Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

x      Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 28, 2009

or

o         Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from             to

Commission file number 001-11499

WATTS WATER TECHNOLOGIES, INC.

(Exact Name of Registrant as Specified in Its Charter)

Registrant’s Telephone Number, Including Area Code: (978) 688-1811

(Former Name, Former Address and Former Fiscal year, if changed since last report.)

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 x  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 o  No o

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 x

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

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

INDEX

2

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Amounts in millions, except share information)

(Unaudited)

See accompanying notes to consolidated financial statements.

3

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except per share information)

(Unaudited)

See accompanying notes to consolidated financial statements.

4

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in millions, except per share information)

(Unaudited)

See accompanying notes to consolidated financial statements.

5

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in millions)

(Unaudited)

See accompanying notes to consolidated financial statements.

6

Table of Contents

WATTS WATER TECHNOLOGIES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

1. Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included in the Watts Water Technologies, Inc. (the Company) Consolidated Balance Sheet as of June 28, 2009, the Consolidated Statements of Operations for the second quarter and six months ended June 28, 2009 and the second quarter and six months ended June 29, 2008, and the Consolidated Statements of Cash Flows for the six months ended June 28, 2009 and the six months ended June 29, 2008.

The balance sheet at December 31, 2008 has been derived from the audited consolidated financial statements at that date. The accounting policies followed by the Company are described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2008. The financial statements included in this report should be read in conjunction with the consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2008. Operating results for the interim period presented are not necessarily indicative of the results to be expected for the year ending December 31, 2009.

The Company operates on a 52-week fiscal year ending on December 31st.  Any second quarter data contained in this Quarterly Report on Form 10-Q generally reflects the results of operations for the 13-week period ended on the Sunday nearest June 30th of the respective year.

In preparing the accompanying unaudited consolidated financial statements, the Company has reviewed, as determined necessary by the Company’s management, events that have occurred after June 28, 2009, up until the issuance of the financial statements, which occurred on August 7, 2009.

2. Accounting Policies

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Goodwill and Long-Lived Assets

The changes in the carrying amount of goodwill by geographic segment from December 31, 2008 to June 28, 2009 are as follows:

In February 2009, the Company reached a settlement with the seller regarding a purchase price adjustment to the Core Industries, Inc. acquisition that resulted in the Company receiving $1.1 million.

In May 2009, the Company deconsolidated TEAM Precision Pipework, Ltd. (TEAM).  As a result of the deconsolidation, the Company reduced goodwill by $8.4 million associated with TEAM.  See Note 3 for additional information relating to the deconsolidation of TEAM.

Under the provisions of Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” goodwill is tested for impairment at least annually or more frequently if events or circumstances indicate that it is “more likely than not” that goodwill might be impaired, such as a change in business conditions. The Company performs its annual goodwill impairment assessment in the fourth quarter of each year. Because of the continued uncertainty in the financial markets and overall economic conditions, during the first six months of 2009, the Company reviewed certain assumptions included in its goodwill impairment analysis of certain reporting units to determine if it was more likely than not that its fair value was less than the carrying value. The analysis focused on management’s current expectations of future cash flows, as well as current market conditions. In certain cases, the Company performed a comprehensive goodwill assessment.  Consistent with its approach at the annual assessment, the Company used a discounted cash flow model to evaluate the carrying value of the goodwill.  Based on this analysis, it was determined that the Company did not have any impairment to goodwill during the first six months of 2009.

7

Table of Contents

In connection with the restructuring plan announced in February 2009, the Company concluded that it is more likely than not that the carrying amount of certain assets held and used may not be recoverable.  The Company tested the certain asset groups for recovery in accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  The Company used an undiscounted future cash flow model to test the long-lived asset groups based on the primary assets identified in each operation, the current economic outlook and the estimated proceeds from the ultimate disposition of the asset groups.  Based on the analysis performed, the Company concluded there was no impairment during the first six months of 2009.

