We implemented restructuring plans in expanding our manufacturing operations and acquiring companies in China.

As part of our strategy, we are shifting a portion of our manufacturing operations to China to reduce our production costs and to sell product into the Chinese market. This shift will subject a greater portion of our operations to the risks of doing business in China. In addition, we have increased our participation in the Chinese water and power infrastructure markets with our recent acquisition of Changsha Valve Works. Changsha sells exclusively into the domestic Chinese marketplace and enters into long-term sales contracts. The increased production levels in China require increased levels of working capital as we are rapidly increasing headcount and manufacturing equipment. If we are unable to quickly train these new employees we may experience product quality issues. The Chinese central and local government authorities have a higher degree of control over our businesses in China than is customary in many of the countries in which we operate, and  this makes the process of obtaining necessary regulatory approval in China inherently unpredictable. For instance, the local Chinese authorities in Tianjin, China informed us that property occupied by our TWT joint venture will be taken over by eminent domain by December 31, 2007 and we will incur significant costs in connection with the relocation of our operations there. In addition, the protection accorded our proprietary technology2009 and know-how under the Chinese legal system is not as strong asannounced a new restructuring plan for France in the United States and, as a result, we may lose valuable trade secrets and competitive advantage.

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

The equipment and management systems necessary for the operation of our manufacturing facilities may break down, perform poorly or fail, resulting in fluctuations in our ability to manufacture our products and to achieve manufacturing efficiencies. We operate2010. Management's plans include a number of manufacturing facilities, all of whichsteps that we believe are subjectnecessary to this risk, and such fluctuations at any of these facilities could cause an increase in our productionreduce operating costs and a corresponding decrease inincrease efficiencies throughout our profitability. We alsomanufacturing, sales and distribution footprint. Although we have a vertically-integrated manufacturing process. Each segment is dependent uponconsidered the prior processimpact of local regulations, negotiations with employee representatives, the timing of capital expenditures necessary to prepare facilities and any breakdown in one segment will adversely affect all later components. Fluctuations in our production processthe related costs associated with these activities, factors beyond the control of management 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 customersthe timing and negativelytherefore affect our business, financial condition and results of operations.

In addition,when the savings will be achieved under the plans. Further, if we have an ongoing manufacturing restructuring program to reduce our manufacturing costs. As we transition more of our operations overseas as a result of the manufacturing restructuring plan, we are transferring capacity utilization. If our planned manufacturing plant consolidations in the United States and Europe and our production capability expansion in China 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 of operations and financial condition could be materially adverselynegatively affected.

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;

·       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 an inability to attract 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.

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

Our operations and properties 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 until 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.

Under 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.

We rely on a combination of patents, copyrights, trademarks, trade secrets, confidentiality provisions and licensing arrangements to establish and protect our proprietary rights. We may be required to spend resources to monitor and police our intellectual property rights. If we fail to successfully enforce our intellectual property rights, our competitive position could suffer, which could harm our operating 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 and Other Intangible Assets” (FAS 142)non-amortizable assets for impairment may result in a write-off of all or a portion of our goodwill,recorded amounts, which would negatively affect our operating results and financial condition.

As of December 31, 2006,2009, we recorded goodwill and non-amortizable intangible assets of $356,090,000$425.1 million and $50,519,000,$51.2 million, respectively. If we are required to take an impairment charge to our goodwill or intangible assets in connection with the requirements of FAS 142, our operating results may decrease and our financial condition may be harmed. Under FAS 142, goodwill and identifiable intangible assets that have indefinite useful lives are no longer amortized. In lieu of amortization, we are required to perform an annual impairment review of both goodwill and non-amortizable intangible assets. We concludedIn performing our annual review in 2009, we recognized a non-cash pre-tax charge of approximately $3.3 million as an impairment of some of the indefinite lived intangible assets. In performing our annual goodwill review in 2008, we recognized a non-cash pre-tax charge of approximately $22.0 million as an impairment of all the goodwill value related to one reporting unit. Although we have not experienced goodwill impairment in our remaining reporting units, there can be no assurances that nofuture goodwill impairment existed at October 29, 2006, the time of our latest annual review.will not occur. We perform our annual test for indications of goodwill and non-amortizable 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.

Our largest customer, The Home Depot Inc. and its wholly-owned subsidiaries,        In 2009, our top ten customers accounted for approximately $122,700,000, or 10.0%,25% of our total net sales with no one customer accounting for the year ended December 31, 2006 and $98,500,000, or 10.7%,more than approximately 6% of our total net sales for year ended December 31, 2005.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 products from Home Depot and other customers. A significant reduction in orders from, or change in terms of contracts with, Home Depot or otherany 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, 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.

We are investigating potential violations of the Foreign Corrupt Practices Act, and the results of this investigation could have a material adverse effect on our business prospects, operations, financial condition and cash flow.

        As previously disclosed, we have received information that employees of a former subsidiary of the Company in China made payments to employees of state-owned agencies. Such payments may violate the Foreign Corrupt Practices Act, or FCPA. We are conducting an investigation utilizing outside counsel and voluntarily disclosed this matter to the United States Department of Justice and the Securities and Exchange Commission. If violations are found, we may be subject to criminal and/or civil sanctions, including substantial fines. Negotiated dispositions of these types of violations also often result in an acknowledgement of wrongdoing by the entity and the appointment of a monitor on terms agreed upon with the Department of Justice and the Securities and Exchange Commission to review and monitor current and future business practices with the goal of assuring future FCPA compliance. The amount of any fines or monetary penalties which could be assessed would depend on, among other factors, findings regarding the amount, timing, nature and scope of any improper payments, whether any such payments were authorized by or made with knowledge of Watts or its affiliates, the amount of gross pecuniary gain or loss involved, and the level of cooperation provided to the government authorities during the investigation. Any determination that we have violated the FCPA could result in sanctions that could have a material adverse effect on our business prospects, operations, financial condition and cash flow.

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, 2007,2010, Timothy P. Horne, a member of our board of directors, beneficially owned approximately 18.8%19.5% of our outstanding shares of Class A common stockCommon Stock (assuming conversion of all shares of Class B common stockCommon Stock beneficially owned by Mr. Horne into Class A common stock)Common Stock) and approximately 99.0% of our outstanding shares of Class B common stock,Common Stock, which represents approximately 69.3%70.2% 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 stockCommon Stock could adversely affect the market price of our Class A common stock.Common Stock.

As of February 1, 2007,2010, there were outstanding 31,239,11129,505,918 shares of our Class A common stockCommon Stock and 7,293,8807,193,880 shares of our Class B common stock.Common Stock. Shares of our Class B common stockCommon Stock may be converted into Class A common stockCommon 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,Common Stock, the holders of our Class B common stockCommon Stock have rights with respect to the registration of the underlying Class A common stock.Common Stock. Under these registration rights, the holders of Class B common stockCommon 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 stockCommon 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 stockCommon Stock for any public offering, the holders of Class B common stockCommon Stock are entitled to include shares of Class A common stockCommon Stock into which such shares of Class B common stockCommon 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 stockCommon 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, 2007, our Class B common stock constituted 18.9% of our total outstanding common stock and 70.0% of the total outstanding voting power and thus is able to exercise a controlling influence over our business.

Item 1B.    UNRESOLVED STAFF COMMENTSCOMMENTS.

        None.

Item 2.    .PROPERTIES.

None.

23

PART II

Item 5.    MARKET FOR REGISTRANT’SREGISTRANT'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 stockCommon Stock on the New York Stock Exchange during 20062009 and 20052008 and cash dividends paid per share.

There is no established public trading market for our Class B common stock,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 stockCommon Stock (10 votes per share) is convertible into one share of Class A Common Stock (1 vote per share).

        On February 9, 2010, 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 in both 2009 and 2008 were $16.2 million, which consisted of $13.0 million and $3.2 million for 2006Class A shares and 2005 were $12,445,000 and $10,480,000,Class B shares, respectively. While we presently intend to continue to pay cash dividends, the payment of future cash dividends depends upon the Board of Directors’Directors' assessment of our earnings, financial condition, capital requirements and other factors.

The number of record holders of our Class A common stockCommon Stock as of February 23, 200719, 2010 was 166.156. The number of record holders of our Class B common stockCommon Stock as of February 19, 2010 was 7.

        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, 2009.

        The following table includes information with respect to repurchases we made of our Class A Common Stock during the quarter ended December 31, 2009.

(1)

On November 9, 2007, was 8.

we announced that our Board of Directors had authorized a stock repurchase program. Under the program, we may repurchase up to an aggregate of 3.0 million shares of our Class A Common Stock in open market purchases or in privately negotiated transactions. On October 28, 2008, we announced that we had temporarily suspended our stock repurchase program. No shares were repurchased during the quarter ended December 31, 2009. As of December 31, 2008, we had repurchased 2.45 million shares of stock for a total cost of $68.1 million. We did not repurchase any shares of stock in 2009.

Performance Graph

Set forth below is a line graph comparing the cumulative total shareholder return on our classClass A common stockCommon Stock for the last five years with the cumulative return of companies on the Standard & Poor’sPoor'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. We have ceased using a peer group because we believe that there are few public companies engaged in lines of business directly comparable to those of Watts. The graph assumes that the value of the investment in our classClass A common stockCommon Stock and each index was $100 at December 31, 20012004 and that all dividends were reinvested.

COMPARISON OF FIVE5 YEAR CUMULATIVE TOTAL RETURN*
Among Watts Water Technologies, Inc.,
the The S&P 500 Index
and theThe Russell 2000 Index

*                    $100

$100 invested on December 31, 20012004 in stock or index, including reinvestment of dividends.

Fiscal year ending December 31.

Cumulative Total Return

The foregoingabove Performance Graph and related information shall not be deemed “soliciting material”"soliciting material" or to be “filed”"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 the Companywe specifically incorporatesincorporate it by reference into such filing.

27

•

·water quality products, including backflow preventers and check valves for preventing contamination of potable water caused by reverse flow within water supply lines and fire protection systems;

systems and point-of-use and point-of-entry water filtration and reverse osmosis systems for both commercial and residential applications;·



•

a wide range of water pressure regulators for both commercial and residential applications;

·



•

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



•

water supply and drainage products for commercial and residential applications;

·



•

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

·

       point-of-use water filtration and reverse osmosis systems for both commercial and residential applications;

•

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

·



•

systems for under-floor radiant applications and hydraulic pump groups for gas boiler manufacturers and renewable energy applications, including solar and heat pump control packages;

and·



•

flexible stainless steel connectors for natural and liquid propane gas in commercial food service and residential applications; and

applications.

·       large diameter butterfly valves for use in China’s water infrastructure.

Our business is reported in three geographic segments,segments: North America, Europe and China. 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 levels of 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, increased demand for clean water, with continued enforcement of plumbing and building codes and a healthy economic environment. We have completed 3032 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 residential and commercial markets. In 2006, sales from acquisitions contributed approximately 20.9% 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’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 barrier to entry for competitors. We believe that, over the long term, there is an increasing demand among consumers for products to ensure water quality, which creates growth opportunities for our products.

        Our sales in 2009 were affected by downward pressure from a weak U.S. commercial construction marketplace. In addition, U.S. residential construction activity was at historically low levels. We continued to see marked reductions in European sales as the European economy migrated into a recession. Plant under-absorption and negative foreign currency movements affected operating results in 2009. Foreign currency movements, mainly related to the strengthening of the U.S. dollar against the euro and Canadian dollar, negatively affected 2009 diluted earnings per share by $0.03 compared to 2008. In response to these concerns, we took numerous steps to ensure we remain on a firm fiscal platform. In the latter half of 2008, we announced a reduction of the United States workforce, implemented a ten-month salary freeze in North America and initiated a review of discretionary spending in order to reduce operating expenses. In 2009, we expanded our cost savings programs on a worldwide basis. We initiated salary reductions, worker furloughs and other cost reductions in an effort to leverage our costs against anticipated lower sales volumes. Additionally, in February 2009, we expanded and accelerated our restructuring program to consolidate our manufacturing footprint in North America and China. Savings from this program will be realized in 2010. Lastly, we are continuing our implementation of lean manufacturing and Six Sigma disciplines to partially offset negative pressures on operating income.

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 have experienced increasesvolatility in the costs of certain raw materials, particularly copper. Bronze and brass are copper-based alloys. During 2006, theThe spot price of copper during 2009 increased approximately 33%.153.1% from December 31, 2008. We typically carry several months of inventory on-hand primarily due to the significant extent of our international sourcing.

A risk we face is our ability to deal effectively with increaseschanges 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 costs and related pricing, seeking alternative supply sources when necessary, implementing cost reduction programs and passing increases in costs to our customers, to the maximum extent possible, when they occur.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 these cost increasesthis volatility will continue. If these cost increases continue 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.

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 $44,648,000$24.2 million in 2006 (including approximately $18,000,000 related to the purchase2009 and subsequent sale-leaseback of a building$26.2 million in Italy) and $18,590,000 in 2005. We are committed to expanding our manufacturing capacity in lower cost countries such as China, Tunisia and Bulgaria.2008.

