Good morning. My name is Julie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pentair Second Quarter 2011 Earnings Conference Call. [Operator Instructions] Thank you. Ms. Zawoyski, you may begin your conference, ma'am.

Thanks, Julie, and welcome to Pentair's Q2 2011 Earnings Conference Call. We're glad you can join us. I'm Sara Zawoyski, Head 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 Q2 2011 performance, as well as our updated full year outlook, as outlined in this morning's release. Before we begin, let me remind you that any statements made about the company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in Pentair's 10-K as of December 31, 2010, and today's release. 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 Financial Information section of Pentair's website at www.pentair.com. We will reference these slides throughout our prepared remarks. Any references to non-GAAP financials are reconciled in the appendix of the presentation. I would also like to point out that all financial results and references to year-over-year numbers in today's call and presentation are on a continuing operations basis, and comparative with adjusted figures, unless otherwise noted or highlighted. We will reserve Q&A time for investors and analysts after our prepared remarks. We'd ask representatives from the media joining us today to please reach out to our media contact, so that we can be helpful in answering your questions. With that, I'll hand the call over to Randy.

Thanks, Sara, and welcome, everyone. Let me begin with Q2 results as shown on Slide 2. Pentair delivered a strong second quarter, with sales up 14%, margin expansion of 70 basis points, and EPS growth of 23%. Underpinning these results are successful investments, a growing international presence and strong execution across the board. First, investments in more energy-efficient sustainable product offerings and added global sales coverage continued to yield positive topline results, as evidenced in our Q2 performance. Water sales were up 15% or up 7%, adjusting to exclude Clean Process Technologies, or CPT, and the 2010 Gulf Intracoastal Waterway or GIWW project sales. At the same time, Technical Products grew 13% on top of prior year's 19% growth in Q2. Second, fast-growth regions are meaningfully contributing to Pentair's growth, approaching 20% of our total sales mix in 2011 compared to less than 15% just 1 year ago. In the quarter, fast growth region sales were up 26%, excluding the benefit from the CPT acquisition, and 55% including CPT. Third, we continue to drive meaningful margin expansion through continuous cost structure improvements and strong execution of lean deployment across Pentair, with margins up 70 basis points. And finally, CPT is off to a great start with good top line momentum and plenty of growth opportunities for the combined businesses. On earnings, we delivered adjusted EPS of $0.75 compared to $0.61 in Q2 last year. The margin performance of both Water and Technical Products, along with lower taxes from a more favorable geographic mix, drove adjusted EPS $0.03 above the high end of the guidance we provided in April. As a result, we're raising the full year outlook to reflect the Q2 beat, and some added CPT benefits we see in the second half, which John will cover in more detail…

Thank you, Randy. Let me begin on Slide 9, titled Q2 Performance Excluding CPT. We acknowledge that the inclusion of CPT in your models takes some work. So I wanted to show you what Q2 numbers look like excluding the impact of CPT. The base business, excluding CPT, had a very solid quarter. Revenue was up 8%, 9% excluding the impact of GIWW, which was around $7 million in Q2 of 2010. Operating income growth of 18% was driven by strong margin expansion in both Water and Technical Products related to volume, productivity and solid execution of managing the price material cost deflation. Overall, Pentair margins reached 13.8% for Q2 2011, which were up 120 basis points year-over-year. Overall, Water grew 5% organically, 7% excluding the impact of GIWW. ROS expanded 130 basis points to 15.1% due to volume leverage, price material cost management and lean improvements. CPT results for the approximately 7 weeks of ownership were $54 million in sales, and roughly $3 million in operating income inclusive of typical integration cost. This was in line with expectations. Overall, a very solid performance for the base business, plus a good start for CPT. This gives us confidence that CPT will enhance our overall business outlook, and be additive to our previous Pentair longer-term expectations. Please turn to Slide #10, updated 2011 CPT. The combined Pentair and CPT teams have put forth a tremendous effort over the last 7 weeks to review the business drivers, R&D pipeline and backlog, connect with the functional and country leaders, and understand the global sales channels. And we are more excited than ever about the synergy opportunities, particularly revenue in the next several years. We have completed our purchase accounting work, and wanted to give you the final impact of this analysis and effort.…

Thanks, John. 2011 is shaping up to be a record year for Pentair with solid top line performance, excellent margin expansion in the base business and our new CPT acquisition firmly in the fold. And while the macro environment is mixed, we believe our strategies to invest in global growth and innovation while leveraging PIMS will deliver sustainable profitable growth as our first half results demonstrate. As we turn the page to Slide 17, again, we would like to remind everyone that we will be hosting our Annual Analyst Day on September 14 in New York, and we hope to see you there. Thank you for your time. Now let's turn it over for questions to the operator. Operator?