Intangible assets include the following at June 28, 2009:

Aggregate amortization expense for amortized intangible assets for the second quarters of 2009 and 2008 was $3.4 million and $3.4 million, respectively, and for the first six-month periods of 2009 and 2008 was $6.8 million and $5.6 million, respectively. Additionally, future amortization expense on amortizable intangible assets is approximately $6.1 million for the remainder of 2009, $12.5 million for 2010, $12.2 million for 2011, $10.7 million for 2012 and $9.6 million for 2013. Amortization expense is provided on a straight-line basis over the estimated useful lives of the intangible assets. The weighted-average remaining life of total amortizable intangible assets is 10.3 years. Patents, customer relationships, technology and other amortizable intangibles have weighted-average remaining lives of 7.8 years, 9.6 years, 4.7 years and 18.6 years, respectively. Intangible assets not subject to amortization primarily include trademarks and unpatented technology.

Stock-Based Compensation

The Company maintains three stock incentive plans under which key employees and non-employee members of the Company’s Board of Directors have been granted incentive stock options (ISOs) and nonqualified stock options (NSOs) to purchase the Company’s Class A Common Stock. Only one plan, the 2004 Stock Incentive Plan, is currently available for the grant of new equity awards. Stock options granted under prior plans became exercisable over a five-year period at the rate of 20% per year and expire ten years after the date of grant. Under the 2004 Stock Incentive Plan, options become exercisable over a four-year period at the rate of 25% per year and expire ten years after the grant date. ISOs and NSOs granted under the plans may have exercise prices of not less than 100% and 50% of the fair market value of the Class A Common Stock on the date of grant, respectively. The Company’s current practice is to grant all options at fair market value on the grant date.  The Company did not issue any options in the first six months of 2009 or 2008.

The Company also grants shares of restricted stock to key employees and non-employee members of the Company’s Board of Directors under the 2004 Stock Incentive Plan. Shares of restricted stock granted to employees vest over a three-year period at the rate of one-third per year. Stock awards to non-employee members of the Company’s Board of Directors are fully vested at the time of grant. The restricted stock awards are amortized to expense on a straight-line basis over the vesting period. The Company issued 1,706 shares of restricted stock under the 2004 Stock Incentive Plan in the first six months of 2009.  The Company did not issue any shares of restricted stock in the first six months of 2008.

The Company also has a Management Stock Purchase Plan that allows for the granting of restricted stock units (RSUs) to key employees.  On an annual basis, key employees may elect to receive a portion of their annual incentive compensation in RSUs instead of cash.  Each RSU provides the key employee with the right to purchase a share of Class A Common Stock at 67% of the fair market value on the date of grant.  RSUs vest annually over a three-year period from the grant date.  An aggregate of 2,000,000 shares of Class A Common Stock may be issued under the Management Stock Purchase Plan.  The Company granted 150,098 RSUs and 60,128 RSUs in the first six months of 2009 and 2008, respectively.

The fair value of each share issued under the Management Stock Purchase Plan is estimated on the date of grant, using the Black-Scholes-Merton Model, based on the following weighted average assumptions:

The above assumptions were used to determine the weighted average grant-date fair value of RSUs of $8.14 and $11.44 in 2009 and 2008, respectively.

8

Table of Contents

A more detailed description of each of these equity incentive plans can be found in Note 13 of Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Shipping and Handling

The Company’s shipping costs included in selling, general and administrative expenses were $7.7 million and $9.6 million for the second quarters of 2009 and 2008, respectively, and were $15.1 million and $18.5 million for the first six months of 2009 and 2008, respectively.

Research and Development

Research and development costs included in selling, general and administrative expenses were $4.3 million and $4.7 million for the second quarters of 2009 and 2008, respectively, and were $8.7 million and $9.2 million for the first six months of 2009 and 2008, respectively.

Taxes, Other than Income Taxes

Taxes assessed by governmental authorities on sale transactions are recorded on a net basis and excluded from sales, in the Company’s consolidated statements of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

New Accounting Standards

In June 2009, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standard (FAS) No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB Statement No. 162,”(FAS No. 168).  FAS No. 168 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy).  This standard also establishes the FASB Accounting Standards Codification as the source of authoritative accounting principles recognized by the FASB to be applied in the preparation of non-governmental financial statements.  FAS No. 168 is effective for all interim and annual financial statements issued after September 15, 2009.  The adoption of FAS No. 168 is not expected to have a material impact on the Company’s consolidated financial statements.

