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CORPORATE PROFILE

A. O. Smith Corporation is a global leader applying innovative technology and energy-efficient solutions to products marketed worldwide. The company is one of the world’s leading manufacturers of residential and commercial water heating equipment, offering a comprehensive line featuring the best-known brands in North America and China. A. O. Smith is also one of the largest manufacturers of hermetic and fractional horsepower motors for residential and commercial applications in North America.

A. O. Smith is headquartered in Milwaukee, Wisconsin, and employs approximately 16,800 people at 40 manufacturing operations worldwide. A. O. Smith has paid cash dividends on its common stock every year since 1940.

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LETTER TO THE SHAREHOLDERS

I am pleased to report another record-setting year for A. O. Smith Corporation, with sales of $2.3 billion and a 15 percent earnings increase to $88.2 million or $2.85 per share. Operating cash flow also set a record last year, increasing approximately 48 percent to $191 million, a result of our strong earnings and ongoing focus on working capital management.

What made our financial performance particularly satisfying is that it occurred in a difficult economic environment, characterized by a second year of weakness in the U. S. housing industry, persistently high commodities prices, and volatile energy prices. Our operating units performed well under very trying conditions.

WATER PRODUCTS COMPANY

Our largest operating unit achieved record sales of $1.42 billion along with a 23 percent increase in operating profit to $150 million. The company benefited from a full year of sales from GSW which was acquired in April 2006, a 26 percent increase in water heater sales in China and increased sales of commercial water heaters. These helped to offset lower residential water heater volume, the result of the weak housing market. The record profits were the result of synergies from the integration of GSW into our existing operations, the ongoing strength of our China operations, and increased commercial sales. Operating margin improved to 10.5 percent.

Our China water heater business continues to grow at an impressive rate. We have broken ground for another facility on our Nanjing campus to meet increased market demand for residential water heaters. This new facility will double our capacity, and we expect the new plant will go into production in early 2009. Last year, we also announced a joint venture with Fagor Electrodomesticos S Coop., a leading appliance manufacturer in Spain, to develop residential wall-hung gas combination boilers for the China market. “Combi” boilers, which provide potable water and space heating, are growing rapidly in China and will help expand our product offering in that country.

During 2007, Water Products introduced a wide range of new water heating products, including a complete redesign of our popular Cyclone^® line of high-efficiency commercial water heaters, expansion of the Vertex™ line of high-efficiency residential products, and a new variable-fire high-efficiency boiler. Customers are demanding energy efficient water heating solutions, and these new products have received favorable response from customers. We have a full pipeline of exciting new products, many of which will launch this year.

ELECTRICAL PRODUCTS COMPANY

Electrical Products’ 2007 results were negatively impacted by the weak housing market. Sales declined to $894 million, as housing-related weakness in the residential hermetic and pump motor segments more than offset improvements in commercial hermetic motors and the distribution market segment. Operating profit of $23.1 million, which included pretax restructuring charges of $22.8 million, was lower than 2006 operating profit of $48.1 million. Operating profit in 2006 included $8.9 million in restructuring costs. The lower profits were also the result of higher raw material costs and a decline in unit volume, both of which offset improved motor pricing. Adjusted for restructuring expense, operating margin decreased to 5.1 percent from 6.3 percent in 2006.

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Faced with the weak housing market along with secular changes in the residential hermetic motor business, Electrical Products announced it was accelerating plans to close plants in Mebane, N.C. and Scottsville, Ky., and consolidate its residential and commercial hermetic motor operations in Acuña, Mexico, and China. Early in 2008, the company closed a smaller motor plant in Budapest, Hungary, and transferred production to existing plants in China. We expect to record an additional pretax restructuring charge of approximately $13.2 million associated with these actions, equivalent to $7.9 million after taxes, or approximately $.25 per share. We forecast savings of approximately $5 million in the second half of this year as a result of these plant restructurings, with annual savings of $20 million beginning in 2009. Equally as important, these actions will position our productive capacity to better serve the changing needs of our customers in this highly competitive industry.

A CHALLENGING OUTLOOK

We believe 2008 is going to be another challenging year because of the enduring housing market issues and overall economic uncertainty. We are concerned the weakness in housing and construction could broaden later this year and negatively impact our commercial businesses. On the other hand, we expect our businesses in China to continue to generate profitable growth in 2008, helping to offset the weakness in the domestic economy.

In 2007, our employees worked tremendously hard in helping the company achieve record results. Our goals for 2008 are to manage the elements of our business that are in our direct control. These include cost reduction actions throughout the organization, continued efforts to improve margins through standardization and optimization initiatives, and executing Electrical Products’ repositioning programs. Achieving these goals will put us in a strong position to resume our growth once the economy recovers. I am confident our A. O. Smith team will continue to work hard throughout 2008 to satisfy customers while rewarding our shareholders.

Paul W. Jones

Chairman and Chief Executive Officer

L. B. Smith 1920-2007

On a sad note, A. O. Smith Corporation lost a great leader when Lloyd B. Smith passed away in December. Ted joined the company in 1942 and was the fourth generation of the Smith family to lead the business, serving as chairman and chief executive officer from 1967 until his retirement in 1983. Under Ted’s leadership, the company adopted modern management practices while significantly expanding the size and scope of the business. Equally as important, Ted personified A. O. Smith’s values, especially his unwavering belief in doing business with honesty and integrity. He cared deeply about the employees of A. O. Smith, calling them “the best people in the world.” All of us will miss Ted, but it is heartening to know that his legacy will live on through the success of the company and the people who make up A. O. Smith Corporation.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

OR

For the transition period from                      to                     .

Commission File Number 1-475

(Exact of registrant as a specified in its charter)

(414) 359-4000

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

þYes    ¨No                

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

¨Yes    þNo                

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.                                       þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act.)        ¨Yes    þNo

The aggregate market value of voting stock held by non-affiliates of the registrant was $7,650,224 for Class A Common Stock and $816,572,836 for Common Stock as of June 29, 2007.

DOCUMENTS INCORPORATED BY REFERENCE

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A. O. Smith Corporation

Index to Form 10-K

Year Ended December 31, 2007

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PART 1

ITEM 1 - BUSINESS

We are a leading manufacturer of water heating equipment and electric motors, serving a diverse mix of residential, commercial and industrial end markets principally in the United States with a growing international presence. Our company is comprised of two reporting segments: Water Products and Electrical Products. Our Water Products 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. Our Electrical Products business manufactures and markets a comprehensive line of hermetic motors, fractional horsepower alternating current (AC) and direct current (DC) motors. In 2007, we had net sales of approximately $2.3 billion, with 61 percent attributable to our Water Products business and 39 percent attributable to our Electrical Products business.

The following table summarizes our sales by reporting segment. This segment summary and all other information presented in this section should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements, which appear in Item 8 in this document.

WATER PRODUCTS

In our Water Products business, sales increased 13 percent or $162 million in 2007 over the prior year due to a full year of the GSW business acquired in April 2006, which added $128 million in sales in the first quarter of 2007; sales growth of 26 percent in China, which added $30 million in sales; and increased sales of commercial water heaters. Excluding the incremental sales added by the GSW acquisition, sales in the residential market segment were lower in 2007 than in 2006.

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 and tankless water heaters as well as direct-vented, power-vented and condensing models for today’s energy efficient homes. North American residential water heater sales in 2007 were approximately $990 million or 70 percent of segment revenues.

Standard commercial water heaters. Our gas, oil and electric water heaters come in capacities ranging from 6 gallons to 130 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.

A significant portion of our Water Products business is derived from the replacement of existing product, and it is believed that the sale of product to the North American residential new housing construction market represents approximately 15 percent of the segment’s total sales. Our Water Products business also manufactures and markets specialty commercial water heaters, copper-tube boilers, expansion tanks and related products and parts.

We are the largest manufacturer and marketer of water heaters in North America, and we have a leading share in both the residential and commercial segments of the market. In the commercial market segment, we believe our comprehensive product line gives us a competitive advantage in this higher-margin segment of the water heating industry. As the leader in the residential water heating market segment, we offer an extensive line of high-efficiency gas and electric models.

Our Water Products wholesale distribution channel includes more than 1,250 independent wholesale plumbing distributors with more than 5,800 selling locations serving residential, commercial and industrial markets. We also sell our residential water heaters through the retail channel. In this channel, our customers include five of the seven largest national hardware and home center chains, including long-standing private label relationships with both Lowes and Sears, Roebuck and Co.

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We entered the Chinese water heater market through a joint venture in 1995, buying out our partner three years later. Since that time, we have been aggressively expanding our presence while building brand recognition in the Chinese residential and commercial markets. In 2007, the company generated sales of $147 million in China, an increase of 26 percent, compared with 2006. We believe we are the second largest supplier of water heaters to the residential market in China.

We sell our water heating products in highly competitive markets. We compete in each of our targeted market segments based on product design, quality of products and services, performance and price. Our principal domestic water heating competitors include Rheem Manufacturing Company, Inc., Bradford-White Corporation and Lochinvar Corporation. Our primary competitor in China is Haier Appliances, a Chinese company, but we also compete with Makro, Rinnai and Ariston, as well as numerous other Chinese private and state-owned water heater and boiler manufacturing companies.

ELECTRICAL PRODUCTS

In our Electrical Products business, improved selling price and growth in the global market were more than offset by lower unit volumes. Sales in the segment declined one percent in 2007, or approximately $12 million, to $894.0 million compared with 2006. Unit volume sales were negatively impacted by the weak housing market, most notably in the residential hermetic and pump motor segments which more than offset improved sales in the commercial hermetic and distribution market segments.

We are one of the four largest manufacturers of electric motors in North America. 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 1,320 horsepower hermetic and 400 horsepower integral motors. We believe our extensive product offerings give us an advantage in our targeted markets, often allowing us to serve all of our customer’s electric motor needs.

Our motors are used in a wide range of targeted residential and commercial applications, including: hermetic motors that are sold worldwide to manufacturers of air conditioning and commercial refrigeration compressors; fractional horsepower fan motors used in furnaces, air conditioners and blowers; fractional horsepower motors for pumps for home water systems, swimming pools, hot tubs and spas; fractional horsepower motors used in other consumer products (such as garage door openers); and integral horsepower AC and DC motors for industrial and commercial applications. Sales to the North American OEM heating, ventilating, air conditioning and refrigeration market account for approximately 33 percent of segment sales. Approximately 82 percent of our 2007 segment sales were to OEMs in a diverse mix of industries, with the remainder of sales sold through aftermarket or distribution channels. We believe that at least 25 percent of our total segment sales were attributable to products used outside of the United States. A significant portion of our Electrical Products business is derived from the replacement of existing product, and it is believed that the sale of product to the residential new housing construction market in North America represents approximately 25 percent of the segment’s total sales.

To remain a leader in this highly competitive industry, we are committed to being a low-cost supplier of electric motors. Since 2001, we have undertaken initiatives to accelerate cost-reduction in our motor operations to enhance our competitive position. These initiatives included the closure of seven U.S. facilities as well as our operations in Bray, Ireland and Taizhou, China, transferring related production to our lower cost operations in Mexico and China.

At the end of the third quarter of 2007, we announced that we will close our operations in Scottsville, KY, and Mebane, NC, and consolidate our hermetic motor assembly operations in Acuna, Mexico and Suzhou, China. We expect the transfer of work at both hermetic motor facilities to be completed by the fourth quarter of 2008. We will also close our motor manufacturing facility in Budapest, Hungary, and transfer the remaining production to China. The 2007 expense associated with the closure of Budapest was $9.2 million while we received a tax benefit of $9.9 million associated with the write down of that investment. We expect to complete the closing of Budapest by the end of February 2008. For all of 2007, the restructuring expense at Electrical Products totaled $22.8 million before taxes or $8.9 million after taxes, equivalent to $.29 per share.

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In 2008, we expect to record an additional pretax restructuring charge of approximately $13.2 million associated with the above-mentioned facilities, equivalent to $7.9 million after taxes, or approximately $.25 per share. The expense is expected to be incurred relatively evenly throughout 2008.

In November 2003, we acquired Taicang Special Motor Co., Ltd. (Taicang), of Suzhou, China, a manufacturer of hermetic motors for commercial air conditioning equipment. Taicang currently serves the Chinese operations of a number of North American air conditioning companies and enhances our position in the global hermetic motor market. In November of 2005, we completed our fourth motor acquisition in China with the purchase of Yueyang Zhongmin Special Electrical Machinery Co., Ltd. Located in Hunan Province, Yueyang, manufactures large hermetic motors used in commercial air conditioning applications.

We sell our electric motor products in highly competitive markets. We compete in each of our targeted market segments based on product design, quality of products and services, performance and price. Our principal competitors in the electric motor industry are Emerson Electric Co., Regal Beloit Corporation and Baldor Electric Company.

RAW MATERIAL

Raw materials for our manufacturing operations, which consist primarily of steel, copper and aluminum, are generally available from several sources in adequate quantities. We typically hedge a portion of our annual copper and aluminum purchases to protect against price volatility. In addition a portion of Electrical Products customers are contractually obligated to accept price changes based on fluctuations in certain of our raw material prices. Recent consolidation in the steel industry and world-wide demand for steel have resulted in significant cost increases for steel.

RESEARCH AND DEVELOPMENT

In order to improve competitiveness by generating new products and processes, we conduct research and development at our Corporate Technology Center in Milwaukee, Wisconsin, as well as at our operating units. Total expenditures for research and development in 2007, 2006, and 2005 were $47.8, $42.3, and $36.0 million, respectively.

PATENTS AND TRADEMARKS

We own and use in our businesses various trademarks, trade names, patents, trade secrets and licenses. While a number of these are important to us, we do not believe that our business as a whole is materially dependent upon any such trademark, trade name, patent, trade secret or license.

EMPLOYEES

Our company and its subsidiaries employed approximately 16,800 employees as of December 31, 2007.

BACKLOG

Due to the short-cycle nature of our businesses, none of our operations sustain significant backlogs.

ENVIRONMENTAL LAWS

Our operations are governed by a variety of federal, state and local laws intended to protect the environment. While environmental considerations are a part of all significant capital expenditures, compliance with the environmental laws has not had and is not expected to have a material effect upon the capital expenditures, earnings, or competitive position of our company. See Item 3.

AVAILABLE INFORMATION

We maintain a website with the address www.aosmith.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. Other than an investor’s own internet access charges, we make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports as soon as reasonably practical after we have electronically filed such material with, or furnished such material to, the Securities and Exchange Commission.

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The company is committed to sound corporate governance and has documented its corporate governance practices by adopting the A. O. Smith Corporate Governance Guidelines. The Corporate Governance Guidelines, Criteria for Selection of Directors, Financial Code of Ethics, the A. O. Smith Guiding Principles, as well as the charters for the Audit, Personnel and Compensation, Nominating and Governance and the Investment Policy Committees and other corporate governance materials may be viewed on the company’s website. Any waiver of or amendments to the Financial Code of Conduct or the A. O. Smith Guiding Principles also would be posted on this website; to date there have been none. Copies of these documents will be sent to stockholders free of charge upon written request of the corporate secretary at the address shown on the cover page of this Form 10-K.

ITEM 1A – RISK FACTORS

You should carefully consider the risk factors set forth below and all other information contained in this Annual Report on Form 10-K, 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.

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 alternate sources for the products we manufacture. Some of our competitors may have greater financial, marketing, manufacturing, and distribution resources than we have. We cannot assure 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.

We sell a portion of our products for new residential and commercial construction. The strength of these markets depends on new housing starts and business investment, which are a function of many factors beyond our control, including interest rates, employment levels, availability of credit and consumer confidence. Downturns in the markets we serve could result in lower revenues and lower profitability. New housing starts declined in 2006 and 2007 and the pace may continue at the lower levels or decline further and commercial construction activity, which has been high in recent years, could decline as well. We believe that approximately 15 percent of our Water Products and 25 percent of our Electrical Products businesses, respectively, are affected by changes in the residential housing construction markets. Furthermore, though we believe that the majority of the commercial business we serve is for replacement, we could also be affected by changes in the commercial construction market.

Net sales to our four largest customers represented approximately 26 percent of 2007 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 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 successfully develop relationships with additional customers, or future price concessions that we may make could significantly harm our business.

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A significant portion of our 2007 net sales were attributable to products manufactured outside of the United States, principally in Mexico and China, and expanding international manufacturing capacity in Mexico and China is part of our strategy to reduce costs. Approximately 6,600 of our 16,800 total employees and 17 of our 40 manufacturing facilities are located in Mexico. Approximately 4,400 employees and five 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.

Over 90% of our electric motor manufacturing productive labor hours are incurred in Mexico and China. The peso based 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. The labor costs we incur are measured in U.S. dollars and based on the cost of labor in Mexican pesos. Historically, Mexico has had higher wage inflation than the United States. 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. Manufacturing and material costs we incur in China are principally incurred in Chinese RMB. If the RMB continues to strengthen against the U.S. dollar our costs would increase.

The market price for certain key materials we purchase (e.g., steel, copper, aluminum, diesel fuel and natural gas) have been very volatile in the recent past. While our company periodically does enter into futures contracts to fix the cost of certain raw material purchases, principally copper and aluminum, significant increases in the cost of any of the key materials we purchase could increase our cost of doing business and ultimately could lead to lower operating earnings if we are not able to recover these cost increases through price increases to our customers. Historically, there has been a lag in any customer recovery of increased material costs. In addition, in some cases we are dependent on a single or limited number of suppliers for some of the raw materials and components required in the manufacture of our product.

The projected benefit obligations of our defined benefit pension plans exceeded the fair value of the plan assets by $39.7 million at December 31, 2007. The pension plans continue to meet all funding requirements under ERISA regulations, and under current assumptions, no funding will be required until the Pension Protection Act (PPA) provisions become effective in 2008. Beginning in 2008, the minimum required contribution will equal the target normal cost plus a seven year amortization of any funding shortfall, offset by any ERISA credit balance. Among the key assumptions inherent in the actuarially calculated pension plan obligation and pension plan expense are the discount rate and the expected rate of return on plan assets. If interest rates and actual rates of return on invested plan assets were to decrease significantly, our pension plan obligations could increase materially.

Our total assets include substantial goodwill. The goodwill results from our acquisitions, representing the excess of the purchase price we paid over the fair value of the tangible and intangible assets we acquired. We assess whether there has been impairment in the value of our goodwill during the fourth quarter of each calendar year or sooner if triggering events warrant. If future operating performance at one or more of our businesses does not meet expectations, we may be required to reflect,

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under current applicable accounting rules, a non-cash charge to operating results for goodwill impairment. The recognition of an impairment of a significant portion of goodwill would negatively affect our results of operations and total capitalization, the effect of which could be material. A significant reduction in our stockholders’ equity due to an impairment of goodwill may affect our ability to maintain the required debt-to-capital ratio existing under our debt arrangements. We have identified the valuation of goodwill and indefinite-lived intangible assets as a critical accounting policy. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies—Goodwill and Indefinite-lived Intangible Assets” included in Item 7 of this Annual Report on Form 10-K.

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 affect on our financial condition, results of operations, and cash flows.

Our water heater and electric motor products expose us to potential product liability risks that are inherent in the design, manufacture, and sale of our products. 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.

Our electric motors business has successfully closed plants and transitioned many products to lower cost regions, however, every plant closure carries the risk of a failed execution. If we fail to transition the product on time or if we fail to meet the customer’s testing requirements at the new facility, we could lose some business to our competitors. We cannot assure that we will be able to retain all of the business that we are moving and the loss of a customer or a particular product line to a competitor could negatively impact our operating earnings.

We have two classes of common equity: our Common Stock and our Class A Common Stock. The holders of Common Stock are entitled, as a class, to elect only 25 percent of our board of directors. The holders of Class A Common Stock are entitled, as a class, to elect the remaining directors. As of December 31, 2007, Smith Investment Company effectively controlled 70 percent of our board of directors and our operations because it beneficially owned approximately 98 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 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 December 31, 2007, Smith Investment Company beneficially owned approximately 32 percent of the total number of outstanding shares of our Common Stock and Class A Common Stock.

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ITEM 1B - UNRESOLVED STAFF COMMENTS

None.

ITEM 2 - PROPERTIES

Properties utilized by the company at December 31, 2007, were as follows:

Water Products

This segment has 14 manufacturing plants located in 5 states and 4 non-USA countries, of which 11 are owned directly by the company or its subsidiaries and 3 are leased from outside parties. Lease terms generally provide for minimum terms of ten years and have one or more renewal options. The term of leases in effect at December 31, 2007, expire between 2009 and 2015.

Electrical Products

This segment has 26 manufacturing plants located in 2 states and 4 non-USA countries, of which 14 are owned directly by the company or its subsidiaries and 12 are leased from outside parties. Lease terms generally provide for minimum terms of five to twenty years and have one or more renewal options. The term of leases in effect at December 31, 2007, expire between 2008 and 2015.

Corporate and General

The company considers its plants and other physical properties to be suitable, adequate, and of sufficient productive capacity to meet the requirements of its business. The manufacturing plants operate at varying levels of utilization depending on the type of operation and market conditions. The executive offices of the company, which are leased, are located in Milwaukee, Wisconsin.

ITEM 3 - LEGAL PROCEEDINGS

We are involved in various unresolved legal actions, administrative proceedings and claims in the ordinary course of our business involving product liability, property damage, insurance coverage, exposure to asbestos and other substances, 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, we believe, based on past experience, adequate reserves and insurance availability, that these unresolved legal actions will not have a material effect on our financial position or results of operations. A more detailed discussion of these matters appears in Note 13 of Notes to Consolidated Financial Statements.

In a Form 8-K filed with the Securities and Exchange Commission on October 19, 2007, the company disclosed an adverse verdict in a product liability lawsuit in Baldwin County, Alabama.

On February 19, 2008, all plaintiffs executed a Release, Settlement and Confidentiality Agreement (the Settlement) resolving the lawsuit in its entirety. The Settlement is subject to Baldwin County Court approval, which the company believes will be granted. As part of the Settlement, the adverse verdict will be vacated by the Baldwin County Court. The terms of the Settlement are confidential. The company’s expense related to the Settlement is included in the reserve recorded as of December 31, 2007.

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

No matters were submitted to a vote of the security holders during the fourth quarter of 2007.

EXECUTIVE OFFICERS OF THE COMPANY

Pursuant to General Instruction of G(3) of Form 10-K, the following is a list of the executive officers which is included as an unnumbered Item in Part I of this report in lieu of being included in the company’s Proxy Statement for its 2008 Annual Meeting of Stockholders.

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