濱特爾 (PNR) 2008 Q2 法說會逐字稿

Good morning.

My name is [Krystelle], and I will be your conference operator today.

At this time, I would like to welcome everyone to the Pentair Q2 2008 earnings conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session.

(OPERATOR INSTRUCTIONS).

Thank you.

Mr.

Gleason, you may begin your conference.

Thanks, Krystelle, and welcome to Pentair's second quarter earnings release conference call.

We're glad you could join us.

I'm Todd Gleason, Vice President of Investor Relations.

With me today is Randy Hogan, our Chairman and Chief Executive Officer, and John Stauch, our Chief Financial Officer.

On today's call, we will provide details on our second quarter results, as well as discuss our guidance for the third quarter and update you on Pentair's outlook for the remainder of 2008.

Before we begin, let me remind you that any statements made about the Company's anticipated financial results are forward-looking statements subject to the future risks and uncertainties, such as the risks outlined in Pentair's 10-K as of December 31, 2007, and Pentair news releases.

Forward-looking statements included herein are made as of today, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

Actual results could differ materially from anticipated results.

Today's webcast is accompanied by a presentation which can be found in the informational section of Pentair's website at www.pentair.com.

We will reference these slides throughout our prepared remarks.

Any reference to non-GAAP financials are reconciled in the appendix of the presentation.

I'd also like to point out all financial results and references to year-over-year numbers in today's call and presentation are on a continuing operations basis, unless otherwise noted or highlighted.

As is our custom, we will reserve times for questions and answers after our prepared remarks.

I'll now hand the call over to Randy, who will take you through Pentair's second quarter results and highlights, provide detail on significant actions and initiatives we're driving, and provide his summary for our first half results.

Then John will conclude our formal remarks with an overview of the impact of various actions we are undertaking in the year, as well as discuss our future guidance.

Randy?

Thanks, Todd.

Thank you all for joining us today.

Let's begin by reviewing our second quarter results shown on Slide Number 2.

Looking at our second quarter, we had solid performance.

As we'll walk you through on the call, we embarked on a number of important new initiatives that will continue to enable our organization to deliver on our commitments.

Let's walk through the highlights.

In the quarter, we delivered reported earnings per share from continuing operations of $1.39, which includes a number of non-recurring items.

The first is a non-recurring gain of of $0.86 per share associated with the transaction we completed with GE to combine our Residential Water Filtration businesses.

The reported EPS also includes a negative non-recurring $0.14 per share impact from settling the Horizon legal case.

And reported EPS includes a negative $0.01 per share impact from severance and restructuring actions taken in the quarter.

If you remove those non-recurring items, which we feel is the most accurate way to evaluate our true operating performance, we delivered $0.68 of EPS on an adjusted basis.

That $0.68 is up 11% versus the $0.61 in the second quarter of 2007.

The $0.68 also bested the high end of our EPS guidance of $0.64 to $0.67 by $0.01 per share.

Strong performance in our Technical Products business enabled us to offset weaker results in our Water segment, driven from our Pool business.

We will provide additional detail in each business in a few minutes, but first, here are some more of the headlines.

Pentair second quarter sales of $910 million were up 1% above the $899 million in sales we generated last year.

Our organic growth was flat in the quarter, or down 3% in local currencies, as strong growth in our Technical Products segment could not completely offset declines in Residential Water segments.

Second quarter sales in our Water segment were down 6% year-over-year.

The segment details will demonstrate that we've had a tale of two cities in water.

One camp is growing sales nicely, while those exposed to residential end markets continue to be challenged.

Our Technical Products business achieved record sales levels and grew 18% in the second quarter versus Q2 '07.

Technical Products has been firing on all cylinders and we continue to be bullish in the growth prospects for our various Technical Products vertical markets.

As the slide shows, Pentair expanded margins 50 basis points.

Looking at total Company margins year-over-year, the positive impact from volume, price, and product mix, coupled with solid productivity, provided 360 basis points of margin growth in aggregate.

This offset a negative 310 basis point impact from total inflation in foreign exchange.

Our second quarter effective tax rate was 33%, reflecting the investments we have made to position our global operations more optimally.

The 33% rate is the sustainable rate we expect for the full year.

In the quarter, we bought back shares worth approximately $9 million.

We have a little over $28 million remaining on our authorization, which we expect to fully utilize in 2008.

And as expected, interest expense provided a year-over-year benefit of $0.01 of EPS versus last year as our debt levels are down significantly.

We continue to be on track to deliver full year free cash flow above adjusted net income.

In the second quarter, we delivered $135 million of free cash flow, which brings us to a positive $57 million year-to-date.

So those are the Pentair level highlights for the second quarter.

Now let's turn to Slide Number 3.

As our press release highlights, we had a busy quarter with lots of moving parts.

When I think about our results in the quarter versus the guidance we provided in April, this slide pretty much sums it up.

The guidance we suggested in April had sales between 910 and $925 million, operating income between 114 and $120 million, and EPS in the range of $0.64 to $0.67.

So actual sales hit the low end of the range, at $910 million.

Operating income came in comfortably within the range at $118 million.

And adjusted EPS was $0.68, as our tax rate improved slightly versus our guidance.

But there is good news here, because as I just mentioned, this 33% rate is sustainable going forward.

Despite this pretty simple founding performance explanation, there were some pretty large variances within some of our business results.

In April, our expectations for our Pool and Spa business were for sales to be down low double digits.

While customer sell-through activity was in line with that expectation, several key distributors aggressively drew down inventory in the second quarter, which created a larger revenue decline for suppliers.

This revenue shortfall hurt us by $0.07 per share versus guidance.

On the flip side, throughout the second quarter, we continued to witness stronger than expected demand in our technical products business.

We capitalized our ability to meet customer demand, and our lean-driven productivity culture delivered outstanding margins.

The upside in Technical Products delivered about $0.07 per share of benefit versus our April guidance, and helped to offset the decline in our Pool and Spa business.

We highlighted the expanded diversity of our portfolio over the past three to four quarters.

The result of our quarter provides additional proof of that broader balance.

A few years ago a $0.07 miss in our Pool Business' largest quarter may have been insurmountable.

Today, we have a more balanced global presence, stronger exposure to attractive vertical markets and a rigorous productivity culture that is driving hard in many difficult environments.

In sum, we endured the worst pool season in Pentair's history.

We continue to navigate through various soft residential markets and we've executed extremely well in Non-Residential Water and Technical Products to deliver outstanding results.

In order to ensure long term results and control our own destiny, we continue to aggressively improve our portfolio and execution culture.

Let's review some of the major actions we accomplished and announced in the second quarter.

Please turn to Slide Number 4.

This slide highlights four major events or actions.

Each one uniquely improves the position of our Company.

First, as we highlighted last month, we combined forces with General Electric in the Residential Water Filtration business.

We'll have several slides on this topic in a minute, so to highlight a few key takeaways, I'd just say both Pentair and GE are excited about the growth prospects of Residential Water Filtration.

We expect this new combination will produce strong sales, meaningful cost synergies and tremendous value to our customers globally.

Second, we're happy to announce we settled the longstanding Horizon litigation.

Today's press release is the first instance since I've been CEO that we do not have to include you Horizon litigation in our risk discussion of our forward-looking statements.

By putting this case in the rear view mirror, our shareholder can cross off an uncertainty that's been associated with our shares for many years.

We're still working to recover an additional $10 million in insurance associated with this case.

This was not included in the charge, so any recovery would be a future benefit that we would spell out at that time.

Third, we continue to address our cost structure by taking aggressive actions.

In the second quarter, we shut down two European facilities, which created a non-recurring $2 million charge.

In the third and fourth quarter of this year, we've announced the closure of six more factories, as well as taken action to reduce our G&A structure and consolidate distribution centers.

We'll be talking more about the timing and location of these actions in a few minutes.

The last major item is the bond tender we announced earlier this month.

We reached out to holders of our 7.85% bonds due in October 2009, soliciting for early retirement.

Our goal is to retire a significant portion of this note and use our credit facility, which currently has rates under 4%.

By essentially refinancing this portion of our debt, we reduced exposure in 2009 when it would normally be due; and while this action will result in a charge of approximately $0.03 per share, we expect to have lower interest expense of about $0.01 per share starting in fourth quarter this year.

Let's go to Slide Number 5 and discuss the Residential Water Filtration transaction we completed with GE in more detail.

As a very simple snapshot, here is what each side contributed to create the Residential Water Filtration business.

The new business will start with annualized sales of approximately $450 million and high teens operating margins.

With 13 combined manufacturing facilities, we're taking immediate action to rationalize our production locations.

We'll have access to GE's technology for the residential market, which hasn't been a priority for them, and have access to the GE brand.

So by combining Pentair's sizeable strength and distribution, along with GE's technology and brand and great people, we're confident Pentair's Residential Water Filtration business will be a stronger business with improved growth potential.

Pentair will consolidate the revenue and operating income of the combined business and account for GE's percent of the profits as a minority interest.

Now, please turn to Slide Number 6 to review our revenue growth and cost take out strategies in the new Residential Water Filtration business in more detail.

On left side of the slide, you can see we detail a number of revenue growth opportunities.

We're excited about current solutions that the combined businesses have, such as ultrafiltration, whole house systems and tankless reverse osmosis systems; but we're also eager to introduce a number of products and systems for emerging regions with proprietary technologies.

As we merge the two businesses, we must insure our customer service and quality levels remain very good.

By combining the businesses, we expect to improve customer education about water quality, marketing and invest more heavily infiltration technology to benefit residential customers.

On the cost take out side associated with the Residential Filtration business, this week we announced the closure of five factories: Sheboygan, Wisconsin, Rockford, Illinois, [Lamay], France, and two in Asia.

Our integration team is driving for quick result,s and we expect to not only reduce manufacturing and G&A structure, but also take advantage of preexisting supply agreements and other programs to maximize results.

Bottom line?

We believe through identifiable and actionable growth and cost synergies, the new Residential Water Filtration business can produce an additional $0.27 per share by 2010.

And that's our committment.

Let's transition back to review our second is quarter performance in more detail, starting with an overview of our Water results.

Please turn to Slide Number 7.

We're covering a lot of information today, and this is one of our standard slides.

So let me just hit some of the highlights.

Overall, Water sales were down $37 million to $605 million, or down 6% versus last year.

As we discussed in April when we provided guidance, we had a difficult year over year comp in our Flow Technologies business.

Last year, we sold $21 million of municipal pumps to the core of engineers for the City of New Orleans, so that's a piece of our sales decline that we expected; however the biggest reason for the contraction in water sales was the poor sell-in this pool season for our Pool and Spa business.

As I said earlier, end market demand was in line with our down 10% prediction adding into the quarter.

However, additional pressure came as distributors reduced inventory levels earlier and more aggressively than we expected.

This pushed our Pool sales down 22% versus last year.

8% growth in Filtration, coupled with 20% growth in Asia and single digit growth in EMEA, could not overcome this dramatic decline in Pool and Spa.

We're going to discuss our Water growth on the next slide, so let's skip over to our operating income walk.

On the top right, you can see our year-over-year operating income for Water.

Adjusted margins were 13.3%, down 60 basis points year-over-year, and inflation impacted water margins by over 310 basis points, and could not be overcome by productivity, price, and product mix.

I point out that the Horizon legal settlement and non- recurring restructuring charges have been adjusted from our 13.3% margins.

The impact of these non-recurring items, as shown on the chart, is a $23 million charge.

While we're disappointed in margin contraction in the quarter, we endured a very difficult pool season and we're taking significant actions to rationalize our global footprint, reduce structure, and drive growth opportunities.

These will reverse the margin declines once the residential market settles out.

Let's take a closer look at our Water segment by comparing sales growth rates between our different markets.

Please turn to Slide Number 8.

Approximately 40% of our Water business is exposed to residential markets.

This slide shows you the year-over-year comparable sales growth rates we experienced in the first half of this year, along with our expectations for the second half and full year 2008.

Sales declined approximately 15% in the first half of 2008 residential markets including Pool and Spa, Flow Technologies and Residential Filtration.

Our second half sales outlook for these residential markets is down 7%.

While still negative, the sequential improvement is primarily the result of the higher sales from the GE combination.

For the year, we're forecasting a 12% overall decline in sales for residential water markets.

When extrapolated out, the impact to total Pentair is approximately negative four points of sales decline for full year 2008.

Conversely, the growth in our Non-Residential and International Water businesses continues at solid levels.

As the slide shows in the first half of the year, our Non-Residential sales grew 12% year-over-year in aggregate.

When we add the impact from foreign exchange and the Q2 2007 New Orleans project, which we removed from municipal core growth, Non-Residential Water was up about 13%.

We expect about 8% growth in the second half of this year in Non-Residential and International markets, or up about 10% including foreign exchange.

When you take that out for the full year, we see about 10% growth in Non-Residential International markets which provides about five points of growth to total Pentair.

So we have solid growth in Non-Residential and International markets being masked by continued sales declines in soft Residential markets.

This provides you with a different segmentation of water sales, and one which we think may be of interest as we at some point begin to lack the most difficult comps on the residential front.

Now let's turn to Slide Number 9 to review our Technical Products second quarter 2008 results.

As usual, we provide you with total business sales and operating income walks at the upper half of the chart.

Technical Products' results in the first quarter were outstanding, as we grew sales 18% and adjusted margin to 16.4%.

Let's review what enabled our businesses to have better than originally expected performance in the quarter.

As we look at our sales results, our Global Electrical business grew 14% versus last year, as we continue to take advantage of a strong and diverse business model.

Our Thermal and Networking vertical markets each grew double digits as we continued to see solid performance in our core Hoffman channels.

We'll evaluate Technical Products' major vertical markets in a few minutes.

Our Global Electronics business grew 24%.

Every region posted positive growth, paced by our Asian Pacific Electronics business, which grew 39%.

Looking at Technical Products' margins, growth and productivity together contributed 530 basis points of margin expansion.

This easily offset the impact of a negative 300 basis points from total inflation.

Our lean-driven productivity actions continue to produce solid results.

We're executing well on the 2007 restructuring actions, which included the shut down of facilities outside Chicago and one in the U.K.

By reducing our Technical Products' footprint, we believe we'll get even better operating leverage, even if we see lower growth markets.

Given the increases in metals prices, mainly steel, for Technical Products, we recently introduced new price actions in the segment.

We believe these actions have been accepted by our customers and are appropriately sized to offset commodity pricing pressures.

So in sum, Technical Products delivered a strong top line and had great execution to deliver outstanding bottom line results in Q2.

We believe this segment is well positioned for the balance of the year.

Now let's review the major vertical markets within Technical Products.

Please turn to Slide Number 10.

Rather than read all of the numbers, let me just highlight a few items.

First, we wanted to share with you that Technical Products has more diversity and balance than even just a few years ago, which is one of the key reasons we have experienced tremendous growth over the past 12 months.

In particular, the energy and infrastructure verticals have been performing very well, as are new products in networking and commercial markets.

The business continues to invest in new product introductions and global expansion.

While we expect sales growth in the second half of the year to moderate versus Q2, we remain confident in our ability to out perform our end markets.

I'd leave you with the observation that having this vertical market better positions our organization to attack the appropriate markets with the appropriate strategies.

Also, it helps us ensure our financial forecasts are based on end market realities.

So we see strength continuing in several major end markets within Technical Products, and also some end markets where we expect some slowing; but in total, this will be a great growth year in Tech Products.

Let's turn to Slide Number 11, which shows our financial metrics.

I'd like to highlight cash and ROIC, which are shown on the chart with the red box around the figures.

As mentioned earlier, we generated $135 million of free cash flow in the second quarter, about $11 million less than the same period of 2007.

We continue to make progress in regard to working capital, but there's still a lot of opportunity to improve it further, particularly in inventories.

We take a look at the components of return on invested capital to the right of slide, you see our four quarter trailing adjusted net operating profit after-tax, or NOPAT, was $292 million.

Our average invested capital was $2.96 billion, which gives us an after-tax ROIC of 9.9%.

This is up 40 basis points versus the same metric a year ago.

We're continuing to move this metric in the right direction, with several quarters of sequential expansion now.

Our ending working capital was $463 million, an increase of $24 million versus Q2 2007.

About $15 million is related to inventory we acquired as part of the GE transaction.

Our five quarter moving average working capital is $432 million, which is 12.7% of fourth quarter trailing sales.

Our total debt was just over $1 billion, for a debt to total capital ratio of 33%.

As a reminder, the non-GAAP to GAAP reconciliations of these calculations and numbers are included in the appendix to this presentation.

Before I turn it over to John, let me share my summary thoughts about our performance and outlook.

Please turn to Chart Number 12.

We've touched on most of these themes already, so I'll be brief.

Our performance at Technical Products has been fantastic and they continue to set records for sales and margins.

And while we continue to see double digit growth in Non-Residential and International Water businesses, the Residential market declines have masked much of our solid performance in the rest of Water.

We had the worst pool season in Pentair history.

We also believe that in difficult times, strong companies can get stronger.

Our Pool and Spa business has launched new restructuring actions and continues to invest for future growth.

Commodities remain stubbornly high, but recent price actions have mitigated the inflation to date; however, with higher costs in several of our key markets remaining soft, we believe aggressive productivity is the only way to ensure we can meet or exceed our committment to you, our shareholders.

So we'll continue to focus on productivity, as well as actions to improve our portfolio, like our first quarter divestiture of National Pool Tile in the formation of the Residential Water Filtration business wit GE.

It's been a busy first half of 2008, and one filled with significant accomplishments and real challenges.

Now I'll turn it over to John, and he will help you understand how we are thinking about the second half of the year and how we're positioning our businesses to drive even more improvement.

John?

Thanks, Randy.

As mentioned earlier, we have a lot going on at Pentair.

Let me try to summarize a few of the moving pieces.

Please turn to Slide 13.

This slide is divided into three sections.

The top section provides you with our reported GAAP EPS earnings for the second quarter and year-to-date, as well as our outlook for the balance for 2008.

We then walk across the adjustments to our year to date results, as well as expected adjustments in the second half of the year.

This middle section reconciles the GAAP to adjusted EPS so you can better understand our operating performance.

The third section summarizes for the same period in 2007 the GAAP EPS and adjusted EPS results for comparison.

Starting at the top, our second quarter reported GAAP EPS was $1.39.

Walking down the adjusted earnings, you remove with the non-recurring $0.86 per share benefit from the gain created from the exchange of 20% of Pentair's Residential Filtration business for 80% of GE's Residential Filtration business.

This gain was the result of a low double digit multiple being applied to each company's trailing 2007 EBITDA results.

The multiple is at the lower end of the range of filtration transaction multiples.

Continuing to walk down the chart, the second quarter also included an unfavorable non-recurring charge to earnings related to the Horizon settlement.

As Randy mentioned, it is nice to not have to reference the previous uncertainty any longer in our 10-K's, 10-Q's or forward-looking statements.

The net impact to the settlement after accruals already taken and insurance coverage was a $0.14 hit to Q2 earnings.

This negative impact does not include a potential insurance recovery of approximately $10 million from one of our previous insurance carriers.

The net cash impact to the third quarter from this settlement will be approximately $18 million net of insurance and tax benefits.

Finally, the last adjustment to the second quarter is related to restructuring charges, which cost Pentair $0.01 per share in the period.

Thus, after adjusting for these non-recurring items, second quarter EPS is $0.68, up 11%.

These results included a second quarter tax rate of 33%, we now expect our full year sustainable rate will be 33% for 2008.

Since we do not have any adjustments for the first quarter, these adjustments carryover to the year-to-date column, so by adding the $0.53 of EPS we delivered in Q1 plus the $0.68 of adjusted Q2 EPS, you get to $1.21 EPS year-to-date, up 17% versus 2007.

For the second half, we are forecasting reported results of $0.52-$0.57 per share, which includes an expectation that the negative charges for restructuring and other items in the second half will be between $0.50 and $0.60 per share.

This would produce a full year reported EPS of between $2.44 and $2.49.

By adjusting the full year impact of these restructuring charges, we now expect our adjusted full year EPS to be between $2.28 and $2.33.

This adjusted EPS does include about $0.07 of incremental cost related to the GE transaction and restructuring actions in Water and Technical Products.

This amount was not contemplated in guidance we previously provided because we had not embarked on these actions.

You can think of this $0.07 as expenses that would fall into a pay as you go bucket associated with restructuring charges.

The $2.28 to $2.33 range would provide full year EPS growth of between 9 to 11% for the year.

Please turn to Slide 14.

Starting with our second quarter guidance on the April earnings call, at that time we anticipated $0.64 to $0.67 for Q2, and between $1.10 and $1.23 for the second half.

This would have delivered a full year EPS of between $2.30 to $2.40 for 2008.

Based on our actual results in Q2 being at the high end of guidance, coupled with our current business performance, and the expectation that our effective tax rate will be approximately 33%, our full year outlook before incremental actions has moved slightly higher to between $2.35 to $2.40.

This number is shown in the top section of the slide with a circle around it.

Having weathered the difficult pool season, we'll also continue to see strengthen our Technical Products segment, as well as International Water and Non-Residential Water businesses.

We feel this reflects our core business performance for the year.

This also takes into consideration that our price actions, which continue to be successful, offset material inflation for the year.

However, as we said on the last slide, based on the impact from the GE transaction as well as expenses associated with our announced restructuring actions, our full year 2008 adjusted EPS range reflects an additional $0.07 of expenses, which brings our new range to $2.28 to $2.33.

Let's walk through some of the details quickly, because as you'll see, we feel this investment has an attractive pay back.

Please focus on the middle section of the Slide 14.

These are the major actions that we've recently announced and that we feel are going to accelerate Pentair earnings in 2009 and 2010.

Starting with the GE transaction, we have announced the closure of the GE Rockford, Illinois Residential Filtration plant and the closure of the Pentair Sheboygan, Wisconsin plant.

These sites will be consolidated into existing Milwaukee area facilities, as well as (inaudible), China and Reynosa, Mexico over the next 12 to 18 months.

In addition to these two Milwaukee plants, we also announced the closure of a French operation and two China locations which will be absorbed into existing Pentair facilities within the same region.

Also, we expect to realize the benefit of more leveraged and reduced structure from both businesses.

The impact of these integration activities are pay as you go , and will cost us about $0.02 of EPS in both Q3 and Q4 of 2008 and another $0.06 of EPS in early 2009; but will yield an expected 2009 benefit of $0.15 of incremental EPS is to Pentair in 2009 and $0.25 of EPS when all actions are fully implemented in 2010.

Inventory step up and intangible amortization in connection with GE transaction will cost us another $0.04 of EPS in 2008, and amortization will continue to impact EPS by $0.04 annually.

Net-net, the impact of the GE transaction in Residential Filtration is expected to negatively impact Pentair adjusted EPS by $0.08 in 2008, be $0.05 accretive in 2009 and is expected to be $0.20 accretive in 2010.

We focus on the next section of Slide 14, you could see the impact of the other actions we recently announced.

These expenses are not restructuring charges; but similar to the GE transaction, they are pay as you go expenses associated with these transitions.

In this section, they're related to actions we are taking in Pool and Spa, Flow Technologies, Filtration, and our Western Europe Water operations.

This primarily reflects the closure of our Cypress, California operations within commercial filtration.

The net impact of these rooftop consolidations are expected to result in a reduction or transfer of a significant number of manufacturing positions and shifting from higher to lower cost locations.

We have also reduced non-manufacturing positions throughout Water, and in the North American and EMEA Electronics businesses within Technical Products.

The net impact of these already determined actions is expected to be neutral to 2008 results and $0.06 to 2009 expectations, and an ongoing benefit of greater than $0.15 on an annual basis.

Offsetting these actions is the potential interest benefit of our bond tender action recently announced.

We are seeking to repurchase 7.85% coupon bonds due in October of 2009.

Swapping out this high fixed debt for more favorable variable debt is expected to yield about a penny benefit per quarter based on a 50% tender of the bonds; so if you add the full year 2008 impact from the two middle sections, you get the $0.07 of negative EPS impact associated with these actions.

Therefore, our adjusted EPS guidance drops from what would have been $2.35 to $2.40 down to $2.28 and $2.33.

It's important to note that these actions yield a sizeable benefit starting in 2009 and accelerating in 2010.

As the right two columns indicate, we see $0.15 per share benefit in 2009 net of expenses and anticipate up to $0.40 per share benefit in 2010.

We appreciate you taking the time to let us grind through some of this detail; but as you can see, we believe the impact of actions we're taking today will have a meaningful pay back; and when you consider we continue to improve our tax rate, we have removed the uncertainty associated with our Horizon legal case and we continue to invest in global growth, I think you'll see continued strong performance from Pentair.

Let's turn to Slide 15.

This is a summary look at current sales and EPS guidance versus the initial guidance we offered at the beginning of the year.

Just quickly, in the upper left portion of this slide, our initial revenue guidance for continuing operations has been negatively impacted by a sharper decline in the pool market, as well as the North American Residential exposed portions of our Filtration and Flow businesses.

Technical Product sales have exceeded our initial guidance, and the rest of our operations sales are about as planned.

In the upper right hand corner of this slide, you can see our initial EPS guidance has also been impacted by the steep downturn in the pool market, as well as the continued downturn in North American Residential.

However, this has been offset by strength in Technical Products, as well as a non-North American Residential Exposed Water business.

Benefits from pricing actions have offset incremental raw material inflation, and benefits to the tax rate and interest have also helped offset the residential downturn.

And, while it's not listed specifically on this slide, our cash outlook remains on track to exceed 100% of adjusted net income.

Turning to Slide 16, let's review our outlook for Q3.

Overall, we expect sales to be up 3 to 4% to $845 to $855 million, adjusted operating income of 92 million to 96 million, and adjusted EPS of $0.51 to $0.53.

We expect Water sales to be up about 3% on a reported basis and down a few points excluding FX.

Technical Products faces tougher year-over-year comparisons, but is still expected to grow mid single digits.

Overall, we expect Pentair adjusted margins to be about 11%.

Our margin expectations include the Residential Filtration related impact, as well as the previously discussed restructuring actions.

We expect our tax rate to be 33% and interest to be about 14 million.

Our share count is expected to be close to 99.3 million shares, down over 1% year-over-year; and finally, we expect cash flow to be between 50 million and 75 million.

Turning to Slide 17, let's review our outlook for the full year.

Overall, we expect sales to be up 4 to 5% to approximately 3.5 billion.

Adjusted operating income is expected to be in the range of 415 million; and as we've discussed in detail, adjusted EPS of $2.28 to $2.33.

We expect Water to be up about 1% for the year.

Technical Products revenue is expected to be up low double digits.

Overall, Pentair margins are expected to be up modestly as we continue to overcome difficult residential markets and high commodity costs.

Also in this margin assumption are the expenses associated with integration of the Residential Water Filtration business and the pay as you go expenses for restructuring actions.

We expect our tax rate to be 33%, as previously mentioned, and interest to be about $60 million.

Our share count is expected to be close to 99.4 million shares, down 1% year-over-year, and we expect free cash flow to be greater than 235 million.

Our debt position at the end of the year is expected to be approximately 940 million, including the purchase of 50 million of our shares under our authorization, and debt to total capital is expected to be 31 to 32%.

We appreciate your time and attention as we walk through a tremendous amount of detail.

In summary, we continue to strengthen our business portfolio and persevere through the challenges of certain end markets and commodity pressures.

Our updated EPS guidance reflects the cost of the actions we are taking today to yield a great pay back over the next 12 to 24 months.

As a reminder, our 10-Q will be filed today so you can be on the look out for it.

That concludes our review.

Operator, we'll now open it up to

(OPERATOR INSTRUCTIONS).

Your first question comes from the line of Jim Lucas with Janney Montgomery Scott.

Thanks, good afternoon, guys.

Hi, Jim.

And thank you very much for all of the detail today.

Two questions here, on Technical Products, you touched on the end markets but could you speak a little bit about some of the benefits, if you're getting them already, of the GBU of combining electronic and electrical, given some the of the historical fits and starts you had on the electronics side?

Right.

I'd be glad to, Jim.

Okay.

As you're referencing, we combined the electronic and electrical under Del Nickel, a long time leader of the electrical side of the business.

The first benefit is he's done a lot of G&A consolidation, leveraging the expertise and capability in electrical to help take the cost out.

The SG&A actually is higher in electronics, even though the margin is lower.

So it's clearly a big opportunity on the SG&A side.

The second is, is that we had electrical plants, particularly ones in Mexico, which we're frankly running at 98% capacity on the electrical side and running at 50 to 60% on the electronics side, so we're getting better leverage of the utilization there; and also we're taking a broad technical products view on the growth side.

So that for instance in India and China, while they 're skewed towards electronics right now, we're getting more of an effort on electrical.

So I think they're off to a really, really good start -- so we're getting both cost benefit and growth benefit from it.

Okay.

And from a strategic standpoint, I mean, clearly, this was a very nice transaction with a new joint venture and you had the one divestiture earlier in the year.

Can you talk about from a managerial standpoint how you're feeling about the portfolio today, and are you in a position to pursue -- or are you even looking at anything along this scale currently?

Well, you mean, something of a similar size?

Yes.

You know, the opportunity to merge the Residential businesses into one business made a lot of sense to us, and our teams worked really well.

The nice thing about it is we picked up some great people -- including the GM of this business actually comes from the GE side -- and so we actually picked up talent.

We've also beefed up our operating leadership under Mike Schrock, to better handle plant consolidations, and I think we have a really, really good plan for that.

So the Filtration business is going to be pretty tied up with this Residential venture, but it's not going to slow us in terms of our organic growth investments.

And really in Flow Technology hasn't been affected by this; and actually selling the National Pool Tile business like we did is allowing our Pool and Spa business to focus on the heavy lifting they have to do there given the downturn, so I don't feel like that we're management constrained to do other deals.

That said, my main focus is to build the same kind of organic growth culture in Water that we've proven we have in Technical Products.

And finally, on the Jung acquisition, could you just bring us up-to-date there of how that integration has proceeded, and has it delivered on what you had targeted when you made the deal?

Yes.

They're slightly ahead of plan versus our acquisition plan.

They have a great product line.

They've had solid growth.

They've been everything we thought they could be in terms of helping us in Eastern Europe.

I think there's more we can do in taking that product into the Middle East.

I think there's more -- and I'm not complaining, because our Middle East business was up over 60% in Water in the quarter -- but I think there's still even more opportunity to leverage that; and as we solidify the GBU structure, I think there's more we can do with their technology and their product lines globally.

So financially good.

Sales good.

And strategy, still more opportunity.

Great.

Thank you very much.

Thanks, Jim.

Your next question comes from the line of Deane Dray with Goldman Sachs.

Hi, gentlemen.

Hi, Deane.

Love to have you kind of of step us through the commentary.

You said it twice, that this was the worst pool season in the history of Pentair; so just take us through where you think end market demand went during the course of the quarter.

I mean, there's some replacement cycle that should still be somewhat resilient, so what's happening really in sell-through?

Are you losing share, and with distributer inventories being this low, wouldn't that suggest that you're going to see a little bit further demand coming out of distributors later on?

Yes, Deane, let me start with the end market, as I mentioned, and as you pointed out.

The end market sales -- the sales out of distribution into the actual -- in the actual pools -- came in about where we thought it would be.

We thought it would be down about 10%, driven largely -- we're between 50 and 60% replacement, but with housing starts down so steeply, particularly where we have our largest market share --we are the largest market share player in Southern California, Las Vegas, Arizona, Texas, Florida.

With the exception of Texas, those are all the markets that have been impacted the worst in terms of the housing slowdown.

That came in about like what we thought.

In terms of the end market sales, the replacements are happening, but the upgrades we might expect to have happen isn't.

People aren't upgrading lights and they aren't upgrading controls the way we would like to see them do.

So I think we have an opportunity to do some better marketing and sales on that replacement cycle.

But they are replacing pumps and they are replacing filters.

So in terms of the distribution drawing down inventory, I think part of that was the weather.

It was a little bit of a slow start to the summer, so I think they were over inventoried and that was one of the factors; but I also think they're being very cautious because they didn't see the pick up -- and yes, they're managing their own cash.

So I think -- I don't think we were bullish about what happened with inventory, but I don't think we anticipated this.

We anticipated it later in the year.

They typically take their inventory down at the end of the third quarter, which gets me to your last point, your last question , which was shouldn't -- now that the inventory is down, shouldn't that bode well for the second half?

I wanted to put that -- we wanted to put that on the upside.

We didn't want to count on that, so when we say that we expect the business to be down in the second half 15%, we're not expecting a big inventory decline, but that's also worse than 10% run rate sell-through.

So I'd say that our outlook is a sober one on that.

I don't think we're losing share.

I think that the markets that the have that slowed down less are where we have lower shares, so I view that as an opportunity to beef up our share.

Now I'm talking about the Midwest, which Sta-Rite as strong but Pentair isn't such a strong brand.

And then in the Northeast, Hayward is still the number one brand, and I think we have opportunities to beef up our share

What about new products?

I know in previous pool seasons, there was a lot of commentary about the launch of new products and vitality index, and it was awfully quiet this quarter with regard to -- or the last quarter with regard to the expectations on new product contributions.

Did that get dialed back, or was there just not a contribution that you saw --

No, you know, I wish they were bigger.

They're about in line given -- the whole problem is being down 22%.

They couldn't really hold sway.

We are being able to sell those in markets that are more sensitive.

I think there's still more marketing we can do.

Where we did the marketing in Southern California, for instance, on the IntelliFlo pump and IntelliTouch controls we did well.

I think that we can do more of that.

That said, we've been scrambling to deal with the 22% downturn.

So I think the mix is about what we thought it would be.

The uptick in the replacement market is a little softer than we would like in some of this newer technology, but we're within striking distance of where we thought we would be volume wise on new products.

Okay, and then just over on the joint venture, could you describe for us -- I mean, we've heard the economics and a little bit about the scope of the joint venture, but how about on the product side, and what markets specifically are you attacking jointly with this combination; and where does the line on the joint venture end and where does the traditional sump pump and Farradyne that has residential exposure, where does that end?

Actually, this is -- let me bound it for you.

It's really one business.

We're operating it as a division of Pentair.

We have a minority share owned by GE, but we like that idea of keeping GE in the game because what they're bringing is the brand and they're bringing technology.

As you know, they're investing in some very good technology.

Residential isn't their focus of their market; so they like the idea of getting a little bit of uptick on some of their technologies that are developed, and in particular, technologies that they're bringing into this venture that we like.

You know, the Home Point -- or HomeSpring, excuse me -- whole house, ultrafiltration which came from their Xenon acquisition.

And then what's called Merlin, which is a tankless RO system, which we think both of those products have opportunities if they were more broadly distributed through the pro channel, because it's a pro channel kind of sales for most of those things.

So we see real opportunity with that, and we also see some other technologies they are developing for the industrial and municipal space that can trickle down in the residential space.

The scope of this is water conditioning valves, tanks, water filtration products -- there are no sump pumps, there -- none of our Flow Technologies business went into this venture.

So that's the scope around it.

So no well pumps and no sump pumps.

That said, you know, to the extent that we can leverage distribution like we've been trying to do and we've had some success of -- for instance, with our industrial thrust between flow and filtration -- I think we'll do that.

There certainly won't be any impediments to do that, though the sales will obviously either get booked in Flow Technologies or in the Residential Filtration business.

Deane, I would just add, it's an exclusive channel for Residential in the markets that Randy shared with you and it's a preferred supplier into the commercial industrial side, and each party, GE and Pentair, will continue to bring its own sales force to the industrial commercial and municipal markets.

Thank you.

Thank you.

Your next question comes from the line of Mike Schneider with Robert W.

Baird.

Good morning, guys.

Hi, Mike.

Maybe first we could just focus on International Water.

I'm curious when you look at the growth rates by geography, international has been up about 10% according to Slide 8, and then the domestic businesses, municipal and commercial, have been up about 12.5, call it on average.

I'm curious why the domestic pump businesses are still outgrowing international.

given your lesser penetration overseas -- it's been a focus now for several years.

Yung Pump was growing strongly.

Is there any particular constraint on the growth rate there?

Yes, we're going to refine that, by the way, and I think there's export numbers getting booked and we're trying to separate them by vertical end market; but I think in particular in the pump arena, still a lot of that product is getting booked as domestic even though it's going export.

For instance, if you just take a look at our commercial pump business in North America, it grew about 10%.

We actually grew in the U.S.

in the flat market -- commercial market we see as flat -- it actually grew mid single digits.

But it grew 50% in exports.

So we probably don't have that split quite right yet and the reason -- Europe -- that's without the benefit of FX, those growth rates, and Europe -- Western Europe -- has slowed to being single digit kind of growth, so that drags it down.

Asia continues to be the 30% kind of grower in China and India that we've been seeing; and as I mentioned the Middle East has grown over 60% so we're continuing to put efforts against that.

So I think when we have our Analyst Day, which is coming up -- our Investors Day -- we're going to refine these numbers more fully.

So I wouldn't say that there's much more than that to explain the difference.

Okay, and then could you just dig one level deeper and talk about Aurora (inaudible) more domestically?

Have you seen pressures and municipal budgets or project delays at all to begin to unfold in those businesses?

Well, you know, we've seen -- and I was talking about Aurora actually when I gave you those numbers before.

It was over 5% -- between 5 and 8% growth in domestic commercial sales; although we think commercial construction was flat, so think some of our new products, variable speed and some of our other new products have actually helped us gain share in the U.S.

And as I mentioned, exports are way up, so -- and that is Asia and that is Middle East where those exports are going, so that's how we view Aurora.

Aurora is really probably -- I don't know the exact number, but probably approaching 40%, not U.S., which is outstanding.

And in the municipal side, if you take out the big New Orleans whale and look at it year-over-year, our municipal backlog is up and our order rate has been really, really strong, even excluding the additional efforts we've done outside.

So we haven't seen any slowing in municipal, not in our book of business.

Okay, and then in Technical Products, the growth rates on Slide 10 show that you're expecting the growth basically to go from 16 to 9 first half to second half.

It looks like -- at least we heard from your distributors there was another price increase that went out effective mid year.

Did you enjoy a pre-buy in Q2 that would have detracted from what's coming in Q3?

You know, we probably picked up a little bit of benefit, Mike, but not significant.

Order rates were pretty good all through the quarter.

Strong all through the quarter.

And frankly, the first couple weeks of July were pretty good, too.

So my guess was we thought we might pick up a little, but -- and we probably did but it's not really significant in my mind.

It would probably be a point or two, Mike.

I think the one thing to remind you is if you take a look at Electronics last year, we had a difficult first half of 2007 and we began recovering in Q3 and Q4 of 2007, so part of the year-over-year delta in the growth rate is a squeeze in the Electronics contribution in the second half of the year.

Electrical we are forecasting could be a little slower growth, and we are anticipating that the price increase maybe pulled a couple points as mentioned from Q3 into Q2.

And then similar question on margins.

Is it the case where pricing in the first half has actually outpaced or preceded your raw material inflation curve such that it looks like you're actually forecasting down margins in the second half?

Is that just raw materials now, actually flowing through inventory in the income statement?

Well, we do think we'll see greater inflation in the second half, which is one of the pressures on margin; but the other big one, Mike, is we're assuming that Electronics is going to play a bigger role and global, and they have lower margins than North American Electrical by a lot, as we've talked about before.

We still haven't got Electronics close to the 10% goal that I have for that business -- for those segments, so I'd say it's probably as much mix as it is the increased inflation in the second half.

Okay.

And then John, just a nuance on the income statement regarding the GE joint venture.

Will there be a new line item, then, of equity income being deducted below the line going forward r?

No.

We already have that line right now for the Ferradyne -- where we put the Ferradyne -- in the minority interest, so we will put this through that same line.

We're still exploring exact answers to that, Mike, but that's our intent right now; and if you guys need it, you could see the Ferradyne piece right now and the delta will be what the GE piece is.

Yes, okay, and then am I right, it's going to run 4 plus million a quarter?

Does that sound right?

No, that's probably a little high.

Right now if you were taking a look at a forecast number there, they're going to have to absorb about 20% of the D \&A and 20% of the inventory step ups and 20% of the integration as well; so it's more in the 2.5 million range for Q3 and Q4, and then it would ramp up to the numbers that you're referring to in the '09 and 2010 time frame.

Got it.

Thank you, again.

Thank you, Mike.

Your next question comes from the line of Curtis Woodworth with J.P.

Morgan.

Hi, good afternoon, guys.

Hi, Curtis.

In terms of the facility rationalization of the six plants you commented on, $0.40 of cost savings associated with that, can you walk through the timing and when you expect all of the facilities to be fully rationalized?

Sure.

Let me start with the Residential Filtration business first.

We announced the Rockford and Sheboygan plants, yesterday and those are the two large ones within Residential Filtration piece.

Rockford, we would expect that we would be able to get after that in about a year time frame.

We're anticipating on the Sheboygan side that that's probably more of an 18 month closure because of the certifications required due to the tanks and the water filtration valves that we make in that particular plant.

The Sheboygan piece is a commercial and a residential plant, so we're moving the commercial products to some of our locations locally and also overseas, as well as we're moving to China and Mexico on both Rockford and Sheboygan.

So call it 12 months for Rockford, about 18 months for Sheboygan.

The France consolidation will be quicker.

It will be a six-month type of transition, and the Asian moves that Randy mentioned will also be in that six-month time frame.

They're pretty much leased facilities, close to our locations, and we should be able to move the assets relatively quickly.

The other large factory that we mentioned is our Cypress, California, and that's in our Industrial Filtration business, and that probably closer to one year time frame for closing.

Okay, so in terms of the $0.40, how much of that would be additive to the savings you identified with the GE joint venture?

I think we broke it out -- in that chart is about $.20 related in that JV.

I think it was like 14 contract?

Yes.

Okay, so that encompasses, then, kind of the aggregate of all of these moves -- the joint venture and --

Yes, we tried to break them out separately to say, okay, $0 .20 comes from the Residential, and $0.16 comes from these factory and G&A structural moves and then $0.04 comes from (inaudible).

Got it, okay.

Okay?

And then in terms of the outlook in the back half of the year for the Commercial and Industrial segments, you are basically articulating a similar growth rate in the first half of up 10%, I guess for U.S.

And Europe.

Can you walk us through how that analysis was made?

I mean, it seems that from a conservative outlook on the global economy, the growth rates would -- you know, you would think that they would maybe be a little bit lower for similar to what you were saying in Technical Products so I'm just curious, what are you seeing, how your backlog is looking to give you the confidence in that number?

I mean, I think we're pretty comfortable with the numbers we gave.

I mean, we have certain end markets like agricultural, certainly oil and gas, a lot of those markets are really doing well and continue to be robust.

To remind everybody, Porous Media is still a fantastic operation that we acquired and they're benefiting from the energy, and they have the super cycle as well and ahead of plan.

So we have some good tail wind in some of the end markets we're servicing; and other than what I would say -- and Food Service continues to be strong.

Food Service is a great story.

I mean, we're up double digit in Food Service; and by all rights and measures, I don't think the food service industry is growing right now.

So I think it's a testament to our new products and our ability to gain market share.

These numbers on the charts are our sales; so for instance, our commercial markets -- we think commercial probably will be down at the market, but we have new products both in Water and in Tech Products, which is we think will still allow us to grow in the single digit kind of category.

Okay?

Okay.

And one final question on the Water margins.

If you were to try to normalize for the Pool business, the incremental margins are very high there in Q2 for Pool, could you give us a sense for how the Water margins would have looked this quarter?

Or said another way, what was the margin hit from Pool?

Well, it was the $7 million just from -- well, if you took it all out it would be more than 0.07 a share.

It would be more than that.

Yes, I would think of it as our Pool Equipment business was roughly a 10% margin business.

Here is the easier math.

I'd just think of it as a 30% conversion.

Yes, if you go to Page 7 and you look at the lost sales, that's largely $30 million -- and you take 30%, that's $9 million and 9 million on 642 is the (inaudible).

Got it.

So we would have actually been up year-over-year in margin.

Right.

14.5 or something.

Got it.

Okay.

Great.