In June 2009, FASB issued FAS No. 167, “Amendments to FASB Interpretation No. 46(R),”(FAS No. 167).  FAS No. 167 amends certain requirements of FASB Interpretation No. 46(R) to require an entity to perform an analysis to determine whether the variable interest or interests give it a controlling financial interest.  This statement also requires an entity to regularly reassess whether the entity has a controlling financial interest in the variable interest or interests.  This statement will also expand disclosures on variable interest or interests in the footnotes.  FAS No. 167 is effective for the first annual reporting period beginning after November 15, 2009 as well as the interim period therein.  The Company does not expect the adoption of FAS No. 167 will have a material impact on its consolidated financial statements.

In June 2009, FASB issued FAS No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140,” (FAS No. 166). This statement eliminates the concept of a qualifying special-purpose entity as defined in FAS No. 140.  This statement also establishes more stringent conditions for reporting a transfer of a portion of a financial asset as a sale and changes the initial measurement of a transferor’s interest in transferred financial assets.   FAS No. 166 also expands disclosures for interim and annual reports.  This statement is effective for the first annual reporting period beginning after November 15, 2009.  The Company does not expect the adoption of FAS No. 166 will have a material impact on its consolidated financial statements.

In May 2009, FASB issued FAS No. 165, “Subsequent Events,” (FAS No. 165). This statement establishes standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  FAS No. 165 defines the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions for potential recognition in the financial statements as well as circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in the financial statements.  FAS No. 165 is effective for interim or annual periods ending after June 15, 2009.  The Company adopted this statement effective June 15, 2009, and has evaluated any subsequent events through the date of this filing.

In April 2009, FASB issued FASB Staff Position (FSP) FAS 141(R)-1, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies,” (FSP FAS 141(R)-1).  This FSP clarifies and amends FAS No. 141(R) regarding the initial recognition, measurement, accounting and disclosure of assets and liabilities that arise from contingencies in a business combination.  Assets and liabilities that arise from a contingency that can be measured at the date of the acquisition shall be

9

Table of Contents

recorded at fair value.  FSP FAS 141(R)-1 is effective for all acquisitions completed in annual years beginning on or after December 15, 2008.  The adoption of FSP FAS 141(R)-1 will impact future acquisitions made by the Company.

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” (FSP FAS 107-1 and APB 28-1).  FSP FAS 107-1 and APB 28-1 require all publicly traded companies to disclose the fair value of all financial instruments in interim reporting periods and annual reporting periods.  FSP FAS 107-1 and APB 28-1 shall be effective for interim and annual periods ending after June 15, 2009.   The adoption of FSP FAS 107-1 and APB 28-1 did not have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly,” (FSP FAS 157-4).  FSP FAS 157-4 provides additional guidance for estimating fair value when the volume and level of activity for the asset or liability have significantly decreased.  FSP FAS 157-4 provides factors to consider in determining when the volume and level of activity have decreased as well as when a transaction would be considered orderly.  FSP FAS 157-4 does not change the principle of FAS No.157, “Fair Value Measurements,” (FAS No.157) in that an asset or liability should be valued at a price a third party would be willing to pay in an orderly transaction.   FSP FAS 157-4 also expands disclosures in interim periods regarding the valuation methods selected.   FSP FAS 157-4 shall be effective for interim and annual periods ending after June 15, 2009.  The adoption of FSP FAS 157-4 did not  have a material impact on the Company’s consolidated financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” (FSP FAS 115-2 and FAS 124-2).  FSP FAS 115-2 and FAS 124-2 amends the other-than-temporary impairment for debt securities to make guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  FSP FAS 115-2 and FAS 124-2 shall be effective for interim and annual periods ending after June 15, 2009.  The adoption of FSP FAS 115-2 and 124-2 did not have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued FAS No. 141 (R), “Business Combinations,” (FAS No. 141R), which replaces FAS No. 141, “Business Combinations.” FAS No. 141R establishes new principles and requirements for how an acquiring company 1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree, 2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase, and 3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. FAS No. 141R is effective for business combinations occurring in the fiscal year beginning on or after December 15, 2008. The Company expects the adoption of FAS No. 141R will increase costs charged to its operations for acquisitions made after January 1, 2009.

3. Discontinued Operations

In May 2009, the Company exited its TEAM business, located in Ammanford, U.K.   TEAM custom designed and manufactured manipulated pipe and hose tubing assemblies and served the heating, ventilation and air conditioning and automotive markets in the U.K. and Western Europe.  Management determined the business no longer fit strategically with the Company.  On May 22, 2009, the Company appointed an administrator for TEAM under the United Kingdom Insolvency Act of 1986.  During the administration process, the administrator has sole control over, and responsibility for, TEAM’s operations, assets and liabilities.   In accordance with FAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements,” the Company deconsolidated TEAM when the administrator obtained control of TEAM.  The deconsolidation resulted in the recognition of a $18.8 million non-cash loss in the quarter ended June 28, 2009.  Subsequent to the end of the quarter, the Company was informed that the administrator sold the assets of TEAM for funds sufficient to pay all creditors.  The Company does not believe there will be any funds remaining after all debts have been settled.  The Company evaluated the operations of TEAM and, in accordance with FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” determined that it will not have a continuing involvement in TEAM’s operations and cash flows.  As a result of the loss of control, TEAM’s cash flows and operations have been completely eliminated from the ongoing operations of the Company.  As such, the Company has classified TEAM’s results of operations and the loss from deconsolidation as discontinued operations for all periods presented.

In September 1996, the Company divested its Municipal Water Group businesses, which included Henry Pratt, James Jones Company and Edward Barber and Company Ltd.  The discontinued operating expense for the second quarters and first six months of 2009 and 2008 are related to the operations and write-off of TEAM and legal costs associated with the James Jones Litigation, net of reserve adjustments, which is described in Part I, Item 1, “Business - Product Liability, Environmental and Other Litigation Matters” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

10

Table of Contents

Condensed operating statements for discontinued operations are summarized below:

TEAM’s revenues of $1.2 million and $4.1 million for the second quarter ended June 28, 2009 and June 29, 2008, respectively, are reported in discontinued operations.  TEAM’s revenues of $2.6 million and $8.4 million for the six months ended June 28, 2009 and June 29, 2008, respectively, are reported in discontinued operations.  The Company did not recognize any tax benefit on the disposal of TEAM as the Company did not believe that it was more likely than not that the tax benefit would be realized.

The carrying amounts of major classes of assets and liabilities at June 28, 2009 and December 31, 2008 associated with the Municipal Water Group, relating primarily to reserves for the James Jones Litigation, are as follows:

The major classes of assets and liabilities associated with the deconsolidation of TEAM at June 28, 2009 and December 31, 2008 are as follows:

11

Table of Contents

4. Financial Instruments and Derivatives Instruments

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including auction rate securities, foreign currency derivatives, deferred compensation plan assets and related liability, and metal derivatives. The fair value of these certain financial assets and liabilities was determined using the following inputs at June 28, 2009:

(1) Included in long-term investment securities on the Company’s consolidated balance sheet.

(2) Included in other, net on the Company’s consolidated balance sheet.

(3) Included in accrued expenses and other liabilities on the Company’s consolidated balance sheet.

(4) Included in other noncurrent liabilities on the Company’s consolidated balance sheet.

The table below provides a summary of the changes in fair value of all financial assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the period December 31, 2008 to June 28, 2009.

Trading securities comprise auction rate securities and rights issued by UBS, AG (UBS).  The Company holds a variety of interest bearing auction rate securities, or ARS, including $5.0 million in municipal bonds and $1.7 million in student loans at June 28, 2009. These ARS investments are intended to provide liquidity via an auction process that resets the applicable interest rate at predetermined calendar intervals, allowing investors to either roll over their holdings or sell their interests at par. The recent uncertainties in the credit markets have affected all of the Company’s holdings in ARS investments, and auctions for the Company’s investments in these securities have failed on their respective auction dates. Consequently, the investments are not currently liquid and the Company will not be able to access these funds until a future auction of these investments is successful or a buyer is found outside of the auction process. Maturity dates for these ARS investments range from 2027 to 2036.

These securities are currently rated BBB or better. During the fourth quarter of 2008, the Company and its investment advisor elected to participate in a settlement offer from UBS for all of the outstanding ARS investments.  Under the terms of the settlement offer, the Company through its investment advisor was issued rights by UBS entitling the holder to require UBS to purchase the underlying ARS at par value during the period from June 30, 2010, through July 2, 2012.  The rights, valued at $1.4 million at June 28, 2009, also entitle UBS to purchase or sell the ARS at any time from the settlement date, in which case UBS would be required to pay par value for the ARS.

During the quarter ended March 29, 2009, the Company was notified by its investment advisor that UBS had challenged the investment advisor’s participation in the settlement as an “eligible holder,” as defined.  The Company’s investment advisor notified the Company during the quarter ended June 28, 2009 that UBS has agreed that its status as an eligible holder has been approved by UBS.  The decision did not impact the accounting for the valuation of the rights.

While the Company continues to earn interest on its ARS investments, these investments are not currently trading and therefore do not currently have a readily determinable market value.

The Company used a discounted cash flow model to determine the estimated fair value of its investment in ARS and investments in UBS rights as of June 28, 2009. The assumptions used in preparing the discounted cash flow model include estimates for interest rates, credit quality of the ARS issuer, timing and amount of cash flows, government guarantees related to student loans and the expected holding periods of the ARS.  Based on this assessment of fair value, the Company recorded a credit of approximately $0.4 million

12

Table of Contents

to other (income) expense in the consolidated statement of operations for its investment in ARS in the first half of 2009.  To determine the fair value of the rights issued by UBS in connection with the settlement, the Company used a discounted cash flow model for the period up to the first date which the Company can exercise the rights.   Based on this assessment of fair value, the Company recorded a charge of approximately $0.6 million to other (income) expense in the first half of 2009.

Cash equivalents consist of instruments with remaining maturities of three months or less at the date of purchase and consist primarily of money market funds, for which the carrying amount is a reasonable estimate of fair value.

During the first quarter ended March 29, 2009, the Company adopted FAS No. 161 “Disclosures about Derivative Instruments and Hedging Activities — an amendment of FASB statement No. 133,” (FAS No. 161). This standard amends and expands FAS No. 133 and requires disclosure of the fair value of derivative instruments and their gains and losses in tabular format.  In addition, FAS No. 161 requires the disclosure of objectives and strategies for using derivative instruments.

The Company used financial instruments to enhance its ability to manage risk, including foreign currency and commodity pricing exposures, which exist as part of its ongoing business operations.  The use of derivatives exposes the Company to counterparty credit risk for nonperformance and to market risk related to changes in currency exchange rates and commodity prices. The Company manages its exposure to counterparty credit risk through diversification of counterparties. The Company’s counterparties in derivative transactions are substantial commercial banks with significant experience using such derivative instruments. The impact of market risk on the fair value and cash flows of the Company’s derivative instruments is monitored and the Company restricts the use of derivative financial instruments to hedging activities. The Company does not enter into contracts for trading purposes nor does the Company enter into any contracts for speculative purposes.  The use of derivative instruments is approved by senior management under written guidelines.

The Company has exposure to a number of foreign currency rates, including the Canadian Dollar, the Euro, the Chinese Yuan and the British Pound.  To manage this risk, the Company generally uses a layering methodology whereby at the end of any quarter, the Company has generally entered into forward exchange contracts which hedge approximately 50% of the projected intercompany purchase transactions for the next twelve months.  The Company uses this strategy for the purchases between Canada and the U.S., for purchases between the Euro zone and the U.S., and for purchases between the Euro zone and the United Kingdom.  The average volume of contracts can vary but generally approximates $10 to $12 million in open contracts at the end of any given quarter.  The Company accounts for the forward exchange contracts as an economic hedge.  Realized and unrealized gains and losses on the contracts are recognized in other (income) expense in the consolidated statement of operations. These contracts do not subject the Company to significant market risk from exchange movement because they offset gains and losses on the related foreign currency denominated transactions.

From time to time, the Company enters into contracts to limit the volatility associated with the purchase of metals, such as copper.  The Company typically structures the terms of these financial instruments to coincide with purchases made throughout the year.  During the quarter ended September 28, 2008, the Company entered into a series of copper swaps to fix the price per pound for copper from October 2008 through September 2009 for 1 million pounds to be delivered over 12 months for one customer.  The Company has determined that these copper swaps do not qualify for hedge accounting and accounts for these financial instruments as an economic hedge.  Therefore, any changes in the fair value of the copper swaps are recorded immediately in the consolidated statement of operations.  The Company believes that the use of swap contracts to fix the purchase price of copper allows the Company the ability to provide firm pricing to that one customer.  The Company does not enter into swap or forward contracts for speculative purposes.

