UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 001-11499

WATTS WATER TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

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. Yes ý    No o

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o    No ý

        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. Yes ý    No o

        Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K 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. oý

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" 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 Exchange Act). Yes o    No ý

        As of June 29, 2008,July 1, 2011, the aggregate market value of the registrant's common stock held by non-affiliates of the registrant was approximately $708,165,326$1,091,827,615 based on the closing sale price as reported on the New York Stock Exchange.

        Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

DOCUMENTS INCOPORATEDINCORPORATED BY REFERENCE

        Portions of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on May 13, 2009,16, 2012, are incorporated by reference into Part III of this Annual Report on Form 10-K.

PART I

Item 1.    BUSINESS.

        This Annual Report on Form 10-K contains statements whichthat are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain projections of our future results of operations or our financial position or state other forward-looking information. In some cases you can identify these forward-looking statements by words such as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "should," "will" and "would" or similar words. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to differ materially from the anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Some of the factors that might cause these differences are described under Item 1A—"Risk Factors." You should carefully review all of these factors, and you should be aware that there may be other factors that could cause these differences. These forward-looking statements were based on information, plans and estimates at the date of this report, and, except as required by law, we undertake no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes.

        In this Annual Report on Form 10-K, references to "the Company," "Watts," "we," "us" or "our" refer to Watts Water Technologies, Inc. and its consolidated subsidiaries.

Overview

        Watts Regulator Co. was founded by Joseph E. Watts in 1874 in Lawrence, Massachusetts. Watts Regulator Co. started as a small machine shop supplying parts to the New England textile mills of the 19th century and grew into a global manufacturer of products and systems focused on the control, conservation and quality of water and the comfort and safety of the people using it. Watts Water Technologies, Inc. was incorporated in Delaware in 1985 and became the parent Companycompany of Watts Regulator Co.

        Our "Water by Watts" strategy is to be the leading provider of water quality, water conservation, water safety and water flow control products for the residential and commercial markets in North America and Europe and to expand ourwith a presence in Asia. Our primary objective is to grow earnings by increasing sales within existing markets, expanding into new markets, leveraging our distribution channels and customer base, making selected acquisitions, reducing manufacturing costs and advocating for the development and enforcement of industry standards.

        We intend to continue to introduce products in existing markets by enhancing our preferred brands, developing new complementary products, promoting plumbing code development to drive sales of safety and water quality products and continually improving merchandising in both the do-it-yourself (DIY) and wholesale distribution channels. We continually target selected new product and geographic markets based on growth potential, including our ability to leverage our existing distribution channels. Additionally, we continually leverage our distribution channels through the introduction of new products, as well as the integration of products of our acquired companies.

        We intend to continue to generate growth by targeting selected acquisitions, both in our core markets as well as new complementary markets. We have completed 3236 acquisitions since divesting our industrial and oil and gas business in 1999, including one acquisition in each of 2008 and 2007 and five acquisitions in 2006.1999. Our acquisition strategy focuses on businesses that manufacture preferred brand name products that address our themes of water quality, water safety,conservation, water conservation,safety, water flow control and comfort and related complementary markets. We target businesses that will provide us with one or more of the following: an entry into new markets, an increase in shelf space with existing customers, strong brand names, a new or improved technology or an expansion of the breadth of our Water by Watts offerings.

        We are committed to reducing our manufacturing and operating costs through a combination of manufacturing in lower-cost countries, using Lean Six Sigma to drive continuous improvement across all key processes, and consolidating our diverse manufacturing operations in North America, Europe and China.Asia. We have acquired a number of manufacturing facilities in lower-cost regions such as Mexico, China, Bulgaria and Tunisia. In 2007,recent years, we have announced aseveral global restructuring planplans to reduce our manufacturing footprint in order to reduce our costs and to realize additional operating efficiencies. In February 2009, we announced an additional plan to consolidate manufacturing in North America and China. See Recent Developments in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" for more details.

        Our products are sold to wholesale distributors and dealers, major DIY chains and original equipment manufacturers (OEMs). Most of our sales are for products that have been approved under regulatory standards incorporated into state and municipal plumbing, heating, building and fire protection codes in North America and Europe. We have consistently advocated the development and enforcement of plumbing codes and are committed to providing products to meet these standards, particularly for safety and control valve products. These codes serve as a competitive barrier to entry by requiring that products sold in select jurisdictions meet stringent criteria.

        Additionally, a majority of our manufacturing facilities are ISO 9000, 9001 or 9002 certified by the International Organization for Standardization.

        Our business is reported in three geographic segments: North America, Europe and China.Asia. The contributions of each segment to net sales, operating income and the presentation of certain other financial information by segment are reported in Note 1716 of the Notes to Consolidated Financial Statements and in Management's"Management's Discussion and Analysis of Financial Condition and Results of OperationsOperations" included elsewhere in this report.

Recent Acquisitions and Disposition

        On May 30, 2008, we purchased all of the outstanding share capital of Blücher Metal A/S (Blücher) located in Vildbjerg, Denmark, for approximately $183.5 million, which includes the assumption of $13.4 million of debt, net of cash acquired. Blücher is a leading provider of stainless steel drainage systems in Europe to the residential, commercial and industrial marketplaces and is a worldwide leader in providing stainless steel drainage products to the marine industry. Blücher's main products include push-fit stainless steel pipes and related fittings, light-duty drains for residential, commercial and marine applications, and drains for heavy-duty industrial applications including brewery and pharmaceutical applications.

        During the second quarter of 2008, we completed the acquisition of the remaining 40% ownership of our Tianjin Tanggu Watts Valve Company Ltd. joint venture in China, known as TWT, for $3.3 million in cash. TWT manufactured products to support the U.S. operations as well as to sell into the local China market. In the third quarter of 2008, we relocated the business supporting the U.S. from TWT into an existing operation in China. We then entered into an agreement to sell TWT. Under this agreement, we determined that the risks and rewards of ownership of TWT were effectively transferred to the buyer as of October 18, 2008. We further determined that we were no longer the primary beneficiary of the operating results of TWT and therefore had deconsolidated TWT as of the agreement date. As the equity transfer from us to the buyer has not yet been approved by local authorities, we deferred a $1.1 million gain from the sale. We expect to recognize the gain during 2009, upon final approval of the transfer by Chinese government authorities. The deferred gain has been recorded as a current liability in the accompanying Consolidated Balance Sheet.

        On November 9, 2007, we acquired the assets and business of Topway Global Inc. (Topway) located in Brea, California for approximately $18.4 million. Topway manufactures a wide variety of water softeners, point of entry filter units, and point of use drinking water systems for residential, commercial and industrial applications.

Products

        We believe that we have the broadesta broad range of products in terms of design distinction, size and configuration in a majority ofconfiguration. In 2011, we began classifying our principalmany products into four universal product lines. These product lines are:

•

Residential & commercial flow control products—includes products typically sold into plumbing and hot water applications such as backflow preventers, water pressure regulators, temperature and pressure relief valves, and thermostatic mixing valves. In 20082011, 2010 and 2007, water quality2009, residential & commercial flow control products accounted for approximately 17%53%, 51% and 18%51%, respectively, of our total sales. Our principal product lines include:

•

water quality products, including backflow preventers and check valves for preventing reverse flow within water lines and fire protection systems and point-of-use water filtration and reverse osmosis systems for both commercial and residential applications;



•

a wide range of water pressure regulators for both commercialHVAC & gas products—includes hydronic and residential applications;



•

drainage products for industrial, commercial, marine and residential applications;



•

water supply products for commercial and residential applications;



•

temperature and pressure relief valves for water heaters, boilers and associated systems;



•

thermostatic mixing valves for tempering water in commercial and residential applications;



•

electric heating systems for under-floor radiant applications, and hydraulichydronic pump groups for gas boiler manufacturers and renewablealternative energy applications, including solarcontrol packages, and heat pump control packages;



•

flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications;applications. In 2011, 2010 and 2009, HVAC & gas products accounted for approximately 33%, 34% and 34%, respectively, of our total sales. HVAC is an acronym for heating, ventilation and air conditioning.



•

large diameter butterfly valvesDrains & water re-use products—includes drainage products and engineered rain water harvesting solutions for use in China'scommercial, industrial, marine and residential applications. In 2011, 2010 and 2009, drains & water infrastructure.re-use products accounted for approximately 9%, 10% and 10%, respectively, of our total sales.



•

Water quality products—includes point-of-use and point-of-entry water filtration, conditioning and scale prevention systems for both commercial and residential applications. In 2011, 2010 and 2009, water quality products accounted for approximately 5%, 5% and 5%, respectively, of our total sales.

Customers and Markets

        We sell our products to plumbing, heating and mechanical wholesale distributors, major DIY chains and OEMs.




        Wholesalers.    Approximately 68%, 64% and 65% of our sales in both 20082011, 2010 and 20072009, respectively, were to wholesale distributors for both commercial and residential applications. We rely on commissioned manufacturers' representatives, some of which maintain a consigned inventory of our products, to market our product lines. Additionally, various water quality products are sold to independent dealers throughout North America.

        DIY.DIY Chains.    Approximately 13%, 16% and 15%16% of our sales in 20082011, 2010 and 2007,2009, respectively, were to DIY customers.chains. Our DIY customerschains demand less technical products, but are highly receptive to innovative designs and new product ideas.

        OEMs.    Approximately 22%19%, 20% and 20%19% of our sales in 20082011, 2010 and 2007,2009, respectively, were to OEMs. In North America, our typical OEM customers are water heater manufacturers and equipment and water systems manufacturers needing flow control devices and water systems manufacturers needing backflow preventers.other products. Our sales to OEMs in Europe are primarily to boiler manufacturers and radiant systemssystem manufacturers. Our sales to OEMs in ChinaAsia are primarily to boiler and bath manufacturers including manufacturers of faucet and shower products.

        In both 20082011, 2010 and 2007,2009, no customer accounted for more than 10% of our total net sales. Our top ten customers accounted for approximately $293.9$290.4 million, or 20%, of our total net sales in 2008 and $304.32011; $273.6 million, or 22%, of our total net sales in 2007.2010; and $306.4 million, or 25%, of our total net sales in 2009. Thousands of other customers constituted the remaining 80%balance of our net sales in 2008 and 78%each of our net sales in 2007.those years.




Marketing and Sales

        WeFor product sales, we rely primarily on commissioned manufacturers' representatives, some of which maintain a consigned inventory of our products. These representatives sell primarily to plumbing and heating wholesalers or service DIY store locations in North America. We also sell products for the residential construction and home repair and remodeling industries through DIY plumbing retailers, national catalog distribution companies, hardware stores, building material outlets and retail home center chains and through plumbing and heating wholesalers. In addition, we sell products directly to certain largewholesalers, OEMs and private label accounts.accounts in Europe and to a lesser extent in North America.

Manufacturing

        We have integrated and automated manufacturing capabilities, including a bronze foundry, machining, plastic extrusion and injection molding and assembly operations. Our foundry operations include metal pouring systems, automatic core making, yellow brass forging and brass and bronze die-castings. Our machining operations feature computer-controlled machine tools, high-speed chucking machines with robotics and automatic screw machines for machining bronze, brass and steel components. We have invested heavily in recent years to expand our manufacturing capabilities and to ensure the availability of the most efficient and productive equipment. We are committed to maintaining our manufacturing equipment at a level consistent with current technology in order to maintain high levels of quality and manufacturing efficiencies.

        Capital expenditures and depreciation for each of the last three years were as follows:

		Years Ended December 31,
		2008			2007			2006
		(in millions)
Capital expenditures		$	26.6		$	37.8		$	44.7
Depreciation		$	31.8		$	28.9		$	26.7

        The Company's 2006 capital expenditures included approximately $18.0 million related to the purchase and subsequent sale-leaseback of a building in Italy.

		Years Ended December 31,
		2011			2010			2009
		(in millions)
Capital expenditures		$	22.7		$	24.6		$	24.2
Depreciation		$	33.3		$	30.5		$	33.7

Raw Materials

        We require substantial amounts of raw materials to produce our products, including bronze, brass, cast iron, steel, plastic, and plastic,components used in products, and substantially all of the raw materials we




require are purchased from outside sources. We hadThe commodity markets have experienced increasestremendous volatility over the past several years, particularly with respect to copper. The market prices of many commodities increased throughout 2009 and 2010. During 2011, spot copper prices increased to historic highs early in the costsyear, and then trended downward in the second half of certain raw materials, particularly copper.2011. Bronze and brass are copper-based alloys. Through July 3, 2008,The average monthly copper prices rose significantly from demands in the worldwide marketplace. The spot price of copper, which was $4.08 at July 3, 2008, had increaseddecreased approximately 186%17.7% from December 2005. In response,2010 to December 2011. The fact that we implemented price increases for somesource internationally a significant amount of our products that had become more expensive to manufacture due to the increases in raw material costs. During 2007 and 2006, cost increases in raw materials were not completely recovered by increased selling prices or other product cost reductions. During the latter halfmeans that several months of 2008, commodity prices, including copper, decreased significantly as most industrializedraw materials and emerging economies began experiencing economic recessions. The spot price of copperwork in process are moving through our business at December 31, 2008 was $1.32.any point in time. We are not able to predict whether commodity costs, including copper, will significantly increase or decrease in the future. If commodity costs increase in the future and we are not able to reduce or eliminate the effect of the cost increases by reducing production costs or implementing price increases, our profit margins could decrease. If commodity costs continuewere to decline, we may experience pressures from customers to reduce our selling prices. The timing of any price reductions and decreases in commodity costs may not align. Therefore,As a result, our near-term margins could be affected.

        With limited exceptions, we have multiple suppliers for our commodities and other raw materials. We believe our relationships with our key suppliers are good and that an interruption in 2009 could decline.supply from any one supplier would not materially affect our ability to meet our immediate demands while another supplier is qualified. We regularly review our suppliers to evaluate their strengths. If a supplier is unable to meet our demands, we believe that our inventory of raw materials will allow for sufficient time to identify and obtain the necessary commodities and other raw materials from an alternate source. We believe that the nature of the commodities and other raw materials used in our business are such that multiple sources are generally available in the market.




Code Compliance

        Products representing a majority of our sales are subject to regulatory standards and code enforcement which typically require that these products meet stringent performance criteria. Standards are established by such industry test and certification organizations as the American Society of Mechanical Engineers (A.S.M.E.), the Canadian Standards Association (C.S.A.), the American Society of Sanitary Engineers (A.S.S.E.), the University of Southern California Foundation for Cross-Connection Control (USC FCC), the International Association of Plumbing and Mechanical Officials (I.A.P.M.O.), Factory Mutual (F.M.), the National Sanitation Foundation (N.S.F.) and Underwriters Laboratory (U.L.). Many of these standards are incorporated into state and municipal plumbing and heating, building and fire protection codes.

        National regulatory standards in Europe vary by country. The major standards and/or guidelines whichthat our products must meet are AFNOR (France), DVGW (Germany), UNI/ICIN (Italy), KIWA (Netherlands), SVGW (Switzerland), SITAC (Sweden) and WRAS (United Kingdom). Further, there are local regulatory standards requiring compliance as well.

        Together with our commissioned manufacturers' representatives, we have consistently advocated for the development and enforcement of plumbing codes. We maintain stringent quality control and testing procedures at each of our manufacturing facilities in order to manufacture products in compliancethat comply with code requirements.

        We believe that product-testing capability and investment in plant and equipment is needed to manufacture products in compliancethat comply with code requirements. Additionally, a majority of our manufacturing facilities are ISO 9000, 9001 or 9002 certified by the International Organization for Standardization.

New Product Development and Engineering

        We maintain our own product development staff, design teams, and testing laboratories in North America, Europe and ChinaAsia that work to enhance our existing products and develop new products. We maintain sophisticated product development and testing laboratories. Research and development costs




included in selling, general, and administrative expense amounted to $17.5$21.2 million, $15.1$18.6 million and $12.7$17.8 million for the years ended December 31, 2008, 20072011, 2010 and 2006,2009, respectively.

        California, Maryland and Vermont have recently enactedimplemented laws that will require beginning on January 1, 2010 that all pipes, pipe and plumbing fittings and plumbing fixtures sold in those states that convey or dispense water for human consumption to contain virtually no lead content. Other states, including Maryland, are currently consideringcontent, which is generally referred to as lead-free. Louisiana has enacted similar legislation and we expect that goes into effect in 2013. On January 4, 2011, the federal government enacted a similar lawslaw that will be adoptedtake effect nationwide in other states in the future.January 2014. We have invested considerable resources over the past several years to develop lead freelead-free versions of our plumbing products to comply with the new laws, and we have successfully introduced our lead-free product offerings in Maryland, California and Vermont.

        Complying with these new laws.requirements on a nationwide basis will pose a significant challenge for us. The transition to comply with the expected requirements may cause our material costs to increase as suppliers of alternative lead-free metals are currently limited. We expect thatmay not succeed in passing through these cost increases to our lead free product offerings will be available for sale by the fourth quarter of 2009, which should allowcustomers. We may also experience technical challenges in our customersmanufacturing process in California and Vermont timeconverting our present manufacturing operations to manage their inventories100% lead-free products. In addition, we could have difficulty providing sufficient quantities of our lead-free compliant products to prepare for the January 1, 2010 implementation date of the new lead free standards.meet nationwide demand and we could be left with potentially obsolete traditional leaded product inventories if customers convert to lead-free offerings faster than anticipated.

Competition

        The domestic and international markets for water safety and flow control devices are intensely competitive and require us to compete against some companies possessing greater financial, marketing and other resources than ours. Due to the breadth of our product offerings, the number and identities of our competitors vary by product line and market. We consider quality, brand preference, delivery times, engineering specifications, plumbing code requirements, price, technological expertise delivery times and breadth of product offerings to be the primary competitive factors. We believe that new product development and product engineering are also important to success in the water industry and that our position in the industry is attributable in part to our ability to develop new and innovative products quickly and to adapt and enhance existing products. We continue to develop new and innovative products to enhance







market position and are continuing to implement manufacturing and design programs to reduce costs. We cannot be certain that our efforts to develop new products will be successful or that our customers will accept our new products. Although we own certain patents and trademarks that we consider to be of importance, we do not believe that our business and competitiveness as a whole are dependent on any one of our patents or trademarks or on patent or trademark protection generally.

Backlog

        Backlog was approximately $94.8$81.4 million at February 13, 2009 and was approximately $116.8 million at February 15, 2008.10, 2012. We do not believe that our backlog at any point in time is indicative of future operating results.results and we expect our entire current backlog to be converted to sales in 2012.

Employees

        As of December 31, 2008, our wholly-owned domestic and foreign operations2011, we employed approximately 6,300 people.5,800 people worldwide. None of our employees in North America or ChinaAsia are covered by collective bargaining agreements. In some European countries, our employees are subject to traditional national collective bargaining agreements. We believe that our employee relations are good.

Available Information

        We maintain a website with the addresswww.wattswater.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 and current reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after we have electronically filed such material with, or furnished such material to, the Securities and Exchange Commission.

Certifications

        Our Chief Executive Officer and Chief Financial Officer have provided the certifications required by rule 13a-14(a) under the Securities Exchange Act of 1934, copies of which are filed as exhibits to this Annual Report on Form 10-K. In addition, an annual chief executive officer certification was submitted by our Chief Executive Officer to the New York Stock Exchange on May 19, 2008 in accordance with the New York Stock Exchange listing requirements.




Executive Officers and Directors

        Set forth below in alphabetical order are the names of our executive officers and directors, their respective ages and positions with our Company and a brief summary of their business experience for at least the past five years:

NameExecutive Officers		Age			Position
Patrick S. O'KeefeSrinivas K. Bagepalli			5645		Chief Executive Officer, President, and Director
William C. McCartney			54		Chief Financial Officer and Treasurer North America
J. Dennis Cawte			5861		Group Managing Director, EuropeEMEA
David J. Coghlan			49		President of North America and Asia
Ernest E. Elliott			57		Executive Vice President of Marketing
Michael P. Flanders			50		Executive Vice President of Manufacturing Operations, North America and Asia
Josh C. Fu			52		Chief Executive Officer, President Asiaand Director
Kenneth R. Lepage			3841		General Counsel, Executive Vice President of Administration and Secretary
Gregory J. MichaudWilliam C. McCartney			4757		Executive Vice President of Human ResourcesChief Financial Officer
Taylor K. RobinsonElie Melhem			4549		Executive Vice President, of Supply Chain ManagementAsia
Douglas T. WhiteNon-Employee Directors
Robert L. Ayers(2)(3)			6466		Group Vice President Director
Robert L. Ayers(1)Bernard Baert(1)(3)			6362		Director
Kennett F. Burnes(1)(3)			6669		Director
Richard J. Carthcart(2)Cathcart(2)(3)			64		Director
Timothy P. Horne			7067		Director
Ralph E. Jackson Jr.(2)(3)			6770		Director
Kenneth J. McAvoy(1)W. Craig Kissel(2)(3)			6861		Director
John K. McGillicuddy(1)			65		Director
Gordon W. Moran(2)(3)			7068		Non-Executive Chairman of the Board and Director
Daniel J. Murphy, III(2)Merilee Raines(1)(3)			6756		Director

---

(1)

Member of the Audit Committee



(2)

Member of the Compensation Committee



(3)

Member of the Nominating and Corporate Governance Committee

        Patrick S. O'KeefeSrinivas K. Bagepalli joined our Company in 2002. PriorOctober 2011 and was appointed President of North America. From 2006 to joining our Company, heSeptember 2011, Mr. Bagepalli was the President and General Manager of three global companies within Danaher Corporation's Industrial Technologies Group, including Setra Systems, Inc., Sonix, Inc. and Portescap. During his time with Danaher, Mr. Bagepalli also served as the President Chief Executive Officerof Sensors & Controls, Asia. Danaher Corporation is a global business that designs, manufactures and Director of Industrial Distribution Group, a supplier of maintenance, repair, operatingmarkets professional, medical, industrial, and productioncommercial products from 1999 to 2001. He was Chief Executive Officer of Zep Manufacturing, a unit of National Service Industries and a manufacturer of specialty chemicals throughout North America, Europe and Australia, from 1997 to 1999. He also held various senior management positions with Crane Co.services. Mr. Bagepalli worked for General Electric Company from 1994 to 1997.

        William C. McCartney joined our Company in 19852006. While with General Electric, Mr. Bagepalli served as Controller. He was appointed ourthe Executive Vice President of Finance inand Segment Manager at GE Infrastructure Sensing and Inspection Technologies from 2003 to 2006, Manager, Mergers and Acquisitions at GE Industrial Systems from 2001 to 2003, Manager, Business Development: Strategy and Growth at GE Corporate from 2000 to 2001 and Process Integration & Manufacturing Group Leader at GE Corporate Technology Center from 1994 and served as our Corporate Controller from 1988 to 1999. He was







appointed Chief Financial Officer and Treasurer in 2000. He served as Secretary of the Company from January 2000 to November 2005.

   ��    J. Dennis Cawte joined our Company in 2001 and was appointed Group Managing Director, Europe.EMEA. Prior to joining our Company, he was European President of PCC Valve and Controls, a division of Precision Castparts Corp., a manufacturer of components and castings to the aeronautical industry, from 1999 to 2001. He had also worked for approximately 20 years for Keystone Valve International, a manufacturer and distributor of industrial valves, where his most recent position was the Managing Director Northern Europe, Middle East, Africa and India.

David J. Coghlan joinedwas appointed Chief Executive Officer, President and Director in January 2011. He previously served as our Company in June 2008Chief Operating Officer from January 2010 to January 2011 and as President of North America and Asia.Asia from June 2008 to January 2010. Prior to joining our Company, Mr. Coghlan served as Vice President, Global Parts offor Trane Inc., a global manufacturer of commercial and residential heating, ventilation and air conditioning equipment, from April 2004 through May 2008. He also held several management positions within the Climate Control Technologies segment of Ingersoll-Rand Company Limited, a manufacturer of transport temperature control units and refrigerated display merchandisers, from 1995 to December 2003. Before joining Ingersoll-Rand, Mr. Coghlan worked for several years with the management consulting firm of McKinsey & Co. in both the United Kingdom and United States.

        Ernest E. Elliott joined our Company in 1986 and has served in a variety of sales and marketing roles. He was appointed Vice President of Sales in 1991, served as Executive Vice President of Wholesale Sales and Marketing from 1996 to March 2003, Executive Vice President of Wholesale Marketing from March 2003 to February 2006 and as Executive Vice President of Marketing since February 2006. Mr. Elliott temporarily assumed responsibilities of our former Chief Operating Officer and President of North American and Asian Operations in September 2007. Prior to joining our Company, he was Vice President of BTR Inc.'s Valve Group, a diversified manufacturer of industrial and commercial valve products.

