Welcome to the Q2 2009 Watts Water Technology earnings conference call. At this time all participants are in a listen only mode. We will conduct a question and answer session towards the end of this conference. (Operator Instructions) I would now like to turn the call over to Mr. Kenneth LePage, General Counsel.

Welcome to the Watts Water Technologies third quarter 2009 earnings conference call. On the call with me today are Pat O’Keefe, President, 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 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 those forward-looking statements as a result of various factors including those discussed under the heading risk factors in our annual report on Form 10K for the year ended December 31, 2008 and other reports we file from time-to-time with Securities & Exchange Commission. 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 other date. While we may elect these forward-looking statements, we disclaim any obligation to do so. 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 third quarter financial results a copy of which may be found in the investor relations section of our website at www.WattsWater.com under the heading press releases. I will now turn the presentation over to Pat and Bill. Patrick S. O’Keefe : Welcome to our third quarter conference call and thank you for joining us today. After my opening remarks, Bill McCartney our CFO will provide you with the financial highlights for the quarter. Bill…

As Pat mentioned, revenue closed at just under $304 million which is a decline of $68 million or 18%. Factors there on the 18% first of all organically were down $61 million which is 16%, the foreign exchange adversely impacted us to the tune of $5 million or 1% and then the disposal of TWT last year was a reduction of $2 million of revenue there for half a point. We look at the earnings per share of $0.09 on a GAAP basis. I think the way we look at it is we would add back in our discontinue operations charge of $8 million which is $0.22 and then we would add back in our restructuring charge of $5.8 million after tax which is $0.16. When you adjust for those items we believe we have an operating quarter of $0.47 per share. That would compare to last year at $0.46 per share when we had again $68 million of incremental revenue. The restructuring charge of $5.8 million was recorded in SG&A and is primarily the result of marking to market the assets which are in China which are going to be sold. Now, just looking at some of the segments, North America at $182 million, almost $183 million was down 16%. The biggest chunk of that was wholesale which closed at $140 million which is down 21% versus last year and that’s without the foreign exchange. With the fx, we closed at $139 million. That’s down about $14 million versus Q2 which about half of that is a normal seasonal change and half of that is the result of some of the commercial markets starting to slide. Again, as pat mentioned, we continue to see softness in the residential and the commercial is starting to slide. Really no restocking is…

(Operator Instructions) Your first question comes from Kevin Maczka – BB&T Capital Markets. Kevin Maczka – BB&T Capital Markets: I guess my first question is on pricing, you made some comments there that price erosion has not been an issue so far. It sounds like with raw materials ticking back up, you’re looking to go back to the market for more price. I guess, can you just comment with the top line outlook you gave for 2010, what kind of assumptions are you making there and what is the market look like? Does it look to be receptive to price increases right now? Patrick S. O’Keefe : I’d say it’s too early to tell with reset activity. We all are affected by the same raw material escalation that we anticipated. We’re seeing it already in terms of purchase orders that we’re placing in to the market. With regard to what happened in the third quarter we really saw pricing being relatively stable and even throughout the quarter consistent with what we saw in the second quarter. We anticipate to be honest with you, in the fourth quarter of 2009 for it to be consistent as well.

The other point I’d like to make there Kevin, just reading the transcript of some of the companies that have released, quite a few of them have mentioned price increase coming early in 2010 as well so we’re not alone in this regard. Kevin Maczka – BB&T Capital Markets: Bill, what’s your view on the channel inventory now. We went through such destocking for so many quarters and maybe we’re reading to see some restocking now. What’s the channel look like?

Well, our belief is that the channel looks pretty skinny at the moment. Patrick S. O’Keefe : We don’t believe that there’s going to be any restocking here in the fourth quarter because people are going to play their cards pretty close to their chest with regards to balance sheet at December 31st. We see no restocking whatsoever in the fourth quarter. Kevin Maczka – BB&T Capital Markets: Then just quickly on the market share gains you referenced at retail, can you put any numbers to that or more color? Maybe who you’re taking share from?

We have the normal competitors out there Kevin that we always talk about. This is some of the larger chains where we’ve picked up some additional shelf space.