The following table discloses the fair values of derivative instruments on the Company’s balance sheet as of June 28, 2009 (in millions):

13

Table of Contents

The following table discloses the impact of derivative instruments on the Company’s financial operations for the quarter ended June 28, 2009 (in millions):

The following table discloses the impact of derivative instruments on the Company’s financial operations for the six months ended June 28, 2009 (in millions):

Fair Value

The carrying amounts of cash and cash equivalents, short-term investments, trade receivables and trade payables approximate fair value because of the short maturity of these financial instruments.

The fair value of the Company’s 4.87% senior notes due 2010, 5.47% senior notes due 2013 and 5.85% senior notes due 2016 is based on a discounted cash flow model using like industrial companies, the Company’s credit metrics, the Company’s size, as well as, current market demand. The fair value of the Company’s variable rate debt approximates its carrying value. The carrying amount and the estimated fair market value of the Company’s long-term debt, including the current portion, are as follows:

5. Restructuring and Other Charges

The Company accounts for costs associated with restructuring activities in accordance with FAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities” (FAS No. 146).  The Company’s Board of Directors approves all major restructuring programs that involve the discontinuance of product lines or the shut down of facilities.  From time to time, the Company takes actions including involuntary terminations that are not part of an ongoing benefit arrangement.  The Company accounts for these costs in the period that the individual employees are notified or the liability is incurred.  These costs are included in restructuring and other charges in the Company’s consolidated statements of operations.  The Company also includes costs associated with immaterial asset impairments as part of other charges.

14

Table of Contents

During the second quarter and first six months of 2009, the Company recorded net pre-tax restructuring and other charges in its business segments totaling $0.8 million and $2.3 million, respectively, as follows:

The second-quarter charges include $0.8 million in restructuring expenses of which approximately $0.7 million relates to involuntary termination benefits incurred during the second quarter of 2009 which were not part of a previously announced restructuring plan.  The remaining costs related primarily to involuntary termination benefits incurred by the Europe segment associated with the 2007 actions described below.

The six-month charges include $2.0 million in restructuring expenses and $0.3 million other charges, principally for impairment charges for certain intangible assets.  Of the $2.0 million in restructuring costs, approximately $1.4 million relates to involuntary termination benefits incurred during the first six months of 2009 which were not part of a previously announced restructuring plan. The remaining costs related primarily to involuntary termination benefits and relocation expenses associated with the 2007 actions described below.  The North America segment incurred $0.5 million in involuntary termination benefits and relocation costs for the six month period ended June 28, 2009.  The remaining costs were incurred by the Europe segment for involuntary termination benefits.

During the first quarter of 2009, the Company also recorded a tax charge of $3.9 million related to previously realized tax benefits, which the Company expects will be recaptured as a result of the Company’s decision to restructure its operations in 2009.  This tax charge is part of the 2009 actions.

The following information outlines the Company’s current restructuring plans.

2007 Actions

During 2007, the Company undertook a review of certain product lines and its overall manufacturing capacity.  Based on that review, the Company initiated a global restructuring program that was approved by the Company’s Board of Directors on October 30, 2007. The Company also discontinued certain product lines.  This program includes the shutdown of five manufacturing facilities and the right-sizing of a sixth facility.  The restructuring program and charges for certain product line discontinuances will include pre-tax charges totaling approximately $12.9 million. Charges are primarily for severance ($4.3 million), relocation costs ($2.8 million) and other asset write-downs and expected net losses on asset disposals ($2.0 million) and will result in the elimination of approximately 330 positions worldwide. The product lines that were discontinued and accelerated depreciation resulted in a pre-tax charge of $4.3 million during 2007.  Total net after-tax charges for this program are expected to be approximately $9.4 million ($4.4 million non-cash), with costs being incurred through 2010.  The Company expects to spend approximately $13.4 million in capital expenditures to consolidate operations and will fund approximately $8.0 million of this amount through proceeds from the sale of buildings and other assets being disposed of as part of the restructuring program.  Annual cash savings, net of tax, are estimated to be $4.5 million, which are expected to be fully realized by the second half of 2010.

The following table presents the total estimated pre-tax charges to be incurred for the global restructuring program and product line discontinuances initiated in 2007 by the Company’s reportable segments: