Welcome to the first quarter 2008 Watts Water Technologies earnings conference call. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Kenneth Lepage, Assistant General Counsel.

Before Pat and Bill begin their presentation, I want to inform you that various remarks they may make 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 31, 2007 filed with the SEC and other reports we file from time to time with the SEC. In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so and therefore, you should not rely on these statements as representing our views as of any date subsequent to today. I will now turn the presentation over to Pat and Bill. Patrick S. O’Keefe: Welcome to our Q1 conference call and thank you for your continued interest in Watts. Following my remarks, Bill McCartney, our CFO, will provide you with the financial highlights for the company in total and Bill will also discuss individual sector results. Then we will address your questions. Before we get into the quarterly results, I would like to briefly update you on a few important items. First regarding the progress on our restructuring program, in Q1 we took an additional pre-tax charge of approximately $1.3 million related to severance, relocation costs and asset write-downs. In the quarter, we announced to employees the rightsizing of our manufacturing facility in Italy. We continued with the move of our Chinese joint…

Looking at the quarter, first a couple of comments on the consolidated results and I’ll go into comments on the segments. As you see from the press release, revenue was down about $2 million at $344 million in the quarter. When you break that apart, organically we saw a decrease in revenue of $24 million, that’s 6.9%. The foreign exchange helped to offset that, which is a positive $17.8 million or 5.1% and that is primarily the Euro but we saw some favorable activity there from Canada and China as well. And then we had $4.1 million from the acquisition of TGI, which we acquired in November ‘07. We look at our earnings after taxes from continuing ops at $14.7, which is excluding restructuring charges and that’s a decrease of 27%. And that represents $0.39 a share compared to $0.52 a share last year, again excluding the restructuring charges. And as Pat mentioned, the buyback of our stock added $0.03 because of the fewer shares outstanding. In North America, the revenue closed out at $211 million. That’s a decrease of about 3% and again on a consolidated North American basis, organically we were down 6%. That is $13 million. The FX offset a little bit of that with a positive $2 million or 1% and again, the acquisition of TGI at $4 million or 2% and that brings us to a decline of $6.9 million or 3.2%. Now, we just take a look at the wholesale and the retail, which are inside of our North American operations. Wholesale closed out at $168 million, which is a decline of 2% but if you back out the acquisitions in the foreign exchange, organically wholesale was down about 5% overall or just about $9 million. And what we’re seeing inside of wholesale in…

(Operator Instructions) Your first question comes from Curtis Woodworth – JP Morgan. Curtis Woodworth – JP Morgan: Bill, when you look at the gross margins this quarter, excluding some of the one-time issues in China, they were essentially up year-on-year and I know it was maybe a little bit of an easier comp. But given some of the negative operating leverage that you saw, is it really just price gains that were able to offset that? Was there anything else in there?

Well, the issue really on the quarter, Curt, relative to the margin, is two main things happening there. One is the increased level of costs that we saw coming through because of our Chinese operations, the VAT and the foreign exchange rates and whatnot and then just the operating issues themselves in China that we just took as an expense in the quarter. Those are the two issues impacting us relative to the gross margin percentage. And we obviously had negative organic growth. So you don’t have any revenue growth to offset those issues. Curtis Woodworth – JP Morgan: Yes, that’s my idea, is that if you strip out some of those other cost items that your North American and European businesses would have been up year-on-year despite negative operating leverage for North America,

If you at look at year-over-year, you’re right. But we’re really focused on comparing ourselves to fourth quarter because if you look at that, we have a decline in the margin in North America, which is our major concern. And remember last year, we had the first quarter, the margin was less than it had been in the prior quarters and we told everyone that we were going to have sequential improvement throughout the year, which we did and that’s through cost reduction and managing our pricing. And so we’re not so much concerned relative to the comparison to last year as we are concerned about the comparison to fourth quarter. The fourth quarter was an all-time high gross margin during the year. It was probably little bit too high. It’s maybe not sustainable but we do have to and we are working on improving the margin going forward relative to the fourth quarter with all these Lean initiatives and whatnot. Curtis Woodworth – JP Morgan: So given some of the one-time cost issues this quarter, is it fair to say you think that this would be more of the trough margin rate for the year for the company?

Well, I think as Pat mentioned in his remarks that, that those issues in China, it’s going to take us another quarter to settle them down or to see them start to improve. So we don’t want to give the impression that you are going to see big improvement in Q2 because these issues in China just go away. It’s going to take us at least a quarter to sort them out. These are probably trough margins but not necessarily one quarter. Curtis Woodworth – JP Morgan: In terms of the copper and resin exposure, some of the incremental costs you’re seeing for that. What is your thinking around getting price increases to offset that? Can you remind us what that total spend is for you? Patrick S. O’Keefe: Yes, Curt, it’s quite clear that you have a number of raw materials that are escalating. We all know where oil is, we know that copper is on the rise, we know that stainless steel is on the rise, we know that cast and malleable iron are on the rise. So we clearly have to take initiative for further price increases throughout the year to make sure that we cover those escalating raw material costs. Curtis Woodworth – JP Morgan: But do you feel that you’ll be behind the curve near term? Or do you feel that given you cycle through your inventory, I think it’s five to six months, that you will have enough time then to get price. So basically, are there any near-term margin implications that we should be concerned about?

I think that those items are going hit us more in the third quarter; we’ll see a little bit of impact probably in the second but mostly in the third quarter by the time those higher metal prices start actually going into cost of goods sold for us. So we will have time to address pricing issues before those hit us. Patrick S. O’Keefe: Assuming the market participants cooperate.

Yes, that’s right.

Your next question comes from Jeff Hammond - KeyBanc Capital Markets.

To focus on these China issues, it looks like you had about a $3 to $4 million hit this quarter from these temporary issues. Can you parse that out between the weather issues that go away and what lingers and then also give us your confidence level that the other two issues are indeed resolved by the end of the second quarter?

In terms of the impact, the weather issue was the smallest. The weather issue had more of an impact on the top line than the bottom line because it’s a very well run plant and they were able to control their expenses and react to the decline in the revenue relatively quickly. So the more severe impact on the bottom line was from the other two issues, the plant relocation and the labor dispute. The plant relocation would add the most impact, followed by the labor issue in southern China. So we think unless there’s another major weather catastrophe that issue probably goes away and that helps the top line and the bottom line a little bit. And the other two issues will take as Pat mentioned again, it will take the second quarter to sort through those.

So you are pretty confident that it’s a two-quarter impact with the other two issues? And maybe that if it was $3.5 million this quarter, it is just nominally lower in the second quarter?

That’s your forecast. We don’t give guidance but we’re trying to explain to you.

You mentioned the big drop in the gross margin sequentially and you’ve talked about some different issues, inflation in China, value-add tax. Can you help me understand how much of some of the one-time issues exacerbated that or is that a completely separate issue?

I view that as a separate issue, because those are ongoing costs that we need to address versus the temporary issues which you see in the China segment.

And why do you think that that was such a huge swing in such a short period of time?

Well, it’s how our costs, it takes five to six months to come through. And lots of those issues were changing during the third quarter of last year and you also have an impact of mix where a lot of those products are wholesale products. Some of our smaller bronze devices that go into wholesale and we had a stronger mix towards wholesale in the first quarter.

So, have you have been taking actions to resize or the cost footprint as you have seen these coming for two quarters or is that something you need to go on a go forward basis?

We’ve been doing an awful lot, I think, on the cost side but it’s going to take a while for it to come through. We’ve been upgrading a lot of our manufacturing folks. We’ve been very, very active on the sourcing side both in China and in the U.S., looking at the footprint issue as well. But that is something you don’t turn around in a quarter.

So, at what point do you start to maybe rethink how much you have coming from China versus what you are you just sourcing in the U.S.? Obviously the supply chain gets stretched with the China strategy. Patrick S. O’Keefe: Some of your make by analysis are already indicating that certain products that were marginal can be manufactured in North America as cost effectively as they can in China. So you are starting to see a reversal of some of the economics here.

Have you announced or are you contemplating any further price increases? Patrick S. O’Keefe: We have to have further price increases. We have announced some price increases that were announced in January of this year. We have others that are planned but the timing of them is different. They are all driven by really escalating raw material costs. So I think quite honestly, there is a need for additional price increases just to cover the cost increases we’re seeing in the market and we think those cost increases are sustainable.

What do you think the order of magnitude of those increases is? Patrick S. O’Keefe: You’re talking anywhere, believe it or not, in cast iron and malleable iron; you are talking 30-some percent down to teens in terms of some of the other raw materials.

And you think in the environment you’re seeing, you think that you can pass those through? Patrick S. O’Keefe: I think they are going to impact us as well as all of our competition in a similar fashion. So I think it may take a while to push them through, but I think they inevitably have to go through because they impact all of us to the same extent.

Your next question comes from Brian Jones – RBC Capital Markets. Brian Jones – RBC Capital Markets : Could you walk us through how Blucher is tracking today relative to where it was when management last had the conference call and how it might be responding to a slower European economic environment? Patrick S. O’Keefe: Well, first of all we haven’t closed on Blucher, so we can’t disclose financial results of an acquisition that hasn’t closed. Brian Jones – RBC Capital Markets : But you have to be tracking like the LTM results or be getting updates from the company as you finish diligence? Patrick S. O’Keefe: Yes, we are getting updates from the company, but I don’t think at this point in time we’d choose to disclose them. Brian Jones – RBC Capital Markets : Is there any material change to maybe the growth outlook for that environment or that company as Europe slows down? Patrick S. O’Keefe: We’re going to have to pass on answering that question. It’s a similar question to what you just asked. Brian Jones – RBC Capital Markets : CapEx for the quarter, maybe I missed this?

$8.3. Brian Jones – RBC Capital Markets : On your balance sheet, the $15 million in long-term investment securities, is that your auction rate exposure?

Yes, it is. We have $15 million of auction rate securities, which we have classified as a long-term investment this quarter.

Your next question comes from Mike Schneider - Robert W. Baird.

On the pricing issue again, so you’re going out with another round. I am wondering if you could look back to the January price increases. What was your net realization on those and was it lower or higher than you had been running in 2007?

Well, I think the January ones, Mike, were very selective, and to be honest, I didn’t hear that they were not effective at this point in time.

So you’ve not noticed any particular degradation on your ability or in your ability to realize price at this point and I ask because the magnitude of what presumably is needed now around mid-year has got to have risen significantly. And couple that with a market that by your comments is weakening both in Europe and the United States, I think we’re trying to understand what is the efficacy of that next round of pricing going to be? Patrick S. O’Keefe: We don’t really know until we go out with it, Mike. So it’d be hard to give you a forecast. You understand the issue, which is you’re going out with cost driven price increases that are absolutely necessary in order to maintain any reasonable integrity in your margins. But you have soft environment that you’re going out in and it all depends on how the customers react to those price increases and even more importantly, how your competitors are impacted by the same cost increases.

So any prediction about your net realization, Pat? You sound more cautious, but in the past you have been extremely successful in getting price. Is there something new or different that you would point to suggest that you may not be as successful this time or is it just the backdrop of a weaker market? Patrick S. O’Keefe: It’s basically the backdrop of a weaker market.

When you go to some of your larger DIY customers and wholesalers, have there been any additional lines or product lines that you’ve targeted for pruning if you will, or where there is serious discussions and disagreements over pricing going forward? Patrick S. O’Keefe: Nothing material, Mike.

Europe specifically, margins flat year-over-year at 31.5% is pretty impressive and actually up sequentially, even on a 7% organic decline. Bill, maybe you can give us just some color on how you did it and what’s different about Europe versus the U.S.?

Yes, in the quarter, we had a little bit of a favorable mix towards wholesale and away from OEM. But I think what is really happening there, Mike, is that the people in Europe, I give them very high marks in terms of packaging the product. We are not just selling widgets, we’re going upscale, we are selling lot more control packages, and there is a lot more engineering content to our products. We are bundling products together into a little bit more of a systems approach. We are focused on energy savings and conservation, etc. So they’ve done a very nice job in repositioning the company and their product portfolio, if you will.

And the weakness that you cited in boilers specifically in Europe, that was a source of significant growth over the last couple of years. Is it a case where you’ve just taken the share, all the share there is to take or most of it? Or is it indeed this energy conservation trend towards solar and other alternatives? Patrick S. O’Keefe: I think it’s a longer-term trend, Mike.

And do boilers alone explain most of the 7% decline in Europe or was it fairly widespread?

It would be boilers, but I think you’re also seeing some weakness in some of the end markets, particularly like in Eastern Europe, as they start to feel the impact from the soft German economy in particular. Market weakness and a technology change, if you will.

And then in the North American wholesale market, it was down 5% organically, I believe. The trend line through the quarter, I’m just curious if this was a March inventory de-stocking or adjustment by your distributors or did you see fundamental trends deteriorate through the quarter? Patrick S. O’Keefe: It was a pretty steady drumbeat throughout the quarter, Mike.

Your next question comes from Kevin Maczka - BB&T Capital Markets. Kevin Maczka - BB&T Capital Markets: I was thinking that the first quarter might be your low water mark in terms of total revenues. But given your macro commentary, it sounds like getting worse both domestically and in Europe. I know you don’t give guidance on the top line, but can you comment might that first quarter be more of a high water mark instead of a low water mark if these macro economies are getting so much worse?

If you’re looking in a normal year, the second and third quarter tend to be a little bit higher than the first and fourth just because of seasonality around irrigation and construction in the spring and then the heating season in the fall. Whether that’s going to be different this year remains to be seen but we are concerned around some of the trends that we are started to see in the first quarter. Kevin Maczka - BB&T Capital Markets: I’m wondering what a more normal growth rate is in China once you ex out the weather and all the disruptions you had there, it seems like everything and nearly every industry grows double-digits in China. But you mentioned that a lot of your business is exported back to the U.S., back to Europe. What is a more normal-type growth rate for your China business?

I think if you look at the infrastructure business that we have there, you’re talking growth rates that are sustainable of 20% to 25%. But we did mention that a lot of the activity comes back to the States, but that does not show up as trade revenue in China. That’s inter-company revenue, which we don’t show on the segments. But it does impact the profitability if we decrease the production levels in China because of lower demand from the States. You wind up having absorption variances and what not. But the infrastructure market in China is still very strong. We are very committed to it. And we see that as a long-term growth opportunity. It just happens to be a small part of the business. Patrick S. O’Keefe: Ranging in the 20%-plus opportunity. Kevin Maczka - BB&T Capital Markets: Bill, as you look at your portfolio of products, is that where you want it now or is there still some culling of underperforming products or businesses to take place yet?

We don’t have any plans for any major change-outs right now. Patrick S. O’Keefe: We periodically look at our product lines though and I think in an environment like we are operating in today, we probably need to go back and take a look at some of those.

Your next question comes from Francesca McCann - Stanford Group.

In terms of the pricing pass-throughs, how successful have those been and where do you anticipate those for Europe specifically? Patrick S. O’Keefe: If you look at the history, which has taken place over really the last four or so years, I’m not saying any of them are easy, but we’ve been effective in passing through some pretty aggressive price-based adjustments based on cost as the driver. And I think our customer base is pretty aware of what’s going on with copper, they are very aware of what’s going on with oil, very aware of what’s going on with stainless steel. So I would anticipate with the exception of the fact that your end markets are slowing down, that we would have a pretty good shot at pushing those through because everyone is aware of what the cause of them is. We’re not trying to improve our margins or anything else. We’re just trying to pass through cost increases that are materially based. And secondly, they do impact you and your competitors at about the same rate. Even if they’ve got a small advantage, it’s temporary.

Also looking at some of the new products that you are introducing in Europe, can you discuss a little bit what legislation or what tax incentives support those product lines?

Francesca, it’s all over the board there. Every country is different. Some countries are actually outlawing gas-fired boilers. Some countries are providing incentives around tax rebates when you file your tax returns. It’s all over the place. But generally speaking, it’s a much more supportive environment in Europe than you see in the States around either legislation and/or incentives.

So would you say then, that all or most of your new products there are directly driven by legislation or some type of tax benefits? Patrick S. O’Keefe: They are more driven by energy conservation.

We are saying that we’ve been successful because we’ve been transitioning the product line towards these conservation and more engineering content in our product line and we’ve been, we think, beating their overall trends in Europe. It doesn’t mean that all of our products are like this. We still sell some potable water products and traditional plumbing products that have nothing to do with this. But because we’ve been transitioning the product line we’re doing better than the general trend in Europe. Patrick S. O’Keefe: Francesca, there are two trends that have helped us in terms of our new product development in Europe. One is to package components into a system, where you make the installation of a system much easier and you can do it with a plumber’s apprentice versus a full-scaled plumber. So one is, I would consider the theme to be ease of installation. The other one is energy conservation, which is driven by a movement away from floor-based traditional gas and oil-fired burners to alternative under-the-floor heating systems, solar heating systems and things like that. So I think really the trend is ease of installation and energy conservation are the two drivers.

And then still on the European market, what signs do you see that show that the Northern European countries and your new market with the acquisition is somehow more resilient to the slowdown that we have seen spreading and spreading into Eastern Europe? Patrick S. O’Keefe: Only thing we could talk about is we have seen softness in Germany, we have seen some softness in Italy, we have seen some softness in Southern Europe, but we haven’t seen the same softness in the other economies.

And then share repurchase plans moving forward? Patrick S. O’Keefe: Yes, you see that in the quarter we didn’t buy very many shares back. We basically reserved our cash for the acquisition of Blucher. So we are sitting down now to evaluate where we’re going. But our feeling is, is that we would reserve our stock repurchase for repurchases at more attractive prices than we have seen. So really I think we still have, we have a program out there but we have chosen not to buy at high levels. Remember, our first priority is acquisitions for our use of cash.

Your next question comes from Christopher Glynn - Oppenheimer.

Just in terms of the China-North America interplay and the reported trade revenues wouldn’t be impacted in China by the North America weakness, but the margins would because the absorption in some of the products in the same factory as the domestic sales is that right?

Yes, in some cases that is true. We have about five factories or so in China. Some are captive that just produce product back to the United States and if they produce it at a normalized level of capacity, then there is no manufacturing variances. But if we take them below their normalized capacity levels according to the accounting rules, we have to expense the absorption variances. So that would impact the margin in China when we do that. Some of the factories are mixed where we are selling into the domestic Chinese markets and bringing it back to the States. So you have both situations.

So the captive markets, those absorption variances are reflected in the North American margins, I take it?

Now, they’d be reflected in the China segment when they occur.

So they are not really matched with the revenues then?

Well, they’re matched in the segment in which they occur. So they are not matching the North American revenues, though, you are right.

Maybe another angle on the pricing versus the end market, it looks like maybe price was a little stronger in the fourth quarter than it was in the first, is that fair?

Well, I think our unit pricing basically held up from fourth to first for the most part. If you’re looking at changes in the margin here, it’s because of these operating issues and the decline in volume. There’s a little bit of mix going on there, but.

Do you have a more specific figure on what the price was in Europe?

It’s difficult for us to get around that because there is so many business units in Europe, in different countries and the price increases are very selective over there. So, it’s difficult to come up with a meaningful disclosure there.

Your next question comes from Ned Armstrong - FBR Capital Markets.

In your introductory remarks, you had mentioned a number of different operating initiatives you were pursuing. Can you just talk a little bit about the benefits that you hope to get from those initiatives in terms of points and margin inventory turns and the type of timeframe that you anticipate they will be realized over? And I understand you can’t be precise, but if you could just give us some good directional information, I think that would be helpful. Patrick S. O’Keefe: Yes. The programs you’re referring to are, one, we’re focused on maximizing our cash flow and the second one is we’re clearly focused on operational efficiencies and productivity improvement, trying to inoculate the organization with Lean fixing techniques. Our gut reaction is that these programs will probably pay for themselves in 2008 and will have ongoing benefits in 2009. I don’t have real hard numbers for you, but I think it’s quite clear that we have a nice opportunity to work on these programs and improve the organization’s operating efficiencies long-term as well as near-term.

Now, are you thinking as far as in terms of maybe 100 to 200 basis points over the next couple of years or something significantly more or maybe less?

Ned, if you are in a world-class manufacturing company, you should be able to get a couple of hundred basis points out of your cost of goods on an annual basis. The question is how long will take us to get to that level? We don’t know yet but we’re putting an awful lot of emphasis on this and upgrading our management. That is sponsoring and requiring all of our manufacturing people and even the administrative people and whatnot, everyone is going to these Lean training and Six Sigma training sessions and we’re putting a lot of resource into it as well as upgrading a lot of our strategic sourcing personal to help us on that side as well. So we’re trying to attack it from all levels, looking at sourcing, manufacturing. We’re also looking at our distribution expenses, how we can take cost out of that, that’s a big operation for us at this point in time. So we are upgrading all of these with new management, with additional resources, training, etc.

From the acquisition perspective, clearly it would seem that the universal companies that you’re looking at as acquisition candidates are feeling the same type of pressures that you are in the European and American markets. Have you seen that translate to multiples yet and has that weakness resulted in sellers maybe pulling in their horns a little bit and waiting for a recovery, whenever that may come. Patrick S. O’Keefe: Yes, in my opening comments, I talked about that a little bit. We have seen some nice properties come to market in Europe and I think at fairly okay multiples in terms of numbers that can make sense from the economic models that we run. We run the same economic model on every deal we do. I think in the U.S., we see the market, if anyone was exposed to the residential market; it’s probably deferring taking their property to market any time soon. We’re hoping to see some pickup in the second half of the year. But right at the moment, there is very few properties up for sale.

With respect to Europe, any countries stand out as being especially resilient or particularly weak in the current environment? Patrick S. O’Keefe: Yes. I think we’ve said this, but we’ve seen softness particularly in Germany and dropping down into Italy. I’m a little bit concerned too because you also have another issue which we are dealing with it at the moment which is the pound sterling is dropping versus the Euro, so that you need to the extent that you manufacture products in Euro-based plants, you have price increases that need to take place to recover the changes in the currency in the U.K. So my gut reaction is you will probably see a little bit of sluggishness in the U.K. going forward.

And you haven’t really seen any country that’s been particular resilient to the forces at work over there? Patrick S. O’Keefe: Not really, to be honest with you. I think there is nobody standing out as being totally resistant. I think you see just a general slowing down.

Your last question comes from Ryan Connors - Boenning & Scattergood. Ryan Connors - Boenning & Scattergood: Obviously we are in a very difficult environment right now in terms of the point that we’re at in the cycle. And given that both of you have been through down cycles in this industry before, I thought it would be valuable to get your perspective on how this cycle compares with past down cycles and economic cycles and construction downturns that you’ve been through. And in particular, are we in an environment here that’s a whole lot worse than what you’ve seen in the past or is this par for the course for what you would expect to be seeing at this point in the cycle? Patrick S. O’Keefe: Well, let’s just talk about when you had down cycles that were significant. You had a cycle in the early ‘80s, which was quite severe. You had another down cycle that took place in I’d call it 1990, ‘91, ‘92 timeframe and probably closer to ‘92. And both of those were pretty severe. You remember in the early ‘80s, you had high interest rates driving housing markets down to very low levels. And so I think this is little bit different in that this is caused by liquidity issues in terms of credit availability. And our objective is quite honestly when you think about the initiative that we’ve already discussed in my opening comments and on the answers to some of these questions, we’re focused on maximizing our position in terms of driving unnecessary costs out of the business, maximizing cash flow with the intention of coming out of this down turn a stronger company than we went into it. So when you look at all the initiatives, that are really what they’re trying to do, you are trying to build yourself into a world-class organization, despite the fact that your end markets are tough. So a lot of our initiatives are focused on cost reduction and focused on cash generation.

There are no further questions. Patrick S. O’Keefe: Thank you everybody for joining us today. We look forward to talking with you at the end of our second quarter, which will probably be the end of July. We will have that scheduled here shortly. So thank you for joining us and thank you for your continued support of Watts.