Your next question comes from Richard Paget – Morgan Joseph & Co., Inc. Richard Paget – Morgan Joseph & Co., Inc.: I just wondered, you already commented on your market share gains but in terms of new products, can you give us a little bit more information on what you’re rolling out now and what’s selling on the retail side? Patrick S. O’Keefe : Well, one of the ones we had the most success with was the new dishwasher hose assembly that was sold in to retail this quarter and it was well received. That was one of the bigger impacts that we had in the quarter. Richard Paget – Morgan Joseph & Co., Inc.: Are you starting to see any of the energy efficient type products start to pick up given some of the initiatives to greenify buildings and save water and/or energy? Patrick S. O’Keefe : Not really. We think it’s a little bit too early for that. You have to remember what drives that is a couple of things, one is higher energy costs which we really haven’t hit those levels yet and secondly would be a much more vibrant construction market and we certainly don’t have that at the moment. We do think long term in the US that is a very good growth market for us but in the current environment we don’t really see it. Richard Paget – Morgan Joseph & Co., Inc.: So even with some of the tax incentives and some of the government mandates on the commercial side with some of the institutional buildings that still hasn’t really come in to effect? Patrick S. O’Keefe : We see it here and there with some of the federal and army basis where they are rehabbing that and bringing things up to more current standards, we do see it but it’s not enough to really move the needle in a meaningful way. Richard Paget – Morgan Joseph & Co., Inc.: Then on the charges, any way you can break that down between the operating segments?

On a pre-tax basis we booked $6.3 million of restructuring of which $5.2 was China, $400,000 was in Europe, $700,000 was in North America and then we took a $500,000 tax benefit at the corporate level. Then the discontinued operations charge was all in China.

Your next question comes from Michael Schneider – Robert W. Baird & Co., Inc. Michael Schneider – Robert W. Baird & Co., Inc.: Maybe we can just talk about volume trends, within the quarter I’m just curious, we’ve heard a number of residential product companies state that their comparison even in very difficult areas like pools have turned positive in the month of August and September. Did you see a sequential strengthening or any change in trends by market?

Not really Mike, we normally have a stronger September than we do July and August because you see the start of [inaudible] and also Europe is very, very quiet in August for us. Our September was stronger than our July and August but we just view that as normal trends. I don’t think we’re at a point where we’re really starting to see any meaningful pick up in residential. Michael Schneider – Robert W. Baird & Co., Inc.: In Europe, I’m just curious if there was a distinction between the OEM performance and the wholesale performance in that market?

Yes, I can give you that figure. The wholesale was down about 11%, the OEM was down about 26%. Michael Schneider – Robert W. Baird & Co., Inc.: Then is OEM down that much simply against a tougher comparisons to last year when some of the energy efficient products were selling hot?

That’s right, you have to remember in Q2, Q3 and to a certain extent Q4, we have big energy quarters in Europe. I think we also as we learned in Q1 of this year there was a little bit of channel filling going on as well because there was so much excitement that some of the OEMs got a little bit ahead of themselves. Michael Schneider – Robert W. Baird & Co., Inc.: Are there any initiatives now proposed or pending that would drive similar type sales for solar products or furnace or heat pump products, whatever they are?

One of the things that we’re seeing which is a proposal which we don’t know if it’s going to pass but we’re optimistic about it is in Germany they’re looking at standards to be set around heat loss in a structure that would specifically address standards for pipes, windows, etc. If that were to pass we would be the beneficiary of that and if it were to pass we think that would probably spread to other European countries as well. That’s one of the more interesting things that are being considered at the moment but it’s not passed yet. Michael Schneider – Robert W. Baird & Co., Inc.: Then gross margins, seeming to me to be probably the single biggest swing factor to what you earn in 2010. Can you give us a sense, if you look at copper at $3 right now and some of the steel and components where they are today, it strikes me though that you’re still flat right now year-over-year probably on an average basis if you look at 2009 versus 2008. So, is it a case where you don’t really see an average cost of raw materials rising in the P&L as we enter 2010?