Recent Developments

In February 2007,September 2009, our Board of Directors approved an amendment to our Certificate of Incorporation to increase the number of sharessale of our Class A common stock authorizedinvestment in Watts Valve (Changsha) Co., Ltd. (CWV). We completed the sale of CWV in January 2010. Additionally, in May 2009, we liquidated our TEAM Precision Pipework, Ltd. (TEAM) subsidiary through an administration process under the United Kingdom law, as more fully described in Note 3 of Notes to Consolidated Financial Statements. We classified CWV and TEAM's results of operations and any related losses as discontinued operations for issuance from 80,000,000 shares to 200,000,000 shares. This amendment remains subject to approval of our stockholders at the Annual Meeting of Stockholders scheduled for May 2, 2007.all periods presented.

Recent Developments

In        On February 2007,9, 2010, we declared a quarterly dividend of teneleven cents ($0.10)0.11) per share on each outstanding share of Class A common stockCommon Stock and Class B common stock. ThisCommon Stock.

        On February 8, 2010, our Board of Directors approved a restructuring program with respect to our operating facilities in France. The restructuring program is an increaseexpected to include the shutdown of $0.01 per share comparedthree facilities, including two manufacturing sites and one distribution center. The program is expected to the dividend paidinclude pre-tax charges totaling approximately $12.5 million, including costs for the comparable period last year.

In November 2006, we issuedseverance, relocation, clean-up and sold 5,750,000 shares of Class A common stock in an underwritten public offering. The price to the public of the shares soldcertain asset write-downs, and result in the offering was $40.00 per share. The proceedselimination of approximately 95 positions. Total net after-tax charges for this restructuring program are expected to the Company, net of underwriting discounts and commissions and offering expenses, wasbe approximately $218,611,000.$8.3 million ($1.1 million in non-cash charges), with costs being incurred through 2011. We expect to usespend approximately $6.6 million in capital expenditures to consolidate operations. Annual cash savings, net of tax, are estimated to be $3.9 million, which we expect to fully realize by 2012. We recorded after-tax charges of approximately $3.0 million, or ($0.08) per share, in the net proceeds fromfourth quarter of 2009 for severance and other costs related to this program.

        On February 8, 2010, Daniel J. Murphy, III, one of our directors, informed the offeringBoard of his decision not to stand for general corporate purposes, includingre-election at our 2010 annual meeting of stockholders, which will be held on May 12, 2010. Mr. Murphy advised the fundingBoard that his decision was made for personal reasons and was not the result of future acquisitions.any dispute or disagreement with us on any matter relating to our operations, policies or practices. Mr. Murphy currently serves as a member of the Compensation Committee and the Nominating and Corporate Governance Committee.

        Our Corporate Governance Guidelines provide that no member of the Board shall be nominated by the Board to serve as a director after he has passed his 72nd birthday, unless the Board has voted to waive the mandatory retirement age of such person as a director. Timothy P. Horne, a member of our Board, will pass his 72nd birthday in April 2010, prior to our 2010 annual meeting of stockholders. On February 8, 2010, Mr. Horne advised the Board that he does not wish to have the Board waive the mandatory retirement age for him under our Corporate Governance Guidelines, and therefore Mr. Horne will also not stand for re-election at our 2010 annual meeting of stockholders.

        On January 18, 2010, David J. Coghlan was promoted to Chief Operating Officer. In his new role, Mr. Coghlan will assume responsibility for our European operations in addition to his continuing responsibilities for our operations in North America and Asia. Mr. Coghlan has served as our President of North America and Asia since June 2008.

Results of Operations

Year Ended December 31, 20062009 Compared to Year Ended December 31, 20052008

Net Sales.Our business is reported in three geographic segments: North America, Europe and China. Our net sales in each of these segments for the years ended December 31, 20062009 and 20052008 were as follows:

The increasechange in net sales is attributable to the following:

The internal growthorganic decline in net sales in North America was primarily due to increased price anddecreased unit sales in certainof our plumbing and heating, backflow and gas connector product lineslines. Organic sales into both the wholesale and DIY markets. OurNorth American wholesale market in 2006, excluding the sales from the acquisitions of Alamo, Savard, Calflex, Flexflow, Core and Dormont, grew2009 declined by 9.7%17.9% compared to 2005,2008. This was primarily due to increaseddecreased unit sales across most of water pressure regulators, relief valves and backflow preventer units, as well as in our plumbing and under-floor radiant heating product lines. OurOrganic sales into the North American DIY market in 20062009 increased by 5.4%0.6% compared to 2005,2008 primarily due to increased sales of fittingsincremental product line penetration at certain retail customers and supply lines and plumbing and under-floor radiant heating product lines partiallyselected market share gains being offset by fewer new retail product introductionslower sales to certain customers.