        Michael P. Flanders joined our Company in October 2007 as Executive Vice President of Manufacturing Operations, North America and Asia. From August 2005 to July 2007, he served as President and Chief Operating Officer of Aavid Thermalloy, LLC, an international manufacturing company providing thermal management solutions to the computer and electronics industries. From July 2003 to April 2005, he was Vice President and General Manager of Waukesha Bearings Corporation, a manufacturer of hydrodynamic and active magnetic bearings and a subsidiary of Dover Corporation. From November 1998 to July 2003, he was General Manager of the LCN Division of Ingersoll-Rand Company Limited, which manufactured mechanical and electronic door control products.

        Josh C. Fu joined our Company in January 2008 as President, Asia. From January 2007 to December 2007, he served as President and Chief Executive Officer of Reradiant International Co. Ltd., a consulting firm focused on the energy and industrial goods industries. From August 2004 to December 2006, he served as President of the China operations of Flowserve Corporation, a global manufacturer of flow control equipment, including valves, pumps, and seals. From July 2003 to August 2004, he was Executive Vice President, Product Development and Merchandise Sourcing for Intercon Merchandise Sourcing, an importer of consumer goods from China. From 2000 to 2003, he held various senior management positions with the China operations of BP p.l.c., a worldwide petroleum and petrochemicals company.

Kenneth R. Lepage was appointed General Counsel and Secretary of the Company in August 2008.2008 and Executive Vice President of Administration in December 2009. Mr. Lepage originally joined our Company in September 2003 as Assistant General Counsel and Assistant Secretary. Prior to joining our Company, he was a junior partner at the law firm of Hale and Dorr LLP (now Wilmer Cutler Pickering Hale and Dorr LLP).

        Gregory J. MichaudWilliam C. McCartney joined our Company in April 20061985 as ExecutiveController. He was appointed our Vice President of Human Resources. Prior to joining our Company, heFinance in 1994 and served as Vice President, Human Resources of the







Compact Equipment division of Ingersoll-Rand Company Limited, a diversified industrial company,our Corporate Controller from June 2003 through March 2006.1988 to 1999. He was appointed Chief Financial Officer and Treasurer in 2000. He served as Vice President, Human ResourcesSecretary of the Productivity Solutions division of Ingersoll-RandCompany from January 2003 to June 2003 and as Director, Human Resources & Corporate Organizational Planning of Ingersoll-Rand from June 2000 to December 2002.November 2005.

        Taylor K. RobinsonElie Melhem joined our Company in September 2007July 2011 as Executive Vice President, of Supply Chain Management. From January 2007 to August 2007, he owned and operated a consulting company named Global Supply Chain Solutions, which provided advice to international clients to improve their global supply chain methods and operations. From February 2004 to April 2006, heAsia. Mr. Melhem was Chief Procurement Officer for H.J. Heinz Company, an international manufacturer and marketer of processed foods. From January 1999 to January 2004, he served in various positions for Honeywell International Inc., a diversified technology and manufacturing company, including Global Supply Chain Director, Aviation Aftermarket Services,previously the Managing Director of Global Sourcing, Aerospace Electronic SystemsChina for Ariston Thermo Group, a global manufacturer of heating and Corporate Director of Global Commodity Management—Electronics.

        Douglas T. White joined our Company in 2001 as Group Vice President.hot water products, from 2008 to July 2011. Prior to joining our CompanyAriston, Mr. Melhem spent eleven years with ITT Industries in China where he was employed by Honeywell International, Inc., a diversified technology and manufacturing company,held several management positions, including serving as Vice President of Marketing—Consumer ProductsITT's Residential and Commercial Water Group from 1998 to 2001.in China and President of ITT's Water Technology Group in Asia.

Robert L. Ayers has served as a director of our Company since October 2006. He was Senior Vice President of ITT Industries and President of ITT Industries' Fluid Technology from October 1999 until September 2005. Mr. Ayers continued to be employed by ITT Industries from September 2005 until his retirement in September 2006, during which time he focused on special projects for the company. Mr. Ayers joined ITT Industries in 1998 as President of ITT Industries' Industrial Pump Group. Before joining ITT Industries, he was President of Sulzer Industrial USA and Chief Executive Officer of Sulzer Bingham, a pump manufacturer. He isMr. Ayers served as a director of T-3 Energy Services, Inc. from August 2007 to January 2011.

Bernard Baert was elected as a member of our Board of Directors in August 2011. Mr. Baert has served as Senior Vice President and President, Europe and International of PolyOne Corporation since January 2010. Mr. Baert served as Senior Vice President and General Manager, Color and Engineered Materials—Europe and China for PolyOne Corporation from 2006 to December 2009 and as Vice President and General Manager, Color and Engineered Materials—Europe and China from 2000 to 2006. From 1995 to September 2000, Mr. Baert was General Manager, Color—Europe for M.A. Hanna Company, the predecessor to PolyOne Corporation. PolyOne Corporation is a worldwide provider of specialty polymer materials, services and solutions. Prior to joining M.A. Hanna, Mr. Baert was General Manager, Europe for Hexcel Corporation and spent 17 years with Owens Corning where he served as a plant manager and held various positions in the areas of cost control and production.




Kennett F. Burnes became a director of our Company in February 2009. Mr. Burnes is the retired Chairman, President and Chief Executive Officer of Cabot Corporation, a global specialty chemicals company. He was Chairman from 2001 to March 2008, President from 1995 to January 2008 and Chief Executive Officer from 2001 to January 2008. Prior to joining Cabot Corporation in 1987, Mr. Burnes was a partner at the Boston-based law firm of Choate, Hall & Stewart, where he specialized in corporate and business law for nearly 20 years. He is a director of State Street Corporation, a member of the Dana Farber Cancer Institute's Board of Trustees and a board member of the New England Conservatory. Mr. Burnes is also Chairman of the Board of Trustees of the Schepens Eye Research Institute.

Richard J. Cathcart has served as a director of our Company since October 2007. He was Vice Chairman and a member of the Board of Directors of Pentair, Inc. from February 2005 until his retirement in September 2007. Pentair is a diversified manufacturing company consisting of two operating segments: Water Technologies and Technical Products. He was appointed President and Chief Operating Officer of Pentair's Water Technologies Group in January 2001 and served in that capacity until his appointment as Vice Chairman in February 2005. He began his career at Pentair in March 1995 as Executive Vice President, Corporate Development, where he identified water as a strategic area of growth. In February 1996, he was named Executive Vice President and President of Pentair's Water Technologies Group. Prior to joining Pentair, he held several management and business development positions during his 20-year career with Honeywell International Inc. He is a director of Fluidra S.A.

        Timothy P. Horne has served as a director of our Company since 1962. He became an employee of our Company in 1959 and served as our President from 1976 to 1978, from 1994 to 1997 and from 1999 to 2002. He served as our Chief Executive Officer from 1978 to 2002, and he served as Chairman of our Board of Directors from 1986 to 2002. He retired as an employee of our Company on December 31, 2002. Since his retirement, he has continued to serve our Company as a consultant.




Ralph E. Jackson, Jr.    has served as a director of our Company since 2004. He worked for Cooper Industries, Inc., a manufacturer of electrical products, from 1985 until his retirement in December 2003. Prior to joining Cooper Industries, he worked for the Bussmann and Air Comfort divisions of McGraw-Edison from 1976 until McGraw-Edison was acquired by Cooper Industries in 1985. While with Cooper Industries, he served as Chief Operating Officer from 2000 to December 2003, Executive Vice President, Electrical Operations from 1992 to 2000, and President, Bussmann Division from the time McGraw-Edison was acquired by Cooper Industries to 1992. He served as a member of the Board of Directors of Cooper Industries from 2000 to December 2003.

        Kenneth J. McAvoyW. Craig Kissel was elected as a member of our Board of Directors in November 2011. Mr. Kissel previously was employed by Trane Inc. (formerly known as American Standard Companies Inc.) from 1980 until his retirement in September 2008. During his time at Trane, Mr. Kissel served as President of Trane Commercial Systems from 2004 to June, 2008, President of WABCO Vehicle Control Systems from 1998 to 2003, President of Trane's North American Unitary Products Group from 1994 to 1997, Vice President of Marketing of Trane's North American Unitary Products Group from 1992 to 1994 and held various other management positions at Trane from 1980 to 1991. Trane is a leading worldwide supplier of air conditioning and heating systems, and WABCO is a leading worldwide supplier of commercial vehicle control systems. From 2001 to 2008, Mr. Kissel served as Chairman of Trane's Corporate Ethics and Integrity Council, which was responsible for developing the company's ethical business standards. Mr. Kissel also served in the U.S. Navy from 1973 to 1978. Mr. Kissel has served as a director of ourChicago Bridge & Iron Company since 1994. He was ControllerMay 2009. Chicago Bridge & Iron Company engineers and constructs some of our Company from 1981 to 1985 and Chief Financial Officer and Treasurer from 1986 to 1999. He also served as Vice President of Finance from 1984 to 1994; Executive Vice President of European Operations from 1994 to 1996; and Secretary from 1985 to 1999. He retired from our Company on December 31, 1999.the world's largest energy infrastructure projects.

John K. McGillicuddy has served as a director of our Company since 2003. He was employed by KPMG LLP, a public accounting firm, from 1965 until his retirement in 2000. He was elected into the Partnership at KPMG LLP in June 1975 where he served as Audit Partner, SEC Reviewing Partner, Partner-in-Charge of Professional Practice, Partner-in-Charge of College Recruiting and Partner-in-Charge of Staff Scheduling. He is a director of Brooks Automation, Inc. and Cabot Corporation.

        Gordon W. MoranMerilee Raines has served as a director of our Company since 1990. He has been the Chairman of Hollingsworth & Vose Company, a paper manufacturer, since 1997, and served as its President and Chief Executive Officer from 1983 to 1998.

        Daniel J. Murphy, IIIFebruary 2011. Ms. Raines has served as a directorChief Financial Officer of our CompanyIDEXX Laboratories, Inc. since 1986. He has been the Chairman of Northmark Bank, a commercial bank he founded, since 1987.October 2003. Prior to forming Northmark Bank in 1987, he was a Managingbecoming Chief Financial Officer, Ms. Raines held several management positions with IDEXX Laboratories, including Corporate Vice President of Finance, Vice President and Treasurer of Finance, Director of Knightsbridge Partners, a venture capital firm, from January to August 1987,




Finance, and PresidentController. IDEXX Laboratories develops, manufactures and a director of Arltru Bancorporation, a bank holding company,distributes diagnostic and its wholly-owned subsidiary, Arlington Trust Company, from 1980 to 1986.information technology products and services for pet and animal health, water quality and milk safety, and human point-of-care diagnostics.

Product Liability, Environmental and Other Litigation Matters

        We are subject to a variety of potential liabilities connected with our business operations, including potential liabilities and expenses associated with possible product defects or failures and compliance with environmental laws. We maintain product liability and other insurance coverage, which we believe to be generally in accordance with industry practices. Nonetheless, such insurance coverage may not be adequate to protect us fully against substantial damage claims.

Contingencies

James Jones LitigationForeign Corrupt Practices Act Settlement

        On June 25, 1997, Nora Armenta (the Relator) filedOctober 13, 2011, we entered into a civil actionsettlement with the Securities and Exchange Commission (SEC) to resolve allegations concerning potential violations of the U.S. Foreign Corrupt Practices Act (FCPA) at Watts Valve Changsha Co., Ltd., (CWV), a former indirect wholly-owned subsidiary of Watts in China. Under the California Superior Court for Los Angeles County (the Armenta case) against James Jones Company (James Jones), Mueller Co., Tyco International (U.S.), andterms of the Company. We formerly owned James Jones. The Relator filedsettlement, without admitting or denying the SEC's allegations, we consented to entry of an administrative cease-and-desist order under the qui tam provisionbooks and records and internal controls provisions of the California state False Claims Act, Cal. Govt. Code § 12650 et seq. (California False Claims Act) and generally alleged that James Jones and the other defendants violated this statute by delivering some "defective" or "non-conforming" waterworks parts to municipal water systems in the State of California. The Relator filed a First Amended Complaint in November 1998 and a Second Amended Complaint in December 2000, which brought the total number of plaintiffs to 161. The Complaint further alleges that purchased non-conforming James Jones waterworks parts may leach into public drinking water elevated amounts of lead that may create a public health risk because they were made out of '81 bronze alloy (UNS No. C8440) and contain more lead than the specified and advertised '85 bronze alloy (UNS No. C83600). This contention is based on the average difference







of about 2% lead content between '81 bronze (6% to 8% lead) and '85 bronze (4% to 6% lead) and the assumption that this would mean increased consumable lead in public drinking water that could cause a public health concern.FCPA. We believe the evidence and discovery available to date indicates that this is not the case. In addition, '81 bronze is used extensively in municipal and home plumbing systems and is approved by municipal, local and national codes. The Federal Environmental Protection Agency also defines metal for pipe fittings with no more than 8% lead as "lead free" under Section 1417 of the Federal Safe Drinking Water Act.

        In this case, the Relator seeks three times an unspecified amount of actual damages and alleges that the municipalities have suffered hundreds of millions of dollars in damages. She also seeks civil penalties of $10,000 for each false claim and alleges that defendants are responsible for tens of thousands of false claims. Finally, the Relator requests an award of costs of this action, including attorneys' fees.

        In December 1998, the Los Angeles Department of Water and Power (LADWP) intervened in this case and filed a complaint. We settled with the city of Los Angeles, by far the most significant city, for $7.3 million plus attorneys' fees. Co-defendants contributed $2.0 million toward this settlement.

        In August 2003, an additional settlement payment was made for $13.0 million ($11.0 million from us and $2.0 million from James Jones), which settled the claims of the three Phase I cities (Santa Monica, San Francisco and East Bay Municipal Utility District) chosen by the Relator as having the strongest claims to be tried first. In addition to this $13.0 million payment, we are obligatedagreed to pay to the Relator's attorney's fees.SEC $3.6 million in disgorgement and prejudgment interest, and $0.2 million in penalties.

        On June 22, 2005, the Court dismissed the claims of the Phase II cities selected for a second trial phase (Contra Costa, Corona, Santa Cruz and Vallejo). The Court ruled that the Relator and these cities were required to show that the cities had received out of specification parts which were related to specific invoices and that this showing had not been made. Although each city's claim is unique, this ruling is significant for the claims of the remaining cities, and the Relator appealed. On June 29, 2007, the appellate court dismissed this appeal. However, this judgment can be appealed again at the conclusion of the entire case. The trial court has scheduled a trial on October 6, 2009 for six Phase III cities. Litigation is inherently uncertain, and we are unable to predict the outcome of this case.

        On September 15, 2004, the Relator's attorneys filed a lawsuit in the California Superior Court for the City of Banning and 42 other cities and water districts against James Jones, Watts and Mueller Co. based on the same transactions alleged in the Armenta case alleging common law fraud. In October 2008, the Court dismissed the claims of 11 cities as time-barred. A first phase trial of selected cities is scheduled for April 13, 2010. Litigation is inherently uncertain, and we are unable to predict the outcome of this case.

        On February 14, 2001, after our insurers had denied coverage for the claims in the Armenta case, we filed a complaint for coverage against our insurers in the California Superior Court (the coverage case). James Jones filed a similar complaint, the cases were consolidated, and the trial court made summary adjudication rulings that Zurich must pay all reasonable defense costs incurred by us and James Jones in the Armenta case since April 23, 1998 as well as such defense costs in the future until the end of the Armenta case. In August 2004, the California Court of Appeal affirmed these rulings, and, on December 1, 2004, the California Supreme Court denied Zurich's appeal of this decision. This denial permanently established Zurich's obligation to pay Armenta defense costs for both us and James Jones, and Zurich is currently making payments of incurred Armenta defense costs. However, as noted below, Zurich asserts that the defense costs paid by it are subject to reimbursement.

        On November 22, 2002, the trial court entered a summary adjudication order that Zurich must indemnify and pay us and James Jones for amounts paid to settle with the City of Los Angeles. On August 6, 2004, the trial court made another summary adjudication ruling that Zurich must indemnify and pay us and James Jones for the $13.0 million paid to settle the claims of the Phase I cities







described above. Zurich will be able to appeal these orders at the end of the coverage case. Zurich has now made all of the payments required by these indemnity orders.

        On February 8, 2006, Zurich filed a motion to set aside as void the November 22, 2002 and August 6, 2004 summary adjudication indemnity payment orders. After this motion was denied, Zurich's appeal was also denied and the California Supreme Court denied Zurich's petition for review. We are currently unable to predict the finality of these indemnity payment orders since Zurich can also appeal them at the end of the coverage case.

        Zurich has asserted that all amounts paid by it to us in connection with the settlement were fully accrued as of December 31, 2010. We anticipate that this settlement resolves all government investigations concerning CWV's sales practices and James Jones are subject to reimbursement under Deductible Agreements related to the insurance policies between Zurich and Watts. We believe that the agreements are unenforceable, that the Armenta case should be viewed as one occurrence, and that the deductible amount should be $0.5 million per occurrence if the agreements are enforceable.

        On January 31, 2006, the federal district court in Chicago, Illinois determined that there are disputes under all Deductible Agreements in effect during the period in which Zurich issued primary policies and that the arbitrator could decide which agreements would control reimbursement claims. We appealed this ruling. On October 20, 2006, the United States Court of Appeals for the Seventh Circuit affirmed that an arbitration panel could decide which deductible agreements between Zurich and us would control Zurich's reimbursement claim.

        Based on management's assessment, we do not believe that the ultimate outcome of the James Jones Litigation will have a material adverse effect on our liquidity, financial condition or results of operations. While this assessment is based on the facts currently known by us, litigation is inherently uncertain, the actual liability to us to resolve this litigation fully cannot be predicted with any certainty and there exists a reasonable possibility that we may ultimately incur losses in the James Jones Litigation in excess of the amount accrued. We intend to continue to contest vigorously all aspects of the James Jones Litigation.potential FCPA violations.

Environmental Remediation

        We have been named as a potentially responsible party with respect to a limited number of identified contaminated sites. The levels of contamination vary significantly from site to site as do the related levels of remediation efforts. Environmental liabilities are recorded based on the most probable cost, if known, or on the estimated minimum cost of remediation. Accruals are not discounted to their present value, unless the amount and timing of expenditures are fixed and reliably determinable. We accrue estimated environmental liabilities based on assumptions, which are subject to a number of factors and uncertainties. Circumstances whichthat can affect the reliability and precision of these estimates include identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation and the time period over which remediation may occur. We recognize changes in estimates as new remediation requirements are defined or as new information becomes available.

        Based on the facts currently known to us, we do not believe that the ultimate outcome of these matters will have a material adverse effect on our liquidity, financial condition or results of operations. Some of our environmental matters are inherently uncertain and there exists a possibility that we may ultimately incur losses from these matters in excess of the amount accrued. However, we cannot currently estimate the amount of any such additional losses.

Asbestos Litigation

        We are defending approximately 10547 lawsuits in different jurisdictions, with the greatest number filed in Mississippi and California state courts, alleging injury or death as a result of exposure to asbestos. The complaints in these cases typically name a large number of defendants and do not identify any particular Watts products as a source of asbestos exposure. To date, we have obtained a dismissal in every case before it has reached trial because discovery has failed to yield evidence of







substantial exposure to any Watts products. Based on the facts currently known to us, we do not believe that the ultimate outcome of these claims will have a material adverse effect on our liquidity, financial condition or results of operations.

Other Litigation

        Other lawsuits and proceedings or claims, arising from the ordinary course of operations, are also pending or threatened against us. Based on the facts currently known to us, we do not believe that the ultimate outcome of these other litigation matters will have a material adverse effect on our liquidity, financial condition or results of operations.




Item 1A.    RISK FACTORS.


Current economic cycles, particularly those involving reduced levels of residentialcommercial and non-residentialresidential starts and remodeling, may continue to have an adverse effect on our revenues and operating results.

        We have experienced and expect to continue to experience fluctuations in revenues and operating results due to economic and business cycles. The businesses of most of our customers, particularly plumbing and heating wholesalers and home improvement retailers, are cyclical. Therefore, the level of our business activity has been cyclical, fluctuating with economic cycles. The currentrecent economic downturn may also affect the financial stability of our customers, which could impactaffect their ability to pay amounts owed to their vendors, including us. We also believe our level of business activity is influenced by residentialcommercial and non-residentialresidential starts and renovation and remodeling, which are, in turn, heavily influenced by interest rates, consumer debt levels, changes in disposable income, employment growth and consumer confidence. The current conditions in the housing and debt markets have caused a significant reduction in residential and non-residential starts and renovation and remodeling. These conditions have caused a decrease in our revenue and profit. If these conditions continue or worsen in the future, our revenues and profits could decrease and could result in a material adverse effect on our financial condition and results of operations.

Our ability to make large acquisitions may be limited due to the current credit market conditions.

        As widely reported, the financial markets worldwide have been experiencing, among other things, severely diminished liquidity and credit availability. One of our strategies is to increase our revenues and profitability and expand our markets through acquisitions. We may require capital in excess of our available cash and the unused portion of our revolving credit facility to make large acquisitions, which we would generally obtain from access to the credit markets. However, the current economic environment may adversely impact the availability and cost of credit in the future. There can be no assurance that if a large acquisition is identified that we would have access to sufficient capital to complete such acquisition.

Sales of our products to customers serving the commercial market may be impacted by the delay or cancellation of projects due to the current credit market conditions.

        Our products are sold to commercial builders and others in the commercial construction market. The current credit market conditions may prevent commercial and residential builders or developers from obtaining the necessary capital to continue existing projects or to start new projects. This may result in the delay or cancellation of orders from our customers or potential customers and may adversely affect our revenues and our ability to manage inventory levels, collect customer receivables and maintain profitability.




Our ability to improve our profitability through the introduction of new technology The current conditions in the manufacturing processhousing and debt markets have caused a significant reduction in commercial and residential starts and renovation and remodeling. These conditions have adversely impacted our revenue and profit. Further, sovereign debt concerns within the Euro Zone are negatively impacting the overall economic vitality of the region, which may be delayed due to the reallocation of capital.

        With the current economic outlook worldwide, it is necessary for us to make decisions on the best immediate use of capital. In reaching those decisions, certain planned capital expenditures which would modernizetrigger a recession in Europe in 2012. If these conditions continue or improve throughput at our manufacturing locations may be delayed until the current credit market improves. The delay of these capital expenditures may impact our ability to realize efficiencies through new technologies and may result in increased maintenance costsworsen in the business.future, our revenues and profits could decrease or trigger additional goodwill, indefinite-lived intangible assets, or long-lived asset impairments and could have a material effect on our financial condition and results of operations.

We face intense competition and, if we are not able to respond to competition in our markets, our revenues may decrease.

        Competitive pressures in our markets could adversely affect our competitive position, leading to a possible loss of market share or a decrease in prices, either of which could result in decreased revenues and profits. We encounter intense competition in all areas of our business. Additionally, we believe our customers are attempting to reduce the number of vendors from which they purchase in order to reduce the size and diversity of their inventories and their transaction costs. To remain competitive, we will need to invest continually in manufacturing, product development, marketing, customer service and support and our distribution networks. We may not have sufficient resources to continue to make such investments and we may be unable to maintain our competitive position. In addition, we anticipate that we may have to reduce the prices of some of our products to stay competitive, potentially resulting in a reduction in the profit margin for, and inventory valuation of, these products. Some of our competitors are based in foreign countries and have cost structures and prices in foreign currencies. Accordingly, currency fluctuations could cause our U.S. dollar-priced products to be less competitive than our competitors' products which are priced in other currencies.

Reductions or interruptions in the supply of raw materials and changesChanges in the costs of raw materials could reduce our profit margins andmargins. Reductions or interruptions in the supply of components or finished goods from international sources could adversely affect our ability to meet our customer delivery commitments.

        We require substantial amounts of raw materials, including bronze, brass, cast iron, steel and plastic, and substantially all of the raw materials we require are purchased from outside sources. The availability and costs of raw materials may be subject to curtailment or change due to, among other things, new laws or regulations, suppliers' allocations to other purchasers, interruptions in production by suppliers and changes in exchange rates and worldwide price and demand levels. We typically do not enter into long-term supply agreements. Our inability to obtain adequate supplies of raw materials for our products at favorable costs or at all, could have a material adverse effect on our business, financial condition or results of operations by decreasing our profit margins and by hindering our ability to deliver products to our customers on a timely basis. During 2006 and continuing through approximately July 3, 2008,margins. The commodity costs rose significantly from demands inmarkets have experienced tremendous volatility over the worldwide marketplace. During the latter half of 2008, commodity costs, including copper, decreased significantly as most industrialized and emerging economies began experiencing recessions. If we cannot maintain our selling prices before our inventory costs reflect the recent rapid decline in copper prices our profitability could decline.past several years, particularly copper. Should commodity costs increase




substantially, again in the future, we may not be able to completely recover such costs, as happened in 2006 and 2007, through selling price increases to our customers or other product cost reductions, which would have a negative effect on our financial results. If commodity costs decline, we may experience pressure from customers to reduce our selling prices. Additionally, we continue to purchase increased levels of components and finished productgoods from international sources. If thereIn limited cases, these components or finished goods are single-sourced. The availability of components and finished goods from international sources could be adversely impacted by, among other things, interruptions in production by suppliers, suppliers' allocations to other purchasers and new laws or regulations.

Government regulations could limit or delay our ability to market or sell our products.

        In January 2011, the President of the United States signed theReduction of Lead in Drinking Water Act, which will reduce the permissible weighted average lead content in faucets, fittings and valves intended for use in potable water applications from 8% to 0.25% nationwide beginning in January 2014. The new law is an interruptionconsistent with current legislation in deliveringCalifornia and Vermont that went into effect in January 2010, in Maryland in January 2012, and is also consistent with new legislation in Louisiana which will go into effect in 2013. We introduced lead-free products for sale in California, Vermont and Maryland and offer a large selection of lead-free compliant valves and fittings. Complying with these finishednew requirements on a nationwide basis will pose a significant challenge for us. The transition to comply with the expected requirements may cause our material costs to increase as suppliers of alternative lead-free metals are currently limited. We may not succeed in passing through these cost increases to our customers. We may also experience technical challenges in converting our present manufacturing operations to produce more lead-free products. In addition, we could have difficulty providing sufficient quantities of our lead-free compliant products to our domestic warehouses, thismeet nationwide demand and we could be left with potentially obsolete traditional leaded product inventories if customers convert to lead-free offerings faster than anticipated. These requirements could have a negativematerial effect on our financial results.condition and results of operation.

Implementation of our acquisition strategy may not be successful, which could affect our ability to increase our revenues or our profitability.

        One of our strategies is to increase our revenues and profitability and expand our marketsbusiness through acquisitions that will provide us with complementary water-related products and increase market share for our existing product lines. We cannot be certain that we will be able to identify, acquire or







profitably manage additional companies or successfully integrate such additional companies without substantial costs, delays or other problems. Also, companies acquired recently and in the future may not achieve revenues, profitability or cash flows that justify our investment in them. We expect to spend significant time and effort in expanding our existing businesses and identifying, completing and integrating acquisitions. We have faced increasing competition for acquisition candidates which have resulted in significant increases in the purchase prices of many acquisition candidates. This competition, and the resulting purchase price increases, may limit the number of acquisition opportunities available to us, possibly leading to a decrease in the rate of growth of our revenues and profitability. In addition, acquisitions may involve a number of special risks, including, but not limited to:

•

inadequate internal controls over financial reporting and our ability to bring such controls into compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 in a timely manner;



•

adverse short-term effects on our reported operating results;



•

diversion of management's attention;



•

investigations of, or challenges to, acquisitions by competition authorities;



•

loss of key personnel at acquired companies; and



•

unanticipated management or operational problems or legal liabilities.liabilities; and



•

potential goodwill, indefinite-lived intangible assets, or long-lived asset impairment charges.




We are subject to risks related to product defects, which could result in product recalls and could subject us to warranty claims in excess of our warranty provisions or which are greater than anticipated due to the unenforceability of liability limitations.

        We maintain strict quality controls and procedures, including the testing of raw materials and safety testing of selected finished products. However, we cannot be certain that our testing will reveal latent defects in our products or the materials from which they are made, which may not become apparent until after the products have been sold into the market. We also cannot be certain that our suppliers will always eliminate latent defects in products we purchase from them. Accordingly, there is a risk that product defects will occur, which could require a product recall. Product recalls can be expensive to implement and, if a product recall occurs during the product's warranty period, we may be required to replace the defective product. In addition, a product recall may damage our relationship with our customers and we may lose market share with our customers. Our insurance policies may not cover the costs of a product recall.

        Our standard warranties contain limits on damages and exclusions of liability for consequential damages and for misuse, improper installation, alteration, accident or mishandling while in the possession of someone other than us. We may incur additional operating expenses if our warranty provision does not reflect the actual cost of resolving issues related to defects in our products. If these additional expenses are significant, it could adversely affect our business, financial condition and results of operations.

We face risks from product liability and other lawsuits, which may adversely affect our business.

        We have been and expect to continue to be subject to various product liability claims or other lawsuits, including, among others, that our products include inadequate or improper instructions for use or installation, or inadequate warnings concerning the effects of the failure of our products. In the event thatIf we do not have adequate insurance or contractual indemnification, damages from these claims would have to be paid from our assets and could have a material adverse effect on our results of operations, liquidity and financial condition. We, likeLike other manufacturers and distributors of products designed to control and regulate fluids and gases, we face an inherent risk of exposure to product liability claims and other lawsuits in the event that the use of our products results in personal injury, property damage or business interruption to our customers. Although we maintain strict quality controls and







procedures, including the testing of raw materials and safety testing of selected finished products, we cannot be certain that our products will be completely free from defect. In addition, in certain cases, we rely on third-party manufacturers for our products or components of our products. Although we have product liability and general insurance coverage, we cannot be certain that this insurance coverage will continue to be available to us at a reasonable cost, or, if available, will be adequate to cover any such liabilities. For more information, see "Item 1. Business—Product Liability, Environmental and Other Litigation Matters."

Economic and other risks associated with international sales and operations could adversely affect our business and future operating results.

        Since we sell and manufacture our products worldwide, our business is subject to risks associated with doing business internationally. Our business and future operating results could be harmed by a variety of factors, including:

•

unexpected geo-political events in foreign countries in which we operate could adversely affect manufacturing and our ability to fulfill customer orders. Although our manufacturing operations have not been materially affected to date, we can give no assurance that future operations will not be adversely affected by unforeseen political events in foreign countries;



•

trade protection measures and import or export licensing requirements, which could increase our costs of doing business internationally;





•

potentially negative consequences from changes in tax laws, which could have an adverse impact on our profits;



•

difficulty in staffing and managing widespread operations, which could reduce our productivity;



•

costs of compliance with differing labor regulations, especially in connection with restructuring our overseas operations;



•

natural disasters and public health emergencies;



•

laws of some foreign countries, which may not protect our intellectual property rights to the same extent as the laws of the United States; and



•

unexpected changes in regulatory requirements, which may be costly and require time to implement.implement; and



Fluctuations in

•

foreign exchange ratesrate fluctuations which could also materially affect our reported results.

        We are exposed to fluctuations in foreign currencies, as a A portion of our sales and certain portions of our costs, assets and liabilities are denominated in currencies other than U.S. dollars.dollars and the percentage of our revenues denominated in a particular currency may not match the percentage of our expenses denominated in that currency. Approximately 45.3%48.4% of our sales during the year ended December 31, 20082011 were from sales outside of the U.S. compared to 41.7%44.1% for the year ended December 31, 2007. For2010. We cannot predict whether currencies such as the years ended December 31, 2008 and 2007, the appreciation of the euro, Canadian dollar or Chinese yuan will appreciate or depreciate against the U.S. dollar had a positive impact on sales of approximately $31.3 million and $34.1 million, respectively. There were also minor impacts on sales in other European currencies such as the pound sterling and Danish krone against the U.S. dollar. Additionally, our Canadian operations require significant amounts of U.S. purchases for their operations. Instead of buying or manufacturing domestically, we currently have a favorable cost structure for certain goods we source from our wholly-owned subsidiaries in China and our outside vendors. In 2005, China revalued its currency higher against the U.S. dollar and stated it would no longer tie the yuan to a fixed rate against the U.S. currency. The yuan was valued at 6.8 and 7.3 at December 31, 2008 and 2007, respectively. China also stated it will peg the yuan against numerous currencies, although it will keep the yuan in a tight band rather than letting it trade freely. The spot rate of the euro and Canadian dollar decreased in value and the yuan increased in value from December 31, 2007 to December 31, 2008 by approximately 19%, 5% and 6% respectively, against the U.S. dollar. If our share of revenue and purchases in non-dollar denominated currencies continues to increase in future periods or whether future foreign exchange rate fluctuations will likely have a greaterpositive or negative impact on our results of operations and financial condition.





reported results.

Our ability to achieve savings through our restructuring plans may be impactedadversely affected by local regulations or factors beyond the control of management.

        We have implemented a number of restructuring plans, in 2007 and in 2009. Management's planswhich include a number of steps that we believe are necessary to reduce operating costs and increase efficiencies throughout our manufacturing, sales and distribution footprint. Although we have considered the impact of local regulations, negotiations with employee representatives, the timing of capital expenditures necessary to prepare facilities and the related costs associated with these activities, factors beyond the control of management may impactaffect the timing and therefore impactaffect when the savings will be achieved under the plans. Further, if we are not successful in completing the restructuring projects in the time frames contemplated or if additional issues arise during the projects that add costs or disrupt customer service, then our operating results could be negatively affected.

If we cannot continueFuture operating our manufacturing facilities at current or higher utilization levels, our results of operations could be adversely affected.

        The equipmentnegatively affected by the resolution of various uncertain tax positions and management systems necessary for the operation of our manufacturing facilities may break down, perform poorly or fail, resulting in fluctuations in our abilityby potential changes to manufacture our products and to achieve manufacturing efficiencies. We operate a number of manufacturing facilities, all of which are subject to this risk, and such fluctuations at any of these facilities could cause an increase in our production costs and a corresponding decrease in our profitability. We also have a vertically-integrated manufacturing process. Each segment is dependent upon the prior process and any breakdown in one segment will adversely affect all later components. Fluctuations in our production process may affect our ability to deliver products to our customers on a timely basis. Our inability to meet our delivery obligations could result in a loss of our customers and negatively affect our business, financial condition and results of operations.

        In addition, we have an ongoing manufacturing restructuring program to reduce our manufacturing costs. If our planned manufacturing plant consolidations in the United States, Europe and China are not successful, our results of operations and financial condition could be materially adversely affected.

If we continue to experience declines in demand, we will further reduce our production levels, resulting in lower capacity utilization that could negatively impact our results of operations.tax incentives

        In responsethe ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. Significant judgment is required in determining our worldwide provision for income taxes. We periodically assess our exposures related to the current recessionary pressuresour worldwide provision for income taxes and reduced order volumes,believe that we have decreasedappropriately accrued taxes for contingencies. Any reduction of these contingent liabilities or additional assessment would increase or decrease income, respectively, in the period such determination was made. Our income tax filings are regularly under audit by tax authorities and the final determination of tax audits could be materially different than that which is reflected in historical income tax provisions and accruals. As issues arise during tax audits we adjust our production levels to conserve cash.tax accrual accordingly. Additionally, we benefit from certain tax incentives offered by various jurisdictions. If we continueare unable to experience declines in orders from customers, we will take further steps to reduce our production levels to avoid building inventory and increasing our working capital levels. While this step helps to preserve cash, a large amount of our production costs are fixed and therefore will negatively impact our ability to absorb these costs, resulting in lower gross margins for the products manufactured. Although we are expecting a certain level of decreased production volume in 2009, there can be no assurances that additional steps will not be required to reduce these levels further thereby decreasing our results from operations.

If we experience delays in introducing new products or if our existing or new products do not achieve or maintain market acceptance and regulatory approvals, our revenues and our profitability may decrease.

        Our failure to develop new and innovative products or to custom design existing products could result in the loss of existing customers to competitors or the inability to attract new business, either of which may adversely affect our revenues. Our industry is characterized by:

•

intense competition;



•

changes in specifications required by our customers, plumbing codes and/or regulatory agencies;



•

changes in requirements under new legislation;

•

technically complex products; and



•

constant improvement to existing products and introductions of new products.

        We believe our future success will depend, in part, on our ability to anticipate or adapt to these factors and to offer, on a timely basis, products that meet customer demands and the requirements of plumbing codes and/or regulatory agencies. The development of new or enhanced products is a complex and uncertain process requiring the anticipation of technological and market trends. We may experience design, manufacturing, marketing or other difficulties, such as anincentives, our inability to attractuse these benefits could have a sufficient number of experienced engineers, that could delay or prevent our development, introduction, approval or marketing of new products or enhancements and result in unexpected expenses. Such difficulties could cause us to lose business from our customers and could adversely affect our competitive position; in addition, added expenses could decrease the profitability associated with those products that do not gain market acceptance. Additionally, we recently developed lead free versions of many of our plumbing products to comply with new lead content standards going intomaterial negative effect in California and Vermont. If our lead free products fail to comply with these new standards or if we encounter difficulties in the manufacturing processes for these products, we could lose a substantial amount of business from customers in California and Vermont and any other states that adopt similar standards in the future.on future earnings.

Environmental compliance costs and liabilities could increase our expenses or reduce our profitability.

        Our operations and propertiesWe are subject to extensive and increasingly stringent laws and regulations relating to environmental protection, including laws and regulations governing air emissions, water discharges, waste management and disposal and workplace safety. Such laws and regulations can impose substantial fines and sanctions for violations and require the installation of costly pollution control equipment or operational changes to limit pollution emissions and/or decrease the likelihood of accidental hazardous substance releases. We could be required to halt one or more portions of our operations untilcurrently a violation is cured. We could also be liable for the costs of property damage or personal injury to others. Although we attempt to operate in compliance with these environmental laws, we may not succeed in this effort at all times. The costs of curing violations or resolving enforcement actions that might be initiated by government authorities could be substantial.

        Underdecentralized company, which presents certain environmental laws, the current and past owners or operators of real property may be liable for the costs of cleaning up contamination, even if they did not know of or were not responsible for such contamination. These laws also impose liability on any person who arranges for the disposal or treatment of hazardous waste at any site. We have been named as a potentially responsible party or are otherwise conducting remedial activities with respect to a limited number of identified contaminated sites, including sites we currently own or operate. There can be no assurances that our ownership and operation of real property and our disposal of waste will not lead to other liabilities under these laws.

        We have incurred, and expect to continue to incur, costs relating to environmental matters. In addition, new laws and regulations, stricter enforcement of existing laws and regulations, the discovery of previously unknown contamination or the imposition of new clean-up requirements could require us to incur additional costs or become the basis for new or increased liabilities that could be significant. Environmental litigation, enforcement and compliance are inherently uncertain and we may experience significant costs in connection with environmental matters. For more information, see "Item 1. Business—Product Liability, Environmental and Other Litigation Matters."

Third parties may infringe our intellectual property and we may expend resources enforcing our rights or suffer competitive injury.risks.

        We rely onare currently a combinationdecentralized company, which sometimes places significant control and decision-making powers in the hands of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangementslocal management. This presents various risks such as the risk of being slower to establish and protect our proprietary rights. We may be requiredidentify or react to spend resources to monitor and police our intellectual property rights. Ifproblems affecting a key business. Additionally, we fail toare

successfully enforceimplementing in a phased approach a company-wide initiative to standardize and upgrade our intellectual property rights,enterprise resource planning (ERP) system. This initiative could be more challenging and costly to implement because divergent legacy systems currently exist. Further, if the ERP update is not successful, we could incur substantial business interruption, including our competitive position could suffer,ability to perform routine business transactions, which could harmhave a material adverse effect on our operatingfinancial results. We have been limited from selling products from time-to-time because of existing patents.

The requirements of Financial Accounting Standards Board Statement No. 142, "Goodwillto evaluate goodwill, indefinite-lived intangible assets and Other Intangible Assets" (FAS 142)long-lived assets for impairment may result in a write-off of all or a portion of our goodwill and non-amortizable intangible assets,recorded amounts, which would negatively affect our operating results and financial condition.

        As of December 31, 2008, we recorded2011, our balance sheet included goodwill, and non-amortizableindefinite-lived intangible assets, amortizable intangible assets and property, plant and equipment of $431.3$490.4 million, $35.7 million, $118.9 million, and $62.0$226.7 million, respectively. In lieu of amortization, we are required to perform an annual impairment review of both goodwill and non-amortizableindefinite-lived intangible assets. In 2008, in performing our annual goodwill review,reviews in both 2011 and 2010, we recognized a non-cash pre-tax chargecharges of approximately $22.0$1.4 million as impairments of the indefinite-lived intangible assets. During the fourth quarter of 2011, we recognized pre-tax non-cash goodwill impairment charges of $1.2 million related to our Blue Ridge Atlantic Enterprises, Inc. (BRAE) reporting unit within our North America segment. We are also required to perform an impairment review of allour long-lived assets if indicators of impairment exist. During the goodwill valuefourth quarter of 2011, we recognized pre-tax non-cash long-lived asset impairment charges of $14.8 million related to one reporting unit. Although we did not experience goodwill impairment in our remaining reporting units, thereAustroflex operations within our Europe segment. There can be no assurances that future goodwill, impairmentindefinite-lived intangible assets or long-lived asset impairments will not occur. We perform our annual test for indications of goodwill and non-amortizableindefinite-lived intangible assets impairment in the fourth quarter of our fiscal year or sooner if indicators of impairment exist.

The loss or financial instability of a major customer could have an adverse effect on our results of operations.

        In 2008,2011, our top ten customers accounted for approximately 20% of our total net sales with no one customer accounting for more than approximately 5%10% of our total net sales. Our customers generally are not obligated to purchase any minimum volume of products from us and are able to terminate their relationships with us at any time. In addition, increases in the prices of our products could result in a reduction in orders for our customers. A significant reduction in orders from, or change in terms of contracts with, any significant customers could have a material adverse effect on our future results of operations. Furthermore, some of our major customers are facing financial challenges due to market declines and heavy debt levels; should these challenges become acute, our results could be materially adversely affected due to reduced orders and/or payment delays or defaults.

Certain indebtedness may limit our ability to pay dividends, incur additional debt and make acquisitions and other investments.

        Our revolving credit facility and other senior indebtedness contain operational and financial covenants that restrict our ability to make distributions to stockholders, incur additional debt and make acquisitions and other investments unless we satisfy certain financial tests and comply with various financial ratios. If we do not maintain compliance with these covenants, our creditors could declare a default under our revolving credit facility or senior notes and our indebtedness could be declared immediately due and payable. Our ability to comply with the provisions of our indebtedness may be affected by changes in economic or business conditions beyond our control. Further, givenone of our strategies is to increase our revenues and profitability and expand our business through acquisitions. We may require capital in excess of our available cash and the unused portion of our revolving credit facility to make large acquisitions, which we would generally obtain from access to the credit markets. There can be no assurance that if a large acquisition is identified that we would have access to sufficient capital to complete such acquisition. Given the current condition of the credit markets, should we require additional debt financing above our existing credit limit, we cannot be assured such financing would be available to us or available to us on reasonable economic terms.

Investments in auction rate securitiesA break-up of the Euro Zone and rights issued by UBS are subject to risks which may cause lossesits common currency could have a material effect on our business prospects, operations, financial condition and affect the liquidity of these investments.cash flow.

        At December 31, 2008, we held $6.0 million in auction rate securities (ARS) at fair value whose underlying investments are AA rated municipal bonds and student loans and $2.3 million in rights issued by UBS, AG (UBS). AllApproximately 44% of our ARS were sold by UBS. Inannualized consolidated sales are generated in the fourth quarterEuro Zone. Sovereign debt concerns within certain European countries could precipitate a break-up of 2008, UBS issued a settlement offerthe Euro Zone. Leaders from key European countries have proposed solutions to the holderissue, but a comprehensive program addressing all pan European concerns has not yet been identified. There are a number of certain ARS including allscenarios that could occur as to which countries may leave the Euro Zone and its single currency. A sovereign country's decision to exit the Euro Zone would, among other things, trigger a redenomination of monetary assets and liabilities into a new national currency, interrupt that country's banking system and could affect various commercial contracts that were written assuming a standard Euro currency. We would be exposed to potential devaluation of our asset base and our operating results, we could experience liquidity issues within a given country and we could be subject to disputes over business transactions with various third parties over how contractual obligations should be settled. We cannot be assured that the Euro Zone will continue as presently constructed nor can we determine the breadth and scope of a potential break-up of the securities held by us. Under the terms of the settlement offer, UBS issued non-transferable rights entitling the holder to sell the underlying ARS at par to UBS at any time during the period June 30, 2010 through July 2, 2012, after which time the rights expire. UBS could elect at any time from the settlement through the expiration of the settlement agreement to purchase the ARS, in which case UBS would be required to pay par value

for the ARS. The value of the ARS and the related rights from UBS are subject to the credit risk of the underlying agencies which originally issued the bonds as well as the credit risk of UBS. If UBS is unable to perform under the terms of the rights agreements, we could incur losses to liquidate the remaining securities or hold the securities to maturity.Euro Zone.

One of our stockholders can exercise substantial influence over our Company.

        Our Class B Common Stock entitles its holders to ten votes for each share and our Class A Common Stock entitles its holders to one vote per share. As of February 1, 2009,January 31, 2012, Timothy P. Horne a member of our board of directors, beneficially owned approximately 19.8%19.1% of our outstanding shares of Class A Common Stock (assuming conversion of all shares of Class B Common Stock beneficially owned by Mr. Horne into Class A Common Stock) and approximately 99.0%99.3% of our outstanding shares of Class B Common Stock, which represents approximately 70.7%69.8% of the total outstanding voting power. As long as Mr. Horne controls shares representing at least a majority of the total voting power of our outstanding stock, Mr. Horne will be able to unilaterally determine the outcome of most stockholder votes, and other stockholders will not be able to affect the outcome of any such votes.

Conversion and sale of a significant number of shares of our Class B Common Stock could adversely affect the market price of our Class A Common Stock.

        As of February 1, 2009,January 31, 2012, there were outstanding 29,251,73929,506,814 shares of our Class A Common Stock and 7,293,8806,953,680 shares of our Class B Common Stock. Shares of our Class B Common Stock may be converted into Class A Common Stock at any time on a one for one basis. Under the terms of a registration rights agreement with respect to outstanding shares of our Class B Common Stock, the holders of our Class B Common Stock have rights with respect to the registration of the underlying Class A Common Stock. Under these registration rights, the holders of Class B Common Stock may require, on up to two occasions that we register their shares for public resale. If we are eligible to use Form S-3 or a similar short-form registration statement, the holders of Class B Common Stock may require that we register their shares for public resale up to two times per year. If we elect to register any shares of Class A Common Stock for any public offering, the holders of Class B Common Stock are entitled to include shares of Class A Common Stock into which such shares of Class B Common Stock may be converted in such registration. However, we may reduce the number of shares proposed to be registered in view of market conditions. We will pay all expenses in connection with any registration, other than underwriting discounts and commissions. If all of the available registered shares are sold into the public market the trading price of our Class A Common Stock could decline.

Our Class A Common Stock has insignificant voting power.

        Our Class B Common Stock entitles its holders to ten votes for each share and our Class A Common Stock entitles its holders to one vote per share. As of February 1, 2009, our Class B Common Stock constituted 20.0% of our total outstanding common stock and 71.4% of the total outstanding voting power and thus is able to exercise a controlling influence over our business.

Item 1B.UNRESOLVED STAFF COMMENTS.

        None.

Item 2.    PROPERTIES.

        As of December 31, 2008,2011, we maintained approximately 74 facilities31 principal manufacturing, warehouse and distribution centers worldwide, including our corporate headquarters located in North Andover, Massachusetts. The remaining facilities consist of foundries, manufacturing facilities, warehouses,Additionally, we maintain numerous sales offices and distribution centers.other smaller manufacturing facilities and warehouses. The principal properties in each of our three geographic segments and their location, principal use and ownership status are set forth below:

North America:

Europe:Europe, Middle East and Africa:

China:Asia:

        Certain of our facilities are subject to mortgages and collateral assignments under loan agreements with long-term lenders. In general, we believe that our properties, including machinery, tools and equipment, are in good condition, well maintained and adequate and suitable for their intended uses. Many of our manufacturing plants, especially in North America and China, are currently operating at levels that our management considers below normal capacity due to the current worldwide recession. As part of its continuous manufacturing footprint review, in 2009, management will execute a plan to further consolidate its North America and Chinese operations. See Recent Developments in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," for more details.

Item 3.    LEGAL PROCEEDINGS.

        We are from time to time involved in various legal and administrative procedures. See Item 1,1. "Business—Product Liability, Environmental and Other Litigation Matters," which is incorporated herein by reference.

Item 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.MINE SAFETY DISCLOSURES.

        There were no matters submitted during the fourth quarter of the fiscal year covered by this Annual Report to a vote of security holders through solicitation of proxies or otherwise.Not applicable.

PART II

Item 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

        The following table sets forth the high and low sales prices of our Class A Common Stock on the New York Stock Exchange during 20082011 and 20072010 and cash dividends paid per share.

        There is no established public trading market for our Class B Common Stock, which is held exclusively by members of the Horne family. The principal holders of such stock are subject to restrictions on transfer with respect to their shares. Each share of our Class B Common Stock (10 votes per share) is convertible into one share of Class A Common Stock (1 vote per share).

        On February 7, 2012, we declared a quarterly dividend of eleven cents ($0.11) per share on each outstanding share of Class A Common Stock and Class B Common Stock.

Aggregate common stock dividend payments for 2008 and 2007in 2011 were $16.2$16.3 million, which consisted of $13.3 million and $15.6$3.0 million for Class A shares and Class B shares, respectively. Aggregate common stock dividend payments in 2010 were $16.4 million, which consisted of $13.3 million and $3.1 million for Class A shares and Class B shares, respectively. While we presently intend to continue to pay comparable cash dividends, the payment of future cash dividends depends upon the Board of Directors' assessment of our earnings, financial condition, capital requirements and other factors.

        The number of record holders of our Class A Common Stock as of February 22, 2009January 31, 2012 was 166.183. The number of record holders of our Class B Common Stock as of February 22, 2009January 31, 2012 was 7.8.

        We satisfy the minimum withholding tax obligation due upon the vesting of shares of restricted stock and the conversion of restricted stock units into shares of Class A Common Stock by automatically withholding from the shares being issued a number of shares with an aggregate fair market value on the date of such vesting or conversion that would satisfy the withholding amount due.

        We did not withhold any Class A Common Stock for withholding tax obligations during the quarter ended December 31, 2008.

The following table includes information with respect to repurchases we madeshares of our Class A Common Stock withheld to satisfy withholding obligations during the quarter ended December 31, 2008.2011.

Performance Graph

        Set forth below is a line graph comparing the cumulative total shareholder return on our Class A Common Stock for the last five years with the cumulative return of companies on the Standard & Poor's 500 Stock Index and the Russell 2000 Index. We chose the Russell 2000 Index because it represents companies with a market capitalization similar to that of Watts. The graph assumes that the value of the investment in our Class A Common Stock and each index was $100 at December 31, 20032006 and that all dividends were reinvested.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Watts Water Technologies, Inc., Thethe S&P 500 Index
and Thethe Russell 2000 Index

*

$100 invested on December 31, 200312/31/06 in stock or index, including reinvestment of dividends. Fiscal year ending December 31.

Cumulative Total Return

        The above Performance Graph and related information shall not be deemed "soliciting material" or to be "filed" with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.

Item 6.    SELECTED FINANCIAL DATA.

        The selected financial data set forth below should be read in conjunction with our consolidated financial statements, related Notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included herein.

FIVE-YEAR FINANCIAL SUMMARY

(Amounts in millions, except per share and cash dividend information)

Item 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Overview

        We are a leading supplier of products for use in the water quality, water safety, water flow control and water conservation markets in both North America and Europe with an expandinga presence in Asia. For over 130137 years, we have designed and manufactured products that promote the comfort and safety of people and the quality and conservation of water used in commercial and residential applications. We earn revenue and income almost exclusively from the sale of our products. Our principal product lines include:

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Residential & commercial flow control products—includes products typically sold into plumbing and hot water quality products, includingapplications such as backflow preventers, water pressure regulators, temperature and checkpressure relief valves, for preventing reverse flow within water lines and fire protection systems and point-of-use water filtration and reverse osmosis systems for both commercial and residential applications;thermostatic mixing valves.



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a wide range of water pressure regulators for both commercialHVAC & gas products—includes hydronic and residential applications;



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drainage products for industrial, commercial, marine and residential applications;



•

water supply products for commercial and residential applications;



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temperature and pressure relief valves for water heaters, boilers and associated systems;



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thermostatic mixing valves for tempering water in commercial and residential applications;



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electric heating systems for under-floor radiant applications, and hydraulichydronic pump groups for gas boiler manufacturers and renewablealternative energy applications, including solarcontrol packages, and heat pump control packages;



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flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications;applications. HVAC is an acronym for heating, ventilation and air conditioning.



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large diameter butterfly valvesDrains & water re-use products—includes drainage products and engineered rain water harvesting solutions for use in China'scommercial, industrial, marine and residential applications.



•

Water quality products—includes point-of-use and point-of-entry water infrastructure.filtration, conditioning and scale prevention systems for both commercial and residential applications.

        Our business is reported in three geographic segments,segments: North America, Europe and China.Asia. We distribute our products through three primary distribution channels,channels: wholesale, do-it-yourself (DIY) and original equipment manufacturers (OEMs). Interest rates have an indirect effect on the demand for our products due to the effect such rates have on the number of new residential and commercial construction starts and remodeling projects. All three of these activities have an impact on our sales and earnings. An additional factor that has had an effect on our sales is fluctuation in foreign currencies, as a portion of our sales and certain portions of our costs, assets and liabilities are denominated in currencies other than the U.S. dollar.

        We believe that the factors relating to our future growth include our ability to continue to make selective acquisitions, both in our core markets as well as in new complementary markets, regulatory requirements relating to the quality and conservation of water, safe use of water, increased demand for clean water, with continued enforcement of plumbing and building codes and a healthy economic environment. We have completed 3236 acquisitions since divesting our industrial and oil and gas business in 1999. Our acquisition strategy focuses on businesses that manufacture preferred brand name products that address our themes of water quality, water conservation, water safety and water flow control and related complementary markets. We target businesses that will provide us with one or more of the following: an entry into new markets, an increase in shelf space with existing customers, a new or improved technology or an expansion of the breadth of our water quality, water conservation, water safety and water flow control products for the commercial, industrial and residential and commercial markets. In 2008 and 2007, sales from acquisitions contributed approximately 4.6% and 3.9%, to our total sales growth over the prior year.

        Products representing a majority of our sales are subject to regulatory standards and code enforcement, which typically require that these products meet stringent performance criteria. Together with our commissioned manufacturers' representatives, we have consistently advocated for the

development and enforcement of such plumbing codes. We are focused on maintaining stringent quality control and testing procedures at each of our manufacturing facilities in order to manufacture products in compliance with code requirements and take advantage of the resulting demand for compliant products. We believe that the product development, product testing capability and investment in plant and equipment needed to manufacture products in compliance with code requirements, represent a barriercompetitive advantage for us.

        In 2011, we experienced many of the same macro challenges that affected our business in the previous year. The commercial marketplace continued to entrystruggle, we saw low residential activity and commodity prices remained volatile. Despite the challenging end markets, we were able to grow sales organically by 2.3% and grow income from continuing operations by 2.5%. Organic sales growth

excludes the impacts of acquisitions, divestitures and foreign exchange from year-over-year comparisons. We believe this provides investors with a more complete understanding of underlying sales trends by providing sales growth on a consistent basis. We continued our restructuring programs to right size our manufacturing footprint and we sustained our continuous improvement initiatives to gain productivity in our operations.

        Our performance improved as 2011 progressed. During the first half of 2011, increases in the cost of copper reduced margins for competitors.our high copper content products and we encountered operational inefficiencies as a result of our French restructuring efforts. Copper costs increased during the later portion of 2010 and into early 2011, reaching an all-time high in April 2011. We were able to balance commodity costs through price increases by mid-year, providing better results during the second half of 2011. In general, we were more successful in North America than in Europe in passing on price increases to our end customers during the year. Europe has and continues to experience uncertainties regarding its economy, driven largely by sovereign debt concerns. We believe the economic uncertainty is affecting how our competitors are pricing in end markets. We believe that over the long term, there is an increasing demand among consumers for productsprice increases may continue to ensure water quality, which creates growth opportunities forbe difficult to achieve in many of our products.

        Adverse economic developmentsEuropean markets in 2008 created a challenging environment for us. The credit crisis and recessionary pressures negatively impacted the primary markets we serve. We took steps2012. Copper costs abated somewhat during the yearsecond half of 2011, but have begun to reduce coststrend upward again through early February 2012. We have announced selected price increases for 2012 in certain markets but we cannot determine whether such initiatives will be successful in the marketplace.

        We continually review our business and conserve cash. During the fourth quarter of 2008, we reduced our workforce by 10%implement restructuring plans as needed. We recently completed restructuring projects in the U.S. This step is expectedand Europe which have shut down and consolidated certain of our operations. Please see Note 4 of the Notes to save us approximately $10.0 million to $11.0 million per year.Consolidated Financial Statements for a more detailed explanation of our restructuring activities.

        In addition to the reductionMarch 2010, in force, we took several steps to help conserve cash into 2009, including suspending our stock repurchase program, first freezing U.S. wages and salaries and later implementing salary reductions, controlling capital spending levels and continuing to focus on working capital levels. We also announced a further operational restructuring program to consolidateconnection with our manufacturing footprint consolidation, we closed the operations of Tianjin Watts Valve Company Ltd. (TWVC) and relocated its manufacturing to other facilities in North America and China. We will continueOn April 12, 2010, we signed a definitive equity transfer agreement with a third party to evaluate acquisition candidates during 2009, but we expect funds to be spent on acquisitions will be less than that spentsell our equity ownership and remaining assets of TWVC. The sale was finalized in 2008. We are enhancing our focus on productivity and continuous improvement, and on managing our working capital levels as well as positioning many of our products to benefit when the market returns. We believe that we are well positioned to weather the current economic crisis due to our ability to continue to generate positive cash flows and control spending levels. We are not faced with any major liquidity events until 2010, at which time $50.0 million of our debt will come due.

        We require substantial amounts of raw materials to produce our products, including bronze, brass, cast iron, steel and plastic, and substantially all of the raw materials we require are purchased from outside sources. We have experienced volatility in the costs of certain raw materials, particularly copper. Bronze and brass are copper-based alloys. During the fourth quarter of 2008, prices2011. We received net proceeds of copper droppedapproximately $6.1 million from highs experiencedthe sale. We recognized a net pre-tax gain of $7.7 million and an after-tax gain of approximately $11.4 million, or $0.30 per share, relating mainly to a favorable cumulative translation adjustment and a tax benefit related to the reversal of the China tax clawback.

        In 2009, our Board of Directors approved the sale of our Watts Valve (Changsha) Co., Ltd. (CWV) subsidiary. We also liquidated our TEAM Precision Pipework, Ltd. (TEAM) subsidiary through an administration process under United Kingdom law, as more fully described in Note 3 of Notes to Consolidated Financial Statements. We classified CWV's and TEAM's results of operations and any related losses as discontinued operations for all periods presented in this report.

Acquisitions

        On April 29, 2011, the Company completed the acquisition of Danfoss Socla S.A.S. (Socla) and the related water controls business of certain other entities controlled by Danfoss A/S, in a share and asset purchase transaction. The aggregate consideration paid was EUR 120.0 million, less than nine months earlier.

        A risk we face is our ability to deal effectively with changesEUR 3.7 million in raw material costs. We manage this risk by monitoring related market prices, working with our suppliers to achieve the maximum level of stability in their costscapital and related pricing, seeking alternative supply sources when necessary, implementing cost reduction programsadjustments. The net purchase price of EUR 116.3 million was financed with cash on hand and passing increaseseuro-based borrowings under our Credit Agreement. The net purchase price is equal to approximately $172.4 million based on the exchange rate of Euro to U.S. dollars as of April 29, 2011.

        Socla is a manufacturer of water protection valves and flow control solutions for the water market and the heating, ventilation and air conditioning market. Its major product lines include backflow preventers, check valves and pressure reducing valves. Socla is based in costsFrance, and its products are distributed worldwide for commercial, residential, municipal and industrial use. Socla's annual revenue for 2010 was approximately $130.0 million. Socla strengthens the Company's European residential and commercial plumbing and flow control products and also adds to our customers. Additionally from time to time we may use commodity futures contracts on a limited basis to manage this risk. We are not able to predict whether or for how long this volatility will continue. If costs continue to decrease, we may experience pressure from customers to reduce product pricing. We are unable to predict the timing and impact that these pricing decreases could have to our profit margins.its HVAC products.

        Another risk we face in all areas of our business is competition. We consider brand preference, engineering specifications, code requirements, price, technological expertise, delivery times and breadth of product offerings to be the primary competitive factors. As mentioned previously, we believe that the product development, product testing capability and investment in plant and equipment needed to manufacture products in compliance with code requirements, represent a barrier to entry for competitors. We are committed to maintaining our capital equipment at a level consistent with current technologies, and thus we spent approximately $26.6 million in 2008 and $37.8 million in 2007.

Recent Developments

        On February 10, 2009,January 31, 2012, we completed the acquisition of tekmar Control Systems (tekmar) in a plan was approved by the Boardshare purchase transaction. A designer and manufacturer of Directors to expand our program to consolidate our manufacturing footprintcontrol systems used in North Americaheating, ventilation, and China. The plan provides for the closure of three plants, with the relocation of those operations to existing facilities in either North America or China or to a new central facility in the United States.