If you were to look at the average for the year that’s probably – I haven’t done that analysis for the whole year, we kind of focus on things more on a quarter-by-quarter trending but it’s not an unreasonable assumption. Michael Schneider – Robert W. Baird & Co., Inc.: The reason I ask is then if indeed we don’t see an absolute increase in raw material costs in 2010 for you, gross margins while they’ll be an adverse hit because of the lower commercial mix, you get the benefit of additional cost savings actions and lean initiatives, it strikes me that the 36 is sustainable in 2010 barring a significant change in volumes? Patrick S. O’Keefe : I think you should have a bias downward Mike. Michael Schneider – Robert W. Baird & Co., Inc.: Really? Patrick S. O’Keefe : Yes. I think raw material costs are a bigger factor that you’re awaiting. Michael Schneider – Robert W. Baird & Co., Inc.: Then, I guess I’ll ask the pricing question maybe a different way which is if you look at your position today versus even two years ago when you were going out with price increases, is there something different competitively in any of your key markets or positions with the retailers or mix that would inhibit or constrain your ability to go out with pricing right now other than just weak markets? Patrick S. O’Keefe : I’d say weak markets is the biggest concern. It’s more difficult to get a price increase to stick in a difficult market like we’re in. Michael Schneider – Robert W. Baird & Co., Inc.: Final question on just the cash, you pay off the $50 million private placement, what’s the rate on that? And then, I guess do you start to consider buying back stock here just given that it doesn’t strike me acquisition multiples have come down all that much, in fact, may have risen. I’m just curious if you’ve kind of updated your priority list there for the use of cash?

The rate on that private placement is about 5% give or take ¼ of a point. We are back looking and talking to companies. We do have very similar screening process as we’ve always had and the same disciplines. Just because we’re talking to people doesn’t mean we’re going to rush in and do a deal. I don’t know if I’m answering your question or not but we feel more comfortable that we won’t have a big double dip in the economy and that we’ll be able to continue to generate reasonable cash flows and that we still think we can have the signs to do a deal. Patrick S. O’Keefe : I would say Mike acquisitions are in our DNA.

Your next question comes from Christopher Glynn – Oppenheimer. Christopher Glynn – Oppenheimer: Getting back to some of the margin drives, Pat did you say that the under absorbed overhead would become less of an issue in the fourth quarter? Patrick S. O’Keefe : To a certain extent. What I said is I see margins being consistent in the fourth quarter with what we achieved in the third quarter mostly because of the fact that we had previously been talking and thinking that we’d see higher raw materials hitting our P&L and hitting us during the fourth quarter and we’ve now revised our forecast to when they’ll hit us. They’re going to hit us more in the first quarter than they would in the fourth so that’s the driver. Christopher Glynn – Oppenheimer: Where do you see your inventory position right now? Are you comfortable with that, do you have a target? Patrick S. O’Keefe : We’re on an effort to reduce inventories and improve customer service delivery as measured by on time deliver and fill rates. We still think we have opportunities to squeeze additional unnecessary working capital off of our balance sheet. Christopher Glynn – Oppenheimer: Is there a longer term turns target that you could articulate?

Right now our turns are about 2.7 which we consider that to be quite low. There’s no reason we can’t significantly improve that over a couple of year period. That’s part of the whole thinking behind lean and all the other things we’re doing, sales and operational planning and moving our IT systems and so on, the reduction of our manufacturing footprint is another big contributor to inventory reduction. So, we’re far from satisfied with our inventory position but it’s a multiyear task to get it up to significantly higher turnover. But, we’re thinking that inventories should be source of cash for the foreseeable future. Christopher Glynn – Oppenheimer: Just lastly on the kind of SG&A run rates, that you’ve had this year have been pretty consistent. If we think about next year it sounds like maybe some variable factors, different mix in markets but how much of that is really the kind of unstainable belt tightening, furloughs, etc.? What are we thinking trend line for the SG&A dollar levels?

If you look at our number in the quarter, barring any fx changes, just looking at organic changes we’re about $79 million and to me that feels pretty reasonable. I mean, I think we’re in a very good range, we’re going to try to keep it in a very tight range around that number.

Your next question comes from Jeffery Hammond – Keybanc Capital Markets. Jeffery Hammond – Keybanc Capital Markets: You talked about some of the individual restructuring programs. I just wondered if you could kind of boil it down to what did you get this year for temporary cost savings, what are you getting this year from restructuring savings and just based on what you’ve done what’s the incremental cost saves in to 2010?

Remember now this year we did our [inaudible] and we already told everyone that was just $10 million alone in the US. Jeffery Hammond – Keybanc Capital Markets: That’s savings this year?

Yes. We have several millions additional in Europe from headcount reductions. We have a couple of million dollars in the US based on salary reductions. We have things we’ve announced and we also have an ongoing program with our lean programs if you will, where we’re pushing all of our plant managers for productivity. We’re looking for a couple of points net productivity as we move forward to come out of our cost of goods sold. Now, that’s not necessarily a promise but that’s the objective that we’ve set and we have programs in place and people in place, etc. to focus on that. We also have as Pat mentioned in his opening remarks, there are a couple of factory closures that we’re going to see the benefit from next year which is several million there that will start to come through the P&L as well. We have some other programs, footprint issues that we’re looking at that we haven’t announced but we won’t really see a benefit of those in 2010 but probably we will be working in 2010 to get a benefit in 2011. Jeffery Hammond – Keybanc Capital Markets: If you take the facility closure and just this lean productivity what do you think your all in incremental cost savings in ’10 would be?

Well, I haven’t put pen to paper yet, we’re working on that right now with our 2010 plan but just the plant closures is $3 million alone and a couple of percentage points from cost of goods sold is our objective. Jeffery Hammond – Keybanc Capital Markets: Then just looking at how your raw material costs would be coming through your P&L, when do you need to start capturing these prices increases you were talking about? Patrick S. O’Keefe : Probably within the first quarter. Jeffery Hammond – Keybanc Capital Markets: Finally, do you have an estimate for corporate expense for the fourth quarter? How should we think about that line item in to ’10?

Corporate expense in the fourth quarter, I don’t see why it would be that much different than it is now. We’ll have a little bit maybe $500,000, or I think we said $700,000 [inaudible] expenses, other than that it should be flat. Then, as you go in to ’10 the FCPA expenses go away. Jeffery Hammond – Keybanc Capital Markets: So like a normal run rate would be kind of $7.5 to $7.7 million a quarter?

$7.5 million.

Your next question comes from Scott Graham – Ladenburg Thalmann & Co. Scott Graham – Ladenburg Thalmann & Co.: I really don’t have too many questions just really some logistical stuff. I was just wondering, do you think you can keep your capital expenditure level on a quarterly basis kind of where you’re at right now, number one. Number two is I know you guys typically carry a lot of cash on the books in preparation for acquisitions and what not but are you closer to the finish line on a couple of things than you were in the second quarter? Are you closing in on anything would you say? Patrick S. O’Keefe : We typically don’t discuss where we are because as soon as we discuss it, it spooks the story and we get a delay. But, we have an active pipeline although in this environment is a bit more difficult to work through due diligence and there is always more contingency issues to negotiate through the negotiation process. I would say that we sort of at this point in time have several active deals whether they will come to fruition or not is yet to be seen. Scott Graham – Ladenburg Thalmann & Co.: Are these normal Watts sized deals, historical norm, are they below the norm or do you think that maybe there are a couple of opportunities above the norm? Patrick S. O’Keefe : They are pretty much down the strike zone, what you’ve seen us do in the past. Scott Graham – Ladenburg Thalmann & Co.: And the cap ex number, I know it’s been pretty flat it’s just you’re driving tremendous free cash flow off of a very low cap ex number, can you guys keep that the same? I assume you can with the lower facility count, right? Patrick S. O’Keefe : You can probably figure 75% of depreciation and amortization.

Your next question comes from Todd Vencil – Davenport & Company, LLC. Todd Vencil – Davenport & Company, LLC: Bill, what were the sales associated with the discontinued operations in the quarter?

It would be about $3 million Todd. I don’t have an exact figure but that’s a rough estimate. Todd Vencil – Davenport & Company, LLC: Alluding to a question that was asked earlier, are you guys seeing with regard to M&A and multiples and seller expectations, have you guys actually seen a move up or a move in any direction that you would be able to sort of get the signal from the noise on? Patrick S. O’Keefe : We haven’t closed any deals and finalized them. We’ve made offers that are lower in the range that we would have made a year or two years ago but we’re also seeing resistance from sellers in terms of accepting those offers. Todd Vencil – Davenport & Company, LLC: On any level, I guess final question and a pretty broad question, are there any sort of regional differences in the US in terms of demand trends that you’re seeing either on the resi side or the commercial side or anything at all? Patrick S. O’Keefe : You can imagine that the big states like Florida and California where the economy has hit them the hardest is showing substantially more deterioration than some of the areas like New England. But, it’s the kind of stuff you read every day in the newspaper as to the markets that have been the most hit by housing starts and housing pricing. Todd Vencil – Davenport & Company, LLC: What’s your outlook on how those states come back? Do you think California and Florida lag the recovery? Patrick S. O’Keefe : I would anticipate they will, yes.

Your next question comes from Ryan Connors – Boenning & Scattergood, Inc. Ryan Connors – Boenning & Scattergood, Inc.: Most of my detailed question have kind of been answered so I guess kind of a bigger picture issue. Pat and Bill there’s a lot of talk about the cost cutting in to next year and the impact of that on the income statement but from a longer term perspective I wonder if you can just talk about where you are strategically in terms of restructuring and entering the next upturn on the top line, whenever that comes, obviously not necessarily next year. But, do you view yourselves now as a leaner, more profitable entity in to the next upturn? If so, in what magnitude and really I guess the core of the question is how much of the cost cuts are really permanent per say and how much of those costs will come back as the top line recovers, when ever that is. Patrick S. O’Keefe : If you look at our numbers, our operating earnings on a historical basis, you can pretty much figure we’re in this 10% range and when we come out of this our objective is to come in more like a 12.5% or 13% from an operating earnings basis. We think that there are some of the costs reductions that are temporary and it will be given back as the economy starts improving but there is an awful lot of footprint and driving unnecessary costs out of the business and things of that nature that will be permanent.

Your next question comes from Jamie Sullivan – RBC Capital Markets. Jamie Sullivan – RBC Capital Markets: Most of my question have been answered, I guess just a quick one on the tax rate, what we should be expecting going forward?

A normalized tax rate for us would be more in the 33% to 33.5% range.

Your next question comes from [Michael Coleman – Watts Water Technology]. [Michael Coleman – Watts Water Technology]: You mentioned previously on the previous question 12.5% to 13.5% operating margin, what are you assuming in terms of granite growth backdrop to hit that kind of margin?

We don’t have to get all the way back to where we were prior to the downturn but we need to see positive growth, 5% to 6%, organic growth to start hitting those kinds of numbers and we need to finish up some of the restructuring programs that we’re in the middle of right now. Those are two major assumptions in that number. But, that is as Pat said, that is our focus. If you look at all the things we’ve been doing over the past year or so where we’ve been trimming the portfolio, disposing of companies that aren’t as profitable who don’t fit the core, trying to reduce the footprint so that we have a company that has a better mix in the portfolio, a better margin mix and a company that has a lot more operating leverage. That’s what we’re really focusing on so when we come out of this thing we’re leaner meaner. [Michael Coleman – Watts Water Technology]: Kind of looking at 2010 you gave a kind of outlook for commercial to be down 10% to 15% with greater weight towards the first half of the year. Just so we’re clear on this is that your expectation – that’s not your expectation for Watts overall is it? Patrick S. O’Keefe : No, because we gave you the other pieces as well. [Michael Coleman – Watts Water Technology]: In terms of an fx impact or what are you thinking just the components on an organic or fx in terms of 2010?

On a foreign exchange basis? [Michael Coleman – Watts Water Technology]: Yes.

It’s difficult to forecast Mike, I mean if you look at the Euro, the average rate for the year for us so far has been $1.36. I know the Euro I think yesterday was about $1.50 or $1.49, somewhere in that range. If the Euro stays where it is it is very favorable to us in 2010. But, we’re not in the game of forecasting that right now. I can just tell you what it is today. It’s favorable right now. Patrick S. O’Keefe : It will be favorable in the fourth quarter.

There are no further questions. Patrick S. O’Keefe : I want to just thank everyone for joining us today. I think this has been a good quarter for us and we’re proud to have these kinds of results and we look forward to talking to you at the fourth quarter conference call which will be held probably in early February.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect.