Good day, ladies and gentlemen, and welcome to the Q2 2009 Watts Water Technologies Earnings Conference Call. My name is Anita, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator instructions). I would now like to turn the call over to Kenneth Lepage, General Counsel. Please proceed.

Thank you. Good afternoon and welcome to the Watts Water Technologies second quarter 2009 earnings conference call. On the call with me today are Pat O’Keefe, our President and Chief Executive Officer; and Bill McCartney, our Chief Financial Officer. Please be aware that any remarks we may make during today’s call about the company's future expectations, plans and prospects constitute forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various factors, including those discussed under the heading Risk Factors in our Annual Report on Form 10-K for the year-ended December 31st, 2008 and other reports we file from time to time with the SEC. In addition, forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any future date. While we may elect to update these forward-looking statements, we disclaim any obligation to do so and you should not rely on these statements as representing our views as of any date subsequent to today. During this call, we may refer to non-GAAP financial measures. These measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is available in the press release dated today’s date relating to our second quarter 2009 financial results, a copy of which may be found in the Investor Relations section of our website www.wattswater.com under the heading Press Release. I will now turn the presentation over to Pat and Bill. Pat O’Keefe: Thank you, Ken, and good afternoon everyone. Welcome to our second quarter conference call and thank you for joining us today. After my opening remarks,…

Okay, thank you, Pat. We will run down some of the details here. Looking at revenue in the quarter, we closed at $312 million, that’s a decline of $72 million or almost 19% versus last year, even though we were up $17 million from Q1. When you look at the $72 million or 19%, 16.5% was a decline from an organic standpoint, the foreign exchange rates, the weakening of the dollar caused us to have a negative growth of 4%. The inclusion of Blucher for a full quarter, as you may recall, we bought Blucher last year on June 1st, so now we have two extra months in Q2 this year that compares to almost 3%. And then as you also recall, in December of 2008, we disposed one of our business units in China, so that was worth $3 million or about 1% decline, because of that issue. Just looking at the earnings from a US GAAP standpoint, we reported a loss of $0.10 per share that includes the loss from TEAM which is included in discontinued operations. If you look at continuing ops, we are in $0.41 a share and then when you again look at continuing ops without the restructuring charges, we are in $0.42 a share. If you compare that to last year, $0.56 a share, so only 19% decline in revenue, our EPS declined 25%. Off that $0.42, if you compare that to the first quarter which we earned $0.23. So we’ve got a nice improvement from Q1 relative to the results from operation. North America, the revenue here $194 million, which has declined of about 17%. North America is where we saw the bulk of the increased revenue from Q1 and Q1 in North America we achieved a $178 million of revenue. But the…

(Operator instructions) Our first question comes from the line of Christopher Glynn of Oppenheimer. Please proceed. Christopher Glynn – Oppenheimer: Good afternoon. So the gross margin burst in a few years and sounds like you are guiding up sequentially, did I hear that correct?

We don’t provide guidance. We are explaining that the margin was up and why it was up. I mean if you look at the reasons we talked about the inclusion of Blucher and Blucher will be here for the foreseeable future and we will not buyback our Chinese business unit. Operating improvements at WPT are (inaudible) guys are doing a nice job and the cost reductions are holding. I mean it’s – and I don’t want to say we are giving guidance on that, but we do – we are pleased with our margin performance. Christopher Glynn – Oppenheimer: Okay. And just more talking about the directional trends, hopefully this can be taken outside the – straight I’d have asked for guidance. But directionally from the second quarter, you are seeing seasonality, it sounds like sequentially softening in the US non-res. But overall, what would you characterize the impact of the economy on seasonality you are seeing through the months? Pat O’Keefe: Christopher Glynn – Oppenheimer: The inventory is down nicely. Do you have a target inventory level or assuming sort of static business levels? Pat O’Keefe: Yes, we have inventory turns established for each and every one of our businesses. In terms of how they rollup, I don’t have that number in front of me. But we are expecting that continue to manage inventories very constructively throughout the year. Christopher Glynn – Oppenheimer: Okay. And last one, just the placement of the legal gains; you pick it as a reduction to SG&A?

Yes it is. Yes. Christopher Glynn – Oppenheimer: Okay. Thank you.

Thanks Chris.

Our next question comes from the line of Jeff Hammond of KeyBanc Capital Markets. Please proceed. Jeff Hammond – KeyBanc Capital Markets: Hi, good afternoon, guys.

Hi, Jeff. Pat O’Keefe: How you’re doing, Jeff? Jeff Hammond – KeyBanc Capital Markets: Pat, just back to your progression on the different markets, how should we think about this destocking impact or the abatement of destocking, is that – is that outweighed by underlying deterioration in non-res or is that positive delta 2Q to 3Q as it goes away? Pat O’Keefe: I see the non-res deterioration being a pretty strong factor as we go forward. I also see the OEM market in Europe being downward pressure on the OEM market in Europe, particularly when you look at it and trying to comparative basis quarter-to-quarter to last year. Jeff Hammond – KeyBanc Capital Markets: And is that the progression you saw through 2Q, whereas the quarter progressed, the declines accelerated? Pat O’Keefe: Pretty much so. Yes, in both the European OEM and the US non-res. Jeff Hammond – KeyBanc Capital Markets: Okay. And then – Pat O’Keefe: Jeff Hammond – KeyBanc Capital Markets: Okay. And then just on back to the gross margin discussion, you talked about kind of the two structural changes with Blucher and China, but I’d imagine certainly, maybe you get some additional absorption issues, but commodity sound like there are an incremental (inaudible). Can you just talk about price cost gap in 2Q and quantify maybe how much that – how much more of tail wind into 3Q, 4Q? Pat O’Keefe: Yes, I see the pricing being a little bit more favorable in Q3. And then at Q4, you’re going to start seeing it rollover on it again and you are going to see late in the quarter the material starting to rise. So we tend to be probably five months or so in arrears in terms of when copper and when our other raw materials run through our P&L. I would tell you in Europe, probably we are going to see similar that you will see some margin expansion during the third quarter and end in the fourth quarter, but softening as you get closer to the end of the year. Jeff Hammond – KeyBanc Capital Markets: Okay. And then just shifting gears, the China business is kind of been bouncing around, profitable, not profitable. I think with this divestiture, you show a small profit. Is that something you think is sustainable and how do you think of the long-term run rate of margins for that business? Pat O’Keefe: Yes, I don’t think we are done fixing China by any means. But I think we now have at a point where it’s more stable than it’s been in the past. So I think you probably see some stability there in terms of going forward. Jeff Hammond – KeyBanc Capital Markets: Okay. Thanks guys. Pat O’Keefe: Okay.

Our next question comes from the line of Mike Schneider with Robert W. Baird. Please proceed. Mike Schneider – Robert W. Baird: Good afternoon, guys. Maybe first just on the under absorption question, I think last quarter you quantified and ended about $8.5 million. You have a number billed this quarter as what you think under absorption cost is?

Yes, it’s going to be somewhere in the neighborhood of 7, 7.5, I guess less than Q1, but still a meaningful number for us. Mike Schneider – Robert W. Baird: And going into Q3, I presume as you have remedied the inventory situation more so that number will decline again. Pat O’Keefe: I mean as more of these end markets ended destocking continued with our inventories, things just reach a new equilibrium and that becomes less of an issue. But when you have sales declines of 16%, 17%, the issue does not go away. Mike Schneider – Robert W. Baird: Sure. Pat O’Keefe: And so, I think it’s a gradual – it’s a part where we would expect some gradual improvement there. Mike Schneider – Robert W. Baird: Okay. And then in Europe, the August and there were August holiday shutdowns, can you give us a sense of do you actually expect Europe to deteriorate further based on the holiday shutdowns, just what are you hearing from your OEMs in terms of their production schedules? Pat O’Keefe: You got to remember, Mike, the holiday shutdowns are an annual thing. So they did last year, they will do it this year and they will do it from now till time that I am still in the business. But typically what you see is, there is a lot pre-buying before they go on holiday and there is a lot of buying in anticipation where they place POs for delivery just after they have returned. So we are not – we are thinking that that’s probably a year-over-year factor will be negligible. Mike Schneider – Robert W. Baird: But I guess what I am referring to is like the US over Easter and Christmas, one would suspect that your OEM customers in Europe are going take 60 days off and not 30 days off this fall, what are you hearing from them?

Well most of the customers they are on in Q2 are on reduced work schedules already. But I don’t – we don’t see that that is going change during Q3. Pat O’Keefe: Yes. All the customers I’ve had contacts with my (inaudible) have been on furlough for most of May and most of June. And holiday season as you know begins here in July and August, so I think they’re probably going to use a different methodology to get hours out of the plan, but I don’t think it’s going to have a substantially different impact. Mike Schneider – Robert W. Baird: Okay. Then, switching to US retail, the revenue being flat sequentially seems to me to suggest there was no seasonality you have seen in the renovation market this spring, yet others are talking about I guess at least some seasonality in household products. Is there something unusual about rollouts or maybe products shelf space actually coming out that would explain why the sales were actually flat sequentially? Pat O’Keefe: I think number one – one thing about our retail is that we have talked about occasionally the (inaudible) Mike is that we have a little bit more choppy results, because we tend to do a lot of rollouts and what not. So there is no significant shelf space or anything like that that we are losing. But last year we had some significant rollouts in Q1 and Q1 with a hot water recirc pump. And this year, we are feeling the pinch more than normalizing because of the lower housing starts on that’s particularly on the tile distributors, not necessarily the big box guys, but on the tile guys that we sell some under floor heating equipments through that channel. Mike Schneider – Robert W. Baird: Okay. And because their – because the sales were flat sequentially, ordinarily retail sales I believe for you would be down sequentially in Q3. I guess what have you seen in July and what’s your understanding or modeling for Q3 retail.

I think Pat mentioned earlier that we think we are sort of at a static run rate I think the wording you used, right, for retail. Mike Schneider – Robert W. Baird: Even accounting for the seasonality in 3Q.

Yes. Mike Schneider – Robert W. Baird: Okay. And then those were the final question on materials. Gross margins as you said were up 220 basis points sequentially. What amounted materials contribute to that 220?

It would have been a small piece of it, Mike, because we didn’t really start getting the cheaper materials. Some of the divisions had cheaper materials running into the numbers starting in June. It wasn’t one of the major contributors. Mike Schneider – Robert W. Baird: Okay, thank you.

Okay.

Our next question comes from the line of Keith Hughes of SunTrust. Please proceed. Keith Hughes – SunTrust: Thank you. I was a little confused with some of your previous comments. If you look at your European residential focus products, did business get sequentially worse from the first to the second quarter?

Well, I mean Europe from Q1 into Q2 was flat. The – we did see more of a deterioration on the OEM business, Keith, which is really we are selling in some of that alternative energy space and it’s really we think a result of both the economy and these – this particular end markets doing an awful lot of destocking, because they just got ahead of themselves. The wholesale side was only down about 9%, which is going to be residential and commercial. Keith Hughes – SunTrust: Okay. All right, and final question, the corporate expense is not pretty significant year-over-year, besides just the cost cutting you have been working on, was there any other items in there?

That will you see the benefit of some of the favorable legal settlements that we’ve discussed. Keith Hughes – SunTrust: Okay. So it will be on that line. All right. Thank you.

Okay.

Our next question comes from the line of Michael Gaugler of Brean Murray and Carret. Michael Gaugler – Brean Murray and Carret: Good evening, every one. Pat O’Keefe: Hi Mike.

Hi Mike. Michael Gaugler – Brean Murray and Carret: Nice job on the quarter by the way. Pat O’Keefe: Thank you. Michael Gaugler – Brean Murray and Carret: Pat had mentioned in his opening remarks the pricing environment remains challenging and I have noticed that one of your key raw material cost copper business is steadily moving higher. I am wondering if you had any thoughts or perhaps any different strategies regarding copper particular going forward as your end markets recover hopefully sometime in 2010, perhaps maybe doing a little pre-buying or some type of hedging, because I would anticipate there is a raw material cost rise faster than your – or come before your ability to reprice? Pat O’Keefe: Yes, you are pretty much correct. The environment right now to get price increases is not very robust. So we – although in a quarter if you read in my comments, we had downward pricing pressure. But overall, when you look at Watts on a consolidated basis, I don’t think pricing pressure was a significant factor in this quarter. Now it’s going to become a problem as we go forward, because – and particularly copper has been rising for sometime and it is probably going to continue to rise. So we do have approximately a four-month hedge in terms of our natural buying patterns. But you are going to see – you are going to see some pressure later in the year on our margins as that higher cost raw material starts through our inventories in indoor cost of goods sold. As far as 2010 is concerned, I would have taken a look at that, but we don’t have – we not – haven’t developed a strategy with regard to that.

Pat O’Keefe: I think you are right by the way that you will see pricing pressure before you see the cost pressure with what you see pricing opportunity. Michael Gaugler – Brean Murray and Carret: Okay. Most of my questions have been answered. Again, thanks guys and nice quarter. Pat O’Keefe: Thank you.

Thank you.

Our next question comes from the line of Scott Graham of Ladenburg Thalmann. Please proceed. Scott Graham – Ladenburg Thalmann: Hi, good afternoon. Pat O’Keefe: Good afternoon. Hi, Scott. Scott Graham – Ladenburg Thalmann: A couple of questions on the gross margin which – that was a really good number and I am just wondering when you read off the benefits to gross margin in the quarter, Blucher, sale of China, operations improvements in China and cost reductions, should we look at that is sort of a tiering of kind of how the most important to least important or will you just put them out there? Pat O’Keefe: No, we will display them out there. They’re all important enough factors to mention, so we just thought we – we are not suggesting that one is more important and what has more of have an effective than other one. Scott Graham – Ladenburg Thalmann: Okay. But I am guessing though that cost reductions, because most of your strategies are due towards next year that might be a little less than the others or is that not right? Pat O’Keefe: Well, I would say that the operating improvement in China the guys that are working on are very important contributor and the cost reductions would be a little bit less, I would agree with that. And then the sale of that business unit is China was also important. Scott Graham – Ladenburg Thalmann: Okay. Pat O’Keefe: Adjustments probably are the lower before that we mentioned. Scott Graham – Ladenburg Thalmann: Right. Fair enough. And so if I look at your SG&A number, which on a year-over-year basis was obviously down a lot, how much would you say in SG&A was sort of structural cost versus the volume? Pat O’Keefe: $1.5 million net…

Our next question comes from the line of Michael Coleman of Sterne Agee. Please proceed. Michael Coleman – Sterne Agee: Hi, good afternoon, guys. Pat O’Keefe: Hi, Michael. Michael Coleman – Sterne Agee: Kind of you just answered this, but do you have an estimate for what that TWT business lost in the third quarter or the fourth quarter of last year?

I don’t have with me, but I would – the estimate would be approximately the sustained run rate as probably and maybe a little bit less than we saw in Q2. Michael Coleman – Sterne Agee: For both third and fourth quarter.

Right. Michael Coleman – Sterne Agee: Okay, great. And the tax rate either for the year or the back half of the year, what do you think?

I would use 33.5%. Michael Coleman – Sterne Agee: Okay, thanks.

Our next question comes from the line of Jim Foung of Gabelli & Company. Please proceed. Pat O’Keefe: Hi Jimmy. Jim Foung – Gabelli & Company: Hi, good quarter, guys. I guess it was just a couple of items. In terms of cost reductions, how much did you realize in the second quarter and how much would you anticipate in the second half of this year that will be incremental to the second quarter?

Well, I think we just spoke when we were speaking with Scott; we were in that neighborhood of about $6 million. Jim Foung – Gabelli & Company: Okay. In Q2, right?

In Q2. And we are not really forecasting an increase there for Q3 and Q4, but we are working on it and we are continuing to reduce our headcounts selectively. We have our factory managers focused on productivity and purchasing guys on cost reductions, material and so on. That’s not really guiding anyone from more than we’ve already done now. Jim Foung – Gabelli & Company: Okay. But you have more restructuring actions in place which you implement? Pat O’Keefe: We were working on a water restructuring project. A lot of them have been announced and others that we’re working on that are smaller and into the normal and ongoing in nature. So I mean that’s one of the things we do for living Jim is cut costs. Jim Foung – Gabelli & Company: We can’t do that too here. In terms of Blucher, did you get all the margin improvement in Q2, in Blucher or is there more incremental improvement coming in the second half of this year? Pat O’Keefe: Well we think that the issue of Blucher is that we do have margin improvement there versus last year. The issue with Blucher is that they are suffering from some decreased revenue just like the rest of our businesses. But in terms of the margin percentage where that Blucher is generating, we are pleased with that. Jim Foung – Gabelli & Company: Could you give us that percent? Pat O’Keefe: Well, their operating earnings are going to be somewhere around 15%. Jim Foung – Gabelli & Company: 15% okay. And you kind of reached that target in Q2? Pat O’Keefe: We are doing, yes. Jim Foung – Gabelli & Company: You’re doing that, okay. And then also lastly, the material costs, I guess and it’s giving us like your average cost of copper, because you work on kind of – you buy sporadically or irregularly. What was your average costs in Q2 for copper and where do you think it will be in Q3? Pat O’Keefe: About – hope $3 a ton. Jim Foung – Gabelli & Company: $3 a ton in Q2. Pat O’Keefe: Yes. And then as we get into Q2, it will be in the low $2 range. Jim Foung – Gabelli & Company: You mean Q3, right? Pat O’Keefe: Increasing in Q4. Jim Foung – Gabelli & Company: Okay. Low $2 in Q3. And then how much is in Q4? Pat O’Keefe: It will be probably close to 250 because this – the copper spot right now is 250. Jim Foung – Gabelli & Company: Okay, all right. And then – okay. And when do you think you will get back to the $3 range again? Pat O’Keefe: Well, you tell me when copper is going to be $3; the answer is four months later. Jim Foung – Gabelli & Company: All right, good. Okay, thanks very much. Pat O’Keefe: Okay, Jim.

Our next question comes from the line of Michael Roomberg of Boenning & Scattergood. Please proceed. Michael Roomberg – Boenning & Scattergood: Hi guys, good afternoon. Pat O’Keefe: Hello. Michael Roomberg – Boenning & Scattergood: Congrats on a little first three nice quarters given the environment. On the pricing side, I want to focus less on the cost of goods sold, want to zero in on the different channels that you guys sell through. Have you seen any specific pricing pressure during the quarter? Could you kind of walk us through the different channels that you sell through and give us some outlook on what you expect to see now that the price of copper has come down, whether or not that looks to be more – you love to see more – you expect to see more pushback from your customers? Pat O’Keefe: I don’t necessarily believe that cost of copper has come down. It’s starting to move back up. One of the reasons that I said that we didn’t have a significant issue with pricing in a quarter is because copper was in essence moving upward and customers are recognizing that asking for price increase is going to be responding whether no we can’t afford it given the cost of copper that’s coming at us. So we really to a certain extent we are getting pressure from competitors who are doing things to try to get some volume in the door. But in general, the response from the customers in general is that they recognize that copper is moving against all of us at this point in time. Michael Roomberg – Boenning & Scattergood: Right. Okay. Thank you.

(Operator instructions) Our next question comes from the line of Jamie Sullivan of RBC Capital Markets. Please proceed. Jamie Sullivan – RBC Capital Markets: Hi, good evening. Pat O’Keefe: Hello Jamie. Jamie Sullivan – RBC Capital Markets: Wondered if you could just remind us as with all of the restructuring that you have done what you expect the incremental savings and as you go into next year, where you expect that to be. Pat O’Keefe: The – what we have discussed in the past is that the restructuring programs that we have announced and that we are working on will generate $5 million after-tax savings and those will start to come into the number during early 2010. Jamie Sullivan – RBC Capital Markets: Okay. Great. And then you started a little bit about seeing some expedited orders from customers. Can you talk about any trends there? Has that stayed the same as they’re looking or vary of building inventory, if you can comment on that? Pat O’Keefe: I think in general, we are seeing that in both the North America and we’re seeing in Europe as well that the size of the orders are being reduced and then the number of times they are asking for shorter lead times, can we meet at shorter lead time is – I have mentioned in my opening comments specifically in Europe, but I think it’s also been true, we saw extensively in the second quarter in North America as well. It’s just an indicator – it’s a good indication to us when we are nearing the bottom in terms of the destocking process.

That’s why it’s so critical Jamie for us to have good fill rates and delivery rates with our customers, because when times are tough like this they depend on us for quick deliveries and we tend to get that business right way. Pat O’Keefe: I think that showed up in the second quarter with the – we did better than we expected partially because of the fact that we were from an operating point of view, delivering on a timely basis. Jamie Sullivan – RBC Capital Markets: Okay. Thanks. And if you could just comment I guess on the various stimulus packages around the world, if you are seeing any benefit in your businesses? Pat O’Keefe: The one in the US is hard to quantify, because there is so many limitations with regard to it, particularly they make America as the requirements of that part particular bill. But we are seeing and have continued to see stimulus bills in Europe, particularly with those that are tied to energy conservation that have been we have taken advantage of and we think that it’s not stopping us from having declines in revenue, but it’s probably a cushion underneath us so that we are – we would have saw deeper declines had we have not seen some of those programs in place, particularly in the OEM sector in Europe, where we make a lot of products for oil and manufacturers that are energy conservation related. Jamie Sullivan – RBC Capital Markets: Okay. And how about in China, are you seeing anything there? Pat O’Keefe: Not really. Nothing that’s actually benefiting us directly. Jamie Sullivan – RBC Capital Markets: Okay. All right, thanks. That’s all I had. Pat O’Keefe: Thank you.

With no further questions in queue, I would like to turn the call over to Pat O’Keefe for closing remarks. Please proceed, sir. Pat O’Keefe: Yes. I just want to take the opportunity to thank everybody for joining us today. Needless to say, this was a pretty positive quarter, one that exceeded our expectation and I look forward to seeing you on the call for the third quarter results in late October. Thank you.

Thank you.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a great day.