Good day, ladies and gentlemen, and welcome to the second quarter 2008 Watts Water Technologies Earnings Call. My name is Schinel, and I will be your coordinator for today. (Operator Instructions) I would now like to turn the presentation over to your host for today's conference, Mr. Kenneth R. Lepage, Assistant General Counsel. Please proceed.

Thank you. Before Pat and Bill begin, I want to let you know that various remarks they may make about the company's future expectation, 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 most recent annual report on Form 10-K for the year ended December 31st, 2007, and other reports we file from time to time with the Securities and Exchange Commission. 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. 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.

Thank you, Ken, and good afternoon, everyone. Welcome to the second quarter conference call and thank you for your continued interest in Watts Water Technologies. Following my remarks, Bill McCartney, our CFO, will provide you with financial highlights for the company in total, and Bill will also cover individual sector results. Then, we will answer any questions you may have. Before we get into the quarterly results, I would like to briefly update you on a few important items; first, regarding the progress in our restructuring program. In Q2, we took an additional pre-tax charge of approximately $1 million related to severance and relocation cost. In the quarter, we finalized the move of our Chinese joint venture operations whose physical plant was taken over by eminent domain. This move will ultimately reduce headcount and improve our manufacturing efficiency. We will speak to China separately in a few minutes when we discuss our outlook. In general, we are on target regarding the timing and implementation of various restructuring programs in the U.S. and China. Our European management team is reconsidering the details of this restructuring program which will cause a delay in both the timing and cost incurred and the expected savings to be realized. We now expect savings in 2008 from the restructuring exercise will approximately $500,000 pre-tax. This amount is $400,000 lower than discussed previously, again with most of the savings being realized in the second half of 2008. With regard to the Chinese joint venture purchase, in June, we paid approximately $3.3 million for our partner's interest. There is a conditional $2.2 million that may be owed to our former joint venture partners, but only upon one partner meeting certain terms and conditions of the purchase agreement. As we have mentioned before, having this operation fully under the…

Okay. Thank you, Pat. First of all, just to note that the figures that we released today on our press release are consistent with the pre-release that we had a week ago, Friday. As I go through the results here, I would like to comment both on a comparison basis to Q2 2007 as well as to Q1 of 2008 just to give you a feel for where we experienced some of the improvements. So, here we go. Revenue, $389 million, was up 11% versus Q2 last year, and we picked up $45 million of revenue versus Q1. As we go through the segments, I will point out in each area the reasons for the improved revenue. When you look at the overall revenue, though, organically, we grew $5.7 million or 1.6% from foreign exchange, primarily the euro. We picked up $20 million or just about 6%. From acquisitions, we picked up $12 million, 3.5%. Those are the acquisitions of TGI and Blücher. So, that totals $39 million. What I would like to do now is just to take a look at our overall, we call, reconciliation to our earnings per share, both to last year and to Q1. When we look at last year's second quarter, we had $0.46 EPS, which excludes our restructuring charges. As we row forward into Q2 this year, we pick up $0.03 because of our buyback. We picked up $0.05 because of the foreign exchange rates, the euro strengthening relative to the dollar. In Q2 of this year, we had some favorable result in our tax line due to a change in some of the Italian tax law and a favorable result on a state tax audit here in the United States. So, that is $0.03 there. Then we lost $0.01 from Blücher. We…

(Operator Instructions) Your first question comes from line of Mike Schneider of Robert Baird. Please proceed.

Good afternoon.

Hi, Michael, how are you doing?

Good. Pat, maybe first just on your opening comments about some of the European restructuring being rethought. I think you use your word. Could you explain what is changed there and again run through the math as to the savings delay, or push-out?

We are rethinking some of the restructuring mostly in terms of the timing of it. It is mostly delayed because of the fact that I mentioned later in my comment that we were hiring a new manager for one of our operations, the French operation. They want to make sure that he or she whoever comes on Board is completely behind that program and is brought into it. So, that is really what it is, more of a delay, Mike, than a change in the program.

You had done modeling, 4,000 of the savings gets pushed from '08 to '09?

That is right.

That is correct.

Okay. Then just in the domestic wholesale channel, if I recall last quarter, the volumes in U.S. wholesale were down about 10% in Q1. In Q2, it looks they were probably down mid single digits. Any change in distributor tone or restocking, destocking or just in product mix or strength that occurred during Q2 to explain the less negative results?

Yes, it is quite clear, Mike, what was going on. In Q1 and for the first half of Q2, we still had destocking going on. They were selling off their inventory and bringing their inventory levels down. Apparently, they went too far, because we saw both on the retail side and on the wholesale side, the last 45 days of the quarter are very strong import that continued right through the end of the quarter. Now, I think that is a reflection of the fact that activity was not as low as they anticipated it, going into the summer months. So, the question that we are struggling with now is where we see that continue into the third quarter. We do not really know at this point. We also do not know what they are going to do as they get toward the end of that quarter. Whether there is a restocking in anticipation of a strong fall, it depends I think a little bit on what the basic activity is at the contractor level. The one thing I would say, Mike, this is a really unusual year. The main patterns defy history and now they are much more erratic.

Sure.

That is what you saw. I think our internal forecasts for the first half of the year were accurate, but they were inaccurate depending upon if you measure them by quarter or measure them by month.

Sure. Then just in Europe, the strength in the solar and geothermal type products led to growth. Are you able to discern what Europe did, or what the trend was in Europe through the quarter if you back out those types of products?

Well, we were on a path, Mike. If you look at Q1, okay, before we had the surge in oil, we were down 7%. Going into the first half of Q2, we were thinking we were flat on that a trend. We wound up being positive by 5 points in the whole quarter and that surge of orders really started occurring in the second half of the quarter.

Okay. So…

They are continuing into the third quarter as well, Mike.

Can you describe these type of products, what are the typical applications, what type of systems, who are the customers, and specifically, is this a channel fill going on or an inventory build by some of these OEMs and just really what the sustainability of this trend is if we assume crude stays where it is?

Yes, these are sub-component systems that go into basically solar application and condensing boilers. Condensing boiler is a more efficient boiler, Mike, and a solar is an alternative energy package. We also make a number of units that measure the thermal heat usage by individual apartment, apartment by apartment. So, you might have centralized heating system for a large multi-storey apartment building, but you want a factor reported cash register on every individual apartment to measure the energy use in that apartment. So, those are the type of products that these are.

In terms of like a channel fill or inventory stocking by the OEMs, can you detect where they are in this process?

Well, I think, Mike, they are anticipating a strong fall selling season, because I think they expect their people to upgrade their existing heating system to put in a more energy efficient or alternative energy system. This is anticipated demand that will be sold primarily in the third and fourth quarter.

This has cannibalized other products you have got?

Not really, no.

Okay. Thank you.

Your next question comes from the line of Kevin Maczka of [BB&T] Capital Markets. Kevin Maczka - BB&T Capital Markets: Hi, Pat and Bill.

Hi, there.

Hi. How you are doing? Kevin Maczka - BB&T Capital Markets: Just a question on the raw material side. I think we said last quarter that you were expecting a little bit bigger hit in Q3 then what you thought you would see in Q2. Is that still your expectation? You always get the question about the whole price cost relationship. Can you just give a little bit more color on where you stand there?

Yes, that statement we still hold by that. What we are seeing is increases in plastic resins because of the oil, and we are seeing increases in cast iron, a little bit on the copper side as well, but mostly driven by cast iron and plastics. We are going out with a price increase which will be effective for our major business units towards the middle of September. So, we will see a little bit of unfavorable hit on the margin in Q3 because of material. Then, if we are successful with the price increase, we expect to offset that for Q4. Kevin Maczka - BB&T Capital Markets: Okay. Pat, just going back to your comments on the outlook in Europe, I was a little bit confused. I think you were talking about the surge in oil potentially benefiting some of these energy conservation products that you are rolling out, but you had, of course, the slowing economy in general as a negative. So, how do we reconcile that again?

I am pretty bullish on the second half of the year in Europe. I am concerned as we go into 2009, okay? I think the demand that we are seeing here in the second quarter is going to continue at least through the third quarter and probably into the fourth quarter. Where I am concerned is, is what happens as we go into 2009, because there are a lot of issues in Europe similar to what we are seeing in North America in terms of the economic slowdown. Kevin Maczka - BB&T Capital Markets: Okay. Finally, one more quick one if I could. The energy products, can you talk about what percent of your mix in Europe those represent today?

About half our business in Europe, Kevin, is heating. Okay? I will say half of it is OEM, okay? These are selling heating products into the large pressure vessels, boiler and water heater manufacturers. They have been going through a transition over the last couple of years, transitioning from gas side appliances to solar and what not, these alternative energy technologies. Their base businesses on gas side has been declining anywhere from 25% to 30% per year for the last two years or so. However, what we saw in this quarter was when oil really hitting an all time high, I think like $140 a barrel, what we call the point of pain, where people really got up and took notice. Like $4 a gallon in gas is very painful for the people in the U.S. so they started changing their behavior. What feels like $140 a barrel is the point of pain in Europe for these heating products? So, it is a major part of our business and it is being going through quite a transition over the last couple of years. Kevin Maczka - BB&T Capital Markets: Okay, great. Thank you.

Your next question comes from the line of Ned Armstrong of FBR Capital Markets.

Thank you. Good afternoon.

Hi, Ned, how are you?

Good, good. To the degree that you can, can you talk about the commercial markets in the U.S. by type of structure, be it office, hotel, retail? Are you able to differentiate any patterns there as to whether one is any worse and the other are not?

Let me just make some general comments, and then you can look at the Dodge reports, and this will help you. However, Watts is generally beneficial when there is a high occupancy rate in a facility and particularly high occupancy with high sanitary concentration of sanitary processes. So, if you were to look at the Dodge reports, Watts' best is something like a doctor's office or a nursing home or a hospital with a lot of beds and a lot of sanitary function in them. You think of hotels being the same way. We hate warehouse space and those things. So, if you look at the Dodge report, I do not have them available at the moment, but you want to look at those areas where healthcare is a good one, hospitality industry is a good one, office space is a good one for us, prisons are good ones for us. When you get to manufacturing and industrial space, very much discounted.

Okay. Bill, on the tax benefits that you alluded to, do you know what the impact of each one separately? Is that possible to break out?

I can tell you if you like. The one in Italy was 330,000 euros. In the United States, it was $430,000.

Okay. Then, what was share count at the end of the quarter?

Hold on. I will give it to you. One second. It should have been on the press release, Ned. Let me just see it. I think I have it here. 36.8 million.

That was at the end of the quarter?

Yes.

Okay, good. Thank you.

Okay.

Your next question comes from the line of Christopher Glynn of Oppenheimer.

Hi. Thank you.

Hi, Chris.

Hi. So, Around the solar geothermal in Europe, you gave a breakdown of the segment in terms of the half heating, half OEM. My impression is that the solar geothermal energy related things crust over both of those pieces. Can you resize that to your current mix?

Well, I think what we were saying is that approximately half our business in Europe is OEM. It has a about 45% wholesale and about 5% do-it-yourself. This OEM business is the large boiler manufacturers that are incorporating all these products into their units in their systems. Okay? So, the OEM is primarily a heating-oriented business, i.e., heat water. The wholesale side is both plumbing and the replacement business for heating as well. We do not see that geothermal solar on the wholesale side, because it is still relatively new in the replacement business, really has not built up in there yet.

Okay. On the OEM side, it is the majority now?

It is a significant portion of the OEM business. I do not want to say it is the majority.

Okay. In North America, it really bifurcates through the first half of the quarter and the second half of the quarter. In terms of sell-through, do you think that averages out to what the appropriate sell-through is, just going from destocking to over-compensating?

I would say that is a fair representation of what we saw overall.

Okay. So, although it is difficult, unit volumes just saw in the quarter would be the best shot at earmarking a run rate?

The best way to look at it and I think is that if you look at the first six months of the year, we had destocking probably for, let me think, four out of the six months. Then we had restocking for two out of the six months. The best estimate at this point in time is, if we look at the economic environment, probably that average is good.

Okay. Then on the restocking, do you think a pre-buy ahead of the price increases had any benefit in the quarter and who would be more likely, the OEM side or the wholesale side, to engage in pre-buy activity?

We did not see any pre-buy, and it is based on the pricing. I think we saw that earlier in the economic cycle, but now at this late stage in the economic, there has been so much inflation in raw material that wholesalers are not reacting that way at this point.

Okay. Then lastly, could we just get an overall picture on what the consolidated unit volumes were year-over-year in the Europe and North American segments?

Well, I think I gave the unit volumes earlier on repeated North America, which is the estimates we have here internally. The residential would be down somewhere around 10% per unit volumes. Commercial would be up around 4%, and then pricing offsets there. Then when it comes to unit volumes in Europe, we do not really track that here, because there is so many business units and markets and what not that it is something that we really do. If you look at our overall organic growth in Europe, we were up $4.8 million, which is 4.4%. That would have some pricing in it as well as unit volume. That is a significant change from Q1 where we had negative organic growth of 7% in Q1.

Okay, great. Thanks a lot.

Okay.

Thank you.

Your next question comes from the line of Ryan Connors of Boenning & Scattergood. Ryan Connors - Boenning & Scattergood: Good evening.

Yes. Ryan Connors - Boenning & Scattergood: I want to spend a couple of minutes, if you could, on actually on the balance sheet. I think we have gone through pretty good depth on the end markets and so forth. One of the things that were interesting, for a period of time during the second quarter, the stock actually did trade meaningfully below book value for an extended period. Obviously, we can interpret that in number of ways. One of them would be that the market was saying it thought that the value of goodwill and/or the inventory and the balance sheet would have to be written down. So, I wondered if you would take a few a minutes to address how you assess those assets for impairment and what sorts of triggering events might need you to take a look at that, especially on the intangible asset side and what the likelihood would be in your view that you would have to take that action? If so, whether or not you would have to raise capital in that a scenario?

Right. Well, first of all, I do not envision any type of impairment on inventory at all. I mean we have a very conservatively valued inventory. A lot of it is material cost that is in there. So, that is really not an issue at all. When it comes to the goodwill and the intangibles, I mean under the rules, we are required to do a full impairment analysis every year, which we do on October 29 at the closing of our October. If you look at what we did last year, we had a pretty wide gap between the carrying value and the economic value of our intangibles. The only place that even I think has a potential concerning around the impairment where it maybe have a goodwill in China, which we do not carry a few million dollars of goodwill in China. So, as we have some of those business units that are struggling, you are always subject to that, I would have said that is a very small percentage of our intangible assets. Ryan Connors - Boenning & Scattergood: Okay, that is helpful. Thanks, Bill. I do not know if you mentioned. I do not think you did. Obviously, there has been a lot of noise on the tax line. Can you just update us what you full-year guesstimate is for the run rate.

Without any favorable or unfavorable adjustments, the tax rate would be about 34%. Ryan Connors - Boenning & Scattergood: Okay, great. Well, then that is been very comprehensive here. So, that is it for me. Thanks.

Thank you.

Your next question comes from the line of Todd Vencil of Davenport & Company. Todd Vencil - Davenport & Company: Thanks. Good evening.

Good evening, Todd. Todd Vencil - Davenport & Company: Most of my questions have been gone over, but you mentioned that most of larger market in commercial construction are hanging in their, some of the smaller markets may be hits off and can you may be highlight some of those that have softened?

You are talking like Southern California and Florida are the softer markets for us right now. Todd Vencil - Davenport & Company: Okay. Concerning Blücher into the (inaudible) some dilution in the quarter. Do you have any update on what the accretion would ultimately look like? Are you looking for the same amount?

We had a $0.01 dilution in the quarter, I think when we first talked about Blücher to the Wall Street we were thinking that it would have $0.02, but their operating results were little bit better. We are expecting $0.04 of dilution in Q3. Todd Vencil - Davenport & Company: Right.

Then once we get into Q4 we will then have the inventory and the customer backlog and all those issues amortized. We should have a pickup or accretion of $0.05 in Q4. Todd Vencil - Davenport & Company: I think you said it was going to be about $0.05 a quarter next year is that still good?

Yes. Todd Vencil - Davenport & Company: Okay. That is all I have got. Thanks a lot.

Thank you.

Your next question comes from the line of Jeff Hammond of KeyBanc Capital Markets.

Hi. Good afternoon.

Hi, Jeff.

Just in terms of some of the issues in China can you give us a sense of, is that still a drag on profitability into the second half of the year, are you loosing money there or is there a point were we get back to favorable profitability?

No I would say it is a drag on us for the remainder of this year.

Okay. Then just shifting gears, you mentioned how you thought the alternative energy systems projects or orders you thought were sustainable into the third quarter. I mean are you getting some direct feedback from these OEMs suggesting that and there is more behind it or what gives you the confidence that those are not one time in nature?

I think the OEMs are pretty bullish on these products at the moment, so we are basing that, we are making that statement based on our in coming order rates.

Okay. So there has been some follow-on orders that would suggest that that persists in the third quarter?

You had a strong order rate and that strong order rate continues.

Okay. Then as you look at the other floor distributor business that is may be more consumer oriented in Europe, how would you characterize trends there?

I think, if you look at big markets like the UK its slow, you look at big markets like Italy and Southern part of Europe it is slow, and it is pretty decent in France and it is pretty decent in Germany and Northern Europe.

Okay. Finally, it seems like the big aberration or one of the major aberrations between 1Q, which seem to present 2Q which was pretty good as this destocking versus restocking, is there a way to quantify the magnitude of the contribution there on a op profit or earnings basis in the second quarter that might may be is not sustainable?

If you look at the differences, Jeff, in Q1, the wholesale revenue was $163 million. In Q2, it was excluding acquisitions on apples-to-apples basis, would have been about a $181 million. So we had about $18 million, $19 million pick up in wholesale revenue quarter-over-quarter. Those are very meaningful, I do not have the exact EPS on that, but I mean it is a very meaningful part of the improvement.

Okay. You feel the same about the sequential improvement in retail?

Yes, I mean, on retail we had $5 million pick up versus Q1. When we did the analysis, we identified specifically the new product rollouts in some of the pricing and when you net that out of the changes that we saw in the quarter, it tells you that we had a decrease in revenue of about 5% versus last year. Now, if we do that same analysis and you look at Q, compare yourself to Q1, our same analysis has been done for Q1. It says we had a decrease in revenue of about 11% because of destocking in the economy. We had a basically the run rate was cut in half versus last year from Q1 to Q2.

It sounds like underlying fundamentals would suggest that the 1Q trend was maybe a little more normal than the 2Q trend?

On retail, I think if you look at the last numbers I have seen out of (inaudible) low that the same-store sales is down around 7%, 8%, if I recall. That is in the middle of those two numbers between 5 and 11. As Pat discussed a moment ago, we are thinking that a normal trend for all this North American business is somewhere Q2 and Q1.

Okay. That is helpful. Just final question on Blücher. Can you remind us how big the marine component of that business is?

It is 20% of their total business.

Okay. Then can you just remind me that some of the other big buckets in terms of end markets?

Yes, residential is about 25, commercial is 25. We have food processing of about 30 and then Marine is 20.

Okay. Thanks.

Okay.

Your next question comes from the line of Jim Fung of Gabelli & Company. Please proceed. Jim Fung - Gabelli & Company: Hi, gentleman. Actually most of my questions have been answered, but I just have one thing could you just list a little more, what your product lines are in Europe for this geothermal market that you are selling to the OEM's?

What the product lines are into the OEM? Jim Fung - Gabelli & Company: Yes

Well, we sell things like electronic controls, manifolds systems, pump groups, control valves, safety relief valves, and as Pat mentioned we sell a unit that measures energy usage by measuring the flow and heat of water into an individual apartments in energy monitoring product line. Jim Fung - Gabelli & Company: Okay. These are the products that you saw very strong sales in the quarter there…

Yes. Jim Fung - Gabelli & Company: …and going into the third quarter. Okay, alright. Thanks very much.

Thanks Jimmy.

Okay.

(Operator Instructions) Your next question comes from the line of Christopher Glynn of Oppenheimer.

Yes, just a quick one on any impact in '09 on the tax rate mix, the base of sales with Blücher and also maybe with the European growth given the energy efficiency turn outside and are we seeing a little downward pressure on the tax rate?

I think what would happen versus that any downward pressure from those sources do have a little a bit lower tax rate might be a offset by some non-deductible loses out of China. So I would not change a tax rate.

Okay. Thanks again.

Thank you.

There no further questions. I would now like to turn the call back over to Mr. Pat O'Keefe.

Well, I want to thank everyone for joining us today and your interest in Watts. We look forward to talking to you in the third quarter conference call, which will be probably at the end of October, the beginning of November. So thank you very much.

Ladies and gentlemen, that concludes the presentation. Thank you for your participation. You may now disconnect. Have an excellent week.