Thanks very much.

Thanks, Curt.

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

Thank you.

Hi, Chris.

Most of mine have been asked.

Hi, how are you?

Good.

Yes, most of mine have been asked, but just on the price , I was thinking maybe inching up closer to 2, maybe you're not getting -- some areas a little tougher to get the price you maybe anticipated a little earlier in the

No, I would say that in Technical Products, we came out of the gate in all three Technical Products with a price increase early, and as Mike mentioned we also went in with another one in Q2.

I would candidly say I think our Water businesses were a little bit more optimistic on the benefit of sourcing earlier in the year, and by the time they got their price increases in, it was towards the tail end of Q2.

Right.

They did what they did expecting a little bit lighter inflation.

And now --

So we're now adjusting.

We'll increase the price action to cover the impact of the raw materials.

So more price in the second half?

Correct.

Yes.

Okay, and on the sourcing, what kind of stalled out there, or held you back?

I think it's primarily, there the -- it's twofold.

One is the impact of the raw materials -- and there's not much any of us can do to control the inflation that's happening out there in certain core products, especially things like motors, and that would be an area that we've lost ground on.

And then the second one is any time you're losing value, you have less scale to go out and to negotiate from, and with the downturn in the volume in some of the water core markets we're struggling a little bit with the commodity negotiation.

Okay.

So nothing in terms of feet on the street or exploring the opportunities in low cost regions or anything like that?

No.

I assure you we're all over that and we've definitely - Randy , Mike and I have all turned up the heat on that, and we're viewing the sourcing deck and we got to make faster progress

Right.

The resins, steel, motors, they're all higher, so a lot of the productivity has to come with innovation to change -- one of the things Mike Schrock was talking about, like changing the bronze in color to stainless steel, and that's a redesign.

We have that product line, but it's a different sale to the customer, so it's just a steeper hill.

But we got good ideas.

Okay, and then just one bookkeeping.

The six facilities cited in the restructuring in the press release and the five through the GE JV, those are -- there's overlap there, right?

I'm sorry, say that again, Chris?

Yes, the restructuring announced in the press release citing six facilities, and then in the slides five facilities related to the GE JV?

Five related to the Residential Filtration business, plus the Cypress, California plant is the sixth, and that's in Industrial Filtration.

Okay, great.

Thanks a lot.

Thank you.

Krystelle, this is Todd.

We're comfortable going over time.

We just want to check to see how many people are in the queue.

You have have one more person.

Well, there you go.

We'll do that --

And your next question comes from Francesca McCann with Stanford Financial.

Hi, there.

Hi, how are you, Francesca?

Doing well, thank you.

I'll be pretty quick here.

Just if you can walk us through any additional detail in terms of what actions you plan to take for Pool.

Yes, I'll be specific and brief.

I think the one area that we continue to explore is what are we going to do about Spa and Bath; and our Spa and Bath business, just like our Pool equipment business, was exposed to a difficult market, and we're exploring all options there, from monetizing the assets to taking a look at what we can do to more effectively run the business in its current operation, and we want to make the right economic decision and our team is all over it.

We have a great leader who is driving the process, and we continue to make progress.

What about actions related to Pool non-spa?

I mean, we've known for a long time that the Spa business is not a very good business, so what about for the rest of the business?

Well, we've been aggressively taking cost out of the factories.

We've maintained our investments in new product developments and actually, we've increased our investment in the commercial pool area, which has actually not declined, as we've seen growth in that, and it's not getting out because of the big downturn in residential.

Structurally, the Pool business, you know, we've owned it for 10 years.

This was the worst quarter in 10 years.

And for eight and a half of those years, the Pool business was our fastest growing, most innovative, and, frankly, most attractive part of Water.

And the last 18 months has proven it's not recession-proof, particularly after an 18 year party that this business had in terms of growth, and my view is as I've said in the script, I think -- I'm expecting this business to be stronger coming out of it.

I expect them to have -- maintain their leadership in the sales force that we have, maintain their leadership in the product innovation that we have, and to improve our share in some of the markets where we're weaker, mostly in the North, which hasn't had as steep a decline as the South, in North America.

So I think the one thing I didn't mention is that the Pool is never put out as one of our great manufacturing operations.

I'd really like to see them come out of this as being at least average.

Okay.

And once we finally do see some turnaround in the housing market, what kind of time delay do you anticipate with some uptick in for you in Pool?

I bet -- and I haven't been through a downturn in Pool -- but my bet would be as soon as the market comes back and people start laying inventory in, it could come back pretty fast.

Okay.

But I don't anticipate that in the second half.

Right, but say it's another three or four quarters.

You think that Pool sales will kind of be automatically correlated with an improvement in the housing market?

I think there is a six to nine month, call it a 12 month delay.

I think housing market could come back, that's going to benefit our flow and filtration businesses quicker, and new housing starts; and then as we've said, we usually put a pool behind the new house or house within a year time frame, and we'll see that lag slightly, but Q4 2009 I think will be the telling quarter for us to what would be the early buys for the 2010 anticipation, and we'll probably have indications of any inventory builds prior to that.

Would you agree, Randy?

I would, but I'll bet it's faster than that.

Okay.

Yes, just wanted your take on that.

And then one other question looking out the longer term, kind of overall margin, about a year, year and a half ago, you'd been talking about margin goals of 15%.

I know that we'll see more volatility coming up, but looking at adjusted margins for all of the restructuring efforts that you're putting in, where do you see kind of broken down between Water and Technical Products margins being in the longer term?

I think, as I've said to you Francesca, and said to many and all, I think our Water business is a 20% plus market business.

I mean, that's what our expectation is; and 15% as I pointed out along the way, and I think the actions we've laid out today clearly identify a pretty clear path to 15 plus; and as Randy mentioned earlier, technical products which today is at 16%,, has a significant amount of opportunity in Global Tech Products especially with Electronics.

So I think both of these businesses will be high teens and heading to 20.

That's kind of where we're hoping to drive them, and that's our expectations.

And that's over the next two, three years or beyond?

Three to four.

Three to four.

Okay.

All right, I think that's it for me, thank you.

Thank you.

All right, thank you.

Todd?

Yes, okay.

Krystelle, thank you for helping us host the call; and everyone, thanks for participating on today's call.

We'll be around if you have any questions -- feel free to give us a call.

And also, we hope to see everyone here in Minneapolis on September 9th and 10th for our annual Investor and Analyst Day.

Thank you.

This concludes today's conference call.

You may now disconnect.