer loyalty and help us to maintain existing business, as well as
    capture additional sales, particularly as many of our customers seek to
    consolidate their supplier bases

- -   Our operational and engineering flexibility help us to provide fast,
    innovative, and practical solutions for our customers

- -   Our businesses have established long-standing, strong relationships with
    leading OEM customers, distributors, and retailers

- -   Our products are used in essential applications that often require
    replacement purchases

- -   Our senior management team has significant experience in manufacturing,
    marketing, and sales

    We intend to use our competitive strengths to increase sales and
profitability through the initiatives outlined below:

- -   Increase sales to existing customers, introduce new products, and expand
    operations internationally

- -   Continue to lower operating costs and realize significant cost savings by
    completing our MagneTek integration, further reducing cost in our electrical
    products operations, selectively manufacturing electric motors in China, and
    completing our integration of State Industries

- -   Pursue complementary strategic acquisitions that position us in adjacent
    markets and allow us to leverage the marketing, engineering, and
    manufacturing strengths of our businesses

ELECTRICAL PRODUCTS

    We are one of the three largest manufacturers of electric motors in North
America, having manufactured approximately 36 million electric motors in 2001.
We offer a comprehensive line of hermetic motors, fractional horsepower AC and
DC motors, and integral horsepower motors, ranging in size from sub-fractional
C-frame ventilation motors up to 500 horsepower hermetic and 800 horsepower
specialty integral motors. We believe our extensive product offering gives us an
advantage in our targeted markets, often allowing us to serve all of our
customer's electric motor needs. We have significantly broadened our electric
motor product line and customer base through a series of acquisitions, including
UPPCO, General Electric Company's domestic hermetic motor business, and
MagneTek's electric motor business. Our motors are used in a wide range of
targeted residential, commercial, and industrial applications, including:

    HVAC.  We are North America's leading supplier of hermetic motors that is
not affiliated with a compressor manufacturer. These precisely engineered motors
range in size from 5.5 inches to more than 15 inches in diameter (1 1/2 to 500
horsepower) and are used for residential and commercial air conditioning
compressors, chillers, and commercial refrigeration

                                        19
<PAGE>

equipment. We also manufacture a wide range of fractional horsepower fan and
blower motors for use in furnaces, heat pumps, unitary and window air
conditioners, and whole-house fan systems.

    Pumps.  We are the leading supplier of fractional horsepower pump motors for
swimming pools, spas, and jetted tubs, serving virtually all of the largest
manufacturers in this niche. Our motors also can be found in residential water
equipment, such as sump pumps, sewage pumps, sprinkling or irrigation systems,
and water well pumps.

    Other residential and commercial.  We are a leading supplier of fractional
horsepower motors for residential and commercial garage door and gate openers,
small air compressors, residential and commercial ventilation (range hood fans
and kitchen and bathroom fans), and hundreds of other specialized uses.

    Industrial.  Our fractional horsepower and integral horsepower motors are
used in overhead cranes, conveyors, elevators, commercial air conditioning,
agricultural, power transmission, and industrial pump applications.

    We estimate that total sales of electric motors in the United States were
approximately $9 billion in 2001, and we believe international demand for
electric motors is about twice the size of the domestic demand. We target
selected segments of these markets. HVAC-related applications accounted for
approximately 60 percent of our 2001 segment sales, with pump, or water-moving,
applications representing 20 percent of our 2001 segment sales, and the
remainder made up of other residential, commercial, and industrial applications.
We believe approximately 50 percent of our 2001 segment sales resulted from the
replacement needs of end users.

    Approximately 85 percent of our 2001 segment sales were to OEMs in a diverse
mix of industries, with the remainder of sales directed to the aftermarket or
distribution channels. Our 10 largest motor customers represented 50 percent of
2001 segment sales. Sales to our largest customer, York International and its
wholly owned Bristol Compressors subsidiary, were $172 million in 2001 and
represented approximately 20 percent of segment sales. We believe that more than
25 percent of our total segment sales were attributable to products used outside
of the United States.

    We have a direct sales force consisting of 94 salespeople as of February 28,
2002. One-half of our sales force serves OEMs and the other one-half serves
distributors. Our sales and marketing organization is focused on specific
segments of our motor markets to identify and act on trends in the industries we
serve. Our approach of focused marketing, supported by product engineering, has
allowed us to establish close working relationships with many of the leading
companies in the industries we serve. In many instances, we supply all or
substantially all of their requirements for the products we offer, and several
of our customer relationships date back for more than 40 years. We serve
segments of the electric motor aftermarket through a nationwide network of
wholesale electrical equipment distributors. We have traditionally concentrated
our distribution services efforts in the HVAC and pool and spa aftermarkets,
although the MagneTek acquisition expanded our distribution efforts into the
industrial motor markets.

    With our extensive technical resources, we are able to work with individual
customers to design and build a motor that meets their specific needs. Our
design engineers use computer-aided design tools and sophisticated math models
to develop a motor that matches our customers' performance requirements,
mechanical specifications, safety standards, energy

                                        20
<PAGE>

efficiency needs, and cost targets. We evaluate motor designs in well-equipped
performance labs, using accelerated life tests, electrical tests, and mechanical
measures to assure the design performs in often-harsh environments or under
difficult operating conditions. Specialized testing includes sound chambers,
wind tunnels, and combustion labs. We also test motors and customer systems in
certified labs that comply with Underwriters' Laboratories, Canadian Standards
Association, International Electro-Technical Commission, or European Committee
for Standardization requirements, a capability that often reduces the time
needed to obtain agency approval.

    To remain a leader in this highly competitive industry, we are committed to
being a low-cost supplier of electrical products. We were one of the first motor
manufacturers to identify the cost-reduction potential of Mexican operations,
and today we manufacture a majority of our electric motors in our 16 Mexican
motor facilities. In 2001, we undertook an initiative to accelerate the
cost-reduction programs that were already underway in our motor operations to
enhance our competitive position. These initiatives include transferring six
additional product manufacturing lines to our lower-cost Mexican operations;
reducing salaried workforce by 10 percent; and realigning our warehouse
facilities into three hub operations that will improve customer service while
reducing cost. In December 2001, we acquired Shenzhen Speeda, a manufacturer of
sub-fractional horsepower electric motors in China. This acquisition gave us our
first Asian motor manufacturing presence, and we intend to use this capability
to serve a portion of the North American HVAC market segment.

    Our principal competitors in the electric motor industry are Emerson
Electric Co. and General Electric Company. A number of other companies, such as
Fasco Motors (a subsidiary of Invensys Motor Systems), Baldor Electric,
Regal-Beloit Corporation, and Jakel Incorporated, compete with us in specific
segments of the electric motor market.

WATER SYSTEMS

    We are one of the two largest manufacturers and marketers of water heaters
in North America, having manufactured more than 3 million units on a pro forma
basis in 2001. We have a leading share in the commercial water heating segment,
and we believe we are the only domestic manufacturer that offers standard and
specialty commercial water heater products. We believe that our comprehensive
commercial product line gives us a competitive advantage in this higher-margin
segment of the water heating industry. We also are one of the leaders in the
residential water heating segment with an extensive line of high-efficiency gas
and electric models. We significantly broadened our market scope and product
offering with the acquisition of State Industries. This acquisition allowed us
to enter the retail segment of the residential market, a channel that represents
approximately one-half of the total United States residential market. The
acquisition of State Industries also enhanced our position in the wholesale
distribution channel and gave us a position in several new distribution
channels, such as direct sales to large homebuilders and the manufactured
housing market.

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

    Residential gas and electric water heaters.  Our residential water heaters
come in sizes ranging from two-gallon (point-of-use) models to 120-gallon
appliances with varying efficiency ranges. We offer traditional atmospheric
water heaters as well as direct-vented and power-vented models for today's
energy efficient homes.

                                        21
<PAGE>

    Standard commercial water heaters.  Our gas, oil, and electric water heaters
come in capacities ranging from 50 to 100 gallons and are used by customers who
require a consistent, economical source of hot water. Typical applications
include restaurants, hotels and motels, laundries, car washes, and small
businesses.

    Specialty commercial water heaters.  Our products include powered burner
water heaters, large-volume gas and electric water heaters, and other water
heating equipment that is custom-designed for the user's application. Our units
are often combined with water storage tanks to provide the customer with a
complete hot water system. Typical applications include hospitals, schools,
prisons, large hotels, factories, or other commercial environments where the
customer requires large volumes or high-demand periods of hot water.

    Copper-tube boilers.  We manufacture four distinct copper-tube boiler brands
designed to meet the customer's specific volume, efficiency, and cost
requirements. Our high-efficiency boilers are used in potable hot water and
hydronic heating applications. Applications for our boilers include schools,
stadiums, prisons, and other institutions.

    Pump tanks, expansion tanks, and related products.  We supply expansion
tanks for domestic water systems, which are used to equalize the pressure in the
system, as well as tanks for reverse osmosis water purification and related
applications.

    Parts.  Through our wholly owned APCOM subsidiary and protective coatings
division, we manufacture and market a wide range of water heater components,
including burners, gas manifolds, heating elements, thermostats, inlet tubes,
and glass frit used in making porcelain enamel linings. APCOM and our protective
coatings division provide us with a captive supply of water heater components to
reduce the risk of a shortage in supply. Additionally, APCOM supplies water
heater components to other major North American water heater manufacturers.

    We estimate that the total sales of water heaters in the United States were
approximately $2 billion in 2001, and we believe international demand for water
heaters is about twice the size of the domestic demand. We believe approximately
80 percent of our 2001 pro forma segment sales resulted from the replacement
needs of end users.

    We distribute our residential water heaters through the traditional plumbing
wholesale and retail channels. Residential water heaters represented 63 percent
of total 2001 pro forma water systems sales, with approximately 71 percent of
our residential water heaters sold through the plumbing wholesale channel. With
the State Industries acquisition, we now have access to the retail channel and
sell water heaters to four of the six largest national hardware and home center
chains, including a long-standing private label relationship with Sears.
Approximately 29 percent of our pro forma residential water heater sales and 18
percent of our total 2001 pro forma segment sales were through retail channels.

    We sell our commercial water systems products, including standard and
specialty water heaters, high-efficiency copper-tube boilers, and large-volume
hot water storage tanks, exclusively through wholesale distributors. Sales of
our commercial water systems products represented approximately 20 percent of
2001 pro forma segment sales.

    We have identified markets outside of North America as growth opportunities
for our water systems business, and we have a manufacturing and engineering
presence in Europe and Asia to complement our domestic capabilities. We opened
our manufacturing plant in Nanjing, China, in 1998, and we have grown this
business to more than $26 million in sales in 2001. Our China operation offers a
line of instantaneous gas and electric water heaters and wall-mounted gas and
electric units for a number of Chinese residential applications. We also

                                        22
<PAGE>

recently began marketing commercial water heaters in China. In addition, we have
entered into a marketing agreement with Aquecedores Cumulus S/A, the
second-largest water heater manufacturer in Brazil, which allows us to sell our
high-efficiency commercial water heater products in that country. Our plant in
Veldhoven, The Netherlands, serves residential and commercial customers in
Europe and the Middle East. Over the last several years, we have successfully
adapted many of our popular U.S. commercial water systems products, such as the
Cyclone XHE commercial water heater, to European standards. In 2001, our water
systems business sold our products in 59 countries.

    Engineering and technical support are important in the water heating
industry, particularly in the commercial segment, due to the specialized needs
of customers and challenging application requirements. We believe our product
engineering capabilities have contributed to our leadership in this commercial
segment. Our principal product engineering center is in McBee, South Carolina,
with a focused boiler testing facility in El Paso, Texas. Our engineers use
sophisticated computer-aided design tools to develop new residential and
commercial water heater designs. We put our new products through a thorough
evaluation in our performance test labs, where we monitor combustion,
efficiency, standby recovery, and product safety. We test products to ensure
they comply with American Gas Association, Underwriters' Laboratories, and
Canadian Standards Association requirements, as well as to meet local and state
codes. We also field-test products at a number of facilities around the United
States. Evidence of the effectiveness of our product engineering efforts is the
number of successful new products we have introduced over the last several
years, including:

- -   Our Cyclone XHE commercial water heater, which has 94 percent thermal
    efficiency, is the most efficient storage-type unit on the market. In
    addition to its high efficiency, the Cyclone can be either sealed-direct
    vented or vented conventionally, offering customers installation flexibility
    and substantial cost savings.

- -   Our Genesis Burkay copper-tube boiler offers customers high efficiency in a
    compact, space-saving design. This boiler offers multiple venting options
    and microprocessor-controlled diagnostics. We also recently introduced a
    line of larger models directly targeted at hydronic heating applications.

- -   Our Master-Fit line of commercial water heaters is designed for a wide range
    of new and replacement applications. The compact size of these products
    makes them well suited for retrofit applications, and we have introduced
    models specifically designed for restaurants as well as low-emission units.

    An increasing number of government regulations will have a significant
impact on the United States water heating industry in the coming years, and we
believe we will benefit from our engineering expertise in this challenging
environment. Beginning next year, United States water heater manufacturers will
be required to comply with new flammable vapor resistance standards for
residential gas water heaters. These new regulations, developed by the
manufacturers in cooperation with the United States Consumer Product Safety
Commission, dictate that gas water heaters must be designed to protect against
accidental ignition of flammable vapors caused by spilled gasoline or other
liquids. Other regulations impacting our markets include restrictions on water
heater emissions of nitrogen oxides (to date mandated only in California and
Texas) and a United States government requirement to increase the efficiency of
residential gas and electric water heaters by January 2004. We believe we will
successfully comply with these new regulations on a timely basis.

                                        23
<PAGE>

    Our acquisition of State Industries provides an opportunity to improve the
operations and efficiency of our overall water systems business. We are moving
our water systems business headquarters to State Industries' headquarters in
Ashland City, Tennessee, to facilitate the integration of State Industries with
our existing water systems operations. Our integration plan will enable us to
take advantage of the best practices of the two organizations to improve
efficiency, consolidate our product lines, and reduce costs in the business. We
have identified immediate cost reduction opportunities, including management
reductions, raw materials purchasing savings, and freight and logistics savings,
and we believe that these actions will enable us to realize cost savings of
approximately $5 million in 2002, $10 to $12 million in 2003, and over $15
million annually in subsequent years.

    Our principal domestic water heating competitors include Rheem Manufacturing
Company, Inc. and, to a lesser extent, American Water Heater Company and
Bradford-White Corporation. We also compete against a number of companies, such
as Lochinvar Corporation, Raypak, Inc., Teledyne Laars Jandy Products (a
subsidiary of Water Pik Technologies, Inc.), and many smaller, regional
competitors, in certain segments of the United States water heater market, as
well as numerous competitors in international markets.

MANUFACTURING AND OPERATIONS

    We manufacture 99 percent of the products we sell. Our 41 manufacturing
plants are well-equipped, and many are located in areas with low-cost labor,
including 17 plants in Mexico and two in China. Most of our plants are focused
facilities, concentrating on one particular product line. We frequently upgrade
our manufacturing operations to enhance productivity, quality, and response
times and regularly invest in tooling, equipment, automated processes
technologies, and information systems. These capital improvements have allowed
us to reduce costs and improve efficiency and product flow, helping us better
serve the rapidly changing needs of our customers. All of our plants operate
under a continuous improvement philosophy that encourages employee involvement
and improves customer satisfaction. We rigorously test our products throughout
the manufacturing process and, in some cases, have developed proprietary testing
equipment and procedures.

    Our manufacturing operations are highly integrated, and we fabricate a
significant number of the components that comprise our motors and water heaters.
This gives us flexibility in responding to market demand and enables us to
upgrade continually the quality and performance of our products. In addition, we
manufacture a wide range of water heater components, including all of the water
heater porcelain enamels we use. We believe we are the only domestic water
heater manufacturer that formulates and manufactures its own glass coatings. We
take advantage of the size and scale of our businesses when purchasing raw
materials such as steel, copper, and aluminum, and through our global network of
suppliers we are able to reduce our overall materials cost while maintaining a
consistent source of supply.

                                        24
<PAGE>

FACILITIES

    The following table provides information regarding our manufacturing and
other principal facilities.

<Table>
<Caption>
                                            SQUARE
LOCATION                                    FOOTAGE    STATUS          DESCRIPTION OF USE
- --------                                   ---------   ------   --------------------------------
<S>                                        <C>         <C>      <C>
ELECTRICAL PRODUCTS -- UNITED STATES
El Paso, Texas...........................    101,000   Leased   Warehouse
Lavergne, Tennessee......................    188,000   Leased   Warehouse
McMinnville, Tennessee...................    265,000   Leased   Manufacturing
Mebane, North Carolina...................    225,000    Owned   Manufacturing
Monticello, Indiana......................    132,000    Owned   Manufacturing
Mt. Sterling, Kentucky...................    268,000   Leased   Manufacturing
Owosso, Michigan.........................    200,000    Owned   Manufacturing
Ripley, Tennessee........................    103,000    Owned   Manufacturing
Scottsville, Kentucky....................    229,000    Owned   Manufacturing
Tipp City, Ohio..........................     93,000    Owned   Manufacturing
Tipp City, Ohio..........................    167,000    Owned   Warehouse
Tipp City, Ohio..........................    128,000    Owned   Electrical Products Headquarters
Tipp City, Ohio..........................     43,000   Leased   Electrical Products Headquarters
Upper Sandusky, Ohio.....................    129,000    Owned   Manufacturing
ELECTRICAL PRODUCTS -- INTERNATIONAL
Acuna, Mexico (2 facilities).............    163,000   Leased   Manufacturing
Bray, Ireland............................     49,000   Leased   Manufacturing
Budapest, Hungary........................    180,000   Leased   Manufacturing
Gainsborough, England....................     44,000    Owned   Manufacturing
Juarez, Mexico (8 facilities)............    583,000   Leased   Manufacturing
Juarez, Mexico (3 facilities)............    313,000    Owned   Manufacturing
Monterrey, Mexico (3 facilities).........    175,000    Owned   Manufacturing
Shenzhen, China..........................     60,000    Owned   Manufacturing
</Table>

                                        25
<PAGE>

<Table>
<Caption>
                                            SQUARE
LOCATION                                    FOOTAGE    STATUS          DESCRIPTION OF USE
- --------                                   ---------   ------   --------------------------------
<S>                                        <C>         <C>      <C>
WATER SYSTEMS -- UNITED STATES
Alsip, Illinois..........................     51,000   Leased   Product/Customer Service
Ashland City, Tennessee(1)...............  1,288,000    Owned   Manufacturing
Charlotte, North Carolina................     96,000    Owned   Manufacturing
Cookeville, Tennessee....................     50,000    Owned   Manufacturing
El Paso, Texas...........................    100,000   Leased   Manufacturing
El Paso, Texas...........................    111,000   Leased   Warehouse
El Paso, Texas...........................     26,000   Leased   Data Center
Florence, Kentucky.......................     41,000    Owned   Manufacturing
Franklin, Tennessee......................    125,000    Owned   Manufacturing
Irving, Texas(1).........................     26,000   Leased   Water Systems Headquarters
McBee, South Carolina....................    742,000    Owned   Manufacturing
Renton, Washington.......................    100,000   Leased   Manufacturing
WATER SYSTEMS -- INTERNATIONAL
Juarez, Mexico...........................    264,000    Owned   Manufacturing
Nanjing, China...........................    189,000    Owned   Manufacturing
Stratford, Canada........................     53,000    Owned   Manufacturing
Stratford, Canada........................     56,000   Leased   Warehouse
Veldhoven, The Netherlands...............    105,000   Leased   Manufacturing
CORPORATE OFFICES
Milwaukee, Wisconsin.....................    110,000   Leased   World Headquarters
</Table>

- ------------------

(1) We are in the process of moving our water systems business headquarters from
    Irving, Texas to Ashland City, Tennessee.

                                        26
<PAGE>

                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 RESULTS OF OPERATIONS AND FINANCIAL CONDITION


    The following discussion and analysis should be read together with "Selected
Historical Consolidated Financial Data" and our consolidated financial
statements and related notes included elsewhere in this prospectus.


OVERVIEW

    We are a leading manufacturer of electric motors and water heating
equipment. Our company is organized in two segments: electrical products and
water systems. Our electrical products business manufactures and markets a
comprehensive line of hermetic motors, fractional horsepower AC and DC motors,
and integral horsepower motors. Our water systems business manufactures and
markets a comprehensive line of standard and specialty commercial water heating
equipment, residential gas and electric water heaters, high-efficiency
copper-tube boilers, and water systems tanks.

RESULTS OF OPERATIONS

FIRST QUARTER 2002 AND 2001


    Sales in the first quarter of 2002 were $371.9 million, an increase of $53.7
million or 16.9 percent over sales of $318.2 million in the first quarter of
2001. Increased year-over-year first quarter sales for our water systems segment
of $83.7 million more than offset a decline in sales of $30.0 million for our
electrical products segment. The significant increase in first quarter sales of
our water systems segment was attributable to the $84.1 million of sales
associated with our acquisition of State Industries on December 28, 2001. The
decline in electrical products segment sales reflects continued softness in the
electric motor market.



    Our gross profit margin was 20.7 percent in the first quarter of 2002
compared with the 18.5 percent margin achieved in the first quarter of 2001. The
increase was the result of cost reductions in our electrical products segment
and the addition of State Industries.



    Selling, general and administrative expense for the first quarter of 2002
was $53.2 million or $15.1 million higher than the $38.1 million expense in the
first quarter of 2001. The increase in selling, general and administrative
expense was the result of the additional $14.0 million of expense associated
with State Industries and a $1.7 million charge associated with the
consolidation of water systems' management staff. This increase was partially
offset by reduced selling, general and administrative expense in our electrical
products segment resulting from the business improvement programs announced in
the fourth quarter of 2001.



    Interest expense in the first quarter of 2002 declined to $4.2 million from
$4.8 million in the first quarter of 2001. While our debt levels were higher in
the first quarter of 2002 than the same quarter last year, a significant decline
in interest rates resulted in reduced interest expense.



    We have significant pension benefit costs and credits we develop from
actuarial valuations. These valuations reflect key assumptions regarding, among
other things, discount rates, expected returns on plan assets, retirement ages
and years of service. We are required to consider current market conditions,
including changes in interest rates, in making these assumptions. Changes in
related pension costs or credits may occur in the future as a result of changes
affecting the assumptions. We recognized $4.5 million of pension credits in the
first quarter of 2002 including $0.6 million of pension expense associated with
the State Industries


                                        27
<PAGE>


acquisition. In the first quarter of 2001, we recognized $4.5 million of pension
credits. These credits are reflected as offsets to cost of products sold and
selling, general and administrative expense.



    Our effective tax rate declined from 37.0 percent in the first quarter of
2001 to 35.0 percent in the first quarter of 2002 due primarily to the
implementation of a more efficient tax structure for international operations.



    Net earnings in the first quarter of 2002 were $12.1 million or $3.6 million
higher than net earnings of $8.5 million in the first quarter of 2001. On a per
share basis, net earnings in the first quarter of 2002 were $.50 compared to the
$.36 in the first quarter of 2001. The increase in earnings was primarily
attributable to increased earnings for our water systems segment (discussed
subsequently), the elimination of goodwill amortization of $1.6 million, and the
aforementioned $0.6 million decrease in interest expense.


FULL YEAR 2001, 2000 AND 1999

    Sales from continuing operations in 2001 were $1.15 billion, a decline of
$96.8 million or 7.8 percent from sales of $1.25 billion in 2000. The decrease
in sales resulted from an 11.0 percent decline in the electrical products
segment, which more than offset a slight increase in sales for the water systems
business. Sales in 2000 increased $177.6 million compared with 1999, with
approximately $190 million of the increase resulting from an additional seven
months of sales from the August 1999 acquisition of the MagneTek motor business,
and approximately $12 million in sales from our Chinese water heater operation.
These increases were partially offset by lower sales in our base electric motor
business.

    Our gross profit margin for 2001 was 17.6 percent, compared with 19.9
percent and 21.6 percent in 2000 and 1999, respectively. The decline in gross
margin from 2000 to 2001 occurred within the electrical products segment and was
due primarily to under-absorption of manufacturing costs associated with lower
volume, Mexican wage inflation throughout the year, and increased costs for
certain raw materials. The lower profit margin in 2000 compared with 1999 was
due to inclusion of a full year of sales for the MagneTek motor business
acquisition which carried lower margins than the base electric motor business,
and less favorable cost absorption associated with declining volumes in the
latter half of the year.

    Selling, general and administrative expense in 2001 was $145.7 million, $8.0
million lower than the $153.7 million recorded in 2000. The decrease resulted
from volume-related reductions in selling expenses, cost reduction programs, and
lower accruals for incentive plans. Selling, general and administrative expense
in 2000 increased $17.4 million over 1999 due to the additional expense
associated with a full year of owning the MagneTek motor business. Relative to
net sales, selling, general and administrative expense has been stable over the
last three years.


    We recognized pension credits of $20.2 million, $17.7 million and $15.8
million in 2001, 2000, and 1999, respectively, reflected as offsets to cost of
products sold and selling, general and administrative expense. See Note 11 of
notes to consolidated financial statements.


    Interest expense was $16.4 million in 2001 compared with $22.1 million and
$12.8 million in 2000 and 1999, respectively. The decline from 2000 to 2001 was
the result of lower average debt levels and declining interest rates while the
increase from 1999 to 2000 was due primarily to acquisition-related financings.

                                        28
<PAGE>

    Amortization of intangibles was constant in 2001 and 2000, at approximately
$7.0 million. The increase from $5.2 million in 1999 to 2000 was associated with
the acquisition of the MagneTek motor business.

    Other expense increased by $1.1 million from 2000 to 2001 due mostly to
losses incurred on forward foreign currency contracts. The change from other
income of $0.6 million in 1999 to other expense of $0.3 million in 2000 was due
to a decrease in interest income as marketable securities were liquidated to
fund the MagneTek motor business acquisition.

    Our effective tax rate was 35.5 percent in 2001, 36.0 percent in 2000, and
34.8 percent in 1999. The rate decreased in 2001 as a result of increased
research and state tax credits, partially offset by the negative impact of the
losses in low-tax foreign jurisdictions. The rate increased in 2000 as a result
of fewer research tax credits as compared to 1999.

    We recorded net earnings from continuing operations of $14.5 million or $.61
per share in 2001 compared with $41.7 million or $1.76 per share in 2000.
Excluding a $9.4 million pre-tax special charge related primarily to the
restructuring of our electric motor operations, we recorded earnings of $20.5
million, or $.86 per share.

OPERATIONS BY SEGMENT

<Table>
<Caption>
                                                                                         FOR THE THREE
                                                                                             MONTHS
                                                          FOR THE YEARS ENDED                ENDED
                                                              DECEMBER 31,                 MARCH 31,
                                                    --------------------------------    ----------------
                                                      1999        2000        2001       2001      2002
                                                    --------    --------    --------    ------    ------
                                                                       (IN MILLIONS)
<S>                                                 <C>         <C>         <C>         <C>       <C>
NET SALES:
Electrical products.............................    $  735.0    $  902.4    $  802.7    $226.2    $196.2
Water systems...................................       335.3       345.5       348.5      92.0     175.7
                                                    --------    --------    --------    ------    ------
                                                    $1,070.3    $1,247.9    $1,151.2    $318.2    $371.9
                                                    ========    ========    ========    ======    ======
OPERATING EARNINGS:
Electrical products.............................    $   78.9    $   75.5    $   20.8    $ 14.0    $ 15.1
Water systems...................................        33.8        34.9        39.2       9.9      13.6
                                                    --------    --------    --------    ------    ------
                                                       112.7       110.4        60.0      23.9      28.7
General, corporate and research and development
  expenses......................................       (22.8)      (23.2)      (21.1)     (5.6)     (5.9)
Interest expense................................       (12.8)      (22.1)      (16.4)     (4.8)     (4.2)
                                                    --------    --------    --------    ------    ------
Earnings from continuing operations before
  income taxes..................................    $   77.1    $   65.1    $   22.5    $ 13.5    $ 18.6
                                                    ========    ========    ========    ======    ======
</Table>

ELECTRICAL PRODUCTS


FIRST QUARTER 2002 AND 2001



    First quarter sales for our electrical products segment were $196.2 million
or $30.0 million lower than sales of $226.2 million in the same period last
year, and reflect continued softness in the electric motor market. Our HVAC and
pump business declined approximately 15 percent during the quarter compared to
last year, with the remainder of the business down approximately 10 percent.
Though air conditioning inventory replenishment is progressing slower than we
had anticipated at the beginning of the year, we believe air conditioning


                                        29
<PAGE>


inventories remain at historically low levels and offer sales upside as we
progress through the year.



    Operating earnings for our electrical products segment in the first quarter
of 2002 were $15.1 million or $0.5 million less than the $15.6 million of
operating earnings in the first quarter of 2001, as adjusted to exclude $1.6
million of goodwill amortization. Notwithstanding this decrease in operating
earnings, operating margins improved from 6.9 percent to 7.7 percent. The
favorable trend in our year-over-year operating margin for electrical products
was the result of cost reduction activities, including those announced in the
fourth quarter of 2001.



FULL YEAR 2001, 2000 AND 1999



    Sales in the electrical products segment in 2001 were $802.7 million, $99.7
million or 11 percent lower than 2000 sales of $902.4 million. Sales in 1999
were $735.0 million. Our HVAC-related business experienced the largest sales
decline of approximately $60 million or 11 percent in 2001. The lower demand for
motors in 2001 was due to a number of factors including general economic
conditions, reduced discretionary spending on the part of consumers, and
inventory adjustments by air conditioning manufacturers and retailers. The
increase in sales from 1999 to 2000 was due to the additional seven months of
ownership of the MagneTek motor business which contributed approximately $190
million in sales. Excluding the MagneTek acquisition, sales in the base motor
business declined five percent in 2000 due mostly to a reduction in demand from
HVAC customers.


    Operating earnings for our electrical products segment in 2001 were $28.9
million before special charges or $46.6 million lower than 2000 earnings of
$75.5 million. Earnings in 1999 were $78.9 million. The significant decline in
earnings was due mostly to lower sales volume, higher costs for raw materials
and Mexican labor, and more competitive market conditions. The decline in
earnings from 1999 to 2000 was due primarily to a weaker air conditioning
market.

    In the fourth quarter of 2001, we announced a cost reduction program to
address challenging motor market conditions. The program consists of three major
elements. The first element involves a reduction of approximately 10 percent of
the salaried workforce to be completed by the middle of 2002. The second element
targets improved contribution margins and involves the repositioning of
additional parts fabrication and assembly work to our lower-cost Mexican
operations and is expected to be completed by the end of the first quarter of
2003. A portion of the work currently performed at six domestic plants will be
transferred to our operations in Juarez, Acuna, and Monterrey, Mexico. The third
element involved realignment of distribution activities into three hub
warehouses, thereby reducing cost and improving customer service, and has been
completed. We recognized a pre-tax charge of $8.1 million in the fourth quarter
of 2001, of which $0.8 million was spent as of December 31, 2001. We expect the
program to generate pre-tax savings of more than $16 million in 2002 and $20 to
$25 million annually thereafter.

WATER SYSTEMS


FIRST QUARTER 2002 AND 2001



    First quarter sales for our water systems segment were $175.7 million, or
$83.7 million higher than sales of $92.0 million in the same period last year.
The increase in sales was associated with our State Industries acquisition which
recorded sales of $84.1 million in the


                                        30
<PAGE>


first quarter. Excluding the State Industries acquisition, sales in the water
systems segment were flat. Higher sales in the commercial and China business
offset a modest decline in residential and other products.



    Operating earnings for our water systems segment in the first quarter of
2002 were $13.6 million, which included $3.8 million of earnings associated with
the State Industries acquisition. The net $9.8 million of earnings for our base
water heater business compared to first quarter 2001 profits of $9.9 million and
included a $1.7 million charge associated with the consolidation of water
systems' management staff.



FULL YEAR 2001, 2000 AND 1999


    Sales for our water systems segment increased slightly from $345.5 million
in 2000 to $348.5 million in 2001 and represents the fourth consecutive year of
record sales. The increased sales resulted from higher sales of residential
products and growth in the Chinese operation, partially offset by lower sales in
other international markets. Sales of $345.5 million in 2000 were higher than
1999 sales of $335.3 million due to a significant increase in China where sales
almost doubled, contributing an additional $12 million.

    Operating earnings for our water systems segment in 2001 were $40.5 million
before special charges, reflecting a 16.0 percent increase over 2000 earnings of
$34.9 million. The improved earnings performance in 2001 was the result of
higher volume, better performance in China, and improved plant efficiencies
throughout the organization. The earnings improvement from $33.8 million in 1999
to $34.9 million in 2000 resulted from improved performance in China.

    On December 28, 2001, we acquired all of the outstanding stock of State
Industries, a manufacturer of residential and standard commercial water heaters.
The acquisition nearly doubled the size of our existing water heater business
while complementing the existing wholesale distribution channel and adding a
strong presence in the retail market. We also expect to achieve scale-related
synergies as a result of the acquisition. The aggregate purchase price was
$117.2 million and was comprised of $57.8 million for the outstanding stock,
assumption of $56.3 million in debt, and $3.1 million of acquisition costs.
Additionally, we recognized a special charge of $1.3 million in the fourth
quarter of 2001 for lease costs associated with moving the water systems segment
headquarters from Irving, Texas to Ashland City, Tennessee, State Industries'
headquarters. The move is intended to facilitate the integration of the two
businesses.

LIQUIDITY AND CAPITAL RESOURCES

FIRST QUARTER 2002 AND 2001


    Our working capital for continuing operations was $227.0 million at March
31, 2002, $7.2 million higher than at December 31, 2001. A sales-related
increase in accounts receivable of $27.8 million was partially offset by
increases in accounts payable and a reduction in our other current assets
account as a result of receiving an expected $12.4 million tax refund in the
first quarter of 2002. Cash provided by our operations during the first quarter
of 2002 was $22.9 million compared with $13.3 million of cash used by our
operations during the same period in 2001. We had higher earnings and smaller
increases to working capital during the first quarter of 2002 compared with the
first quarter of 2001. We project operating cash flow of $75 to $80 million for
the full year.


                                        31
<PAGE>


    Our capital expenditures during the first quarter of 2002 totaled $7.1
million, which was less than the $9.5 million spent in the first quarter of 2001
due to lower spending by our electrical products segment. We are projecting 2002
capital expenditures of $45 million, an increase of approximately $10 million
over the prior year, due primarily to the acquisition of State Industries. 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.



    Our long-term debt decreased by $11.5 million from $390.4 million at
December 31, 2001 to $378.9 million at March 31, 2002. Our leverage as measured
by the ratio of total debt to total capitalization was 45.7 percent, down
slightly from the end of 2001. Excluding potential acquisitions and assuming
current outstanding share levels, we expect 2002 cash flow to result in a
year-end leverage ratio of approximately 43 percent, closer to our long-term
target of 40 percent. We did not enter into any significant operating leases
during the first quarter 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 March 31, 2002,
we had available borrowing capacity of $92.2 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 Industries in December of 2001,
we recorded additional purchase liabilities of approximately $3.9 million
associated with employee severance costs. As of March 31, 2002, we have charged
$0.6 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 $6.0 million at March 31,
2002. We expect these activities to be completed within the next year.



    On April 9, 2002, our board of directors declared a regular quarterly
dividend of $.13 per share on our common stock and class A common stock, which
is payable on May 15, 2002 to stockholders of record on April 30, 2002.


FULL YEAR 2001, 2000 AND 1999

    Our working capital for continuing operations at December 31, 2001 was
$219.8 million compared with $204.3 million and $207.3 million at December 31,
2000 and 1999, respectively. The increase in our working capital in 2001 was due
to the December 28, 2001 acquisition of State Industries. The modest decline in
our working capital in 2000 was due to lower accounts receivable resulting from
weaker HVAC markets.

    Our capital expenditures were $35.3 million in 2001 versus $40.5 million in
2000 and $32.8 million in 1999. The decrease in capital spending in 2001 and
increase in 2000 occurred in our electrical products segment. We are projecting
2002 capital expenditures of approximately $45 million, an increase over 2001
primarily due to the acquisition of State Industries. The level of 2002 capital
expenditures is expected to be marginally lower than 2002 depreciation expense.
Our cash flow during 2002 is expected to adequately cover projected capital
expenditures.

    On June 8, 2001, we issued $50 million in notes under loan facilities with
two insurance companies. The notes range in maturity from 2013 to 2016 and carry
an interest rate of

                                        32
<PAGE>

7.3 percent. Due to our acquisition of State Industries, long-term debt
increased $74.0 million from $316.4 million at December 31, 2000, to $390.4
million at December 31, 2001. Our leverage as measured by the ratio of total
debt to total capitalization was 47.4 percent at December 31, 2001, compared
with 42.2 percent at the end of 2000. Excluding potential acquisitions, we
expect 2002 cash flow to result in a year-end leverage ratio of approximately 43
percent, closer to our long-term target of 40 percent.

    We expect to have adequate liquidity in 2002 as we have a minimal amount of
long-term debt maturing during 2002. In addition, we have a $250 million
multi-year revolving credit facility with a group of 10 financial institutions
that expires on August 2, 2004, and an $83 million 364-day credit agreement with
a group of six banks that expires on July 26, 2002, which we expect to support
any short-term borrowing needs. At December 31, 2001, we had available borrowing
capacity of $79.5 million under our credit facilities. For information about our
contractual cash obligations for indebtedness, capital leases, operating leases,
and related obligations as of December 31, 2001, see Note 8 of notes to
consolidated financial statements.

    In connection with the acquisition of State Industries in December 2001, we
recorded additional purchase liabilities of approximately $3.9 million
associated with employee severance costs. In addition, we recorded purchase
liabilities of $17.9 million in 1999 associated with the MagneTek motor business
acquisition, which included employee severance and relocation, as well as
certain facility costs. We expect that the balance of MagneTek purchase
liabilities of $6.5 million at December 31, 2001 will be fully utilized during
2002.

    Included in other assets is a $32.8 million receivable due to the payments
of claims associated with the dip tube class action lawsuit. See Note 13 of
notes to consolidated financial statements. We expect a modest increase to the
receivable in 2002. The receivable is classified as a long-term asset because
court proceedings will not begin until late 2002 and may not conclude until 2003
or later.

    We have paid dividends for 62 consecutive years. We paid total dividends of
$.52 per share in 2001 compared with $.50 per share in 2000.

CRITICAL ACCOUNTING POLICIES

    Our accounting policies are more fully described in Note 1 of notes to
consolidated financial statements. 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 us to make 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) 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, product mix, and in some cases, actuarial

                                        33
<PAGE>

techniques. We constantly reevaluate these significant factors and make
adjustments where facts and circumstances dictate. Historically, actual results
have not significantly deviated from those determined using the estimates
described above.

                                 OTHER MATTERS

ENVIRONMENTAL

    Our operations are governed by a number of federal, state, and local
environmental laws concerning the generation and management of hazardous
materials, the discharge of pollutants into the environment, and remediation of
sites owned by us or third parties. We have expended financial and managerial
resources to comply with such laws. Expenditures related to environmental
matters were not material in 2001 and are not expected to be material in any
single year. Although we believe that our operations are substantially in
compliance with such laws, and we have procedures designed to maintain
compliance, we cannot provide any assurance that substantial additional costs
for compliance will not be incurred in the future.

MARKET RISK

    We are exposed to various types of market risks, primarily currencies 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. We do not engage in speculation in
our derivative strategies. Further discussion regarding derivative instruments
is contained in Note 1 of notes to consolidated financial statements.

    Our commodity risks include raw material price fluctuations. We use futures
contracts to fix the cost of our expected needs with the objective of reducing
price risk. Futures contracts are purchased over time periods and at volume
levels which approximate expected usage. At December 31, 2001, we had commodity
futures contracts amounting to $57 million of commodity purchases. A
hypothetical 10 percent change in the underlying commodity price of such
contracts would have a potential impact of $5.7 million. Any gains and losses
from our futures contract activities will be offset by gains and losses in the
underlying commodity purchase transactions being hedged.

    In addition, we enter into foreign currency forward contracts to minimize
the effect of fluctuating foreign currencies. At December 31, 2001, we had net
foreign currency contracts outstanding of $81 million. Assuming a hypothetical
10 percent movement in the respective currencies, the potential foreign exchange
gain or loss associated with the change in rates would amount to $8.1 million.
Any gains and losses from our forward contract activities will be offset by
gains and losses in the underlying transactions being hedged.

    Our earnings exposure related to movements in interest rates is primarily
derived from outstanding floating-rate debt instruments that are determined by
short-term money market rates. At December 31, 2001, we had $260 million in
outstanding floating-rate debt with a weighted-average interest rate of 2.3
percent at year-end. A hypothetical 10 percent annual increase or decrease in
the year-end average cost of our company's outstanding floating-rate debt would
result in a change in annual pre-tax interest expense of $0.6 million.

                                        34
<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

    In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." Under
the new standards, goodwill and indefinite lived intangible assets are no longer
amortized but instead are reviewed annually for impairment. Separable intangible
assets that are not deemed to have an indefinite life will continue to be
amortized over their useful lives. The amortization provisions of SFAS No. 142
apply to goodwill and intangible assets acquired after June 30, 2001.
Accordingly, the goodwill associated with the December 2001 acquisitions of
State Industries and Shenzhen Speeda will not be amortized. See Note 2 of notes
to consolidated financial statements. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, we have applied the new accounting
standards effective January 1, 2002. We have assessed the recoverability of our
goodwill and intangible assets and have concluded that there is no impairment in
value of these assets. All of the goodwill amortization of $6.6 million in 2001
will be eliminated as a charge to operations in 2002.


    Additionally, the FASB has issued 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 we adopted
on January 1, 2002, has not had a material impact on our consolidated financial
statements since its adoption.


DISCONTINUED OPERATIONS

    On January 21, 2000, we announced the decision to exit the storage and fluid
handling markets, consistent with our strategy to expand our presence in
electrical products and water systems. On December 8, 2000, we sold our fluid
handling business, Smith Fiberglass Products Company, to Varco International
Corporation. On January 10, 2001, we sold substantially all of the assets of the
storage tank business, Engineered Storage Products Company, to CST Industries.
The sale of these businesses resulted in net after-tax proceeds of $62 million.
After-tax losses associated with discontinued operations amounted to $11.9
million and $7.8 million in 2000 and 1999, respectively, and consisted mostly of
losses associated with the disposition of these businesses. The 2000 loss also
included an after-tax charge of $4 million related to revised estimates on
certain claims that arose out of the sale of the automotive structural
components business in April 1997. See Note 3 of notes to consolidated financial
statements.

                                        35
<PAGE>

                       MANAGEMENT AND BOARD OF DIRECTORS

    The following table sets forth information as of April 12, 2002, concerning
our directors and certain executive officers. All of our officers serve terms of
one year and until their successors are elected and qualified. Our board of
directors currently includes eight members, with two directors elected by
holders of common stock and six elected by holders of class A common stock and
all directors serving terms of one year and until their successors are elected
and qualified.

<Table>
<Caption>
NAME                             AGE          POSITION                        BACKGROUND
- ----                             ---  ------------------------  --------------------------------------
<S>                              <C>  <C>                       <C>
Robert J. O'Toole..............  61   Chairman, President, and  Elected Chairman in 1992; Chief
                                      Chief Executive Officer   Executive Officer since 1989;
                                                                President since 1986; joined A. O.
                                                                Smith in 1963
Kenneth W. Krueger.............  45   Senior Vice President     Elected Senior Vice President and
                                      and Chief Financial       Chief Financial Officer in August
                                      Officer                   2000; previously employed by Eaton
                                                                Financial Corporation as Group Vice
                                                                President, Finance and Business
                                                                Planning; Vice President, Finance at
                                                                Rockwell Automation, where he worked
                                                                from 1983 to 1999
Donald M. Heinrich.............  49   Senior Vice President     Elected Senior Vice President in July
                                      and President, A. O.      2001; President of A. O. Smith
                                      Smith Electrical          Electrical Products Company since July
                                      Products Company          2001; joined A. O. Smith Electrical
                                                                Products Company in January 2000, as
                                                                Senior Vice President-Operations;
                                                                served as President of Smith
                                                                Fiberglass Products Company from
                                                                November 1997 through January 2000;
                                                                joined A. O. Smith in October 1992 as
                                                                Vice President-Business Development
Ronald E. Massa................  52   Senior Vice President     Named President of A. O. Smith Water
                                      and President, A. O.      Products Company in February 1999;
                                      Smith Water Products      elected Senior Vice President in June
                                      Company                   1997; served as President of A. O.
                                                                Smith Automotive Products Company from
                                                                June 1996 to April 1997; served as
                                                                President of A. O. Smith Water
                                                                Products Company from 1995 to June
                                                                1996; held other management positions
                                                                in the A. O. Smith Water Products
                                                                Company prior thereto; joined A. O.
                                                                Smith in 1976
Glen R. Bomberger..............  64   Director                  Elected a Director in 1986; Executive
                                                                Vice President from 1986 through April
                                                                2001; Chief Financial Officer from
                                                                1986 to 2000; joined A. O. Smith in
                                                                1960; Director of Smith Investment
                                                                Company
</Table>

                                        36
<PAGE>

<Table>
<Caption>
NAME                             AGE          POSITION                        BACKGROUND
- ----                             ---  ------------------------  --------------------------------------
<S>                              <C>  <C>                       <C>
Ronald D. Brown................  48   Director                  Elected a Director in 2001; named
                                                                Chairman, President and Chief
                                                                Executive Officer of Milacron Inc. in
                                                                June 2001; served as President and
                                                                Chief Operating Officer of Milacron
                                                                Inc. since September 1999; on Milacron
                                                                Inc.'s Board of Directors since
                                                                November 1999; served as Chief
                                                                Financial Officer of Milacron Inc.
                                                                from 1993 through 1999; joined
                                                                Milacron Inc. in 1980
William F. Buehler.............  62   Director                  Elected a Director in 1998; Vice
                                                                Chairman of the Board of Directors and
                                                                President-Industry Solutions
                                                                Operations of Xerox Corporation from
                                                                April 1999 through 2000; joined Xerox
                                                                Corporation in 1991 as Executive Vice
                                                                President and Chief Staff Officer;
                                                                prior to joining Xerox, spent 27 years
                                                                with AT&T Corporation; Director of
                                                                Quest Diagnostics
Kathleen J. Hempel.............  51   Director                  Elected a Director in 1998; Vice
                                                                Chairman and Chief Financial Officer
                                                                of Fort Howard Corporation from 1992
                                                                until its merger into Fort James
                                                                Corporation in 1997; joined Fort
                                                                Howard Corporation in 1973; Director
                                                                of Oshkosh Truck Corporation,
                                                                Whirlpool Corporation, Kennametal
                                                                Corporation, Actuant Corporation, and
                                                                Visteon Corporation
Dr. Agnar Pytte................  69   Director                  Elected a Director in 1991; became
                                                                president of Case Western Reserve
                                                                University in July 1987 and retired in
                                                                June 1999; prior to July 1987, was the
                                                                Provost at Dartmouth College where he
                                                                held other academic positions since
                                                                1958; currently Adjunct Professor at
                                                                Dartmouth College; Director of The
                                                                Goodyear Tire & Rubber Company
Bruce M. Smith.................  53   Director                  Elected a Director in 1995; elected
                                                                Chairman and Chief Executive Officer
                                                                of Smith Investment Company in January
                                                                1999; elected President of Smith
                                                                Investment Company in 1993; Executive
                                                                Vice President of A. O. Smith Water
                                                                Products Company from 1991 through
                                                                June 1993; Managing Director of A. O.
                                                                Smith Electric Motors (Ireland) Ltd.
                                                                from 1988 to 1991; joined A. O. Smith
                                                                in 1978; Director of Smith Investment
                                                                Company
Mark D. Smith..................  40   Director                  Elected a Director in 2001; served as
                                                                a Product Business Manager for
                                                                Strattec Security Corporation since
                                                                1997; Operations Manager of A. O.
                                                                Smith Automotive Products Company from
                                                                1994 to 1997
</Table>

                                        37
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

    Our restated certificate of incorporation provides that we have authority to
issue 60,000,000 shares of common stock, 14,000,000 shares of class A common
stock, and 3,000,000 shares of preferred stock. As of March 31, 2002, we had
15,218,012 shares of common stock issued and outstanding, 8,638,989 shares of
class A common stock issued and outstanding and no shares of preferred stock
issued and outstanding. All of the outstanding shares are fully paid and
nonassessable, and the shares of common stock being sold by us will, upon
completion of this offering, be fully paid and nonassessable.

    The following summary of some provisions of our common stock, class A common
stock, and preferred stock is not complete. You should refer to our restated
certificate of incorporation, which is incorporated by reference as an exhibit
to the registration statement of which this prospectus is a part, and applicable
law for more information.

COMMON STOCK AND CLASS A COMMON STOCK

    Dividends.  The holders of shares of our class A common stock and our common
stock are entitled to receive dividends, including dividends of our stock, as
and when declared by our board of directors, subject to any limitations
applicable by law and to the rights of the holders, if any, of our preferred
stock. Whenever we pay any dividends, other than dividends of our stock, on our
class A common stock, each share of common stock is entitled to receive a
dividend at least equal to the dividend paid per share on our class A common
stock. We may pay dividends, other than dividends of our stock, to holders of
common stock in excess of dividends paid, or without paying dividends, to
holders of class A common stock.

    Voting Rights.  Currently, and immediately following the offering, holders
of our common stock, voting as a separate class, have the right to elect or
remove 25 percent of our entire board of directors, rounded to the nearest whole
number of directors. Currently, and immediately following the offering, holders
of our class A common stock are entitled to elect the remaining directors,
subject to any rights granted to holders of any series of preferred stock.
Except as may be required by law and in connection with some significant
actions, such as mergers, consolidations, or amendments to our restated
certificate of incorporation that affect the rights of stockholders, holders of
our common stock and our class A common stock will vote together as a single
class, except that the holders of class A common stock will have one vote per
share and the holders of common stock will have one-tenth vote per share.

    Conversion.  Each share of our class A common stock is convertible into one
share of our common stock at any time at the holder's option.

    Other Terms.  None of our stockholders have preemptive or other rights to
subscribe for, purchase, or receive any additional securities. No class of
common stock is subject to redemption.

    Transfer Agent.  The transfer agent for our common stock is Wells Fargo Bank
Minnesota, N.A. Shareholder Services.

PREFERRED STOCK

    Our restated certificate of incorporation authorizes our board of directors
to issue our preferred stock in series and to determine and fix the rights,
preferences, and limitations of any series and the relative variations between
series with respect to the rate and nature of dividends, the price and terms and
conditions on which shares may be redeemed, the amount

                                        38
<PAGE>

payable in the event of our voluntary or involuntary liquidation, the terms of
any sinking fund provisions or redemption or repurchase of shares, the terms and
conditions for conversion into any other class or series of our stock, and
voting rights.

    The issuance of any series of our preferred stock may have an adverse effect
on the rights of holders of our common stock and could decrease the amount of
earnings and assets available for distribution to holders of our common stock.
In addition, any issuance of our preferred stock could have the effect of
delaying, deferring, or preventing a change in control of our company.

SUPERMAJORITY VOTING PROVISIONS

    Under our restated certificate of incorporation, the following extraordinary
corporate actions require approval by a vote of two-thirds of the total number
of votes represented by the outstanding shares entitled to vote thereon:

- -   any plan of merger or consolidation other than a plan of merger or
    consolidation with or into any of our subsidiaries of which we own at least
    90 percent of the outstanding capital stock

- -   any sale, lease, exchange, or other disposition of all or substantially all
    of our assets, if not made in the ordinary course of our business

- -   any amendment to our restated certificate of incorporation that changes the
    supermajority voting requirements discussed above

    These supermajority voting requirements could have the effect of delaying,
deferring, or preventing a change of control of our company.

                                        39
<PAGE>

                                  UNDERWRITING

    Under an underwriting agreement dated            , 2002, we have agreed to
sell to the underwriters named below the indicated numbers of shares of our
common stock:

<Table>
<Caption>
                                                                NUMBER
UNDERWRITER                                                    OF SHARES
- -----------                                                    ---------
<S>                                                            <C>
Robert W. Baird & Co. Incorporated..........................
Banc of America Securities LLC..............................
Bear, Stearns & Co. Inc.....................................
                                                               ---------
     Total..................................................   3,500,000
                                                               =========
</Table>

    The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of our common stock in the offering if any are
purchased, other than those shares covered by the over-allotment option we
describe below. The underwriting agreement also provides that if an underwriter
defaults, the purchase commitments of non-defaulting underwriters may be
increased or this offering of our common stock may be terminated.

    We have granted to the underwriters a 30-day option to purchase on a
pro-rata basis up to 525,000 additional shares from us at the public offering
price less the underwriting discounts and commissions. The option may be
exercised only to cover any over-allotments of our common stock.

    The underwriters propose to offer the shares of our common stock initially
at the public offering price on the cover page of this prospectus and to selling
group members at that price less a selling concession of up to $     per share.
The underwriters and selling group members may allow a discount of $     per
share on sales to other broker/dealers. After the offering, the underwriters may
change the public offering price and concession and discount to broker/dealers.
As used in this section:

- -   Underwriters are securities broker/dealers that are parties to the
    underwriting agreement and will have a contractual commitment to purchase
    shares of our common stock from us, and the underwriters are the three firms
    acting on behalf of the underwriters.

- -   Selling group members are securities broker/dealers to whom the underwriters
    may sell shares of our common stock at the public offering price less the
    selling concession above, but who do not have a contractual commitment to
    purchase shares from us.

- -   Broker/dealers are firms registered under applicable securities laws to sell
    securities to the public.

    The following table summarizes the compensation and estimated expenses we
will pay. The compensation we will pay to the underwriters will consist solely
of the underwriting discount, which is equal to the public offering price per
share of common stock less the amount the underwriters pay to us per share of
common stock. The underwriters have not received and will not receive from us
any other item of compensation or expense in

                                        40
<PAGE>

connection with this offering considered by the National Association of
Securities Dealers, Inc. to be underwriting compensation under its rules of fair
practice.

<Table>
<Caption>
                                        PER SHARE                           TOTAL
                             -------------------------------   -------------------------------
                                WITHOUT            WITH           WITHOUT            WITH
                             OVER-ALLOTMENT   OVER-ALLOTMENT   OVER-ALLOTMENT   OVER-ALLOTMENT
                             --------------   --------------   --------------   --------------
<S>                          <C>              <C>              <C>              <C>
Underwriting discounts and
  commissions paid by us...      $                $              $                $
Expenses payable by us.....      $                $              $                $
</Table>

    We have agreed to pay all of the expenses in connection with this offering.
The principal components of the offering expenses payable by us will include the
fees and expenses of our accountants and attorneys, the fees of our registrar
and transfer agent, the cost of printing this prospectus, and filing fees paid
to the Securities and Exchange Commission and the National Association of
Securities Dealers, Inc.

    We and our directors and key officers have agreed not to offer, sell,
transfer, pledge, contract to sell, transfer or pledge, or file with the
Securities and Exchange Commission a registration statement under the Securities
Act of 1933, as amended, relating to any additional shares of our common stock
or securities convertible into or exchangeable or exercisable for any of shares
of our common stock without the prior written consent of Robert W. Baird & Co.
Incorporated for a period of 90 days after the date of this prospectus, except
that these restrictions will not apply to our ability to grant employee or
director stock options under the terms of stock option plans in effect on the
date of this prospectus or to issue our common stock upon any exercise of these
options. The restrictions will also not apply to transfers by our directors and
key officers by gift, will, or intestacy so long as the transferee agrees not to
make further transfers of the shares during the 90-day period.

    We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933, as amended, or to contribute to payments that the
underwriters may be required to make in that respect.

    Some of the underwriters and their affiliates have provided, and may provide
in the future, advisory and investment banking services to us, for which they
have received and would receive customary compensation.

    The underwriters may engage in over-allotment transactions, stabilizing
transactions, and syndicate covering transactions in accordance with Regulation
M under the Securities Exchange Act of 1934, as amended.

- -   Stabilizing transactions permit bids to purchase shares of our common stock
    so long as the stabilizing bids do not exceed a specified maximum.

- -   Over-allotment involves sales by the underwriters of shares in excess of the
    number of shares the underwriters are obligated to purchase, which creates a
    syndicate short position.

- -   Syndicate covering transactions involve purchases of our common stock in the
    open market after the distribution has been completed to cover syndicate
    short positions.

    These stabilizing transactions and syndicate covering transactions may cause
the price of our common stock to be higher than the price that might otherwise
exist in the open market. These transactions may be effected on the New York
Stock Exchange or otherwise and, if commenced, may be discontinued at any time.

                                        41
<PAGE>

                      WHERE YOU CAN FIND MORE INFORMATION

    We file annual, quarterly and current reports, proxy statements, and other
information with the Securities and Exchange Commission, or SEC. We have also
filed a registration statement on Form S-3, including exhibits, under the
Securities Act of 1933 with respect to the common stock offered by this
prospectus. This prospectus is a part of the registration statement, but does
not contain all of the information included in the registration statement or the
exhibits. You may read and copy the registration statement and any other
document that we file at the SEC's public reference rooms at 450 Fifth Street,
N.W., Washington D.C., and at regional SEC offices in New York, New York and
Chicago, Illinois. You can call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. You can also find
our public filings with the SEC on the Internet at a web site maintained by the
SEC located at http://www.sec.gov. Our common stock is listed on the New York
Stock Exchange and reports, proxy statements and other information concerning us
can be inspected at the New York Stock Exchange located at 11 Wall Street, New
York, New York 10005.

                   INCORPORATION OF INFORMATION BY REFERENCE

    We are "incorporating by reference" specified documents that we file with
the SEC, which means:

- -   incorporated documents are considered part of this prospectus

- -   we are disclosing important information to you by referring you to those
    documents; and

- -   information we file with the SEC will automatically update and supersede
    information contained in this prospectus

    We incorporate by reference the documents we list below and any future
filings we make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 after the date of this prospectus and before the
end of the offering of our common stock:

- -   our Annual Report on Form 10-K for the year ended December 31, 2001

- -   our Quarterly Report on Form 10-Q for the quarter ended March 31, 2002

- -   our Current Reports on Form 8-K dated December 28, 2001, as amended, and
    April 12, 2002

- -   the description of our common stock contained in our Registration Statement
    on Form 8-A, filed with the SEC on December 9, 1994, including any amendment
    or report filed for the purpose of updating such description

    You may request a copy of any of these filings, at no cost, by writing to
Craig Watson, Director Public Relations, A. O. Smith Corporation, P.O. Box
245008, Milwaukee, Wisconsin 53224-9508, or by calling Mr. Watson at (414)
359-4000.

                                        42
<PAGE>

                                 LEGAL MATTERS


    Some legal matters in connection with the sale of the shares of our common
stock offered by this prospectus will be passed upon for us by Foley & Lardner,
Milwaukee, Wisconsin. Some legal matters will be passed upon for the
underwriters by Michael Best & Friedrich LLP, Madison, Wisconsin. Jere D.
McGaffey, a partner in the law firm of Foley & Lardner, is a director of our
controlling stockholder, Smith Investment Company, and he is a co-trustee of
trusts in which he has no beneficial interest that own approximately 60% of the
capital stock of Smith Investment Company.


                                    EXPERTS

    Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at December 31, 2000 and 2001, and for each of the three
years in the period ended December 31, 2001, as set forth in their report
appearing in this prospectus and registration statement. Ernst & Young LLP also
audited the financial statement schedule incorporated by reference from our
Annual Report on Form 10-K for the year ended December 31, 2001. We have
included our financial statements in the prospectus and elsewhere in the
registration statement and incorporated our financial statement schedule in
reliance on Ernst & Young LLP's report, given on their authority as experts in
accounting and auditing.


    Lattimore Black Morgan & Cain, PC, independent public accountants, have
audited the financial statements of State Industries as set forth in their
report incorporated by reference in this prospectus and registration statement
from our Current Report on Form 8-K dated December 28, 2001, as amended on March
12, 2002. We have incorporated by reference the financial statements of State
Industries in this prospectus and registration statement in reliance on
Lattimore Black Morgan & Cain, PC's report, given on their authority as experts
in accounting and auditing.


                                        43
<PAGE>

                        INDEX TO HISTORICAL CONSOLIDATED
                              FINANCIAL STATEMENTS


<Table>
<Caption>
                                                               PAGE
                                                               ----
<S>                                                            <C>
Consolidated Financial Statements
- ------------------------------------------------------------
Report of Ernst & Young LLP, Independent Auditors...........    F-2
Consolidated Balance Sheets for the Years Ended December 31,
  2000 and 2001.............................................    F-3
Consolidated Statements of Earnings for the Years Ended
  December 31, 1999, 2000 and 2001..........................    F-4
Consolidated Statements of Comprehensive Earnings for the
  Years Ended December 31, 1999, 2000 and 2001..............    F-4
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 2000 and 2001..........................    F-5
Consolidated Statements of Stockholders' Equity for the
  Years Ended December 31, 1999, 2000 and 2001..............    F-6
Notes to Consolidated Financial Statements..................    F-7

Condensed Consolidated Financial Statements (unaudited)
- ------------------------------------------------------------
Condensed Consolidated Balance Sheets as of December 31,
  2001 and March 31, 2002...................................   F-29
Condensed Consolidated Statements of Earnings for the Three
  Months Ended March 31, 2001 and 2002......................   F-30
Condensed Consolidated Statements of Cash Flows for the
  Three Months Ended March 31, 2001 and 2002................   F-31
Notes to Condensed Consolidated Financial Statements........   F-32
</Table>


                                       F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


The Board of Directors and Stockholders
A. O. Smith Corporation


    We have audited the accompanying consolidated balance sheets of A. O. Smith
Corporation as of December 31, 2001 and 2000, and the related consolidated
statements of earnings, comprehensive earnings, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

    We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of A. O. Smith
Corporation at December 31, 2001 and 2000, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in the United States.

                                          /s/ ERNST & YOUNG LLP
Milwaukee, Wisconsin
January 16, 2002

                                       F-2
<PAGE>

CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)

<Table>
<Caption>
                                                                   DECEMBER 31,
                                                              -----------------------
                                                                 2000         2001
                                                              ----------   ----------
<S>                                                           <C>          <C>
                           ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................  $   15,287   $   20,759
Receivables.................................................     169,117      209,871
Inventories.................................................     169,630      194,706
Deferred income taxes.......................................      12,907       22,403
Other current assets........................................       7,789       28,039
Net current assets--discontinued operations.................      22,651        1,796
                                                              ----------   ----------
TOTAL CURRENT ASSETS........................................     397,381      477,574
Net property, plant, and equipment..........................     282,835      355,298
Net goodwill and other intangibles..........................     244,821      301,924
Prepaid pension.............................................      81,958      103,272
Other assets................................................      40,380       55,855
Net long-term assets--discontinued operations...............      17,493           --
                                                              ----------   ----------
     TOTAL ASSETS...........................................  $1,064,868   $1,293,923
                                                              ==========   ==========
                        LIABILITIES
CURRENT LIABILITIES
Notes payable...............................................  $       --   $    3,280
Trade payables..............................................      91,780      131,073
Accrued payroll and benefits................................      27,388       29,525
Accrued liabilities.........................................      26,865       58,443
Product warranty............................................      11,574       19,470
Income taxes................................................       1,695          887
Long-term debt due within one year..........................      11,129       13,272
                                                              ----------   ----------
TOTAL CURRENT LIABILITIES...................................     170,431      255,950
Long-term debt..............................................     316,372      390,385
Product warranty............................................      17,631       50,162
Post-retirement benefit obligation..........................      18,012       17,073
Deferred income taxes.......................................      67,814       62,154
Other liabilities...........................................      26,213       66,321
                                                              ----------   ----------
     TOTAL LIABILITIES......................................     616,473      842,045
Commitments and contingencies (Notes 8 and 13)
                    STOCKHOLDERS' EQUITY
Preferred Stock.............................................          --           --
Class A Common Stock (shares issued 8,722,720 and
  8,686,484)................................................      43,614       43,432
Common Stock (shares issued 23,826,642 and 23,862,878)......      23,827       23,863
Capital in excess of par value..............................      53,521       54,785
Retained earnings...........................................     549,237      551,420
Accumulated other comprehensive loss........................      (5,438)      (6,858)
Treasury stock at cost......................................    (216,366)    (214,764)
                                                              ----------   ----------
     TOTAL STOCKHOLDERS' EQUITY.............................     448,395      451,878
                                                              ----------   ----------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............  $1,064,868   $1,293,923
                                                              ==========   ==========
</Table>

See accompanying notes which are an integral part of these statements.
                                       F-3
<PAGE>


CONSOLIDATED STATEMENTS OF EARNINGS

(Dollars in Thousands, Except Per Share Amounts)

<Table>
<Caption>
                                                                YEARS ENDED DECEMBER 31,
                                                         --------------------------------------
                                                            1999          2000          2001
                                                         ----------    ----------    ----------
<S>                                                      <C>           <C>           <C>
CONTINUING OPERATIONS
  Net sales...........................................   $1,070,339    $1,247,945    $1,151,156
  Cost of products sold...............................      839,572       999,821       948,815
                                                         ----------    ----------    ----------
  Gross profit........................................      230,767       248,124       202,341
  Selling, general, and administrative expenses.......      136,304       153,695       145,742
  Interest expense....................................       12,821        22,102        16,418
  Amortization of intangibles.........................        5,162         6,932         6,956
  Restructuring and other charges.....................           --            --         9,368
  Other (income) expense--net.........................         (612)          307         1,371
                                                         ----------    ----------    ----------
                                                             77,092        65,088        22,486
  Provision for income taxes..........................       26,822        23,432         7,984
                                                         ----------    ----------    ----------
EARNINGS FROM CONTINUING OPERATIONS...................       50,270        41,656        14,502
DISCONTINUED OPERATIONS
  Loss from discontinued operations less related
     income tax benefit 1999--$5,017, and
     2000--$7,772.....................................       (7,848)      (11,903)           --
                                                         ----------    ----------    ----------
NET EARNINGS..........................................   $   42,422    $   29,753    $   14,502
                                                         ==========    ==========    ==========
BASIC EARNINGS (LOSS) PER SHARE OF COMMON STOCK
  Continuing Operations...............................   $     2.17    $     1.78    $     0.61
  Discontinued Operations.............................         (.34)         (.51)           --
                                                         ----------    ----------    ----------
NET EARNINGS..........................................   $     1.83    $     1.27    $     0.61
                                                         ==========    ==========    ==========
DILUTED EARNINGS (LOSS) PER SHARE OF COMMON STOCK
  Continuing Operations...............................   $     2.11    $     1.76    $     0.61
  Discontinued Operations.............................         (.33)         (.50)           --
                                                         ----------    ----------    ----------
NET EARNINGS..........................................   $     1.78    $     1.26    $     0.61
                                                         ==========    ==========    ==========
</Table>


CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(Dollars in Thousands)

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                               -----------------------------
                                                                1999       2000       2001
                                                               -------    -------    -------
<S>                                                            <C>        <C>        <C>
NET EARNINGS................................................   $42,422    $29,753    $14,502
Other comprehensive earnings (loss)
  Foreign currency translation adjustments..................    (1,750)    (2,200)      (981)
  Unrealized net loss on cash flow derivative instruments
     less related income tax benefit of $287................        --         --       (439)
                                                               -------    -------    -------
COMPREHENSIVE EARNINGS......................................   $40,672    $27,553    $13,082
                                                               =======    =======    =======
</Table>

See accompanying notes which are an integral part of these statements.
                                       F-4
<PAGE>


CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                              -------------------------------
                                                                1999        2000       2001
                                                              ---------   --------   --------
<S>                                                           <C>         <C>        <C>
CONTINUING
  OPERATING ACTIVITIES
     Earnings from continuing operations....................  $  50,270   $ 41,656   $ 14,502
     Adjustments to reconcile earnings from continuing
       operations to cash provided by operating activities:
       Depreciation.........................................     30,769     36,582     38,485
       Amortization.........................................      6,546      8,477      8,591
       Net change in current assets and liabilities.........    (24,929)     3,563     11,175
       Net change in noncurrent assets and liabilities......    (13,930)   (15,343)   (22,667)
       Other................................................       (911)       241       (258)
                                                              ---------   --------   --------

  CASH PROVIDED BY OPERATING ACTIVITIES.....................     47,815     75,176     49,828

  INVESTING ACTIVITIES
     Acquisition of businesses..............................   (244,592)        --   (117,988)
     Capital expenditures...................................    (32,807)   (40,516)   (35,318)
                                                              ---------   --------   --------

  CASH USED IN INVESTING ACTIVITIES.........................   (277,399)   (40,516)  (153,306)

  FINANCING ACTIVITIES
     Long-term debt incurred................................    229,677         --     90,565
     Long-term debt retired.................................     (4,629)   (33,379)   (11,129)
     Purchase of treasury stock.............................     (2,773)        --         --
     Net proceeds from common stock and option activity.....      1,149        816      1,407
     Dividends paid.........................................    (11,172)   (11,720)   (12,319)
                                                              ---------   --------   --------

  CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES...........    212,252    (44,283)    68,524

CASH FLOW PROVIDED BY (USED IN) DISCONTINUED OPERATIONS.....     (5,573)    10,149     40,426
                                                              ---------   --------   --------
  Net increase (decrease) in cash and cash equivalents......    (22,905)       526      5,472
  Cash and cash equivalents--beginning of year..............     37,666     14,761     15,287
                                                              ---------   --------   --------
CASH AND CASH EQUIVALENTS--END OF YEAR......................  $  14,761   $ 15,287   $ 20,759
                                                              =========   ========   ========
</Table>

See accompanying notes which are an integral part of these statements.
                                       F-5
<PAGE>


CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(Dollars in Thousands)

<Table>
<Caption>
                                                                 YEARS ENDED DECEMBER 31,
                                                             ---------------------------------
                                                               1999        2000        2001
                                                             ---------   ---------   ---------
<S>                                                          <C>         <C>         <C>
CLASS A COMMON STOCK
  Balance at beginning of year.............................  $  43,688   $  43,615   $  43,614
  Conversion of Class A Common Stock.......................        (73)         (1)       (182)
                                                             ---------   ---------   ---------
  Balance at end of year...................................  $  43,615   $  43,614   $  43,432
                                                             ---------   ---------   ---------
COMMON STOCK
  Balance at beginning of year.............................  $  23,812   $  23,826   $  23,827
  Conversion of Class A Common Stock.......................         14           1          36
                                                             ---------   ---------   ---------
  Balance at end of year...................................  $  23,826   $  23,827   $  23,863
                                                             ---------   ---------   ---------
CAPITAL IN EXCESS OF PAR VALUE
  Balance at beginning of year.............................  $  51,121   $  53,026   $  53,521
  Conversion of Class A Common Stock.......................         59          --         146
  Exercise of stock options................................       (182)        (84)       (116)
  Tax benefit from exercise of stock options...............      1,797         404       1,114
  Stock incentives and directors' compensation.............        231         175         120
                                                             ---------   ---------   ---------
  Balance at end of year...................................  $  53,026   $  53,521   $  54,785
                                                             ---------   ---------   ---------
RETAINED EARNINGS
  Balance at beginning of year.............................  $ 499,954   $ 531,204   $ 549,237
  Net earnings.............................................     42,422      29,753      14,502
  Cash dividends on common stock...........................    (11,172)    (11,720)    (12,319)
                                                             ---------   ---------   ---------
  Balance at end of year...................................  $ 531,204   $ 549,237   $ 551,420
                                                             ---------   ---------   ---------
ACCUMULATED OTHER COMPREHENSIVE LOSS
  Balance at beginning of year.............................  $  (1,488)  $  (3,238)  $  (5,438)
  Foreign currency translation adjustments.................     (1,750)     (2,200)       (981)
  Unrealized net loss on cash flow derivative instruments
     less related income tax benefit of $287...............         --          --        (439)
                                                             ---------   ---------   ---------
  Balance at end of year...................................  $  (3,238)  $  (5,438)  $  (6,858)
                                                             ---------   ---------   ---------
TREASURY STOCK
  Balance at beginning of year.............................  $(215,994)  $(217,349)  $(216,366)
  Purchase of treasury stock...............................     (2,773)         --          --
  Exercise of stock options................................      1,330         901       1,524
  Stock incentives and directors' compensation.............         88          82          78
                                                             ---------   ---------   ---------
  Balance at end of year...................................  $(217,349)  $(216,366)  $(214,764)
                                                             ---------   ---------   ---------
TOTAL STOCKHOLDERS' EQUITY.................................  $ 431,084   $ 448,395   $ 451,878
                                                             =========   =========   =========
</Table>

See accompanying notes which are an integral part of these statements.
                                       F-6
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

    Organization.  A. O. Smith Corporation (the company) is a manufacturer
serving customers worldwide. The company's major product lines include
fractional and integral horsepower alternating current (AC), direct current (DC)
and hermetic electric motors, as well as residential and commercial water
heaters. The company's products are manufactured and marketed primarily in North
America. Electric motors are sold principally to original equipment
manufacturers and industrial distributors. Water heaters are sold principally to
plumbing wholesalers and retail outlets.

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

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

    Fair values.  The carrying amounts of cash and cash equivalents, receivables
and trade payables approximated fair value as of December 31, 2000 and 2001, due
to the short maturities of these instruments. The carrying amount of long-term
debt approximated fair value as of December 31, 2000 and 2001, based on current
rates offered to the company for debt with the same or similar maturities.

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

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

    Inventory valuation.  Inventories are carried at lower of cost or market.
Cost is determined on the last-in, first-out (LIFO) method for substantially all
domestic inventories which comprise 90 percent and 93 percent of the company's
total inventory at December 31, 2000 and 2001, respectively. Inventories of
foreign subsidiaries and supplies are determined using the first-in, first-out
(FIFO) method.

    Property, plant, and equipment.  Property, plant, and equipment are stated
at cost. Depreciation is computed primarily by the straight-line method. The
estimated service lives used to compute depreciation are generally 25 to 50
years for buildings and 5 to 20 years for equipment. Maintenance and repair
costs are expensed as incurred.

                                       F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    Goodwill and other intangibles.  Goodwill is amortized over 40 years. The
amortization period for other intangibles is as follows: patents and licensed
technologies, 5 to 10 years; assembled workforce, 20 to 25 years; and customer
lists, 30 years.

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        2001
                                                                --------    --------
                                                                    (DOLLARS IN
                                                                     THOUSANDS)
<S>                                                             <C>         <C>
Goodwill, at cost...........................................    $248,925    $309,094
Other intangibles, at cost..................................      11,424      15,314
                                                                --------    --------
                                                                 260,349     324,408
Less accumulated amortization...............................      15,528      22,484
                                                                --------    --------
                                                                $244,821    $301,924
                                                                ========    ========
</Table>

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

    Derivative instruments.  Effective January 1, 2001, the company adopted
Statement of Financial Accounting Standards (SFAS) No. 133, as amended, which
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. Any fair value changes are recorded in net earnings or
other comprehensive earnings (loss). The cumulative effect of adopting SFAS No.
133 was not material to the company's consolidated financial statements as of
January 1, 2001.

    The company utilizes certain derivative instruments to enhance its ability
to manage currency exposures and raw material 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 contracts
are executed with major financial institutions with no credit loss anticipated
for failure of the counterparties to perform.

COMMODITY FUTURE CONTRACTS

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

    The commodity futures contracts are designated as cash flow hedges of a
forecasted transaction. Derivative commodity liabilities of $6.9 million are
recorded in accrued liabilities as of December 31, 2001, with the value of the
effective portion of the contracts of $6.9 million recorded in accumulated other
comprehensive earnings (loss) 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 in earnings in the period

                                       F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

in which the ineffectiveness occurs. The impact of hedge ineffectiveness on
earnings was not material for the year ended December 31, 2001.

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.
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. Derivative currency assets of $6.6 million as of December 31, 2001,
are recorded in other current assets. Gains and losses on these instruments are
recorded in other comprehensive earnings (loss) until the underlying transaction
is recorded in earnings. When the hedged item is realized, gains or losses are
reclassified from accumulated other comprehensive earnings (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.

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

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

<Table>
<Caption>
                                                                           DECEMBER 31,
                                                              --------------------------------------
                                                                    2000                 2001
                                                              -----------------    -----------------
                                                                BUY       SELL       BUY       SELL
                                                              -------    ------    -------    ------
                                                                      (DOLLARS IN THOUSANDS)
<S>                                                           <C>        <C>       <C>        <C>
Euro......................................................    $12,400    $1,840    $ 3,900    $1,560
British pound.............................................      1,515     1,532      2,824     1,525
Hungarian forint..........................................      3,135        --      3,394        --
Mexican peso..............................................     64,901        --     74,279        --
                                                              -------    ------    -------    ------
  Total...................................................    $81,951    $3,372    $84,397    $3,085
                                                              =======    ======    =======    ======
</Table>

    The forward contracts in place at December 31, 2000 and 2001, amounted to
approximately 75 percent and 85 percent, respectively, of the company's
anticipated subsequent year exposure for those currencies hedged.

    Revenue recognition.  The company recognizes revenue upon transfer of title,
which generally occurs upon shipment of the product to the customer.

    Compensated absences.  In the second quarter of 2000 and the fourth quarter
of 2001, the company changed its vacation policy for certain employees so that
vacation pay is earned ratably throughout the year and must be used by year-end.
The accrual for compensated absences was reduced by $2.3 and $1.6 million in
2000 and 2001, respectively, to eliminate vacation pay no longer required to be
accrued under the current policy.

                                       F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    Research and development.  Research and development costs are charged to
operations as incurred and amounted to $23.9, $24.5, and $27.6 million for
continuing operations during 1999, 2000, and 2001, respectively.

    Product warranty.  The company offers warranties on the sales of certain of
its products and records an accrual for estimated future claims. Such accruals
are based upon historical experience and management's estimate of the level of
future claims.

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

    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:

<Table>
<Caption>
                                                                1999          2000          2001
                                                             ----------    ----------    ----------
<S>                                                          <C>           <C>           <C>
Denominator for basic earnings per
  share--weighted-average shares.........................    23,220,813    23,396,210    23,648,136
Effect of dilutive stock options.........................       566,540       294,932       266,646
                                                             ----------    ----------    ----------
Denominator for diluted earnings per share...............    23,787,353    23,691,142    23,914,782
                                                             ==========    ==========    ==========
</Table>

    Reclassifications.  Certain prior year amounts have been reclassified to
conform to the 2001 presentation.

    New accounting standards.  In June 2001, the Financial Accounting Standards
Board issued SFAS No. 141, "Business Combinations," and No. 142, "Goodwill and
Other Intangible Assets." Under the new standards, goodwill and indefinite-lived
intangible assets are no longer amortized but are reviewed annually for
impairment. Separable intangible assets that are not deemed to have an
indefinite life will continue to be amortized over their useful lives. The
amortization provisions of SFAS No. 142 apply to goodwill and intangible assets
acquired after June 30, 2001. Accordingly, the goodwill associated with the
December 2001 acquisitions (see Note 2) will not be amortized. With respect to
goodwill and intangible assets acquired prior to July 1, 2001, the company will
apply the new accounting standards beginning January 1, 2002. The company is
currently assessing the financial impact SFAS No. 142 will have on the
Consolidated Financial Statements. The company anticipates that all of the
goodwill amortization of $6.6 million in 2001 will be eliminated as a charge to
operations in 2002.

2. ACQUISITIONS

    On December 28, 2001, the company acquired all of the outstanding stock of
State Industries, Inc. (State). State is a manufacturer of a comprehensive line
of residential and standard commercial water heaters and will nearly double the
size of the company's existing water heater business, while complementing the
existing wholesale channel of distribution with a strong presence in the retail
market. Scale-related synergies also are expected to be achieved as a result of
the acquisition.

                                       F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    The aggregate purchase price was $117.2 million. This was comprised of $57.8
million for the outstanding stock, assumption of $56.3 million of debt, and $3.1
million of acquisition costs of which $1.8 million are unpaid at December 31,
2001. In connection with the State acquisition, additional purchase liabilities
of $3.9 million were recorded for employee severance.

    The following table summarizes the estimated fair value of the assets
acquired and liabilities assumed at the date of acquisition. The company is in
the process of obtaining third-party appraisal of property, plant, and equipment
and valuation of certain intangible assets and, therefore, the allocation of the
purchase price is subject to refinement. The non-deductible goodwill has been
recorded within the Water Systems segment. Of the $3.9 million of acquired
intangible assets, $3.0 million was assigned to trademarks that are not subject
to amortization. The weighted average amortization period of the remaining
acquired intangible assets is expected to be 8.6 years.

<Table>
<Caption>
                                                              DECEMBER 28, 2001
                                                              -----------------
                                                                 (DOLLARS IN
                                                                 THOUSANDS)
<S>                                                           <C>
Current assets..............................................      $102,665
Property, plant and equipment...............................        74,409
Intangible assets...........................................         3,890
Goodwill....................................................        60,123
Other assets................................................           653
                                                                  --------
  Total assets acquired.....................................      $241,740
                                                                  ========
Current liabilities.........................................        74,261
Long-term liabilities.......................................        52,094
                                                                  --------
  Total liabilities assumed.................................       126,355
                                                                  --------
  Net assets acquired.......................................      $115,385
                                                                  ========
</Table>

    On a pro forma basis, the unaudited consolidated results from continuing
operations assuming the State acquisition occurred on January 1, 2000, is as
follows:

<Table>
<Caption>
                                                            YEARS ENDED DECEMBER 31,
                                                           ---------------------------
                                                              2000             2001
                                                           ----------       ----------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                        <C>              <C>
Net sales................................................  $1,572,617       $1,467,261
Earnings from continuing operations......................      33,572           17,604
Earnings per share:
  Basic..................................................        1.43              .74
  Diluted................................................        1.42              .74
</Table>

    The pro forma results have been prepared for informational purposes only and
include adjustments to depreciation expense of acquired plant and equipment,
amortization of intangible assets other than goodwill and trademarks, increased
interest expense on acquisition debt, and certain other adjustments, together
with related income tax effects of such adjustments. Anticipated efficiencies
from the consolidation of manufacturing and commercial

                                       F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

activities and anticipated lower material costs related to the consolidation of
purchasing have been excluded from the pro forma operating results. These pro
forma results do not purport to be indicative of the results of operations that
would have occurred had the purchases been made as of the beginning of the
periods presented or of the results of operations that may occur in the future.

    In December 2001, the company acquired a 100 percent equity interest in
Shenzhen Speeda Industrial Co., Ltd. and will utilize the facility located in
China to manufacture electric motors. The total purchase price of $3.3 million,
including future payments of $.7 million, exceeded the fair value of the assets
acquired (principally plant and equipment) by $.8 million which was recorded as
non-deductible goodwill within the Electrical Products segment.

    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. The acquisition was accounted for using the
purchase method of accounting, and the financial statements include MagneTek's
operating results since the date of acquisition. The purchase price was
allocated to the assets acquired and liabilities assumed based on their
respective fair values at the date of acquisition. The excess of the purchase
price over the fair value of net assets acquired of $104.3 million has been
recorded as goodwill. Other intangibles acquired, customer lists, patents, and
trademarks were assigned fair values aggregating $9.0 million and are being
amortized over periods of 5 to 30 years. In connection with the MagneTek
acquisition, additional purchase liabilities of $17.9 million were recorded
which included employee severance and relocation, as well as certain facility
exit costs. The remaining balance of such purchase liabilities at December 31,
2001, is $6.5 million.

3. DIVESTITURES AND DISCONTINUED OPERATIONS

    On January 17, 2000 (the measurement date), the company, with the approval
of its Board of Directors, decided to divest the company's fiberglass piping and
liquid and dry storage businesses. The combined net sales of these operations
were $118.6 and $129.3 million in 1999 and 2000, respectively.

    On December 8, 2000, the company sold the fiberglass piping business,
operated as Smith Fiberglass Products Company. On January 10, 2001, the company
sold its liquid and dry storage business, operated as Engineered Storage
Products Company. The net after-tax proceeds from the sale of these businesses
were $62 million.

                                       F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    The components of the after-tax loss from discontinued operations included
in the consolidated statement of earnings are as follows:

<Table>
<Caption>
                                                                 YEARS ENDED
                                                                 DECEMBER 31,
                                                              ------------------
                                                               1999       2000
                                                              -------   --------
                                                                 (DOLLARS IN
                                                                  THOUSANDS)
<S>                                                           <C>       <C>
Earnings (loss) from operations:
  Smith Fiberglass Products Company.........................  $(4,355)  $     --
  Engineered Storage Products Company.......................    3,465      3,139
Loss on disposition:
  Smith Fiberglass Products Company.........................   (6,958)    (9,032)
  Engineered Storage Products Company.......................       --     (1,993)
  Automotive Products Company...............................       --     (4,017)
                                                              -------   --------
Net after-tax loss from discontinued operations.............  $(7,848)  $(11,903)
                                                              =======   ========
</Table>

    Certain expenses have been allocated to the operations of the discontinued
businesses, including interest expense, which was allocated based on the ratio
of net assets of the discontinued businesses to the total consolidated capital
of the company.

    The $9.0 million additional loss recorded at the time of the disposition of
the fiberglass piping business in 2000 resulted from recognition of sales
proceeds substantially less than originally anticipated, as the acquisition
financing market, both generally and specific to the potential buyer,
deteriorated to the point where the original transaction was not feasible.
Subsequently, a sales contract containing a substantial reduction in sales
proceeds and other concessions made by the company relative to the assumption of
certain future costs was negotiated. An after-tax loss from operations (in an
amount greater than what was originally anticipated as of the measurement date)
of $.5 million is included in the $9.0 million loss on disposition in 2000.

    As a result of difficult financing conditions prevalent late in 2000,
certain prospective buyers for the storage business withdrew from active
negotiations resulting in a single interested buyer. The company agreed to price
concessions to successfully complete its exit from this business, which resulted
in an unanticipated after-tax loss on disposition for this business of $2.0
million.

    The $4.0 million after-tax loss on disposition in 2000 for the automotive
business consists of two items: $2.8 million ($4.0 million pre-tax) for workers'
compensation costs associated with increased claims having an occurrence date
prior to the 1997 sale of the automotive business for which the company retained
responsibility per the sales contract; and $1.2 million ($2.0 million pre-tax)
for final settlement of a purchase price dispute in the amount of $7.6 million
for which $5.6 million pre-tax reserve had been established at the time of sale.
The $2.8 million adjustment for workers' compensation costs was incremental to a
$12.3 million reserve for workers' compensation retained by the company at the
time of sale.

                                       F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                DECEMBER 31,
                                                              -----------------
                                                               2000      2001
                                                              -------   -------
                                                                 (DOLLARS IN
                                                                 THOUSANDS)
<S>                                                           <C>       <C>
Receivables.................................................  $25,915   $   264
Inventories.................................................    4,138        --
Other current assets........................................    8,737     7,371
Trade payables..............................................   (3,090)       --
Accrued payroll and benefits................................   (2,908)       --
Other current liabilities...................................  (10,141)   (5,839)
                                                              -------   -------
Net current assets..........................................  $22,651   $ 1,796
                                                              =======   =======
Net property, plant, and equipment..........................  $18,266   $    --
Other assets................................................    5,130        --
Long-term liabilities.......................................   (5,903)   (2,078)
                                                              -------   -------
Net long-term assets (liabilities)..........................  $17,493   $(2,078)
                                                              =======   =======
</Table>

    The net long-term liability in 2001 is included in other liabilities in the
consolidated balance sheet.

4. BUSINESS IMPROVEMENT PROGRAMS

    In the fourth quarter of 2001, the company recorded restructuring and other
charges of $9.4 million ($6.0 million after tax, or $.25 per share). The program
is expected to generate pre-tax savings of more than $16.0 million in 2002 and
$20.0 to $25.0 million annually thereafter. The charges include 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 spent $.8 million through December 31, 2001, for
employee severance and separation costs. As a result of actions taken through
December 31, 2001, the workforce has been reduced by approximately 66 employees.
The company expects to be substantially completed with the realignment
activities prior to December 31, 2002.

                                       F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

5. STATEMENT OF CASH FLOWS

    Supplemental cash flow information is as follows:

<Table>
<Caption>
                                                            YEARS ENDED DECEMBER 31,
                                                          ----------------------------
                                                            1999      2000      2001
                                                          --------   -------   -------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                       <C>        <C>       <C>
Net change in current assets and liabilities:
  Receivables...........................................  $ (7,726)  $10,278   $16,159
  Inventories...........................................   (20,158)   (6,187)    6,983
  Other current assets..................................       393      (377)      163
  Trade payables........................................     6,654    10,559     7,265
  Accrued liabilities, including payroll and benefits...    (1,979)   (3,091)   (8,984)
  Income taxes..........................................    (2,113)   (7,619)  (10,411)
                                                          --------   -------   -------
                                                          $(24,929)  $ 3,563   $11,175
                                                          ========   =======   =======
</Table>

6. INVENTORIES


<Table>
<Caption>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        2001
                                                                --------    --------
                                                                    (DOLLARS IN
                                                                     THOUSANDS)
<S>                                                             <C>         <C>
Finished products...........................................    $109,702    $120,231
Work in process.............................................      37,186      40,210
Raw materials...............................................      41,051      58,375
                                                                --------    --------
Inventories, at FIFO cost...................................     187,939     218,816
Allowance to state inventories at LIFO cost.................      18,309      24,110
                                                                --------    --------
                                                                $169,630    $194,706
                                                                ========    ========
</Table>


7. PROPERTY, PLANT, AND EQUIPMENT

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        2001
                                                                --------    --------
                                                                    (DOLLARS IN
                                                                     THOUSANDS)
<S>                                                             <C>         <C>
Land........................................................    $  6,690    $  9,408
Buildings...................................................      99,888     136,189
Equipment...................................................     435,440     491,906
                                                                --------    --------
                                                                 542,018     637,503
Less accumulated depreciation...............................     259,183     282,205
                                                                --------    --------
                                                                $282,835    $355,298
                                                                ========    ========
</Table>

                                       F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

8. LONG-TERM DEBT AND LEASE COMMITMENTS

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        2001
                                                                --------    --------
                                                                    (DOLLARS IN
                                                                     THOUSANDS)
<S>                                                             <C>         <C>
Bank credit lines, average year-end interest rate of 6.6
  percent for 2000 and 4.5 percent for 2001.................    $ 37,770    $ 25,596
Commercial paper, average year-end interest rate of 7.1
  percent for 2000 and 2.3 percent for 2001.................     124,945     104,404
Revolver borrowings, average year-end interest rate of 7.2
  percent for 2000 and 2.3 percent for 2001.................      50,000     120,000
Term notes with insurance companies, expiring through 2018,
  average year-end interest rate of 7.0 percent for 2000 and
  7.1 percent for 2001......................................     102,286     141,157
Other notes, expiring through 2012, average year-end
  interest rate of 4.5 percent for 2000 and 3.2 percent for
  2001......................................................      12,500      12,500
                                                                --------    --------
                                                                 327,501     403,657
Less amount due within one year.............................      11,129      13,272
                                                                --------    --------
                                                                $316,372    $390,385
                                                                ========    ========
</Table>

    The company has a $250 million multi-year revolving credit agreement with a
group of 10 financial institutions, that expires on August 2, 2004. It also has
an $83 million 364-day credit agreement with a group of six banks, that expires
on July 26, 2002. At its option, the company maintains either cash balances or
pays fees for bank credit and services.

    On June 8, 2001, the company issued $50 million in notes under loan
facilities with two insurance companies. The notes range in maturity from 2013
to 2016 and carry an interest rate of 7.3 percent.

    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 $58.5 million were
unrestricted as of December 31, 2001.

    Borrowings under the bank credit lines and in the commercial paper market
that are supported by the multi-year revolving credit agreement have been
classified as long-term. It has been the company's practice to renew or replace
the revolving credit agreement so as to maintain the availability of debt on a
long-term basis and to provide 100 percent backup for its borrowings in the
commercial paper market.

    Long-term debt, maturing within each of the five years subsequent to
December 31, 2001, is as follows: 2002--$13.3; 2003--$11.7; 2004--$8.6;
2005--$8.6; and 2006--$6.9 million.

    Future minimum payments under noncancelable operating leases total $69.0
million and are due as follows: 2002--$15.0; 2003--$12.0; 2004--$10.7;
2005--$6.7; 2006--$5.7 and thereafter--$18.9 million. Rent expense, including
payments under operating leases, was $15.3, $18.3, and $19.0 million in 1999,
2000, and 2001, respectively.

    Interest paid by the company for continuing and discontinued operations, was
$13.8, $24.6, and $16.9 million in 1999, 2000, and 2001, respectively.

                                       F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

9. STOCKHOLDERS' EQUITY

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

    During 1999, 2000, and 2001, 14,655, 200, and 36,236 shares, respectively,
of Class A Common Stock were converted into Common Stock. Regular dividends paid
on the Class A Common and Common Stock amounted to $.48, $.50, and $.52 per
share in 1999, 2000, and 2001, respectively.

    On December 9, 1997, the company's board of directors authorized the
repurchase of up to $50 million of Common Stock of which $21.5 million remains
available at December 31, 2001. At December 31, 2000, 32,595 and 8,967,312
shares of Class A Common Stock and Common Stock, respectively, were held as
treasury stock. At December 31, 2001, 32,595 and 8,730,594, shares of Class A
Common Stock and Common Stock, respectively, were held as treasury stock.

10. STOCK OPTIONS

    The company has two Long-Term Executive Incentive Compensation Plans for
granting nonqualified and incentive stock options to key employees. The 1990
Plan has terminated except as to outstanding options. The 1999 Plan provides for
the issuance of 1.5 million stock options at fair value on the date of grant.
The options granted become exercisable one year from date of grant and, for
active employees, expire ten years after date of grant. The number of shares
available for granting of options at December 31, 2001, was 158,650.

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

<Table>
<Caption>
                                              WEIGHTED-AVERAGE
                                                 PER SHARE             YEARS ENDED DECEMBER 31,
                                                  EXERCISE        -----------------------------------
                                                PRICE - 2001        1999         2000         2001
                                              ----------------    ---------    ---------    ---------
<S>                                           <C>                 <C>          <C>          <C>
Outstanding at beginning of year..........         $12.87         2,022,900    1,979,800    2,448,500
Granted
  1999--$29.03 per share..................                          173,900
  2000--$13.56 to $16.28 per share........                                       632,000
  2001--$15.14 per share..................          15.14                                     510,700
Exercised
  1999--$4.67 to $16.67 per share.........                         (217,000)
  2000--$4.67 to $16.33 per share.........                                      (141,600)
  2001--$5.63 to $16.33 per share.........           6.24                                    (225,600)
Expired
  2000--$18.00 to $27.25 per share........                               --      (21,700)          --
                                                                  ---------    ---------    ---------
Outstanding at end of year
  (2001--$8.67 to $29.83 per share).......          17.01         1,979,800    2,448,500    2,733,600
                                                                  =========    =========    =========
Exercisable at end of year................          17.44         1,805,900    1,816,500    2,222,900
                                                                  =========    =========    =========
</Table>

                                       F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    The following table summarizes weighted-average information by range of
exercise prices for stock options outstanding and exercisable at December 31,
2001:

<Table>
<Caption>
                                                                                                WEIGHTED-
                                    OPTIONS        WEIGHTED-       OPTIONS        WEIGHTED-      AVERAGE
                                 OUTSTANDING AT     AVERAGE     EXERCISABLE AT     AVERAGE      REMAINING
RANGE OF                          DECEMBER 31,     EXERCISE      DECEMBER 31,     EXERCISE     CONTRACTUAL
EXERCISE PRICES                       2001           PRICE           2001           PRICE         LIFE
- ---------------                  --------------    ---------    --------------    ---------    -----------
<S>                              <C>               <C>          <C>               <C>          <C>
$8.67 to $13.56..............        747,100         12.63          747,100         12.63        7 years
$15.14 to $18.33.............      1,636,650         16.62        1,125,950         17.29        6 years
$25.25 to $29.83.............        349,850         28.16          349,850         28.16        7 years
                                   ---------                      ---------
                                   2,733,600                      2,222,900
                                   =========                      =========
</Table>


    SFAS No. 123, "Accounting for Stock-Based Compensation," encourages but does
not require companies to record compensation cost for stock-based employee
compensation plans at fair value. The company has chosen to continue applying
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its stock option
plans. Accordingly, because the number of shares is fixed and the exercise price
of the stock options equals the market price of the underlying stock on the date
of grant, no compensation expense has been recognized.


    Had compensation cost been determined based upon the fair value at the grant
date for awards under the plans based on the provisions of SFAS No. 123, the
company's pro forma earnings and earnings per share from continuing operations
would have been as follows:

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                                             -----------------------------
                                                              1999       2000       2001
                                                             -------    -------    -------
                                                                (DOLLARS IN THOUSANDS,
                                                               EXCEPT PER SHARE AMOUNTS)
<S>                                                          <C>        <C>        <C>
Earnings:
  As reported............................................    $50,270    $41,656    $14,502
  Pro forma..............................................     49,311     40,330     12,727
Earnings per share:
  As reported:
     Basic...............................................    $  2.17    $  1.78    $  0.61
     Diluted.............................................       2.11       1.76       0.61
  Pro forma:
     Basic...............................................       2.12       1.72       0.54
     Diluted.............................................       2.07       1.70       0.53
</Table>

                                       F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

    The weighted-average fair value per option at the date of grant during 1999,
2000, and 2001 using the Black-Scholes option-pricing model, was $9.58, $4.73,
and $5.30, respectively. Assumptions were as follows:

<Table>
<Caption>
                                                                1999      2000      2001
                                                                ----      ----      ----
<S>                                                             <C>       <C>       <C>
Expected life (years).......................................    4.0       5.0        6.0
Risk-free interest rate.....................................    6.5%      5.0%       4.7%
Dividend yield..............................................    2.1%      2.2%       2.3%
Expected volatility.........................................    38.6%     39.9%     37.9%
</Table>

11. PENSION AND OTHER POST-RETIREMENT BENEFITS

    The company provides retirement benefits for all United States employees.
Plan assets consist primarily of marketable equities and debt securities. The
company also has several foreign pension plans, none of which are material to
the company's financial position. Effective January 1, 2001, the company changed
its Executive Supplemental Pension Plan (ESPP) to an unfunded defined benefit
plan. The company also has several unfunded defined benefit post-retirement
plans covering certain hourly and salaried employees that provide medical and
life insurance benefits from retirement to age 65.

    The company has a defined contribution profit sharing and retirement plan
covering the majority of its salaried nonunion employees which provides for
annual company contributions of 35 percent to 140 percent of qualifying
contributions made by participating employees. The amount of the company's
contribution in excess of 35 percent is dependent upon the company's
profitability. The company also has defined contribution plans for certain
hourly employees which provide for annual matching company contributions.

    On December 28, 2001, the company acquired State Industries, Inc., including
its pension and defined contribution benefit plans.

    The company does not provide post-retirement health care benefits beyond age
65. Certain hourly employees retiring after January 1, 1996, are subject to a
maximum annual benefit and salaried employees hired after December 31, 1993, are
not eligible for post-retirement medical benefits. As a result, a one percentage
point change in the health care cost trend rate would not have a significant
effect on the amounts reported. The post-retirement benefit obligation was
determined using an assumed healthcare cost trend rate of nine percent in 2001
trending down to six percent in 2004 and thereafter.

                                       F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                              POST-RETIREMENT
                                                      PENSION BENEFITS           BENEFITS
                                                    ---------------------   -------------------
                                                             YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                      2000        2001        2000       2001
                                                    ---------   ---------   --------   --------
                                                              (DOLLARS IN THOUSANDS)
<S>                                                 <C>         <C>         <C>        <C>
CHANGE IN BENEFIT OBLIGATIONS
Benefit obligation at beginning of year...........  $(530,658)  $(561,771)  $(17,477)  $(17,177)
ESPP benefit obligation at beginning of year......         --      (6,963)        --         --
Service cost......................................     (6,631)     (5,900)      (271)      (258)
Interest cost.....................................    (40,926)    (41,579)    (1,267)    (1,227)
Participant contributions.........................         --          --       (264)      (387)
Plan amendments...................................         --        (542)        --         --
Actuarial gains (losses) including assumption
  changes.........................................    (23,084)    (15,759)        79          2
Acquisition.......................................         --     (64,642)        --         --
Benefits paid.....................................     39,528      46,669      2,023      2,592
                                                    ---------   ---------   --------   --------
Benefit obligation at end of year.................  $(561,771)  $(650,487)  $(17,177)  $(16,455)
                                                    =========   =========   ========   ========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year....  $ 755,487   $ 737,119   $     --   $     --
Actual return on plan assets......................     21,160     (35,967)        --         --
Contribution by the company.......................         --         946      1,759      2,205
Participant contributions.........................         --          --        264        387
Acquisition.......................................         --      48,899         --         --
Benefits paid.....................................    (39,528)    (46,669)    (2,023)    (2,592)
                                                    ---------   ---------   --------   --------
Fair value of plan assets at end of year..........  $ 737,119   $ 704,328   $     --   $     --
                                                    =========   =========   ========   ========
FUNDED STATUS.....................................  $ 175,348   $  53,841   $(17,177)  $(16,455)
Unrecognized net actuarial loss (gain)............    (97,503)     22,290     (1,845)    (1,781)
Unrecognized net transition asset.................       (499)         --         --         --
Unrecognized prior service cost (credit)..........      4,612       7,780       (677)      (525)
                                                    ---------   ---------   --------   --------
Net amount recognized.............................  $  81,958   $  83,911   $(19,699)  $(18,761)
                                                    =========   =========   ========   ========
Amounts recognized in the statement of financial
  position consist of:
  Prepaid pension asset...........................  $  81,958   $ 103,272   $     --   $     --
  Accrued benefit liability.......................         --     (19,361)    (1,687)    (1,688)
  Post-retirement benefit obligation..............         --          --    (18,012)   (17,073)
                                                    ---------   ---------   --------   --------
Net amount recognized.............................  $  81,958   $  83,911   $(19,699)  $(18,761)
                                                    =========   =========   ========   ========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.....................................       7.50%       7.25%      7.50%      7.25%
Expected return on plan assets....................      10.25%      10.00%       n/a        n/a
Rate of compensation increase.....................       4.00%       4.00%      4.00%      4.00%
</Table>

                                       F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


<Table>
<Caption>
                                          PENSION BENEFITS             POST-RETIREMENT BENEFITS
                                      YEARS ENDED DECEMBER 31,         YEARS ENDED DECEMBER 31,
                                  --------------------------------    --------------------------
                                    1999        2000        2001       1999      2000      2001
                                  --------    --------    --------    ------    ------    ------
                                                      (DOLLARS IN THOUSANDS)
<S>                               <C>         <C>         <C>         <C>       <C>       <C>
COMPONENTS OF NET PERIODIC
  BENEFIT COST
Service cost....................  $  4,890    $  6,631    $  5,900    $  338    $  271    $  258
Interest cost...................    36,314      40,926      41,579     1,195     1,267     1,227
Expected return on plan
  assets........................   (56,598)    (64,854)    (68,067)       --        --        --
Amortization of prior service
  cost..........................       502         559         937      (152)     (152)     (152)
Amortization of transition
  asset.........................      (939)       (939)       (499)       --        --        --
Amortization of net actuarial
  gain..........................        --          --          --       (59)      (82)      (66)
                                  --------    --------    --------    ------    ------    ------
Defined benefit plan cost
  (income)......................  $(15,831)   $(17,677)   $(20,150)   $1,322    $1,304    $1,267
                                                                      ======    ======    ======
Various U.S. defined
  contribution plans cost.......     5,087       3,559       2,418
                                  --------    --------    --------
                                  $(10,744)   $(14,118)   $(17,732)
                                  ========    ========    ========
</Table>


    The company did not have any pension plans with accumulated benefit
obligations in excess of plan assets at December 31, 2000. The projected benefit
obligation, accumulated benefit obligation, and fair value of plan assets for
the pension plans with accumulated benefit obligations in excess of plan assets
were $71,561, $68,104 and $48,899, respectively, as of December 31, 2001.

    Net periodic benefit cost is determined using the assumptions as of the
beginning of the year. The funded status is determined using the assumptions as
of the end of the year.

12. INCOME TAXES

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

<Table>
<Caption>
                                                            YEARS ENDED DECEMBER 31,
                                                          ----------------------------
                                                           1999      2000       2001
                                                          -------   -------   --------
                                                             (DOLLARS IN THOUSANDS)
<S>                                                       <C>       <C>       <C>
Current:
  Federal...............................................  $11,810   $ 3,964   $(10,100)
  State.................................................    2,399       428        (12)
  International.........................................    1,339     3,581      2,426
Deferred................................................   11,274    15,459     15,670
                                                          -------   -------   --------
                                                          $26,822   $23,432   $  7,984
                                                          =======   =======   ========
</Table>

                                       F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                                   YEARS ENDED
                                                                   DECEMBER 31,
                                                              ----------------------
                                                              1999     2000     2001
                                                              -----    -----    ----
                                                                   (DOLLARS IN
                                                                    THOUSANDS)
<S>                                                           <C>      <C>      <C>
Provision at U.S. federal statutory rate....................  35.0%    35.0%    35.0%
International income tax rate differential..................  (1.8)    (1.1)     2.2
State income and franchise taxes............................   3.6      3.0      (.8)
Research tax credits........................................  (1.8)     (.1)    (1.3)
Other.......................................................   (.2)     (.8)      .4
                                                              ----     ----     ----
                                                              34.8%    36.0%    35.5%
                                                              ====     ====     ====
</Table>

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

<Table>
<Caption>
                                                               YEARS ENDED DECEMBER 31,
                                                             -----------------------------
                                                              1999       2000       2001
                                                             -------    -------    -------
                                                                (DOLLARS IN THOUSANDS)
<S>                                                          <C>        <C>        <C>
United States............................................    $76,201    $57,845    $18,939
International............................................        891      7,243      3,547
                                                             -------    -------    -------
                                                             $77,092    $65,088    $22,486
                                                             =======    =======    =======
</Table>

    Total taxes paid (tax refunds received) by the company for continuing and
discontinued operations amounted to $11.6, $13.1, and $(2.7) million in 1999,
2000, and 2001, respectively.

    No provision for U.S. income taxes or foreign taxes has been made on the
undistributed earnings of foreign subsidiaries as such earnings are considered
to be permanently invested. At December 31, 2001, the undistributed earnings
amounted to $38.5 million. Determination of the amount of unrecognized deferred
tax liability on the undistributed earnings is not practicable. In addition, no
provision or benefit for U.S. income taxes have been made on foreign currency
translation gains or losses.

                                       F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

<Table>
<Caption>
                                                 DECEMBER 31, 2000       DECEMBER 31, 2001
                                               ---------------------   ---------------------
                                               ASSETS    LIABILITIES   ASSETS    LIABILITIES
                                               -------   -----------   -------   -----------
                                                          (DOLLARS IN THOUSANDS)
<S>                                            <C>       <C>           <C>       <C>
Employee benefits............................  $19,261     $33,791     $25,605    $ 42,125
Inventory....................................    1,134          --          --       3,363
Receivables..................................       --       4,697          --      10,111
Product liability and warranty...............   11,814          --      40,986          --
Depreciation differences.....................       --      27,781          --      42,781
Amortization differences.....................       --      13,094          --      17,941
Tax loss and credit carryovers...............       --          --       9,946          --
All other....................................       --       7,753          33          --
                                               -------     -------     -------    --------
                                               $32,209     $87,116     $76,570    $116,321
                                               =======     =======     =======    ========
Net liability................................              $54,907                $ 39,751
                                                           =======                ========
</Table>

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

<Table>
<Caption>
                                                                    DECEMBER 31,
                                                                --------------------
                                                                  2000        2001
                                                                --------    --------
                                                                    (DOLLARS IN
                                                                     THOUSANDS)
<S>                                                             <C>         <C>
Current deferred income tax assets..........................    $ 12,907    $ 22,403
Long-term deferred income tax liabilities...................     (67,814)    (62,154)
                                                                --------    --------
Net liability...............................................    $ 54,907    $ 39,751
                                                                ========    ========
</Table>

    As a result of the acquisition of State Industries, Inc., the company has
$19 million of federal net operating loss carryovers that expire between 2018
and 2021, $7.8 million of federal capital loss carryovers that expire in 2006,
$2.0 million of contribution carryovers that expire between 2002 and 2006, and
$2.5 million of tax credits, the majority of which have an unlimited carryover
period. Due to a change in State Industries, Inc. ownership, the annual
limitation for utilization of the federal tax carryovers is the equivalent of
$2.7 million of deductions.

    The company also has approximately $140 million of state and local net
operating loss carryovers. The majority of these carryovers expire between 2010
and 2021.

13. LITIGATION AND INSURANCE MATTERS

    The company and the newly acquired State Industries, Inc. (State) are
involved in various unresolved legal actions, administrative proceedings, and
claims in the ordinary course of its business involving product liability,
property damage, insurance coverage, patents, and environmental matters,
including the disposal of hazardous waste. Although it is not possible to
predict with certainty the outcome of these unresolved legal actions or the
range of possible loss or recovery, the company believes these unresolved legal
actions will not have a

                                       F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

material effect on its financial position or results of operations. The
following paragraphs summarize noteworthy actions and proceedings.

    On July 16, 1999, a class action lawsuit was filed in the United States
District Court, Western District of Missouri, by individuals on behalf of
themselves and all persons throughout the United States who have owned or
currently own a water heater manufactured by Rheem Manufacturing Company, A. O.
Smith Corporation, Bradford White Company, American Water Heater Company,
Lochinvar Corporation, and State Industries, Inc. (the "water heater
manufacturers") that contains a dip tube manufactured, designed, supplied, or
sold by Perfection Corporation between August 1993 and October 1996. A dip tube
is a plastic tube in a residential water heater that brings the cold water
supply to the bottom area of the tank to be heated.

    The plaintiffs and defendants reached a settlement of the claims of this
litigation. On November 22, 1999, the United States District Court, Western
District of Missouri, entered an order giving preliminary approval to the
settlement. On May 1, 2000, the District Court, which oversees the dip tube
class action, gave final approval to the settlement. The final order approved
the remedial system provided for in the settlement agreement. The deadline for
filing claims under the class action settlement agreement was December 31, 2000.
The water heater manufacturers paid the settlement claims. All other legal
actions brought against the water heater manufacturers respecting dip tube
claims have been dismissed as a result of the settlement of the class action.

    Separately, the water heater manufacturers filed a direct action lawsuit in
the Civil District Court for the Parish of Orleans, State of Louisiana, against
Perfection Corporation and American Meter Company, the parent company of
Perfection: Manner Plastics Materials, Inc., the developer of the polypropylene
formula which it sold to Perfection Corporation: and their insurers. This
lawsuit seeks (1) recovery of damages sustained by the water heater
manufacturers related to the costs of the class action settlement and the
handling of dip tube claims outside of and prior to the national class action
settlement, (2) damages for the liability of the water heater manufacturers
assumed by Perfection Corporation by contract, and (3) personal injuries
suffered by the water heater manufacturers as a result of the disparagement of
their businesses. Also relating to the water heater manufacturers' recovery
efforts, the insurers of Perfection Corporation have brought third-party claims
against the water heater manufacturers in a state court action in Cook County,
Illinois. Perfection Corporation has also sued the water heater manufacturers in
a separate action in Cook County, Illinois. The filing by Perfection Corporation
is an attempt to preempt the Louisiana lawsuit.

    As of December 31, 2001, the company recorded a long-term receivable of
$32.8 million (as detailed below) related to dip tube repair claims,
administrative costs, legal fees and related expenses. It is the company's
expectation that all or a substantial portion of its costs will be

                                       F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

recovered from Perfection, American Meter Company, Manner Plastics Materials,
Inc., and their insurers, as well as the company's insurers.

<Table>
<Caption>
                                                  1999                                CUMULATIVE
                                                AND PRIOR     2000       2001      DECEMBER 31, 2001
                                                ---------    -------    -------    -----------------
                                                               (DOLLARS IN THOUSANDS)
<S>                                             <C>          <C>        <C>        <C>
Repair claim payments.......................     $2,537      $ 6,268    $13,378         $22,183
Administrative costs........................      1,021        2,009      4,503           7,533
Legal fees..................................        490        2,085        470           3,045
                                                 ------      -------    -------         -------
Total funding...............................     $4,048      $10,362    $18,351         $32,761
                                                 ======      =======    =======         =======
</Table>

    State is a defendant in three lawsuits pending at December 31, 2001, in
state courts in Texas, California, and Alabama. The plaintiffs in each of these
lawsuits are claiming they purchased a water heater manufactured by State which
was defective, causing the plaintiffs to incur expenses for repair, replacement,
or property damages. State ceased manufacturing this type water heater in 1999.
The plaintiffs in each lawsuit are seeking class action status. The Texas
lawsuit was certified by the trial court as a class action in 1999.
Subsequently, State and the class representatives entered into a settlement
agreement which provided compensation for the class members. As a result of a
class member's objection to the settlement, the appellate court, in reviewing
the certification of the class and the objection to the settlement, overruled
the trial court and in 2001 ordered the decertification of the class action. The
Texas Supreme Court affirmed the appellate court decision. State filed a
separate lawsuit, which is pending in the federal District Court in Dallas,
Texas, against the class representatives seeking to have the court declare that
State has no obligation under the settlement agreement. State is vigorously
contesting all of the claims in the three lawsuits. The company believes that
were there to be an adverse outcome with these lawsuits, it would not be
material to the company's financial condition. The insurer of State is disputing
the insurability of these claims. State and its insurer are suing each other in
a lawsuit, which is pending in the federal District Court in Nashville,
Tennessee, respectively seeking a declaration concerning the coverage provided,
if any, by the insurance policies for these claims.

    The company is currently involved as a potentially responsible party ("PRP")
in judicial and administrative proceedings initiated on behalf of various state
and federal regulatory agencies seeking to clean up 12 sites which have been
environmentally impacted (the "Sites") and to recover costs they have incurred
or will incur as to the Sites. State is not involved in any environmentally
impacted sites. The company previously reported that it was a defendant in two
separate lawsuits involving a former mine in Colorado that is being remediated
by the United States Environmental Protection Agency ("EPA"). The claims against
the company have been dismissed by the trial court in both of those actions.
While the State of Colorado retains the right to appeal the trial court's
decision in one of those actions, the company believes that the trial court's
well-reasoned decision would be upheld on any appeal brought by the State of
Colorado. Since the EPA has indicated that it does not intend to pursue any
claims against the company with respect to this site, the company should have no
further potential liability with respect to the site.

    It is impossible at this time to estimate the total cost of remediation for
the Sites or the company's ultimate share of those costs, primarily because the
Sites are in various stages of the remediation process and issues remain open at
many Sites concerning the selection and

                                       F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

implementation of the final remedy, the cost of that remedy, and the company's
liability at a Site relative to the liability and viability of the other PRPs.

    The company has established reserves for the Sites in a manner that is
consistent with generally accepted accounting principles for costs associated
with such cleanups when those costs are capable of being reasonably estimated.
To the best of the company's knowledge, the reserves it has established and
insurance proceeds that are available to the company are sufficient to cover the
company's liability. The company further believes its insurers have the
financial ability to pay any such covered claims, and there are viable PRPs at
each of the Sites which have the financial ability to pay their respective
shares of liability at the sites.

    With respect to non-environmental claims, the company has self-insured a
portion of its product liability loss exposure and other business risks for many
years. The company has established reserves which it believes are adequate to
cover incurred claims. For the year ended December 31, 2001, the company had
$125 million of third-party product liability insurance for individual losses in
excess of $1.5 million and for aggregate annual losses in excess of $10 million;
State had $100 million of third-party product liability insurance for individual
losses in excess of $3.0 million and for aggregate annual losses in excess of $8
million. The company reevaluates its exposure on claims periodically and makes
adjustments to its reserves as appropriate.

14. OPERATIONS BY SEGMENT

    The company has two reportable segments: Electrical Products and Water
Systems. The Electrical Products segment manufactures fractional and integral
alternating current (AC) and direct current (DC) motors used in fans and blowers
in furnaces, air conditioners, and ventilating systems; industrial applications
such as material handling; as well as in other consumer products such as home
appliances and jet pump motors, swimming pools, hot tubs, and spas. In addition,
the Electrical Products segment manufactures hermetic motors which are sold
worldwide to manufacturers of compressors used in air conditioning and
refrigeration systems. The Water Systems segment manufactures residential gas
and electric water heaters as well as commercial water heating equipment used in
a wide range of applications including hotels, laundries, car washes, factories,
and large institutions. In addition, the Water Systems segment manufactures
copper tube boilers used in large-volume hot water and hydronic heating
applications.

    The accounting policies of the reportable segments are the same as those
described in the "Summary of Significant Accounting Policies" outlined in Note
1. Intersegment sales have been excluded from segment revenues and are
immaterial. Earnings before interest and taxes (EBIT) is used to measure the
performance of the segments and allocate resources.

                                       F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

OPERATIONS BY SEGMENT

<Table>
<Caption>
                                                 EARNINGS FROM
                                                   CONTINUING
                                                   OPERATIONS
                                           --------------------------                NET SALES
                                                  YEARS ENDED            ---------------------------------
                                                  DECEMBER 31,               YEARS ENDED DECEMBER 31,
                                           --------------------------    ---------------------------------
                                            1999      2000      2001       1999        2000         2001
                                           ------    ------    ------    --------    ---------    --------
                                                                (DOLLARS IN MILLIONS)
<S>                                        <C>       <C>       <C>       <C>         <C>          <C>
Electrical Products....................    $ 78.9    $ 75.5    $ 20.8    $  735.0    $  902.4     $  802.7
Water Systems..........................      33.8      34.9      39.2       335.3       345.5        348.5
                                           ------    ------    ------    --------    --------     --------
Total Segments--EBIT...................     112.7     110.4      60.0    $1,070.3    $1,247.9     $1,151.2
                                                                         ========    ========     ========
General Corporate and Research and
  Development Expenses.................     (22.8)    (23.2)    (21.1)
Interest Expense.......................     (12.8)    (22.1)    (16.4)
                                           ------    ------    ------
Earnings from Continuing Operations
  before Income Taxes..................      77.1      65.1      22.5
Provision for Income Taxes.............     (26.8)    (23.4)     (8.0)
                                           ------    ------    ------
Earnings from Continuing Operations....    $ 50.3    $ 41.7    $ 14.5
                                           ======    ======    ======
</Table>


    Net sales of the Electrical Products segment includes sales to York
International Corporation of $191.3 million, $182.9 million, and $171.9 million
in 1999, 2000, and 2001, respectively.


TOTAL ASSETS, DEPRECIATION AND AMORTIZATION, AND CAPITAL EXPENDITURES BY SEGMENT

<Table>
<Caption>
                                                             DEPRECIATION AND             CAPITAL
                                                               AMORTIZATION            EXPENDITURES
                                   TOTAL ASSETS            ---------------------   ---------------------
                          ------------------------------        YEARS ENDED             YEARS ENDED
                                   DECEMBER 31                  DECEMBER 31             DECEMBER 31
                          ------------------------------   ---------------------   ---------------------
                            1999       2000       2001     1999    2000    2001    1999    2000    2001
                          --------   --------   --------   -----   -----   -----   -----   -----   -----
                                                      (DOLLARS IN MILLIONS)
<S>                       <C>        <C>        <C>        <C>     <C>     <C>     <C>     <C>     <C>
Electrical Products.....  $  705.1   $  700.6   $  680.3   $27.3   $34.7   $37.0   $27.0   $35.6   $29.5
Water Systems...........     177.4      182.8      420.6     8.8     9.0     8.9     5.6     4.6     5.7
                          --------   --------   --------   -----   -----   -----   -----   -----   -----
Total Segments..........     882.5      883.4    1,100.9    36.1    43.7    45.9    32.6    40.2    35.2
Corporate Assets........     120.9      141.4      191.2     1.2     1.3     1.2     0.2     0.3     0.1
Discontinued
  Operations............      62.2       40.1        1.8     5.3     5.6      --     5.1     1.5      --
                          --------   --------   --------   -----   -----   -----   -----   -----   -----
Total...................  $1,065.6   $1,064.9   $1,293.9   $42.6   $50.6   $47.1   $37.9   $42.0   $35.3
                          ========   ========   ========   =====   =====   =====   =====   =====   =====
</Table>

    Corporate assets consist primarily of cash and cash equivalents, deferred
income taxes, and prepaid pension.

NET SALES AND LONG-LIVED ASSETS BY GEOGRAPHIC LOCATION

    The following data by geographic area includes net sales based on product
shipment destination and long-lived assets based on physical location.
Long-lived assets include net

                                       F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

property, plant, and equipment and other long-term assets and exclude prepaid
pension, intangible assets, and long-lived assets of discontinued operations.

<Table>
<Caption>
                          LONG-LIVED ASSETS                                       NET SALES
                       ------------------------                         ------------------------------
                        1999     2000     2001                            1999       2000       2001
                       ------   ------   ------                         --------   --------   --------
                        (DOLLARS IN MILLIONS)                               (DOLLARS IN MILLIONS)
<S>                    <C>      <C>      <C>       <C>                  <C>        <C>        <C>
United States........  $192.1   $200.1   $283.4    United States......  $  959.7   $1,108.9   $  984.4
Mexico...............    91.7     98.7    102.0    Foreign............     110.6      139.0      166.8
                                                                        --------   --------   --------
Other Foreign........    28.5     24.4     25.8    Total..............  $1,070.3   $1,247.9   $1,151.2
                       ------   ------   ------                         ========   ========   ========
Total................  $312.3   $323.2   $411.2
                       ======   ======   ======
</Table>

15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

<Table>
<Caption>
                                    1ST QUARTER       2ND QUARTER       3RD QUARTER       4TH QUARTER
                                  ---------------   ---------------   ---------------   ---------------
                                   2000     2001     2000     2001     2000     2001     2000     2001
                                  ------   ------   ------   ------   ------   ------   ------   ------
                                             (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                               <C>      <C>      <C>      <C>      <C>      <C>      <C>      <C>
Net sales.......................  $344.6   $318.2   $341.3   $308.3   $290.8   $269.1   $271.2   $255.6
Gross profit....................    73.4     58.8     73.5     58.6     54.3     42.6     46.9     42.3
Earnings
  Continuing....................    14.2      8.5     17.6     10.7      7.3      0.4      2.5     (5.1)
  Discontinued..................     0.4       --       --       --      1.5       --    (13.8)      --
                                  ------   ------   ------   ------   ------   ------   ------   ------
  Net Earnings..................    14.6      8.5     17.6     10.7      8.8      0.4    (11.3)    (5.1)
                                  ======   ======   ======   ======   ======   ======   ======   ======
Basic earnings per share
  Continuing....................     .61      .36      .75      .45      .31      .02      .11     (.21)
  Discontinued..................     .02       --       --       --      .07       --     (.59)      --
                                  ------   ------   ------   ------   ------   ------   ------   ------
  Net Earnings..................     .63      .36      .75      .45      .38      .02     (.48)    (.21)
                                  ======   ======   ======   ======   ======   ======   ======   ======
Diluted earnings per share
  Continuing....................     .60      .36      .74      .45      .31      .02      .11     (.21)
  Discontinued..................     .02       --       --       --      .06       --     (.58)      --
                                  ------   ------   ------   ------   ------   ------   ------   ------
  Net Earnings..................     .62      .36      .74      .45      .37      .02     (.47)    (.21)
                                  ======   ======   ======   ======   ======   ======   ======   ======
Common dividends declared.......     .12      .13      .12      .13      .13      .13      .13      .13
                                  ======   ======   ======   ======   ======   ======   ======   ======
</Table>

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

    See Note 8 for restrictions on the payment of dividends.

                                       F-28
<PAGE>


CONDENSED CONSOLIDATED BALANCE SHEETS


(Dollars in Thousands)



<Table>
<Caption>
                                                                               (UNAUDITED)
                                                          DECEMBER 31, 2001   MARCH 31, 2002
                                                          -----------------   --------------
<S>                                                       <C>                 <C>
                         ASSETS
CURRENT ASSETS
Cash and cash equivalents...............................     $   20,759         $   21,851
Receivables.............................................        209,871            237,690
Inventories.............................................        194,706            192,578
Deferred income taxes...................................         22,403             18,878
Other current assets....................................         28,039             16,456
Net current assets--discontinued operations.............          1,796                 --
                                                             ----------         ----------
TOTAL CURRENT ASSETS....................................        477,574            487,453
Property, plant and equipment...........................        637,503            641,804
Less accumulated depreciation...........................        282,205            292,817
                                                             ----------         ----------
Net property, plant and equipment.......................        355,298            348,987
Goodwill................................................        295,073            295,723
Other intangible assets.................................          6,851              6,480
Other assets............................................        159,127            166,579
                                                             ----------         ----------
     TOTAL ASSETS.......................................     $1,293,923         $1,305,222
                                                             ==========         ==========
                      LIABILITIES
CURRENT LIABILITIES
Notes payable...........................................     $    3,280         $       --
Trade payables..........................................        131,073            138,191
Accrued payroll and benefits............................         29,525             31,464
Accrued liabilities.....................................         58,443             55,949
Product warranty........................................         19,470             19,155
Income taxes............................................            887              2,419
Long-term debt due within one year......................         13,272             13,272
Net current liabilities--discontinued operations........             --              2,902
                                                             ----------         ----------
TOTAL CURRENT LIABILITIES...............................        255,950            263,352
Long-term debt..........................................        390,385            378,867
Other liabilities.......................................        133,556            130,277
Deferred income taxes...................................         62,154             66,577
                                                             ----------         ----------
     TOTAL LIABILITIES..................................        842,045            839,073

                  STOCKHOLDERS' EQUITY
Class A common stock, $5 par value: authorized
  14,000,000 shares; issued 8,671,584...................         43,432             43,358
Common stock, $1 par value: authorized 60,000,000
  shares; issued 23,877,778.............................         23,863             23,878
Capital in excess of par value..........................         54,785             55,697
Retained earnings.......................................        551,420            560,448
Accumulated other comprehensive loss....................         (6,858)            (2,815)
Treasury stock at cost..................................       (214,764)          (214,417)
                                                             ----------         ----------
     TOTAL STOCKHOLDERS' EQUITY.........................        451,878            466,149
                                                             ----------         ----------
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.........     $1,293,923         $1,305,222
                                                             ==========         ==========
</Table>



See accompanying notes to unaudited condensed consolidated financial statements.

                                       F-29
<PAGE>


CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS


(UNAUDITED)


(Dollars in Thousands, Except Per Share Amounts)



<Table>
<Caption>
                                                                  THREE MONTHS
                                                                ENDED MARCH 31,
                                                              --------------------
                                                                2001        2002
                                                              --------    --------
<S>                                                           <C>         <C>
Electrical Products.........................................  $226,253    $196,234
Water Systems...............................................    91,982     175,693
                                                              --------    --------
  Net sales.................................................   318,235     371,927
Cost of products sold.......................................   259,440     295,026
                                                              --------    --------
  Gross profit..............................................    58,795      76,901
Selling, general and administrative expenses................    38,123      53,204
Interest expense............................................     4,801       4,177
Amortization of intangibles.................................     1,733          81
Other expense--net..........................................       599         789
                                                              --------    --------
                                                                13,539      18,650
Provision for income taxes..................................     5,010       6,528
                                                              --------    --------
  NET EARNINGS..............................................  $  8,529    $ 12,122
                                                              ========    ========
EARNINGS PER COMMON SHARE
  Basic.....................................................  $   0.36    $   0.51
                                                              ========    ========
  Diluted...................................................  $   0.36    $   0.50
                                                              ========    ========
DIVIDENDS PER COMMON SHARE..................................  $   0.13    $   0.13
                                                              ========    ========
</Table>



See accompanying notes to unaudited condensed consolidated financial statements.

                                       F-30
<PAGE>


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


(UNAUDITED)


(Dollars in Thousands)



<Table>
<Caption>
                                                                 THREE MONTHS
                                                                     ENDED
                                                                   MARCH 31,
                                                              -------------------
                                                                2001       2002
                                                              --------   --------
<S>                                                           <C>        <C>
CONTINUING
  OPERATING ACTIVITIES
       Earnings from continuing operations..................  $  8,529   $ 12,122
       Adjustments to reconcile net earnings to net cash
        provided by operating activities:
            Depreciation....................................     9,291     11,941
            Amortization....................................     2,120        356
            Net change in current assets and liabilities....   (27,610)     3,024
            Net change in other noncurrent assets and
              liabilities...................................    (5,832)    (5,516)
            Other...........................................       218        927
                                                              --------   --------
  CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES...........   (13,284)    22,854
  INVESTING ACTIVITIES
       Capital expenditures.................................    (9,520)    (7,080)
       Acquisition of business..............................        --     (2,050)
                                                              --------   --------
  CASH USED IN INVESTING ACTIVITIES.........................    (9,520)    (9,130)
  CASH FLOW BEFORE FINANCING ACTIVITIES.....................   (22,804)    13,724
  FINANCING ACTIVITIES
       Long-term debt retired...............................   (20,666)   (14,798)
       Net proceeds from common stock and option activity...       101        815
       Dividends paid.......................................    (3,061)    (3,094)
                                                              --------   --------
  CASH USED IN FINANCING ACTIVITIES.........................   (23,626)   (17,077)
CASH PROVIDED BY DISCONTINUED OPERATIONS....................    44,201      4,445
                                                              --------   --------
     Net increase (decrease) in cash and cash equivalents...    (2,229)     1,092
     Cash and cash equivalents-beginning of period..........    15,287     20,759
                                                              --------   --------
CASH AND CASH EQUIVALENTS--END OF PERIOD....................  $ 13,058   $ 21,851
                                                              ========   ========
</Table>



See accompanying notes to unaudited condensed consolidated financial statements.

                                       F-31
<PAGE>


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


MARCH 31, 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-month period ended March 31, 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 $117.5 million. This was comprised of $57.8 million for the
outstanding stock, assumption of $56.3 million of debt, and $3.4 million of
acquisition costs, of which $2.1 million were paid during the three-month period
ended March 31, 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 March 31, 2002, total costs incurred and charged against this
liability to date totaled $0.6 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 March 31, 2002 is
$6.0 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 spent $1.5
million through March 31, 2002 for employee severance and separation costs. As a
result of actions taken through March 31, 2002, the workforce has been reduced
by approximately 94 employees. The company expects to be substantially completed
with the realignment activities prior to December 31, 2002.


                                       F-32
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



4. INVENTORIES (DOLLARS IN THOUSANDS)



<Table>
<Caption>
                                                  DECEMBER 31, 2001   MARCH 31, 2002
                                                  -----------------   --------------
<S>                                               <C>                 <C>
Finished products...............................      $120,231           $125,155
Work in process.................................        40,210             37,228
Raw materials...................................        58,375             54,305
                                                      --------           --------
                                                       218,816            216,688
Allowance to state inventories at LIFO cost.....        24,110             24,110
                                                      --------           --------
                                                      $194,706           $192,578
                                                      ========           ========
</Table>



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 first quarter of 2002
consist of the following (Dollars in thousands).



<Table>
<Caption>
                                                       ELECTRICAL     WATER
                                                        PRODUCTS     SYSTEMS     TOTAL
                                                       ----------   ---------   --------
<S>                                                    <C>          <C>         <C>
Balance at December 31, 2001.........................   $230,004     $65,069    $295,073
Adjustment to property, plant and equipment and other
  assets.............................................        (37)        328         291
Additional acquisition costs.........................         --         359         359
                                                        --------     -------    --------
Balance at March 31, 2002............................   $229,967     $65,756    $295,723
                                                        ========     =======    ========
</Table>



    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 three-


                                       F-33
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



month period ended March 31, 2001 if SFAS No. 142 had been adopted effective
January 1, 2001 (Dollars in thousands, except per share amounts):



<Table>
<Caption>
                                                               THREE MONTHS ENDED
                                                                 MARCH 31, 2001
                                                               ------------------
<S>                                                            <C>
Net earnings as reported....................................         $8,529
Goodwill amortization--after tax............................            995
Assembled workforce amortization--after tax.................             58
                                                                     ------
Net earnings--pro forma.....................................          9,582
                                                                     ======
Basic earnings per share:
  As reported...............................................         $ 0.36
                                                                     ======
  Pro forma.................................................         $ 0.41
                                                                     ======
Diluted earnings per share:
  As reported...............................................         $ 0.36
                                                                     ======
  Pro forma.................................................         $ 0.40
                                                                     ======
</Table>



Other intangible assets at December 31, 2001 and March 31, 2002 consist of the
following (Dollars in thousands):



<Table>
<Caption>
                                                                     DECEMBER 31, 2001
                                                              --------------------------------
                                             AMORTIZATION     CARRYING   ACCUMULATED
                                                PERIOD         AMOUNT    AMORTIZATION    NET
                                            ---------------   --------   ------------   ------
<S>                                         <C>               <C>        <C>            <C>
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 and other....................                      3,030          --        3,030
                                                               ------       -----       ------
  Total intangible assets.................                     $7,544       $(693)      $6,851
                                                               ======       =====       ======
</Table>



<Table>
<Caption>
                                                                       MARCH 31, 2002
                                                              --------------------------------
                                             AMORTIZATION     CARRYING   ACCUMULATED
                                                PERIOD         AMOUNT    AMORTIZATION    NET
                                            ---------------   --------   ------------   ------
<S>                                         <C>               <C>        <C>            <C>
Intangible assets subject to amortization:
  Patents.................................   10 - 12 years     $  618       $(126)      $  492
  Customer lists..........................        30 years      2,600        (231)       2,369
  Other...................................    5 - 15 years        996        (407)         589
                                                               ------       -----       ------
                                                                4,214        (764)       3,450
Intangible assets not subject to
  amortization:
  Trademarks and other....................                      3,030          --        3,030
                                                               ------       -----       ------
  Total intangible assets.................                     $7,244       $(764)      $6,480
                                                               ======       =====       ======
</Table>


                                       F-34
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



    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 $66.6 million were
unrestricted as of March 31, 2002.



7. COMPREHENSIVE EARNINGS (DOLLARS IN THOUSANDS)



    The company's comprehensive earnings were 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 three-month period ended March 31, 2001 was a cumulative loss on cash flow
hedges of approximately $0.6 million in connection with the adoption of SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended,
on January 1, 2001.



<Table>
<Caption>
                                                                  THREE MONTHS
                                                                      ENDED
                                                                    MARCH 31,
                                                                -----------------
                                                                 2001      2002
                                                                ------    -------
<S>                                                             <C>       <C>
Net Earnings................................................    $8,529    $12,122
Other comprehensive earnings (loss):
  Foreign currency translation adjustments..................    (1,817)      (276)
  Unrealized net gain on cash flow derivative instruments
     less related income tax: 2001--$209 and 2002--$2,767...       326      4,319
                                                                ------    -------
Comprehensive Earnings......................................    $7,038    $16,165
                                                                ======    =======
</Table>



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:



<Table>
<Caption>
                                                                      THREE MONTHS
                                                                         ENDED
                                                                       MARCH 31,
                                                                ------------------------
                                                                   2001          2002
                                                                ----------    ----------
<S>                                                             <C>           <C>
Denominator for basic earnings per share--weighted-average
  shares....................................................    23,511,254    23,772,140
Effect of dilutive stock options............................       316,965       545,337
                                                                ----------    ----------
Denominator for diluted earnings per share..................    23,828,219    24,317,477
                                                                ==========    ==========
</Table>


                                       F-35
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



9. OPERATIONS BY SEGMENT (DOLLARS IN THOUSANDS)



<Table>
<Caption>
                                                                    THREE MONTHS
                                                                       ENDED
                                                                     MARCH 31,
                                                                --------------------
                                                                  2001        2002
                                                                --------    --------
<S>                                                             <C>         <C>
Net sales
  Electrical Products.......................................    $226,253    $196,234
  Water Systems.............................................      91,982     175,693
                                                                --------    --------
                                                                $318,235    $371,927
                                                                ========    ========
Earnings before interest and taxes
  Electrical Products.......................................    $ 14,024    $ 15,162
  Water Systems.............................................       9,851      13,578
                                                                --------    --------
                                                                  23,875      28,740
Corporate expenses..........................................      (5,535)     (5,913)
Interest expense............................................      (4,801)     (4,177)
                                                                --------    --------
Earnings from continuing operations before income taxes.....      13,539      18,650
Provision for income taxes..................................      (5,010)     (6,528)
                                                                --------    --------
Earnings from continuing operations.........................    $  8,529    $ 12,122
                                                                ========    ========
</Table>



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



10. 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 $6.6 million and
$5.9 million have been recorded in other current assets as of December 31, 2001
and March 31, 2002, respectively. Gains and


                                       F-36
<PAGE>

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)



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, 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 liabilities of $6.9 million and
$1.2 million are recorded in accrued liabilities as of December 31, 2001 and
March 31, 2002, respectively, with the value of the effective portion of the
contracts of $6.9 million and $0.8 million recorded in accumulated other
comprehensive income(loss) as of December 31, 2001 and March 31, 2002,
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 ineffectiveness and impact on earnings was not
material for the three-month periods ended March 31, 2001 and 2002,
respectively.



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



11. SUBSEQUENT EVENT



    On April 12, 2002, the company filed a Registration Statement on Form S-3
(Reg. No. 333-86074) with the Securities and Exchange Commission to sell up to
4,025,000 shares of Common Stock.


                                       F-37
<PAGE>

                               [A. O. SMITH LOGO]
<PAGE>

                                    PART II
                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

<Table>
<S>                                                             <C>
Securities and Exchange Commission filing fee...............    $  9,762
NASD filing fee.............................................      11,110
Transfer agent expenses and fees............................       4,000
Accounting fees and expenses................................      93,000
Legal fees and expenses.....................................     200,000
Printing and engraving expenses.............................      50,000
Miscellaneous...............................................       7,128
                                                                --------
  Total expenses............................................    $375,000
                                                                ========
</Table>

    All of the above fees and expenses will be paid by A. O. Smith Corporation
(the "Registrant"). Other than the Securities and Exchange Commission filing fee
and the NASD filing fee, all fees and expenses are estimated.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

    Under the provisions of Section 145 of the Delaware General Corporation Law,
the Registrant is required to indemnify any present or former officer or
director against expenses arising out of legal proceedings in which the director
or officer becomes involved by reason of being a director or officer if the
director or officer is successful in the defense of such proceedings. Section
145 also provides that the Registrant may indemnify a director or officer in
connection with a proceeding in which he is not successful in defending if it is
determined that he acted in good faith and in a manner reasonably believed to be
in or not opposed to the best interests of the Registrant or, in the case of a
criminal action, if it is determined that he had no reasonable cause to believe
his conduct was unlawful. Liabilities for which a director or officer may be
indemnified include amounts paid in satisfaction of settlements, judgments,
fines and other expenses (including attorneys' fees incurred in connection with
such proceedings). In a stockholder derivative action, no indemnification may be
paid in respect of any claim, issue or matter as to which the director or
officer has been adjudged to be liable to the Registrant (except for expenses
allowed by a court).

    Under the provisions of Article VII of the Registrant's By-Laws and
individual indemnity agreements between the Registrant and its directors and
certain of its officers, the Registrant is required to indemnify officers or
directors to a greater extent than under the current provisions of Section 145
of the Delaware General Corporation Law. Except with respect to stockholder
derivative actions, the By-Law provisions and the indemnity agreements generally
state that the director or officer will be indemnified against expenses, amounts
paid in settlement and judgments, fines, penalties and/or other amounts incurred
with respect to any threatened, pending or completed proceeding (including,
without limitation, proceedings brought under and/or predicated upon the
Securities Act of 1933 and/or the Securities Exchange Act of 1934); provided
that (i) such individual did not engage in criminal, fraudulent or intentional
misconduct in the performance of his duties to the Registrant; (ii) with respect
to criminal actions, such individual had no reasonable cause to believe his
conduct was unlawful; and (iii) with respect to securities law actions, such
individual acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Registrant and its stockholders.

                                       II-1
<PAGE>

    The foregoing standards also apply with respect to the indemnification of
expenses incurred in a stockholder derivative suit. However, in order for a
director or officer to be indemnified for settlement amounts or judgments
incurred in a derivative suit, it also must be determined that (i) such
individual has not breached his duty of loyalty to the Registrant or its
stockholders; (ii) has not committed acts or omissions in bad faith or which
involve intentional misconduct or a knowing violation of the law; (iii) has not
engaged in any willful or negligent conduct in paying dividends or repurchasing
stock of the Registrant out of other than lawfully available funds; and (iv) has
not derived an improper personal benefit from the subject transaction.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

    The exhibits listed in the accompanying Exhibit Index are filed or
incorporated by reference as part of this Registration Statement.

ITEM 17. UNDERTAKINGS.

    (a) The undersigned Registrant hereby undertakes that, for purposes of
        determining any liability under the Securities Act of 1933, each filing
        of the Registrant's annual report pursuant to Section 13(a) or Section
        15(d) of the Securities Exchange Act of 1934 that is incorporated by
        reference in the Registration Statement shall be deemed to be a new
        Registration Statement relating to the securities offered therein, and
        the offering of such securities at that time shall be deemed to be the
        initial bona fide offering thereof.

    (b) Insofar as indemnification for liabilities arising under the Securities
        Act of 1933 may be permitted to directors, officers and controlling
        persons of the Registrant pursuant to the provisions set forth or
        described in Item 15 of this Registration Statement, or otherwise, the
        Registrant has been advised that in the opinion of the Securities and
        Exchange Commission such indemnification is against public policy as
        expressed in the Securities Act of 1933 and is, therefore,
        unenforceable. In the event that a claim for indemnification against
        such liabilities (other than the payment by the Registrant of expenses
        incurred or paid by a director, officer or controlling person of the
        Registrant in the successful defense of any action, suit or proceeding)
        is asserted by such director, officer or controlling person in
        connection with the securities being registered, the Registrant will,
        unless in the opinion of its counsel the matter has been settled by
        controlling precedent, submit to a court of appropriate jurisdiction the
        question whether such indemnification by it is against public policy as
        expressed in the Securities Act of 1933 and will be governed by the
        final adjudication of such issue.

    (c) The undersigned registrant hereby undertakes that:

        (1) For purposes of determining any liability under the Securities Act
            of 1933, the information omitted from the form of prospectus filed
            as part of this Registration Statement in reliance upon Rule 430A
            and contained in a form of prospectus filed by the Registrant
            pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
            shall be deemed to be part of this Registration Statement as of the
            time it was declared effective.

        (2) For the purpose of determining any liability under the Securities
            Act of 1933, each post-effective amendment that contains a form of
            prospectus shall be deemed to be a new Registration Statement
            relating to the securities offered therein, and the offering of such
            securities at that time shall be deemed to be the initial bona fide
            offering thereof.

                                       II-2
<PAGE>


                                   SIGNATURES



    Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Milwaukee, State of Wisconsin, on April 19,
2002.



                                          A. O. SMITH CORPORATION



                                          By: /s/ ROBERT J. O'TOOLE

                                            ------------------------------------

                                              Robert J. O'Toole


                                              Chairman of the Board, President
                                              and


                                              Chief Executive Officer



    Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registration Statement has been signed by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.



<Table>
<Caption>
                   SIGNATURE                                    TITLE                       DATE
                   ---------                                    -----                       ----
 <S>                                             <C>                                   <C>
 /s/ ROBERT J. O'TOOLE                           Chairman of the Board of Directors,   April 19, 2002
   -------------------------------------------   President and Chief Executive
   Robert J. O'Toole                             Officer and Director
                                                 (Principal Executive Officer)




 /s/ KENNETH W. KRUEGER                          Senior Vice President and Chief       April 19, 2002
 ---------------------------------------------   Financial Officer
 Kenneth W. Krueger                              (Principal Financial Officer)




 /s/ JOHN J. KITA                                Vice President, Treasurer and         April 19, 2002
 ---------------------------------------------   Controller
 John J. Kita                                    (Principal Accounting Officer)




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 Glen R. Bomberger




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 Ronald D. Brown




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 William F. Buehler




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 Kathleen J. Hempel




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 Agnar Pytte




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 Bruce M. Smith




 *                                               Director                              April 19, 2002
 ---------------------------------------------
 Mark D. Smith
</Table>




*By: /s/ KENNETH W. KRUEGER

     ---------------------------------

     Kenneth W. Krueger


     Attorney-in-fact

<PAGE>

                                 EXHIBIT INDEX


<Table>
<Caption>
EXHIBIT
NUMBER                       DOCUMENT DESCRIPTION
- -------                      --------------------
<S>      <C>
  (1)    Form of Underwriting Agreement.
  (2)    Stock Purchase and Sale Agreement, dated as of September 13,
         2001, by and among the shareholders of Ocelot Oil Corp., the
         beneficiaries of the Herbert W. Lindahl, Jr. State
         Industries Trust and the John R. Lindahl State Industries
         Trust, State Industries, Inc., Ocelot Oil Corp., John R.
         Lindahl, Herbert W. Lindahl, Jr. and A. O. Smith
         Corporation. [Incorporated by reference to Exhibit 2 to A.
         O. Smith Corporation's Current Report on Form 8-K dated
         December 28, 2001 (File No. 1-475)]
  (4.1)  Restated Certificate of Incorporation of the corporation as
         amended April 5, 1995. [Incorporated by reference to Exhibit
         3 to A. O. Smith Corporation's Annual Report on Form 10-K
         for the year ended December 31, 1995 (File No. 1-475)]
  (4.2)  Credit Agreement, dated as of August 2, 1999, among A. O.
         Smith Corporation, various financial institutions, The First
         National Bank of Chicago, as Syndication Agent, and Bank of
         America, N.A., as Agent. [Incorporated by reference to
         Exhibit 4(b) to A. O. Smith Corporation's Annual Report on
         Form 10-K for the year ended December 31, 2000 (File No.
         1-475)]
  (4.3)  First Amendment, dated as of July 28, 2000, to Credit
         Agreement, among A. O. Smith Corporation, various financial
         institutions, Bank One, N.A. (formerly The First National
         Bank of Chicago), as Syndication Agent, and Bank of America,
         N.A., as Agent.*
  (4.4)  Second Amendment, dated as of July 27, 2001, to Credit
         Agreement, among A. O. Smith Corporation, various financial
         institutions, Bank One, N.A. (formerly The First National
         Bank of Chicago), as Syndication Agent, and Bank of America,
         N.A., as Agent.*
  (4.5)  The Registrant has instruments that define the rights of
         holders of long-term debt that are not being filed with this
         Registration Statement in reliance upon Item 601(b)(4)(iii)
         of Regulation S-K. The Registrant agrees to furnish to the
         Securities and Exchange Commission, upon request, copies of
         these instruments.
  (5)    Opinion of W. David Romoser, Vice President, General Counsel
         and Secretary of the Registrant (including consent of
         counsel).*
 (23.1)  Consent of Ernst & Young LLP.
 (23.2)  Consent of Lattimore Black Morgan & Cain, PC.
 (23.3)  Consent of W. David Romoser, Vice President, General Counsel
         and Secretary of the Registrant.*
 (24)    Power of Attorney relating to subsequent amendments.*
</Table>


- ------------------

* Previously filed.


</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-1
<SEQUENCE>3
<FILENAME>c68909aex1.txt
<DESCRIPTION>UNDERWRITING AGREEMENT
<TEXT>
<PAGE>
                             A. O. SMITH CORPORATION

                                3,500,000 SHARES*
                                  COMMON STOCK


                             UNDERWRITING AGREEMENT


                                           , 2002
                               --------- --


Robert W. Baird & Co. Incorporated
Banc of America Securities LLC
Bear Stearns & Co. Inc.
     As Representatives of the Several Underwriters
     Identified in Annex A Annexed Hereto
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin  53202


         SECTION 1. INTRODUCTORY. A. O. Smith Corporation, a Delaware
corporation (the "Company"), proposes to sell 3,500,000 shares (the "Firm
Shares") of its authorized common stock, $1.00 par value per share (the "Common
Stock"), held as treasury shares by the Company, to the several underwriters
identified in Annex A annexed hereto (the "Underwriters"), who are acting
severally and not jointly. In addition, the Company has agreed to grant to the
Underwriters an option to purchase up to 525,000 additional shares of Common
Stock (the "Optional Shares") held as treasury shares by the Company as provided
in Section 5 hereof. The Firm Shares and, to the extent such option is
exercised, the Optional Shares are hereinafter collectively referred to as the
"Shares."

         You, as representatives of the several Underwriters (the
"Representatives"), have advised the Company that the Underwriters propose to
make a public offering of their respective portions of the Shares as soon
hereafter as in your judgment is advisable and that the public offering price of
the Shares initially will be $_________ per share.

         The Company hereby confirms its agreement with the Underwriters as
follows:

         SECTION 2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to, and agrees with, the several
Underwriters, and shall be deemed to represent and warrant to, and agree with,
the several Underwriters on each Closing Date (as hereinafter defined), that:

- ----------
*    Plus an option to acquire up to 525,000 additional shares of Common Stock
     from the Company to cover over-allotments.


<PAGE>


                  (a) Each of the Company and its subsidiaries (individually, a
"Subsidiary" and collectively, the "Subsidiaries") is validly existing as a
corporation or limited liability company in active status or good standing under
the laws of its jurisdiction of organization, with full corporate power and
authority to own, lease and operate its properties and to conduct its business
as presently conducted and as described in the Prospectus (as hereinafter
defined) and the Registration Statement (as hereinafter defined); each of the
Company and the Subsidiaries is duly registered and qualified to do business as
a foreign corporation under the laws of, and is in good standing as such in,
each jurisdiction in which such registration or qualification is required,
except where the failure to so register or qualify would not have a material
adverse effect on the financial condition, business, property, net worth or
results of operations of the Company and the Subsidiaries, taken as a whole
("Material Adverse Effect"). Annexed hereto as Annex B is a complete and correct
list of all of the Subsidiaries, including their jurisdiction of organization
and direct equity owners. Annex B also identifies the Subsidiary that is a
"significant subsidiary" (a "Significant Subsidiary") as defined in Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "Commission").
Complete and correct copies of the certificate or articles of incorporation and
bylaws (or their equivalent), as amended or restated ("Articles of
Incorporation" and "Bylaws," respectively), of the Company and the Significant
Subsidiary as in effect on the date hereof have been made available to counsel
for the Representatives, and no changes thereto will be made on or subsequent to
the date hereof and prior to each Closing Date.

                  (b) The shares of Common Stock issued and outstanding
immediately prior to the sale of the Shares hereunder as set forth in the
Prospectus have been duly authorized and validly issued, are fully paid and
nonassessable (except, to the extent applicable, as otherwise provided in
Section 180.0622(2)(b) of the Wisconsin Business Corporation Law, as judicially
interpreted), and conform to the description thereof contained in the Prospectus
and the Registration Statement. There are no preemptive, preferential or, except
as described in the Prospectus, other rights to subscribe for or purchase any
shares of Common Stock (including the Shares), and no shares of Common Stock
have been issued in violation of such rights. The Shares to be sold by the
Company to the Underwriters have been duly authorized and, when delivered and
paid for pursuant to this Agreement, will be validly issued, fully paid and
nonassessable (except, to the extent applicable, as otherwise provided in
Section 180.0622(2)(b) of the Wisconsin Business Corporation Law, as judicially
interpreted), and will conform to the description thereof contained in the
Prospectus and the Registration Statement. The delivery of certificates for the
sale of the Shares hereunder and payment therefor pursuant to the terms of this
Agreement will pass valid title to such Shares to the Underwriters, free and
clear of any lien, claim, encumbrance or defect in title, other than any of the
foregoing created by any of the Underwriters. Except as described in the
Prospectus, there are no outstanding options, warrants or other rights of any
description, contractual or otherwise, entitling any person to be issued any
class of security by the Company, and there are no holders of Common Stock or
other securities of the Company, or of securities that are convertible or
exchangeable into Common Stock or other securities of the Company, that have
rights to the registration of such Common Stock or securities under the
Securities Act of 1933, as amended, and the regulations thereunder (together,
the "Act"), or the securities laws or regulations of any of the states of the
United States (the "Blue Sky Laws").



                                       2
<PAGE>



                  (c) Except for the Subsidiaries, and as otherwise set forth in
the Prospectus or on Annex B, the Company has no subsidiaries and does not own
any equity interest of 5% or more in or control, directly or indirectly, any
other corporation, limited liability company, partnership, joint venture,
association, trust or other business organization that is material to the
Company and its Subsidiaries on a consolidated basis. Except as set forth in the
Prospectus or on Annex B and except for director qualifying shares (if any), the
Company owns directly or indirectly through a Subsidiary all of the issued and
outstanding capital stock of each Subsidiary, free and clear of any and all
liens, claims, encumbrances or security interests, and all such capital stock
has been duly authorized and validly issued and is fully paid and nonassessable
(except, to the extent applicable, as otherwise provided in Section
180.0622(2)(b) of the Wisconsin Business Corporation Law, as judicially
interpreted). There are no outstanding options, warrants or other rights of any
description, contractual or otherwise, entitling any person other than the
Company or a Subsidiary to subscribe for or purchase any shares of capital stock
of any Subsidiary.

                  (d) The Company has full corporate power and authority to
enter into and perform this Agreement, and the execution and delivery by the
Company of this Agreement and the performance by the Company of its obligations
hereunder and the consummation of the transactions described herein, have been
duly authorized with respect to the Company by all necessary corporate action
and will not: (i) violate any provision of the Articles of Incorporation or
Bylaws of the Company or the Significant Subsidiary; (ii) violate any provisions
of, or result in the breach, modification or termination of, or constitute a
default under, any provision of any material agreement, lease, franchise,
license, indenture, permit, mortgage, deed of trust, evidence of indebtedness or
other instrument to which the Company or the Significant Subsidiary is a party
or by which the Company or the Significant Subsidiary, or any property owned or
leased by the Company or the Significant Subsidiary, may be bound or affected;
(iii) violate any statute, ordinance, rule or regulation applicable to the
Company or the Significant Subsidiary, or order or decree of any court,
regulatory or governmental body, arbitrator, administrative agency or
instrumentality of the United States or other country or jurisdiction having
jurisdiction over the Company or the Significant Subsidiary; or (iv) result in
the creation or imposition of any material lien, charge or encumbrance upon any
property or assets of the Company or the Significant Subsidiary; except, in the
case of subsections (ii), (iii) and (iv) above, for such violations or liens,
charges or encumbrances that would not result in a Material Adverse Effect. No
consent, approval, authorization or other order of any court, regulatory or
governmental body, arbitrator, administrative agency or instrumentality of the
United States or other country or jurisdiction is required for the execution and
delivery of this Agreement by the Company, the performance of its obligations
hereunder or the consummation of the transactions contemplated hereby, except
for compliance with the Act, the Securities Exchange Act of 1934, as amended,
and the regulations thereunder (together, the "Exchange Act"), the Blue Sky Laws
applicable to the public offering of the Shares by the several Underwriters and
the clearance of such offering and the underwriting arrangements evidenced
hereby with the National Association of Securities Dealers, Inc. (the "NASD").
This Agreement has been duly executed and delivered by and on behalf of the
Company and is a valid and binding agreement of the Company enforceable against
the Company in accordance with its terms.

                  (e) A registration statement on Form S-3 (Reg. No. 333-86074)
with respect to the Shares, including the related preliminary form of
prospectus, has been prepared by the Company in conformity in all material
respects with the requirements of the Act and has been



                                       3
<PAGE>



filed with the Commission. The conditions for use of Form S-3, set forth in the
General Instructions thereto, have been satisfied. Such registration statement,
as finally amended and revised at the time such registration statement was or is
declared effective by the Commission (including the information contained in the
form of final prospectus, if any, filed with the Commission pursuant to Rule
424(b) and Rule 430A under the Act and deemed to be part of the registration
statement if the registration statement has been declared effective pursuant to
Rule 430A(b)) and as thereafter amended by post-effective amendment, if any,
together with any registration statement and amendment filed pursuant to Rule
462 under the Act, is herein referred to as the "Registration Statement." The
related final prospectus in the form first filed with the Commission pursuant to
Rule 424(b) or, if no such filing is required, as included in the Registration
Statement, or any supplement thereto, is herein referred to as the "Prospectus."
The prospectus subject to completion in the form included in the Registration
Statement at the time of the initial filing of the Registration Statement with
the Commission, and each such prospectus as amended from time to time until the
date of the Prospectus, is referred to herein as the "Preliminary Prospectus."
Reference made herein to each Preliminary Prospectus or the Prospectus, as
amended or supplemented, shall include all documents and information
incorporated by reference therein and shall be deemed to refer to and include
any documents filed after the date of such Preliminary Prospectus or Prospectus,
as the case may be, and so incorporated by reference, under the Exchange Act.
The Company has prepared and filed such amendments to the Registration Statement
since its initial filing with the Commission, if any, as may have been required
by the Act to the date hereof, and will file such additional amendments thereto
as may hereafter be required by the Act.

                  (f) Neither the Commission nor any state securities commission
has issued any order preventing or suspending the use of any Preliminary
Prospectus, nor, to the knowledge of the Company, have any proceedings for that
purpose been initiated or threatened. As of the effective date of the
Registration Statement, and at all times subsequent thereto up to each Closing
Date, the Registration Statement and the Prospectus conformed or will conform in
all material respects to the requirements of the Act, and neither the
Registration Statement nor the Prospectus included or will include any untrue
statement of a material fact or omitted or will omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading. The representations and warranties of the Company in this subsection
shall not apply to statements in or omissions from the Registration Statement or
Prospectus made in reliance upon and in conformity with information furnished by
the Representatives to the Company pursuant to Section 4 hereof. Neither the
Company, nor any person that controls, is controlled by (including the
Subsidiaries) or is under common control with the Company, has distributed or
will distribute prior to each Closing Date any written offering material in
connection with the offering and sale of the Shares other than a Preliminary
Prospectus, the Prospectus, the Registration Statement or other materials
permitted by the Act and provided to the Representatives.

                  (g) The documents that are incorporated by reference in the
Prospectus or the Registration Statement or from which information is so
incorporated by reference, when they became effective or were filed with the
Commission, as the case may be, complied in all material respects with the
requirements of the Act or the Exchange Act, as applicable, and any document so
filed and incorporated by reference subsequent to the effective date of the
Registration


                                       4
<PAGE>



Statement shall, when it is filed with the Commission, comply in all material
respects with the requirements of the Act and the Exchange Act, as applicable,
and when read together with the other information included in the Prospectus, at
the time the Registration Statement became effective, at the time the Prospectus
was issued, and at each Closing Date, did not or will not contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

                  (h) Ernst & Young LLP, which has expressed its opinion with
respect to the consolidated financial statements and schedules of the Company
filed with the Commission or incorporated by reference and included as a part of
the Prospectus or the Registration Statement, are independent accountants with
respect to the Company and the Subsidiaries as required by the Act. To the
knowledge of the Company, Lattimore Black Morgan & Cain, PC, which has expressed
its opinion with respect to the financial statements of State Industries, Inc.
filed with the Commission or incorporated by reference and included as a part of
the Prospectus or the Registration Statement, are independent accountants with
respect to State Industries, Inc. as required by the Act.

                  (i) The consolidated financial statements of the Company and
the related notes thereto included or incorporated by reference in the
Prospectus and the Registration Statement present fairly, in all material
respects, the financial position, results of operations and cash flows of the
Company as of their respective dates or for the respective periods covered
thereby, all in conformity with the accounting principles generally accepted in
the United States of America consistently applied throughout the periods
involved (except as otherwise noted therein). The financial statement schedules,
if any, incorporated by reference into the Registration Statement present
fairly, in all material respects, the information required to be stated therein
on a basis consistent with the consolidated financial statements of the Company
contained therein. The Company had an outstanding capitalization as set forth in
the Prospectus in the column entitled "Actual" under the caption
"Capitalization" as of the date indicated therein, and there has been no change
therein since such date, except for changes in the amount of the Company's total
debt and subsequent sales, if any, pursuant to this Agreement, pursuant to the
exercise of stock options or defined contribution or benefit plans outstanding
on the date hereof or pursuant to the conversion of shares of Class A Common
Stock of the Company. The financial and statistical information and data
relating to the Company in the Prospectus and the Registration Statement are
accurately presented in all material respects and prepared on a basis consistent
with the audited consolidated financial statements and books and records of the
Company. The consolidated financial statements and schedules of the Company and
the related notes thereto included in the Prospectus or the Registration
Statement are the only such financial statements and schedules required under
the Act to be set forth therein.

                  (j) Neither the Company nor the Significant Subsidiary is, or
would be with the giving of notice or passage of time or both, in violation or
in breach of: (i) its respective Articles of Incorporation or Bylaws; (ii) any
statute, ordinance, order, rule or regulation applicable to the Company or the
Significant Subsidiary; (iii) any order or decree of any court, regulatory body,
arbitrator, administrative agency or other instrumentality of the United States
or other country or jurisdiction having jurisdiction over the Company or the
Significant Subsidiary;



                                       5
<PAGE>



or (iv) any provision of any agreement, lease, franchise, license, indenture,
permit, mortgage, deed of trust, evidence of indebtedness or other instrument to
which the Company or the Significant Subsidiary is a party or by which any
property owned or leased by the Company or the Significant Subsidiary is bound
or affected; except, in each case above, for such violations or breaches as do
not or would not have a Material Adverse Effect. Neither the Company nor the
Significant Subsidiary has received notice of any violation of any applicable
statute, ordinance, order, rule or regulation applicable to the Company or the
Significant Subsidiary, the consequence of which would have a Material Adverse
Effect. Except where it would not have a Material Adverse Effect, (A) each of
the Company and the Significant Subsidiary has obtained and holds, and is in
compliance with, all permits, certificates, licenses, approvals, registrations,
franchises, consents and authorizations of governmental or regulatory
authorities required under all laws, rules and regulations in connection with
their businesses (hereinafter "permit" or "permits"), (B) all of such permits
are in full force and effect and (C) each of the Company and the Significant
Subsidiary has fulfilled and performed its obligations with respect to each such
permit, and no event has occurred which would result in, or after notice or
lapse of time would result in, revocation or termination of any such permit or
result in any other impairment of the rights of the holder of such permit.
Neither the Company nor any Subsidiary is or has been (by virtue of any
occurrence) in violation of any applicable foreign, federal, state, municipal or
local statutes, laws, ordinances, rules, regulations or orders (including those
relating to environmental protection, occupational safety and health and equal
employment practices) heretofore or currently in effect, the consequence of
which would have a Material Adverse Effect.

                  (k) There are no legal or governmental proceedings or
investigations pending or, to the knowledge of the Company, threatened to which
the Company or any Subsidiary is or may be a party or of which any property
owned or leased by the Company or any Subsidiary is or may be the subject that
are required to be described in the Registration Statement or the Prospectus but
which are not so described, or which question the validity of this Agreement or
any action taken or to be taken pursuant hereto. Except as described in the
Registration Statement or the Prospectus, neither the Company nor any
Subsidiary: (i) is in violation of any statute, ordinance, rule or regulation,
or any decision, order or decree of any court, regulatory body, arbitrator,
administrative agency or other instrumentality of the United States or other
country or jurisdiction having jurisdiction over the Company or such Subsidiary
relating to the use, disposal or release of hazardous or toxic substances or
relating to the protection or restoration of the environmental or human exposure
to hazardous or toxic substances (collectively, the "environmental laws"); (ii)
owns or operates any real property contaminated with any substance that is
subject to any environmental laws; (iii) is liable for any off-site disposal or
contamination pursuant to any environmental laws; or (iv) is subject to any
claim relating to any environmental laws, which violation, contamination,
liability or claim contemplated by subparagraphs (i), (ii), (iii) or (iv) above
would have a Material Adverse Effect.

                  (l) There is no transaction, relationship, obligation,
agreement or other document required to be described in the Registration
Statement or the Prospectus or to be filed or deemed to be filed as an exhibit
to the Registration Statement by the Act that has not been described or filed as
required. All such contracts or agreements to which the Company or any
Subsidiary is a party have been duly authorized, executed and delivered by the
Company or such Subsidiary, constitute valid and binding agreements of the
Company or such Subsidiary, and are



                                       6
<PAGE>



enforceable by and against the Company or such Subsidiary, in accordance with
the respective terms thereof.

                  (m) The Company or a Subsidiary has marketable title to all
real property and good and valid title to all other property and assets
reflected as owned by the Company or such Subsidiary in the Company's
consolidated financial statements incorporated by reference into the
Registration Statement (or elsewhere in the Registration Statement or the
Prospectus), free and clear of all liens, claims, mortgages, security interests
or other encumbrance of any kind or nature whatsoever except (i) those, if any,
reflected in such financial statements (or elsewhere in the Registration
Statement or the Prospectus) or (ii) those which do not, individually or in the
aggregate, have a Material Adverse Effect. All material items of property (real
and personal) held or used by the Company or a Subsidiary under leases,
licenses, franchises or other agreements is held by the Company or such
Subsidiary under valid and binding leases, franchises, licenses or other
agreements, with such exceptions as do not have a Material Adverse Effect.

                  (n) Neither the Company nor any person that controls, is
controlled by (including the Subsidiaries) or is under common control with the
Company has taken during the five years prior to the date hereof or will take,
directly or indirectly, any action designed to cause or result in, or which
constituted, or which could cause or result in, stabilization or manipulation,
under the Exchange Act or otherwise, of the price of any security of the Company
to facilitate the sale or resale of the Common Stock.

                  (o) Except as described in the Registration Statement or the
Prospectus, since the respective dates as of which information is given in the
Registration Statement or the Prospectus and prior to each Closing Date: (i)
neither the Company nor any Subsidiary has incurred any liability or obligation,
direct or contingent, or entered into any transaction, that could reasonably be
expected to involve a Material Adverse Effect, except in the ordinary course of
business; (ii) the Company has not and will not have paid or declared any
dividend or other distribution with respect to its capital stock (other than its
regular quarterly dividend), and neither the Company nor any Subsidiary is or
will be delinquent in the payment of principal or interest on any material
outstanding debt obligation; and (iii) there has not been any change in the
terms of the capital stock, any material change in the indebtedness of the
Company or any Subsidiary, or any change or development involving or which could
be expected to involve a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business.

                  (p) The Company or a Subsidiary owns or possesses adequate
rights to use all material patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark registrations,
copyrights and licenses presently used in or necessary for the conduct of its
business or ownership of its properties, and neither the Company nor any
Subsidiary has violated or infringed upon the rights of others, or received any
notice of conflict with the asserted rights of others, in respect thereof,
except for such violations or infringements as have not or would not have a
Material Adverse Effect.



                                       7
<PAGE>



                  (q) The Company and the Subsidiaries have in place and
effective such policies of insurance, with limits of liability in such amounts,
as are prudent and customary in the businesses in which they are engaged.

                  (r) No labor dispute with, or grievances by, the employees of
the Company or the Significant Subsidiary is pending or, to the knowledge of the
Company, is imminent that would be reasonably likely to result in a Material
Adverse Effect. Since the initial filing of the Registration Statement, there
has been no change in the relationship of the Company or any Subsidiary with any
of its principal suppliers, manufacturers, contractors or customers resulting in
or that would be reasonably likely to result in a Material Adverse Effect.

                  (s) The Company is not an "investment company," as such term
is defined in the Investment Company Act of 1940, as amended.

                  (t) All federal, state and local tax returns required to be
filed by or on behalf of the Company or the Significant Subsidiary have been
filed (or are the subject of valid extension) with the appropriate federal,
state and local authorities, and all such tax returns, as filed, are accurate in
all material respects; and the Company or the Significant Subsidiary has paid
all taxes required to be paid by it and any other assessment, fine or penalty
levied against it, to the extent that any of the foregoing is due and payable,
except for any such tax, assessment, fine or penalty that is currently being
contested in good faith or that would not have a Material Adverse Effect.

                  (u) The Company maintains a system of internal accounting
controls sufficient for it and the Significant Subsidiary to provide reasonable
assurances that: (i) material transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of consolidated financial statements in
conformity with generally accepted accounting principals and to maintain
accountability for material assets; (iii) access to material assets is permitted
only in accordance with management's general or specific authorizations; and
(iv) the recorded accountability for material assets is compared with existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.

                  (v) Other than as described in the Prospectus, none of the
Company, any Subsidiary or, to the knowledge of the Company, any officer or
director of the Company or any Subsidiary is: (i) an officer, director or
partner of any brokerage firm, broker or dealer that is a member of the NASD
("NASD member"); or (ii) directly or indirectly, a "person associated with" an
NASD member or an "affiliate" of an NASD member, as such terms are used in the
NASD Rules or Bylaws. In addition, to the knowledge of the Company, during the
twelve months prior the date hereof, neither the Company nor any Subsidiary has
issued or transferred any Common Stock, warrants, options or other securities,
or any other items of value, to any of the Underwriters or any "related person"
of any Underwriter, as such terms is used in the NASD Rules, expect as provided
in this Agreement.



                                       8
<PAGE>



                  (w) The Common Stock has been registered pursuant to Section
12(b) of the Exchange Act. The Common Stock and the Shares are authorized for
listing on the New York Stock Exchange, subject only to official notice of
issuance for shares of Common Stock that have not been issued.

                  (x) During the five years prior to the date hereof, all offers
and sales of the securities of and by the Company prior to the date hereof were
made in compliance in all material respects with the Act and all other
applicable state and federal laws or regulations.

                  (y) The Company has obtained for the benefit of the
Underwriters the agreement, substantially in the form annexed hereto as Annex C
(each, a "Lock-Up Agreement"), enforceable by Robert W. Baird & Co. Incorporated
("Baird"), of each of the executive officers and directors of the Company listed
on Annex D annexed hereto, that, for a period of 90 days after the date of the
Prospectus, such persons will not, without the prior written consent of Baird or
except as permitted in the Lock-Up Agreement, directly or indirectly, offer,
sell, transfer, or pledge, contract to sell, transfer or pledge, or cause or in
any way permit to be sold, transferred, pledged, or otherwise disposed of, any:
(i) shares of Common Stock; (ii) rights to purchase shares of Common Stock
(including, without limitation, shares of Common Stock that may be deemed to be
beneficially owned by any such shareholder in accordance with the applicable
regulations of the Commission and shares of Common Stock that may be issued upon
the exercise of a stock option, warrant or other convertible security); or (iii)
securities that are convertible or exchangeable into shares of Common Stock. As
described more fully, and subject to the exceptions, in the Lock-Up Agreements,
the Company hereby represents and warrants that it will not release or purport
to release any person from any Lock-Up Agreement without the prior written
consent of Baird.

         A certificate signed by any officer of the Company and delivered to the
Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby. A certificate delivered by the Company to its counsel for
purposes of enabling such counsel to render the opinion referred to in Section
8(d) will also be furnished to the Representatives and counsel for the
Underwriters and shall be deemed to be additional representations and warranties
to the Underwriters by the Company as to the matters covered thereby.

         SECTION 3. REPRESENTATION OF UNDERWRITERS. The Representatives will act
as the representatives for the several Underwriters in connection with the
public offering of the Shares, and any action under or in respect of this
Agreement taken by the Representatives will be binding upon all the
Underwriters.

         SECTION 4. INFORMATION FURNISHED BY THE UNDERWRITERS. The information
set forth (i) in the second paragraph of the Table of Contents page of the
Prospectus, (ii) in the table of participating Underwriters and the third
paragraph appearing under the caption "Underwriting" in the Prospectus, and
(iii) in the last two paragraphs appearing under the caption "Underwriting" in
the Prospectus constitutes all of the information furnished to the Company by
and on behalf of the Underwriters for use in connection with the preparation of
the Registration Statement and the Prospectus, as such information is referred
to in this Agreement.



                                       9
<PAGE>



         SECTION 5. PURCHASE, SALE AND DELIVERY OF SHARES.

                  (a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriters identified in Annex A
hereto 3,500,000 Firm Shares, and each of the Underwriters agrees, severally and
not jointly, to purchase from the Company the number of Firm Shares set forth
opposite its name on Annex A at the price per share of $__________.

                  (b) On the First Closing Date (as hereinafter defined), the
Company will deliver to the Representatives, at the offices of Robert W. Baird &
Co. Incorporated, 777 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, or
through the facilities of The Depository Trust Company, for the accounts of the
several Underwriters, certificates representing the Firm Shares to be sold by
the Company against payment in Milwaukee, Wisconsin of the purchase price
therefor by wire transfer of immediately available funds payable to the order of
the Company with respect to the Firm Shares. As referred to in this Agreement,
the "First Closing Date" shall be on the fourth (or third, if the price set
forth in Section 5(a) above is determined before 3:30 p.m., Milwaukee, Wisconsin
time on the date of this Agreement) full business day after the date of the
Prospectus, at 9:00 a.m., Milwaukee, Wisconsin time, or at such other date or
time not later than ten full business days after the date of the Prospectus as
the Representatives and the Company may agree. The certificates for the Firm
Shares to be so delivered will be in denominations and registered in such names
as the Representatives request by written notice to the Company prior to the
first full business day preceding the First Closing Date, and such certificates
will be made available for checking and packaging at 9:00 a.m., Milwaukee,
Wisconsin time on the first full business day preceding the First Closing Date
at a location to be designated by the Representatives.

                  (c) In addition, on the basis of the representations,
warranties and agreements herein contained, and subject to the terms and
conditions herein set forth, the Company hereby agrees to sell to the
Underwriters, and the Underwriters, severally and not jointly, shall have the
right at any time within 30 days after the date of the Prospectus to purchase up
to 525,000 Optional Shares from the Company at the purchase price per share to
be paid for the Firm Shares, for use solely in covering any over-allotments made
by the Underwriters in the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised in whole or in part at any time (but not more
than once) upon written notice by the Representatives to the Company within 30
days after the date of the Prospectus setting forth the aggregate number of
Optional Shares to be purchased by the Underwriters and sold by the Company, the
names and denominations in which the certificates for such shares are to be
registered and the date and place at which such certificates will be delivered.
Such date of delivery (the "Second Closing Date") shall be determined by the
Representatives, provided that the Second Closing Date, which may be the same as
the First Closing Date, shall not be earlier than the First Closing Date and, if
after the First Closing Date, shall not be earlier than three nor later than ten
full business days after delivery of such notice to exercise. The number of
Optional Shares to be purchased by each of the Underwriters pursuant to such
notice shall equal that number of full Optional Shares which (as nearly as
practicable in full shares as determined by the Representatives) bears the same
proportion to the number of Firm Shares to be purchased by the Underwriter under
this



                                       10
<PAGE>



Agreement bears to the total number of Firm Shares. Certificates for the
Optional Shares will be made available for checking and packaging at 9:00 a.m.,
Milwaukee, Wisconsin time, on the first full business day preceding the Second
Closing Date at a location to be designated by the Representatives. The manner
of payment for and delivery of (including the denominations of and the name in
which certificates are to be registered) the Optional Shares shall be the same
as for the Firm Shares.

                  (d) The Representatives have advised the Company that each
Underwriter has authorized the Representatives to accept delivery of the Shares
and to make payment therefor. It is understood that the Representatives,
individually and not as the representatives of the Underwriters, may (but shall
not be obligated to) make payment for any Shares to be purchased by any
Underwriter whose funds shall not have been received by the Representatives by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any obligation under this Agreement. As referred to in this
Agreement, "Closing Date" shall mean either the First Closing Date or the Second
Closing Date.

         SECTION 6. COVENANTS OF THE COMPANY. The Company covenants and agrees
with the several Underwriters that:

                  (a) If the effective time of the Registration Statement is not
prior to the execution and delivery of this Agreement, the Company will use its
best efforts to cause the Registration Statement to become effective at the
earliest possible time and, upon notification from the Commission that the
Registration Statement has become effective, will so advise the Representatives
and counsel for the Underwriters promptly. If the effective time of the
Registration Statement is prior to the execution and delivery of this Agreement
and any information shall have been omitted therefrom in reliance upon Rule
430A, the Company, at the earliest possible time, will furnish the
Representatives with a copy of the Prospectus to be filed by the Company with
the Commission to comply with Rule 424(b) and Rule 430A under the Act, and, if
the Representatives do not reasonably object to the contents thereof, will
comply with such Rules. Upon compliance with such Rules, the Company will so
advise the Representatives promptly. The Company will advise the Representatives
and counsel to the Underwriters promptly of the issuance by the Commission or
any state securities commission of any stop order suspending the effectiveness
of the Registration Statement or of the institution of any proceedings for that
purpose, or of any notification of the suspension of qualification of the Shares
for sale in any jurisdiction or the initiation or threatening of any proceedings
for that purpose, and will also advise the Representatives and counsel for the
Underwriters promptly of any request of the Commission for amendment or
supplement of the Registration Statement, of any Preliminary Prospectus or of
the Prospectus, or for additional information, and the Company will not file any
amendment or supplement to the Registration Statement (either before or after it
becomes effective), to any Preliminary Prospectus or to the Prospectus
(including a prospectus filed pursuant to Rule 424(b)) or file any document
under the Exchange Act before the termination or completion of the public
offering of the Shares by the Underwriters if such document would be deemed to
be incorporated by reference in the Registration Statement, if the
Representatives have not been furnished with a copy prior to such filing (with a
reasonable



                                       11
<PAGE>



opportunity to review such amendment or supplement) or if the Representatives
reasonably object to such filing.

                  (b) If, at any time when a prospectus relating to the Shares
is required by law to be delivered in connection with sales by an Underwriter or
dealer, any event occurs as a result of which the Prospectus would include an
untrue statement of a material fact, or would omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading, or if
it is necessary at any time to supplement the Prospectus to comply with the Act
or to file under the Exchange Act any document which would be deemed to be
incorporated by reference in the Registration Statement to comply with the Act
or the Exchange Act, the Company promptly will advise the Representatives and
counsel for the Underwriters thereof and will promptly prepare and file with the
Commission, at the Company's expense, an amendment to the Registration Statement
or file such document which will correct such statement or omission or an
amendment which will effect such compliance; and, if any Underwriter is required
to deliver a prospectus after the effective date of the Registration Statement,
the Company, upon request of the Representatives, will prepare promptly such
prospectus or prospectuses as may be necessary to permit compliance with the
requirements of Section 10(a)(3) of the Act. The Company consents to the use, in
accordance with the provisions of the Act and with the Blue Sky Laws of the
jurisdictions in which the Shares are offered by the several Underwriters and by
dealers, of each Preliminary Prospectus.

                  (c) Neither the Company nor any Subsidiary will, prior to the
Second Closing Date, if any, acquire any of the Common Stock nor will the
Company declare or pay any dividend or make any other distribution upon its
Common Stock payable to shareholders of record on a date prior to such earlier
date, except as described in the Prospectus.

                  (d) The Company will make generally available to its security
holders and the Representatives an earnings statement as soon as practicable,
but in no event later than 60 days after the end of its fiscal quarter in which
the first anniversary of the effective date of the Registration Statement
occurs, covering a period of 12 consecutive calendar months beginning after the
effective date of the Registration Statement, which will satisfy the provisions
of the last paragraph of Section 11(a) of the Act and Rule 158 promulgated
thereunder.

                  (e) During such period as a prospectus is required by law to
be delivered in connection with sales by an Underwriter or dealer, the Company
will furnish to the Representatives, at the expense of the Company, copies of
the Registration Statement, the Prospectus, any Preliminary Prospectus and all
amendments and supplements to any such documents, including any document filed
under the Exchange Act and deemed to be incorporated by reference in the
Registration Statement, in each case as soon as available and in such quantities
as the Representatives may reasonably request.

                  (f) The Company will apply the net proceeds from the sale of
the Shares hereunder for the purposes set forth in the Prospectus.



                                       12
<PAGE>



                  (g) The Company will cooperate with the Representatives and
counsel for the Underwriters in qualifying or registering the Shares for sale
under the Blue Sky Laws of such jurisdictions as the Representatives designate,
and will continue such qualifications or registrations in effect so long as
reasonably requested by the Representatives to effect the distribution of the
Shares. The Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any such jurisdiction where
it is not presently qualified. In each jurisdiction where any of the Shares
shall have been qualified as provided above, the Company will file such reports
and statements as may be required to continue such qualification for a period of
not less than one year from the date of this Agreement. Until the termination of
the offering of the Shares, the Company shall promptly prepare and file with the
Commission, from time to time, such reports as may be required to be filed by
the Act and the Exchange Act, and the Company shall comply in all material
respects with the undertakings given by the Company in connection with the
qualification or registration of the Shares for offering and sale under the Blue
Sky Laws.

                  (h) During the period of three years from the date of the
Prospectus, the Company will furnish to each of the Representatives each report,
statement or other document of the Company or its Board of Directors mailed to
its shareholders or publicly filed with the Commission.

                  (i) Except for the issuance and sale by the Company of Common
Stock upon exercise of currently outstanding stock options, the sale of the
Shares pursuant to this Agreement, the issuance of Common Stock under the
Company's defined contribution or benefit plans, the grant of stock options
pursuant to the Company's stock option plans and the issuance of Common Stock
upon the conversion of shares of Class A Common Stock of the Company, the
Company shall not, for a period of 90 days after the date of the Prospectus,
without the prior written consent of Baird, directly or indirectly, offer, sell
or otherwise dispose of, contract to sell or otherwise dispose of, or cause or
in any way permit to be sold or otherwise disposed of, any: (i) shares of Common
Stock; (ii) rights to purchase shares of Common Stock; or (iii) securities that
are convertible or exchangeable into shares of Common Stock.

                  (j) The Company will maintain a transfer agent and, if
required by law or the rules of the New York Stock Exchange or any national
securities exchange on which the Common Stock is listed, a registrar (which, if
permitted by applicable laws and rules, may be the same entity as the transfer
agent) for its Common Stock.

                  (k) If the sale to the Underwriters of the Firm Shares is not
consummated for any reason other than termination of this Agreement pursuant to
Section 11 hereof, without limiting any other rights the Underwriters may have,
the Company agrees to reimburse the Underwriters upon demand for all reasonable
out-of-pocket expenses (including, without limitation, reasonable fees and
expenses of counsel for the Underwriters) that shall have been incurred by the
Underwriters in connection with the proposed purchase and sale of the Firm
Shares, provided that such out-of-pocket expenses shall not exceed $50,000, and
the provisions of Section 7 and 10 hereof shall at all times be effective and
apply.



                                       13
<PAGE>



                  (l) The Company will use its commercially reasonable efforts
to fulfill or cause to be fulfilled the conditions to the obligations of the
Underwriters in Section 8 hereof.

                  (m) The Company will deliver to the Representatives as many
(i) conformed copies of the Registration Statement (as originally filed) (one of
which shall be manually signed), (ii) conformed copies of each amendment thereto
(including exhibits filed therewith and documents incorporated therein by
reference) (one of which shall be manually signed), and (iii) copies of each
Prospectus and Preliminary Prospectus, in each case as the Representatives may
reasonably request.

         SECTION 7. PAYMENT OF EXPENSES. Whether or not the transactions
contemplated hereunder are consummated or this Agreement becomes effective, or
if this Agreement is terminated for any reason, the Company will pay the costs,
fees and expenses incurred in incident to the performance of its obligations
under this Agreement. Such costs, fees and expenses to be paid by the Company
include, without limitation:

                  (a) All costs, fees and expenses (excluding the expenses
incurred by the Underwriters and the legal fees and disbursements of counsel for
the Underwriters, but including such fees and disbursements described in
subsection (b) of this Section 7) incurred in connection with the performance of
the Company's obligations hereunder, including, without limiting the generality
of the foregoing: the registration fees related to the filing of the
Registration Statement with the Commission; the fees and expenses related to the
listing of the Shares on the New York Stock Exchange; the fees and expenses of
the Company's counsel, accountants, transfer agent and registrar; the costs and
expenses incurred in connection with the preparation, printing, shipping and
delivery of the Registration Statement, each Preliminary Prospectus and the
Prospectus (including all exhibits and financial statements) and all amendments
and supplements provided for herein and this Agreement, including, without
limitation, shipping expenses via overnight delivery and/or courier service to
comply with applicable prospectus delivery requirements (provided, however, that
the Company shall only be liable for the costs of shipping such materials to the
Underwriters and not to the customers or clients of the Underwriters); and the
costs and expenses associated with the production of materials related to, and
travel expenses incurred by the management of the Company in connection with,
the various meetings to be held between the Company's management and prospective
investors.

                  (b) All registration fees and expenses, including legal fees
(of up to $10,000) and disbursements of counsel for the Underwriters incurred in
connection with qualifying or registering all or any part of the Shares for
offer and sale (or otherwise preparing and filing notices, applications and
other forms) under the Blue Sky Laws, preparing and delivering the Preliminary
and Supplemental Blue Sky Memoranda and the clearing of the public offering and
underwriting arrangements evidenced hereby with the NASD.

                  (c) All fees and expenses related to printing of the
certificates for the Shares, and all transfer taxes, if any, with respect to the
sale and delivery of the Shares.



                                       14
<PAGE>



         SECTION 8. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters under this Agreement shall be subject to
the accuracy of the representations and warranties on the part of the Company
herein set forth as of the date hereof and as of each Closing Date, to the
accuracy of the statements of the Company's officers made pursuant to the
provisions hereof, to the performance in all material respects by the Company of
its obligations hereunder, and to the following additional conditions, unless
waived in writing by the Representatives:

                  (a) The Registration Statement shall have been declared
effective by the Commission not later than 5:30 p.m., Washington, D.C. time, on
the date of this Agreement, or such later time and date as shall have been
consented to by the Representatives, which consent shall be deemed to have been
given if the Registration Statement shall have been declared effective on or
before the date and time requested in the acceleration request submitted on
behalf of the Representatives pursuant to Rule 461 under the Act; all filings
required by Rules 424(b) and 430A under the Act shall have been timely made; no
stop order suspending the effectiveness of the Registration Statement shall have
been issued by the Commission or any state securities commission nor, to the
knowledge of the Company, shall any proceedings for that purpose have been
instituted or threatened; and any request of the Commission or any state
securities commission for inclusion of additional information in the
Registration Statement, or otherwise, shall have been complied with to the
reasonable satisfaction of the Representatives acting in good faith.

                  (b) Subsequent to the execution of this Agreement,

                           (i) there shall not have occurred any change or
development involving, or which could be reasonably expected to involve, a
Material Adverse Effect, whether or not arising from transactions in the
ordinary course of business, and

                           (ii) the Company shall not have sustained any loss or
interference from any labor dispute, strike, fire, flood, windstorm, accident or
other calamity (whether or not insured) or from any court or governmental
action, order or decree having a Material Adverse Effect,

the effect of which on the Company, in any such case described in clause (i) or
(ii) above, is in the reasonable and good faith opinion of the Representatives
so material and adverse as to make it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares on the terms and in the
manner contemplated in the Registration Statement and the Prospectus.

                  (c) The Representatives shall not have advised the Company
that the Registration Statement or Prospectus contains an untrue statement of
fact that, in the reasonable and good faith opinion of the Representatives or
counsel for the Underwriters, is material or omits to state a fact that, in the
reasonable and good faith opinion of the Representatives or such counsel, is
material and is required to be stated therein or necessary to make the
statements therein not misleading.



                                       15
<PAGE>



                  (d) The Representatives shall have received opinions of Foley
& Lardner, special counsel for the Company (as to the matters set forth below in
subsections (i), (ii), (vi), (viii), (ix) and (xiv)), and the Vice President,
General Counsel and Secretary of the Company (as to the matters set forth in
subsections (iii), (iv), (v), (vii), (x), (xi), (xii) and (xiii) addressed to
the Representatives, as the representatives of the Underwriters, and dated the
First Closing Date or the Second Closing Date, as the case may be, to the effect
that:

                           (i) The Company is validly existing as a corporation
in good standing under the laws of Delaware, with full corporate power and
authority to own, lease and operate its properties and conduct its business as
presently conducted and as described in the Prospectus and the Registration
Statement;

                           (ii) The authorized capital stock of the Company
consists of 60,000,000 shares of Common Stock, par value $1.00 per share,
14,000,000 shares of Class A common stock, par value $5.00 per share, and
77,000,000 shares of preferred stock, $1.00 par value per share;

                           (iii) The issued and outstanding shares of capital
stock of the Company immediately prior to the sale of the Shares hereunder have
been duly authorized and validly issued, are fully paid and nonassessable
(except, to the extent applicable, as otherwise provided in Section
180.0622(2)(b) of the Wisconsin Business Corporation Law, as judicially
interpreted), and, to such counsel's knowledge, there are no preemptive,
preferential or, except as described in the Prospectus, other rights to
subscribe for or purchase any shares of capital stock of the Company and, to
such counsel's knowledge, no shares of capital stock of the Company have been
issued in violation of such rights;

                           (iv) The Significant Subsidiary is validly existing
as a corporation in good standing or active status under the laws of Tennessee,
with full corporate power and authority to own, lease and operate its properties
and to conduct its business as presently conducted and as described in the
Prospectus and the Registration Statement; to such counsel's knowledge, the
Company owns directly or indirectly and beneficially all of the issued and
outstanding capital stock of the Significant Subsidiary;

                           (v) The certificates for the Shares to be delivered
hereunder conform in all material respects to the requirements of the Delaware
General Corporation Law and the rules and regulations of the New York Stock
Exchange; and when duly countersigned by the Company's transfer agent, and
delivered to the Representatives or upon the order of the Representatives
against payment of the agreed consideration therefor in accordance with the
provisions of this Agreement, the Shares represented thereby will be duly
authorized and validly issued, fully paid and nonassessable (except, to the
extent applicable, as otherwise provided in Section 180.0622(2)(b) of the
Wisconsin Business Corporation Law, as judicially interpreted);



                                       16
<PAGE>



                           (vi) The Registration Statement has become effective
under the Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are threatened by the Commission; the
Registration Statement and the Prospectus and any amendment or supplement
thereto, including any document incorporated by reference into the Registration
Statement (except for the financial statements and schedules and other
statistical or financial data included therein, as to which such counsel need
express no opinion) comply as to form in all material respects with the
requirements of the Act; the conditions for use of Form S-3, set forth in the
General Instructions thereto, have been satisfied;

                           (vii) To such counsel's knowledge, there are no
pending or threatened legal or governmental proceedings that are required to be
described in the Registration Statement or the Prospectus that are not so
described, nor, to such counsel's knowledge, is there any transaction,
relationship, agreement, contract or other document of a character required to
be described in the Registration Statement or the Prospectus, or required to be
filed under the Exchange Act if upon such filing they would be incorporated, in
whole or in part, by reference therein, or to be filed as an exhibit to or
incorporated by reference in the Registration Statement by the Act, which is not
described, filed or incorporated by reference required;

                           (viii) Statements set forth in the Prospectus under
the heading "Description of Capital Stock," in the description of the Common
Stock contained in the Company's Registration Statement on Form 8-A, filed with
the Commission on December 9, 1994, and in the Registration Statement under Item
15 insofar as such statements constitute a summary of the legal matters,
documents or proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and proceedings;

                           (ix) The Company has full corporate power and
authority to enter into and perform this Agreement; the performance of the
Company's obligations hereunder and the consummation of the transactions
described herein have been duly authorized by the Company by all necessary
corporate action and this Agreement has been duly executed and delivered by and
on behalf of the Company, and is a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except
that rights to indemnity or contribution hereunder may be limited by applicable
law and except as to enforceability of this Agreement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally, and by equitable principles limiting the
right to specific performance or other equitable relief; and, to such counsel's
knowledge, no consent, approval, authorization or other order or decree of any
court, regulatory or governmental body, arbitrator, administrative agency or
other instrumentality of the United States having jurisdiction over the Company,
is required for the execution and delivery of this Agreement or the consummation
of the transactions contemplated by this Agreement (except for compliance with
the Act, the Exchange Act, applicable Blue Sky Laws and the clearance of the
underwriting arrangements with the NASD);

                           (x) The execution, delivery and performance of this
Agreement by the Company will not: (A) violate any provisions of the Articles of
Incorporation or Bylaws of the Company or the Significant Subsidiary; (B)
violate any of the provisions of, or result in the



                                       17
<PAGE>



breach, modification or termination of, or constitute a default under, any
agreement, lease, franchise, license, indenture, permit, mortgage, deed of
trust, other evidence of indebtedness or other instrument to which the Company
or the Significant Subsidiary is a party or by which the Company or the
Significant Subsidiary, or any of their respective owned or leased property is
bound, and which is filed or incorporated by reference as an exhibit to the
Registration Statement; or (C) violate any statute, ordinance, order, rule,
decree or regulation of any court, regulatory or governmental body, arbitrator,
administrative agency or other instrumentality of the United States having
jurisdiction over the Company or the Significant Subsidiary (assuming compliance
with all applicable federal and state securities laws);

                           (xi) To such counsel's knowledge, there are no
holders of Common Stock or other securities of the Company, or securities that
are convertible or exchangeable into Common Stock or other securities of the
Company, that have rights to the registration of such securities under the Act
or any Blue Sky Laws;

                           (xii) The Shares are authorized for trading on the
New York Stock Exchange;

                           (xiii) To such counsel's knowledge, neither the
Company nor the Significant Subsidiary is, nor with the giving of notice or
passage of time or both would be, in violation of its respective Articles of
Incorporation or Bylaws; and

                           (xiv) The Company is not an "investment company," as
such term is defined in the Investment Company Act of 1940, as amended.

                  Such counsel shall also state that they have participated in
conferences with officers and other representatives of the Company,
representatives of auditors for the Company and representatives of the
Underwriters and their counsel during which the content of the Registration
Statement and the Prospectus and related matters were discussed and reviewed,
and that, although such counsel is not verifying, is not passing upon and does
not assume any responsibility for the accuracy, completeness or fairness of the
statements contained or incorporated by reference into the Registration
Statement or the Prospectus, on the basis of the information that was developed
in the course of the performance of such services, they have no reason to
believe that the Registration Statement including any document incorporated by
reference therein, on its effective date, contained any untrue statement of
material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, or
that the Prospectus, or any amendment or supplement thereto including any
document incorporated by reference therein, as of its issue date and as of the
Closing Date, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading (provided that such counsel need express no belief regarding the
financial statements and related schedules and other financial or statistical
data contained in the Registration Statement, any amendment thereto including
any document incorporated by reference therein, or the Prospectus, or any
amendment or supplement thereto including any document incorporated by reference
therein).



                                       18
<PAGE>



                  To the extent that any of such opinions are stated to be based
upon such counsel's knowledge or to be given "to the knowledge of such counsel,"
such qualification shall signify that no information has come to the attention
of the attorneys in such firm who have been involved in the preparation or
review of the Registration Statement or the Prospectus that would give them
actual current knowledge of the existence or absence of such matter in question.

                  In rendering such opinion, counsel for the Company may rely,
to the extent counsel deems such reliance proper, as to matters of fact upon
certificates of officers of the Company and any governmental officials, and
copies of all such certificates shall be furnished to the Representatives and
for the Underwriters on or before each Closing Date.

                  (e) The Representatives shall have received an opinion of
Michael Best & Friedrich LLP, counsel for the Underwriters, dated the First
Closing Date or the Second Closing Date, as the case may be, with respect to the
sale of the Shares hereunder, the Registration Statement and other related
matters as the Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents and shall have exhibited to them
such papers and records as such counsel reasonably request for the purpose of
enabling them to pass upon such matters.

                  (f) The Representatives shall have received on each Closing
Date, a certificate of Kenneth W. Krueger, Senior Vice President and Chief
Financial Officer, and W. David Romoser, Vice President, General Counsel and
Secretary, of the Company, in their respective capacities as such, to the effect
that:

                           (i) The representations and warranties of the Company
set forth in Section 2 hereof are true and correct as of the date of this
Agreement and as of the date of such certificate, and the Company has complied
in all material respects with all the agreements and satisfied all the
conditions to be performed or satisfied by it at or prior to the date of such
certificate;

                           (ii) The Commission has not issued an order
preventing or suspending the use of the Prospectus or any Preliminary Prospectus
or any amendment or supplement thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued; and to the
knowledge of the respective signatories, no proceedings for that purpose have
been initiated or are pending under the Act or under the Blue Sky Laws of any
jurisdiction;

                           (iii) Each of the respective signatories has examined
the Registration Statement and the Prospectus, and any amendment or supplement
thereto, including any documents filed under the Exchange Act and deemed to be
incorporated by reference in the Registration Statement, and such documents
contain all statements of material fact required to be stated therein, and do
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and since the date on which the Registration Statement
was initially filed, no event has occurred that was required to be set forth in
an amended or supplemented prospectus or in an amendment to the Registration
Statement that has not been so set forth, and there has been no



                                       19
<PAGE>


document required to be filed under the Exchange Act that upon such filing would
be deemed to be incorporated by reference in the Registration Statement that has
not been so filed; and

                           (iv) Since the date hereof, there shall not have
occurred any change or development involving, or which could be reasonably
expected to involve, a Material Adverse Effect, whether or not arising from
transactions in the ordinary course of business, except as disclosed in the
Prospectus and the Registration Statement as heretofore amended or as disclosed
in an amendment or supplement thereto filed with the Commission and delivered to
the Representatives after the execution of this Agreement. Since the date
hereof, there shall not have occurred any of the following, such that when
aggregated would have, or which could be reasonably expected to have, a material
effect on the financial condition, business, property, net worth or results of
operations of the Company and the Subsidiaries, taken as a whole: (A) except as
so disclosed or in the ordinary course of business, the Company has incurred any
liability or obligation, direct or indirect, or entered into any transaction
that is material to the Company; (B) except as so disclosed, there has been any
change in the outstanding capital stock of the Company (other than the grant of
stock options under presently existing stock option plans, the issuance of
shares of common stock upon exercise of currently outstanding stock options, the
issuance of shares of Common Stock under the Company's defined contribution or
benefit plans, or the issuance of shares of Common Stock pursuant to the
conversion of shares of Class A Common Stock of the Company), or any change that
is material to the Company in the short-term funded debt or long-term debt of
the Company; (C) except as so disclosed, the Company has acquired any of the
Common Stock or other capital stock of the Company or the Company has declared
or paid any dividend (other than its regular quarterly dividend), or made any
other distribution, upon its outstanding Common Stock payable to shareholders of
record on a date prior to such Closing Date; (D) except as so disclosed, the
Company has incurred any material contingent obligations, or material litigation
is pending or threatened against the Company; and (E) except as so disclosed,
the Company has sustained any material loss or interference from any strike,
fire, flood, windstorm, accident or other calamity (whether or not insured) or
from any court or governmental action, order or decree.

                  The delivery of the certificate provided for in this
subsection (f) shall be and constitute a representation and warranty of the
Company as to the facts required in the immediately foregoing clauses (i), (ii),
(iii), and (iv) to be set forth in said certificate.

                  (g) At the time this Agreement is executed and also on each
Closing Date, there shall be delivered to the Representatives a letter addressed
to the Representatives, as the representatives of the Underwriters, from Ernst &
Young LLP, the Company's independent accountants, the first letter to be dated
the date of this Agreement, the second letter to be dated the First Closing Date
and the third letter (if applicable) to be dated the Second Closing Date, which
letters shall be in form and substance reasonably satisfactory to the
Representatives, acting in good faith and shall contain information as of a date
within five days of the date of such letters. There shall not have been any
change or decrease in any specified items relating to the Company or the
Subsidiaries set forth in any of the letters referred to in this subsection (g)
which makes it impracticable or inadvisable in the reasonable and good faith
judgment of the Representatives to proceed with the public offering or purchase
of the Shares as contemplated thereby.



                                       20
<PAGE>



                  (h) At the time this Agreement is executed and also on each
Closing Date, there shall be delivered to the Representatives a letter addressed
to the Representatives, as the representatives of the Underwriters, from
Lattimore Black Morgan & Cain, PC, State Industries, Inc.'s independent
accountants, the first letter to be dated the date of this Agreement, the second
letter to be dated the First Closing Date and the third letter (if applicable)
to be dated the Second Closing Date, which letters shall be in form and
substance satisfactory to the Representatives, acting in good faith and shall
contain information as of a date within five days of the date of such letters.
There shall not have been any change or decrease in any specified items relating
to State Industries, Inc. set forth in any of the letters referred to in this
subsection (h) which makes it impracticable or inadvisable in the good faith
judgment of the Representatives to proceed with the public offering or purchase
of the Shares as contemplated thereby.

                  (i) The Shares shall have been qualified or registered for
sale under the Blue Sky Laws (or exempt from such qualification or registration)
of such jurisdictions as shall have been specified by the Representatives, and
the Shares shall have been authorized for listing on the New York Stock Exchange
and the Common Stock shall remain registered under the Exchange Act.

                  (j) Such further certificates and documents as the
Representatives may reasonably request (including certificates of officers of
the Company).

         All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to the
Representatives and Michael Best & Friedrich LLP, counsel for the Underwriters,
each acting reasonably under the circumstances. The Company shall furnish the
Representatives with such manually signed or conformed copies of such opinions,
certificates, letters and documents as the Representatives may reasonably
request.

         If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at either Closing Date is not so satisfied, this Agreement
at the election of the Representatives will terminate upon notification to the
Company without liability on the part of any Underwriter, including the
Representatives, or the Company except for the provisions of Section 6(k) hereof
and the expenses to be paid by the Company pursuant to Section 7 hereof and
except to the extent provided in Section 10 hereof.

         SECTION 9. MAINTAIN EFFECTIVENESS OF REGISTRATION STATEMENT. The
Company will use its reasonable best efforts to prevent the issuance of any stop
order suspending the effectiveness of the Registration Statement, and, if such
stop order is issued, to obtain as soon as possible the lifting thereof.

         SECTION 10. INDEMNIFICATION.

                  (a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each director, member, partner or officer
thereof) who controls any Underwriter within the meaning of the Act or the
Exchange Act from and against any losses,



                                       21
<PAGE>



claims, damages, expenses, liabilities or actions in respect thereof ("Claims"),
joint or several, to which such Underwriter or each such controlling person may
become subject under the Act, the Exchange Act, Blue Sky Laws or other federal
or state statutory laws or regulations, at common law or otherwise (including
payments made in settlement of any litigation), insofar as such Claims arise out
of or are based upon any breach of any representation, warranty or covenant made
by the Company in this Agreement, or any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto,
or in any application filed under any Blue Sky Law or other document executed by
the Company for that purpose or based upon written information furnished by the
Company and filed in any state or other jurisdiction to qualify any or all of
the Shares under the securities laws thereof (any such document, application or
information being hereinafter called a "Blue Sky Application") or arise out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and the Company further agrees to reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by such Underwriter or any such controlling person in connection with
investigating or defending any such Claim as such expenses are incurred;
provided, however, that the Company will not be liable in any such case to the
extent that any such Claim arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or supplement
thereto or in any Blue Sky Application in reliance upon and in conformity with
the written information furnished to the Company pursuant to Section 4 of this
Agreement; and provided further that the Company shall not be liable in any such
case for any Claim arising out of any such defect or alleged defect in any
Preliminary Prospectus if a copy of the Prospectus shall not have been given or
sent by or on behalf of such Underwriter to the person asserting such Claim as
determined by a court of competent jurisdiction, if required by law to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, to the extent that the Prospectus would have cured such defect or
alleged defect giving rise to such Claim as determined by a court of competent
jurisdiction. The indemnification obligations of the Company as provided above
are in addition to and in no way limit any liabilities the Company may otherwise
have.

                  (b) Each Underwriter, severally and not jointly, agrees to
indemnify and hold harmless the Company, each of its directors and each of its
officers who signs the Registration Statement, and each person if any who
controls the Company within the meaning of the Act or the Exchange Act, from and
against any Claim to which the Company, or any such director, officer or
controlling person may become subject, under the Act, the Exchange Act, Blue Sky
Laws or other federal or state statutory laws or regulations, at common law or
otherwise (including payments made in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter and Baird),
insofar as such Claim arises out of or is based upon any untrue or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or any amendment or supplement
thereto, or in any Blue Sky Application, in reliance solely upon and in
conformity with the written information furnished by the Representatives to the
Company pursuant to Section 4 of this Agreement, and from and against any Claim
to the extent that such Claim results from the failure of an Underwriter to
deliver a Prospectus, if the person asserting such Claim purchased Shares



                                       22
<PAGE>



from such Underwriter and a copy of the Prospectus (as then amended if the
Company shall have furnished any amendments thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have been
delivered, at or prior to the written confirmation of the sale of the Shares to
such person, and if the Prospectus (as so amended) would have cured the defect
giving rise to such Claim. Each Underwriter will severally reimburse any legal
or other expenses reasonably incurred by the Company, or any such director,
officer or controlling person in connection with investigating or defending any
such Claim as such expenses are incurred. The indemnification obligations of
each Underwriter as provided above are in addition to any liabilities any such
Underwriter may otherwise have. Notwithstanding the provisions of this Section,
no Underwriter shall be required to indemnify or reimburse the Company, or any
officer, director or controlling person, pursuant to this Agreement in an
aggregate amount in excess of the total price at which the shares purchased by
any such Underwriter hereunder were offered to the public, less the amount of
any damages such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission.

                  (c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action in respect of a Claim, such
indemnified party will, if a Claim in respect thereof is to be made against an
indemnifying party under this Section, notify the indemnifying party in writing
of the commencement thereof, but the omission so to notify the indemnifying
party will not relieve an indemnifying party from any liability it may have to
any indemnified party under this Section or otherwise, except to the extent the
indemnifying party is materially prejudiced thereby. In case any such action is
brought against any indemnified party, and such indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate in and, to the extent that he, she or it may wish,
jointly with all other indemnifying parties, similarly notified, to assume the
defense thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and any indemnifying party and the indemnified party shall
have reasonably concluded that there may be legal defenses available to the
indemnified party and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified party
or parties shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on behalf of
such indemnified party or parties (it being understood, however, that the
indemnifying party shall not be liable for the legal fees of more than one
separate counsel, approved by Robert W. Baird & Co. Incorporated, if one or more
of the Underwriters or their controlling persons are the indemnified parties).
No indemnifying party shall, without the prior written consent of the
indemnified party, effect any settlement of any pending or threatened action in
respect of which any indemnified party is or could have been a party and
indemnity could have been sought hereunder by such indemnified party unless such
settlement (i) includes an unconditional release of such indemnified party from
all liability on any claims that are the subject matter of such action and (ii)
does not include a statement as to, or an admission of, fault, culpability or a
failure to act by or on behalf of an indemnified party.

                  (d) Upon receipt of notice from the indemnifying party to such
indemnified party of the indemnifying party's election to assume the defense of
such action and upon approval by the indemnified party of counsel selected by
the indemnifying party, the



                                       23
<PAGE>



indemnifying party will not be liable to such indemnified party under this
Section for any legal fees or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof, unless:

                           (i) The indemnified party shall have employed
separate counsel in connection with the assumption of legal defenses in
accordance with the proviso to the second to last sentence of subsection (c) of
this Section (it being understood, however, that the indemnifying party shall
not be liable for the legal fees of more than one separate counsel, approved by
Baird, if one or more of the Underwriters or their controlling persons are the
indemnified parties);

                           (ii) The indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the indemnified party's notice
to the indemnifying party of commencement of the action; or

                           (iii) The indemnifying party has authorized the
employment of counsel at the expense of the indemnifying party.

                  (e) If the indemnification provided for in this Section is
unavailable to an indemnified party under subsection (a) or (b) hereof in
respect of any Claim referred to therein, then each indemnifying party, in lieu
of indemnifying such indemnified party, shall, subject to the limitations
hereinafter set forth, contribute to the amount paid or payable by such
indemnified party as a result of such Claim:

                           (i) In such proportion as is appropriate to reflect
the relative benefits received by the Company and the Underwriters from the
offering of the Shares; or

                           (ii) If the allocation provided by clause (i) above
is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in clause (i) above, but also
the relative fault of the Company and the Underwriters in connection with the
statements or omissions that resulted in such Claim, as well as any other
relevant equitable considerations.

                  The relative benefits received by each of the Company and the
Underwriters shall be deemed to be in such proportion so that the Underwriters
are responsible for that portion represented by the percentage that the amount
of the underwriting discounts and commissions per share appearing on the cover
page of the Prospectus bears to the public offering price per share appearing
thereon, and the Company (including its officers and directors and controlling
persons), is responsible for the remaining portion. The relative fault of the
Company and the Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of the
Claims referred to above shall be deemed to include, subject to the limitations
set forth in subsections (c) and (d) of this



                                       24
<PAGE>



Section, any legal or other fees or expenses reasonably incurred by such party
in connection with investigating or defending any action or claim.

                  (f) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section were determined
by pro rata or per capita allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method or allocation which does not
take into account the equitable considerations referred to in subsection (c) of
this Section. Notwithstanding the other provisions of this Section, no
Underwriter shall be required to contribute any amount that is greater than the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section are several in proportion to their
respective underwriting commitments and not joint.

         SECTION 11. DEFAULT OF UNDERWRITERS. It shall be a condition to the
obligations of each Underwriter to purchase the Shares in the manner as
described herein, that, except as hereinafter provided in this Section, each of
the Underwriters shall purchase and pay for all the Shares agreed to be
purchased by such Underwriter hereunder upon tender to the Representatives of
all such Shares in accordance with the terms hereof. If any Underwriter or
Underwriters default in their obligations to purchase Shares hereunder on either
the First Closing Date or the Second Closing Date, and the aggregate number of
Shares which such defaulting Underwriter or Underwriters agreed but failed to
purchase does not exceed 10% of the total number of Shares which the
Underwriters are obligated to purchase on such Closing Date, the Representatives
may make arrangements for the purchase of such Shares by other persons,
including any of the Underwriters, but if no such arrangements are made by such
Closing Date the nondefaulting Underwriters shall be obligated severally, in
proportion to their respective commitments hereunder, to purchase the Shares
which such defaulting Underwriters agreed but failed to purchase on such Closing
Date. If any Underwriter or Underwriters so default and the aggregate number of
Shares with respect to which such default or defaults occur is greater than 10%
of the total number of Shares which the Underwriters are obligated to purchase
on such Closing Date, and arrangements satisfactory to the Representatives for
the purchase of such Shares by other persons are not made within 36 hours after
such default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter or the Company except for the expenses to be paid by
the Company pursuant to Section 7 hereof and except to the extent provided in
Section 10 hereof.

         In the event that Shares to which a default relates are to be purchased
by the nondefaulting Underwriters or by another party or parties, the
Representatives shall have the right to postpone the First Closing Date or the
Second Closing Date, as the case may be, for not more than seven business days
in order that the necessary changes in the Registration Statement, Prospectus
and any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an


                                       25
<PAGE>



Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.

         SECTION 12. EFFECTIVE DATE. This Agreement shall become effective upon
the execution and delivery of this Agreement by the parties hereto. Such
execution and delivery shall include an executed copy of this Agreement sent by
telecopier, facsimile transmission or other means of transmitting written
documents.

         SECTION 13. TERMINATION. Without limiting the right to terminate this
Agreement pursuant to any other provision hereof, this Agreement may be
terminated by the Representatives prior to or on the First Closing Date, and the
over-allotment option from the Company referred to in Section 5 hereof, if
exercised, may be canceled by the Representatives at any time prior to or on the
Second Closing Date, if in the reasonable and good faith judgment of the
Representatives, payment for and delivery of the Shares is rendered
impracticable or inadvisable because:

                  (a) Additional material governmental restrictions, not in
force and effect on the date hereof, shall have been imposed upon the trading in
securities generally, or since the date hereof, minimum or maximum prices or
maximum ranges for prices shall have been generally established on the New York
Stock Exchange, trading in securities generally shall have been suspended or
materially limited on any of the New York Stock Exchange, the American Stock
Exchange or on The Nasdaq Stock Market, trading in the Common Stock of the
Company shall have been suspended by the Commission or the New York Stock
Exchange, or a general banking moratorium shall have been established by either
federal or state authorities in New York or Wisconsin;

                  (b) Any event shall have occurred or shall exist which makes
untrue or incorrect in any material respect any statement or information
contained in the Registration Statement or which is not reflected in the
Registration Statement but should be reflected therein to make the statements or
information contained therein not misleading in any material respect;

                  (c) After the date hereof, there has occurred any change or
development involving, or which could reasonably be expected to involve, a
Material Adverse Effect, whether or not arising in the ordinary course of
business; or

                  (d) After the date hereof, there is an outbreak or material
escalation of hostilities or other national or international calamity or crisis,
the declaration by the United States of a national emergency or war, or any
change in political, financial or economic conditions shall have occurred or
shall have accelerated to such extent, in the reasonable and good faith judgment
of the Representatives, as to have a material adverse effect on the financial
markets of the United States, or to make it impracticable or inadvisable to
proceed with the completion of the sale of and payment for the Shares as
provided in this Agreement.

         Any termination pursuant to this Section shall be without liability on
the part of any Underwriter to the Company, or on the part of the Company to any
Underwriter, except for expenses to be paid by the Company pursuant to Section 7
hereof or reimbursed by the Company



                                       26
<PAGE>



pursuant to Section 6(k) hereof and except as to indemnification to the extent
provided in Section 10 hereof.

         SECTION 14. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties, covenants and
other statements of the Company, of its officers or directors, and of the
several Underwriters set forth in or made pursuant to this Agreement will remain
in full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of its or their partners, officers,
directors or any controlling person, as the case may be, and will survive
delivery of and payment for the Shares sold hereunder.

         SECTION 15. NOTICES. All communications hereunder will be in writing
and will be mailed, delivered, or telecopied (with receipt confirmed):

         To the Representatives:  Robert W. Baird & Co. Incorporated
                                  777 East Wisconsin Avenue
                                  Milwaukee, Wisconsin  53202
                                  Fax No.: (414) 765-3912
                                  Attention: Steven G. Booth, Managing Director

         with a copy to:          Michael Best & Friedrich LLP
                                  One South Pinckney Street
                                  Madison, Wisconsin  53703
                                  Fax No.: ( 608) 283-2275
                                  Attention: Tod B. Linstroth

         To the Company:          A. O.  Smith Corporation
                                  1270 West Park Place
                                  Milwaukee, Wisconsin 53224-9508
                                  Fax No.: (414) 359-4064
                                  Attention: Robert J. O'Toole, Chairman,
                                             President and CEO

         and to:                  A. O.  Smith Corporation
                                  1270 West Park Place
                                  Milwaukee, Wisconsin 53224-9508
                                  Fax No.: (414) 359-4143
                                  Attention: W. David Romoser, Vice President,
                                             General Counsel and Secretary

         with a copy to:          Foley & Lardner
                                  777 East Wisconsin Avenue
                                  Milwaukee, Wisconsin 53202
                                  Fax No.: (414) 297-4900
                                  Attention: Patrick G. Quick



                                       27
<PAGE>



         SECTION 16. PARTIES AND SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto and their respective
successors, personal representatives and assigns, and to the benefit of the
officers and directors and controlling persons referred to in Section 10 hereof.
Nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person, firm or corporation any legal or equitable
right, remedy or claim under or in respect to this Agreement or any provision
herein contained. The term "successors" shall not include any purchaser of the
Shares as such from any of the Underwriters merely by reason of such purchase.

         SECTION 17. PARTIAL UNENFORCEABILITY. If any Section, paragraph, clause
or provision of this Agreement is for any reason determined to be invalid or
unenforceable, such determination shall not affect the validity or
enforceability of any other Section, paragraph, clause or provision hereof.

         SECTION 18. APPLICABLE LAW; COUNTERPARTS. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
Illinois without reference to conflict of law principles thereunder. This
Agreement may be signed in various counterparts that together shall constitute
one and the same instrument, and shall be effective when at least one
counterpart hereof shall have been executed by or on behalf of each party
hereto.





                            [SIGNATURE PAGE FOLLOWS.]



                                       28
<PAGE>



         If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters, including the Representatives, all in accordance with its terms.

                                     Very truly yours,

                                     A. O. SMITH CORPORATION


                                     By:
                                        ----------------------------------------

                                     Name:
                                          --------------------------------------

                                     Title:
                                           -------------------------------------

         The foregoing Underwriting Agreement is hereby confirmed and accepted
as of the date first above written.


                                     ROBERT W. BAIRD & CO. INCORPORATED


                                     By:
                                        ----------------------------------------

                                     Name:
                                          --------------------------------------

                                     Title:
                                           -------------------------------------


                                     BANK OF AMERICA SECURITIES LLC


                                     By:
                                        ----------------------------------------

                                     Name:
                                          --------------------------------------

                                     Title:
                                           -------------------------------------


                                     BEAR STEARNS & CO. INC.


                                     By:
                                        ----------------------------------------

                                     Name:
                                          --------------------------------------

                                     Title:
                                           -------------------------------------



                                       29
<PAGE>



                                     ANNEX A


<Table>
<Caption>
Name of Underwriter                             Number of Firm Shares to be Purchased
- -------------------                             -------------------------------------
<S>                                             <C>
Robert W. Baird & Co. Incorporated
Banc of America Securities LLC
Bear Stearns & Co. Inc.

                                                                        --------
                                                Total
                                                                        ========
</Table>



                                       A-1
<PAGE>



                                     ANNEX B

                                  SUBSIDIARIES

<Table>
<Caption>
                                                           State or Country          Equity Owner
Subsidiary                                                  of Organization          (Including %)
- ----------                                                 ----------------        ----------------
<S>                                                        <C>                     <C>
AOS Holding Company                                              Delaware          The Company (100%)
A. O. Smith International Corporation                            Delaware          The Company (100%)

APCOM, Inc.                                                      Tennessee         The Company (100%)(2)
State Industries, Inc.(1)                                        Tennessee         The Company (100%)

A. O. Smith Export, Ltd.                                         Barbados          The Company (100%)
A. O. Smith Holdings (Barbados) SRL                              Barbados          The Company (100%)

A. O. Smith Enterprises Ltd.                                      Canada           The Company (100%)

A. O. Smith (China) Water Heater Co., Ltd.                         China           The Company (100%)
A. O. Smith Electrical Products (Shenzhen) Co., Ltd.               China           The Company (100%)(2)

A. O. Smith L'eau Chaude S.a.r.l.                                 France           The Company (100%)(2)

A. O. Smith Warmwasser-Systemtechnik GmbH                         Germany          The Company (100%)(2)

A. O. Smith Electrical Products Limited Liability Company         Hungary          The Company (100%)

A. O. Smith Electric Motors (Ireland) Ltd.                        Ireland          The Company (100%)(2)
A. O. Smith Holdings (Ireland) Ltd.                               Ireland          The Company (100%)

IG-Mex, S.A. de C.V.                                              Mexico           The Company (100%)(2)
Motores Electricos de Juarez, S.A. de C.V.                        Mexico           The Company (100%)(2)
Motores Electricos de Monterrey, S.A. de C.V.                     Mexico           The Company (100%)(2)
Productos de Agua, S.A. de C.V.                                   Mexico           The Company (100%)(2)
Productos Electricos Aplicados, S.A. de C.V.                      Mexico           The Company (100%)(2)

A. O. Smith Electrical Products B.V.                        The Netherlands The    The Company (100%)
A.O. Smith Water Products Company B.V.                        Netherlands The      The Company (100%)
A.O. Smith Holdings B.V.                                      Netherlands The      The Company (100%)(2)
A.O. Smith Products v.o.f.                                      Netherlands        The Company (100%)(2)

A. O. Smith Electrical Products (S.E.A.) Pte Ltd.                Singapore         The Company (100%)

A. O. Smith Electrical Products Limited                       United Kingdom       The Company (100%)
State Water Heaters (U.K.) Limited                            United Kingdom       The Company (100%)(2)
</Table>

- ----------
(1) Denotes a "Significant Subsidiary" of the Company for purposes of this
Agreement.

(2) The Company's ownership of the Subsidiary may be in whole or in part
indirectly through another Subsidiary.



                                       B-1
<PAGE>



                                     ANNEX C

                            FORM OF LOCK-UP AGREEMENT



Robert W. Baird & Co. Incorporated
Banc of America Securities LLC
Bear Stearns & Co. Inc.
     As Representatives of the Several Underwriters
c/o Robert W. Baird & Co. Incorporated
777 East Wisconsin Avenue
Milwaukee, Wisconsin  53202

         Re: A. O. Smith Corporation (the "Company")

Ladies & Gentlemen:

         The undersigned is an owner of record or beneficially of certain shares
of Common Stock of the Company (the "Common Stock") or securities convertible
into or exchangeable or exercisable for Common Stock. The Company proposes to
carry out a public offering of Common Stock (the "Offering") for which you will
act as the representatives (the "Representatives") of the underwriters. The
undersigned recognizes that the Offering will be of benefit to the undersigned
and will benefit the Company by, among other things, raising additional capital
for its operations. The undersigned acknowledges that you and the other
underwriters are relying on the representations and agreements of the
undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.

         In consideration of the foregoing, the undersigned hereby agrees that,
without the prior written consent of Robert W. Baird & Co. Incorporated, the
undersigned will not, directly or indirectly, for a period commencing on the
date hereof and continuing to a date 90 days after the date of the final
prospectus for the Offering (the "Lock-up Period"), offer, sell, transfer, or
pledge, contract to sell, transfer or pledge, or cause or in any way permit to
be sold, transferred, pledged, or otherwise disposed of (collectively, a
"Disposition") any (i) shares of Common Stock, (ii) rights, options, or warrants
to purchase shares of Common Stock (including, without limitation, shares of
Common Stock that may be deemed to be beneficially owned by the undersigned in
accordance with the applicable regulations of the Commission and shares of
Common Stock that may be issued upon the exercise of a stock option, warrant or
other convertible security), it being agreed, however, that neither the exercise
of a stock option nor the withholding or surrender of Securities to cover
applicable taxes or to pay the exercise price on an option exercise shall be
considered a Disposition, or (iii) securities that are convertible or
exchangeable into shares of Common Stock now owned or hereafter acquired
directly by such person or with respect to which such person has or hereafter
acquires the power of disposition (collectively, the "Securities"). The
foregoing sentence shall not apply to the Disposition of any or all of the
Securities by gift, will or intestacy, provided that in any such case it shall
be a condition to the Disposition that the transferee execute an agreement
stating that the transferee is



                                       C-1
<PAGE>



receiving and holding the Securities subject to the provisions of this Lock-up
Letter and there shall be no further Disposition of such Securities except in
accordance with this Lock-up Letter.

         The foregoing restriction has been expressly agreed to preclude the
holder of the Securities from engaging in any hedging or other transaction which
is designed to or reasonably expected to lead to or result in a Disposition of
the Securities during the Lock-up Period, even if such Securities would be
disposed of by someone other than such holder. Such prohibited hedging or other
transactions would include, without limitation, any short sale (whether or not
against the box) or any purchase, sale or grant of any right (including, without
limitation, any put or call option) with respect to any Securities or with
respect to any security (other than a broad-based market basket or index) that
includes, relates to or derives any significant part of its value from the
Securities. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of Securities held by the undersigned except in compliance with the
foregoing restrictions.

         The undersigned represents and warrants that the undersigned has full
power and authority to enter into this agreement and acknowledges that this
agreement is enforceable against the undersigned by the Representative. This
agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.

                                             Very truly yours,


                                             -----------------------------------
                                             [Name of officer or director]



                                       C-2
<PAGE>




                                     ANNEX D

                LIST OF OFFICERS AND DIRECTORS SUBJECT TO LOCK-UP





                                       D-1

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>4
<FILENAME>c68909aex23-1.txt
<DESCRIPTION>COSNENT OF ERNST & YOUNG LLP
<TEXT>
<PAGE>

                                                                    EXHIBIT 23.1



               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


We consent to the reference to our Firm under the caption "Experts" and to the
use of our report dated January 16, 2002 in Amendment No. 1 to the Registration
Statement (Form S-3 No. 333-86074) and related Prospectus of A. O. Smith
Corporation for the registration of 4,025,000 shares of its Common Stock.

We also consent to the incorporation by reference therein of our report dated
January 16, 2002 with respect to the financial statement schedule of A. O. Smith
Corporation for the years ended December 31, 2001, 2000 and 1999 included in the
Annual Report (Form 10-K) for 2001 filed with the Securities and Exchange
Commission.


                                                    /s/ ERNST & YOUNG LLP

Milwaukee, Wisconsin
April 19, 2002

</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.2
<SEQUENCE>5
<FILENAME>c68909aex23-2.txt
<DESCRIPTION>CONSENT OF LATTIMORE BLACK MORGAN & CAIN, PC
<TEXT>
<PAGE>

                                                                    EXHIBIT 23.2



CONSENT OF INDEPENDENT AUDITORS


As independent auditors, we hereby consent to the incorporation by reference in
this registration statement on Form S-3 of our report dated February 2, 2001,
November 27, 2001 and March 6, 2002, pertaining to the financial statements of
State Industries, Inc. and its subsidiaries as of and for the year ended
December 31, 2000 included in A. O. Smith Corporation's Current Report on Form
8-K, dated December 28, 2001, as amended on March 12, 2002, and to all
references to our firm included in this registration statement.


                                        /s/ Lattimore Black Morgan & Cain, PC

                                        Lattimore Black Morgan & Cain, PC

Brentwood, Tennessee
April 18, 2002

</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----