        The footprint consolidation pre-tax charge will be approximately $11.7 million, including severance charges of approximately $3.2 million, relocation costs of approximately $3.3 million and asset write-downs of approximately $5.2 million. We also expect to record a net gain on property sales of $2.4 million. One-time tax charges of approximately $7.0 million regarding the payback of prior tax holiday benefits are also expected to be incurred as part of the building relocations. Approximately 400 positions will be eliminated in connection with this consolidation. The net after tax charge for this manufacturing consolidation programair conditioning applications, tekmar is expected to be approximately $14.9enhance our hydronic systems product offerings in the U.S. and Canada. The initial purchase paid was CAD $18.0 million, ($4.4 million non cash), with costsan earn-out based on future earnings levels being incurred through December 2009. We expect to spend approximately $4.8 millionachieved. The total purchase price will not exceed CAD $26.2 million. Sales for tekmar in capital expenditures to consolidate operations. We expect this entire project will be self-funded through net proceeds from the sale of buildings and other assets being disposed of as part of the plan.2011 approximated CAD $11.0 million.

        On February 9, 2009,7, 2012, we declared a quarterly dividend of eleven cents ($0.11) per share on each outstanding share of Class A Common Stock and Class B Common Stock.

Results of Operations

Year Ended December 31, 20082011 Compared to Year Ended December 31, 20072010

        Net Sales.    Our business is reported in three geographic segments: North America, Europe and China.Asia. Our net sales in each of these segments for the years ended December 31, 20082011 and 20072010 were as follows:

        The change in net sales iswas attributable to the following:

        Organic net sales for 2008in 2011 into the North American wholesale market increased by $26.6 million, or 4.3%, compared to 2010. This increase was primarily due to improved recovery of commodity costs across our four principal product lines with larger increases in residential and commercial products sales of approximately $16.0 million and in drains and water re-use products of approximately $5.7 million. Organic sales into the North American DIY market in 2011 decreased in North America$4.4 million, or 2.6%, compared to 2010, primarily due to decreased product sales approximating $4.3 million, mostly in the wholesale market, where sales were 2.5% lower than in 2007. Unit sale declines, due in large part to the soft economy, were widespread across a number of product lines, with our backflow product line impacted the most. Organic sales in our North American retail market for 2008 remained relatively flat compared with 2007, decreasing 0.6%. Unit sale reductions in the retail market due to the soft economy were offset by selected price increasesresidential and new product rollouts. Given the current recession and more stringent bank lending standards, we believe that both the commercial and residential construction markets, which we sell into through our wholesale and DIY channels, will continue to be soft through 2009. As a result, we believe that our sales in North America may decline in 2009. Growth

in North America due to acquisitions is due to the inclusion of sales from Topway acquired in November 2007.products.

        Organic net sales for 2008 increased in Europe primarilythe European wholesale market by $2.8 million, or 1.0%, compared to 2010. Wholesale sales increased marginally due to an 11.0% increasestronger sales in drains and pre-insulated pipe products along with increased sales into Eastern Europe and from geographic expansion into the Middle East. Increases were offset partially by lower unit sales into southern Europe, especially the Italian marketplace. Organic sales into the European OEM market asin 2011 increased by $9.2 million, or 4.9%, compared to 2007. OEM sales were positively impacted in Germany where sales of our products into alternative energy and energy conservation markets were strong. Sales into the wholesale market for 2008 decreased by 4.5% as compared to 2007 and were negatively affected by declines in construction activity. Acquired sales growth in Europe was2010 primarily due to the inclusion of Blücher for seven months in 2008. We expectincreased sales in Europe will increase on a constant currency basis in 2009 as Blücher will be reported for a full year and we expect alternative energy products sales to grow, hydronic under-floor manifold packages

offset by unit declines in our core product lines. Core sales are expected to be impacted by the widening recession in Europe.

        Organic net sales for 2008 declined in China due to decreasedlower sales in both the Chinese domesticheat pump and export markets. China salessolar packages, which had been driven by renewable energy subsidies which either were also negatively affected as compared to 2007 from the disposal of a commodity butterfly valve business during the fourth quarter of 2008. This decrease was partially offset by an increase in sales of large diameter butterfly valves to our water infrastructure customers during 2008.reduced or had expired.

        The increasesnet increase in net sales due to foreign exchange in North America, Europe and China werewas primarily due to the appreciation of the Canadian dollar, euro and yuan, respectively,the Canadian dollar against the U.S. dollar. We cannot predict whether these currencies will continue to appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our net sales. Recent fluctuations

        Acquired net sales in foreign currency rates portend a reductionEurope related to the Socla and Austroflex Rohr-Isoliersysteme GmbH (Austroflex) acquisitions and in those currencies against the U.S. dollar.North America was due to Socla and Blue Ridge Atlantic Enterprises, Inc. (BRAE) acquisitions.

        Gross Profit.    Gross profit and gross profit as a percent of net sales (gross margin) for 20082011 and 20072010 were as follows:

        Gross margin improved by 10 basisdecreased 0.6 percentage points to 33.5% in 20082011 compared to 2007. The improvement was attributable primarily2010 for a variety of reasons. First, we were unable to margin improvements in North America and Europe offset by declines in China. North America's margin improved 70 basis points to 34.4% primarily due to the price increases implemented to offset prior raw materialcompletely recover commodity cost increases in Europe and to a lesser extent,in the mix of product sold. Further, 2007 North American gross margins were negatively impacted by approximately $6.5DIY market. Second, we incurred acquisition accounting adjustments of $4.7 million or approximately 100 basis points onin connection with the prior year gross margin, for charges associated with product discontinuances and a change in estimate for workers' compensation costs. Gross margin in Europe increased to 32.3% from 31.0% primarily due to our ability to leverage additional volume from alternative energy product sales with better factory absorption levels due to the rationalization efforts made over the last two years in Italy. China gross margin deteriorated when compared to 2007 primarily due to excess capacity due to sales declines, value added tax increases, negative impact from the increaseSocla acquisition. Third, we experienced inefficiencies in the value of the Chinese yuan against the U.S. dollar and disruptions from a plant move and labor disputes.

        During 2007, we initiated a global restructuring program that was approved by our Board of Directors on October 30, 2007. The program includes plans to shut down five manufacturing facilities, right-size a sixth facility and incur costs to relocate one of our China facilities. In addition, we performed an evaluation of certain product lines in 2007. After completing this evaluation, we initiated a plan to discontinue certain product lines. In accordance with the restructuring program and product line discontinuance commenced in 2007, we anticipated spending $12.9 million. To date, we have

incurred $8.9 million of costs associated with the plans and have successfully shut down two manufacturing facilities and right sized another facility. Management is reviewing the status of the program and the timing of charges for the Europe segment. We anticipate the restructuring program will not be completed until 2010, with the expectation that our Europe segment will incur most of its costs during 2010. As such, previous estimates of savings from the programs will likely be achieved in 2010 rather than in the secondfirst half of 2009.

        The following table presents the total estimated pre-tax charges2011 as our French plant consolidation project was being completed. Fourth, productivity initiatives were offset to be incurred for the global restructuring program and product line discontinuances initiated in 2007some extent by our reportable segments and amounts charged to date:higher inbound freight costs.

        Selling, General and Administrative Expenses.    Selling, general and administrative expenses, or SG&A expenses, for 20082011 increased $27.5$43.2 million, or 8.3%12.8%, compared to 2007.2010. The increase in SG&A expenses iswas attributable to the following:

        The organic increase in SG&A expenses was primarily due to increased incentive compensationseparation costs and increasedof our former CEO of $6.3 million, an increase of approximately $4.4 million in variable European selling expensescosts due to increasedthe increase in year-over-year sales, volumes partiallyand an increase in IT costs of approximately $3.0 million due primarily to the implementation of a new enterprise resource planning system (ERP system) and other licensing costs, offset by decreased shipping costs and other variable North American selling expenses due to decreased sales volumes.approximately $7.0 million in lower legal costs. The increase in SG&A expenses from foreign exchange was primarily due to the appreciation of the euro yuan and Canadian dollar against the U.S. dollar. The increase inAcquired SG&A expenses from acquisitions was duecosts related to the inclusion of BlücherSocla, Austroflex and Topway.BRAE acquisitions. Total SG&A expenses, as a percentage of sales, was 24.7%remained constant at 26.4% in 2008 compared to 24.1% 2007.both 2011 and 2010.

        Restructuring and Other (Income) Charges.    In 2008,2011, we recorded $5.6a net charge of $8.8 million primarily for severance and other costs incurred as part of our previously announced restructuring programs, as compared to $12.6 million for severance, asset write-downs2010. For a more detailed description of our current restructuring plans, see Notes 4 and accelerated depreciation5 of Notes to Consolidated Financial Statements in North America, China and Europe. In 2007, we recorded $3.2 million for asset write-downs, accelerated depreciation and severance in North America and China.this Annual Report on Form 10-K.

        Goodwill and Other Long-Lived Asset Impairment Charge.Charges.    In 2011, we recorded asset impairment charges of $17.4 million, including $14.8 million for impairment charges on long-lived assets at Austroflex, $1.4 million in goodwill and long-lived intangible asset impairments at BRAE and

$1.2 million of impairment charges in certain European trade names. The long-lived asset and goodwill impairment chargeimpairments were based on historical results being below our expectations, uncertain economic conditions in 2008 of approximately $22.0 millionEurope related to oneAustroflex, and a reduction in the expected future cash flows to be generated by these entities. In 2010, the impairment charges of our North American reporting units (Water Quality).$1.4 million relate to write-downs of certain trade names in Europe. See Note 2 of notesNotes to consolidated financial statementsConsolidated Financial Statements in this Annual Report on Form 10-K, for additional information regarding these impairments.

        Gain on Disposal of Business.    In 2011, we recorded a net gain of approximately $7.7 million relating primarily to the impairment.recognition of currency translation adjustments resulting from the sale of TWVC.

        Operating Income.    Operating income by geographic segment for 20082011 and 20072010 was as follows:

        The change in operating income iswas attributable to the following:

        The decrease in consolidated organic operating income was due primarily to underutilization of capacity,a reduction in both Chinagross margins and to a lesser extent,an increase in North America caused by recessionary unit volume declines and one-off events in China such as the labor strike, a plant move and natural disasters. Also, SG&A expenses, such as salaries, product liabilityfor reasons discussed above. Acquired operating income relates to the Socla, Austroflex and other fixed spending increased. These items were partially offset by higher sales and better productivity in Europe and reductions in certain SG&A expenses such as shipping, pension costs and bad debts. Corporate costs decreased as the result of lower benefit costs, including lower stock based compensation and reduced costs from our nonqualified deferred compensation plan, and lower costs related to our Sarbanes Oxley compliance efforts and reduced legal costs.

        The Blücher acquisition accounts for the net increase in operating profits fromBRAE acquisitions.

        The net increase in operating income from foreign exchange was primarily due to the appreciation of the euro and Canadian dollar against the U.S. dollar. We cannot predict whether these currencies will continue to appreciate or depreciate against the U.S. dollar in future periods or whether future foreign exchange rate fluctuations will have a positive or negative impact on our operating income.

        Interest Income.    Interest income decreased $9.4 million, or 64.8%, in 2008 compared to 2007, primarily due to cash used to fund the Blücher acquisition and the stock buy-back program initiated in November 2007, as well as, a lower interest rate environment in 2008 as compared to 2007.

        Interest Expense.    Interest expense decreased $0.7increased $3.0 million, or 2.6%13.2%, in 20082011 compared to 2007,2010, primarily due to lower outstanding balances on the revolving credit facility partially offset by an increase in the average variable rates chargedamounts outstanding during the year on theour revolving credit facility.facility that was used to partially finance the Socla acquisition and interest incurred for all 2011 from the June 2010 issuance of $75.0 million of senior notes. See Note 11 of Notes to Consolidated Financial Statements in this Annual Report on Form 10-K, for additional information regarding financing arrangements.

        Other, (Income) Expense.net.    Other, expensenet increased $6.8$2.9 million or 295.7%, in 20082011 compared to 2007,2010, primarily due tobecause foreign currency transactiontransactions resulted in net losses losses on metal commodity transactions and negative changes in asset valuation of our nonqualified deferred compensation plan. Foreign currency transaction losses increased2011, while in China, Europe and Canada in 2008 as compared to 2007.2010 net gains were recognized.

        Income Taxes.    Our effective tax rate for continuing operations increaseddecreased to 34.6% for 200829.3% in 2011 from 31.8% for 2007.33.2% in 2010. The main driverprimary cause of the increasedecrease was goodwill impairment. A portion of the goodwill relates to stock acquisitions, which when impaired is not tax deductible. Our European effective rate declined due to provision releases and favorablethe tax treatments related tobenefit realized in connection with the Blücher acquisition financing.disposition of our TWVC facility in China.