[Operator Instructions] Your first question comes from the line of Robert Barry with UBS.

I wanted to ask about the price inflation dynamic in the quarter. I think last quarter, you expected to get about 150 to 200 basis points of price this year. And I think to offset inflation, I was curious what your latest views were on that.

We still feel that we'll be in that 150 to 200 basis points range. Water was impacted slightly in Q2 by some sales rebates in our Pool business, which -- those come in as we forecast what the business is going to do for the full season. And that was a few million dollars in the quarter. That won't impact the full year with the timing issue between Q2 and Q3.

Okay. A question on pool actually. Did you continue to add dealers in the quarter?

Yes.

Yes, we did.

What was the kind of same-store sales basis growth rate in Pool?

I don't have that right now, I'm so sorry.

Pool grew around 6%, 7% in the quarter,7% as Randy mentioned. We probably got a point of share from adding dealers. Now we do have a retail component in there that we're building out pretty aggressively, and that was a piece of it as well.

Okay. And then just a question on Slide 11, which was very helpful, related to the tax, how much is the lower tax rate adding to the EPS guidance?

Yes, it's -- what we've done is our previous guidance around 32% for the year, did not reflect the impact that CPT has on the overall tax rate. So as we look at our full year estimates of both the base business and CPT, the ongoing tax rate now is around 30.5%. That is inclusive of the double taxing of the bonds, as I shared in my comments.

I'd add that we anticipated some of the tax benefits when we gave the $0.03 incremental CPT and some of the additional $0.02 is also tax...

Yes. So I mean the difference between the 3 and 5 reflect a little bit better performance in the business, and maybe a $0.01 extra in tax.

Okay. Because I guess if I just look at mid to mid, and maybe I'm not thinking about it right, $2.39 to $2.46 is $0.07 higher, $0.02 of that is the change in CPT, $0.05 is second quarter. And then if I go to my model and lower the tax rate, it's going to add another $0.05. And probably it's a headwind, but is there some double accounting there? Is some of that $0.05 embedded in the...

Yes, geography is. I mean, the interest is going up substantially, right? And then the tax rate is getting better. That's why we were sharing with you the little chart on slide. Well, we did a little waterfall graph on Page 10, because that's the way to do CPT. And that will help as you look at the geography, and then you think of the impact of CPT.

Okay. So then bottom line is and maybe you even touched on this in one of the later slides, in the current update versus last quarter, there's no incremental headwind that you're seeing in the back half?

Nothing that we didn't already anticipate like more moderating growth in Industrial. So really, the business outlook is STET, and is a little bit better with CPT.

Your next question comes from the line of Hamzah Mazari with Crédit Suisse. Christopher Parkinson - Crédit Suisse AG: This is Chris Parkinson, on behalf of Hamzah. Can you just give us a quick update on basically any cross-selling initiatives following the CPT acquisition? In your views, are there any areas of particular focus given the company's end market distribution?

Yes, I gave you the one example in Brazil, which literally was something that was -- it hasn't shipped yet. It wasn't in the second quarter. It's an order we just booked. But that's the kind of example where they -- the CPT team has a different reach globally than our business did and much deeper into municipal, globally much deeper into industrials. The case example I gave you where the CPT team sold some CodeLine product was actually to an energy company in Brazil, which we've never made a sale to before. So what we're doing is we're filling out the product line, and making it available to the CPT team. Then there's some straightforward cross-selling, for instance, in their systems business. They didn't use our enclosures. They didn't use our tanks. They didn't use our housing, and that's getting all changed right away, as you can imagine. We call that the in-sourcing opportunity, and so we've got a good handle on all of that. And I'm really encouraged by the -- it's more than receptivity, the welcomeness the CPT team has to do that because it's a real win-win. So 2 efforts, one is the in-sourcing into their systems business in particular, as well as in-sourcing their membrane, the ultra filtration membrane into some of our innovation platforms on, for instance, residential side. And then, it's the filling out the product line and leveraging their, frankly, higher touch deeper relationships with some very attractive customers outside the U.S. And the last piece will be to leverage our position in the U.S. to help them grow particularly in the beverage area and Water in the U.S. Christopher Parkinson - Crédit Suisse AG: Perfect. And then just a quick question, can you give us a real quick update on the muni pipelines? Is this still basically maintenance oriented, or do you believe there's going to be any inflection over the -- let's say, the intermediate or longer term, where do you see that?

Right now, I'm just talking about, leaving aside for a minute the Filtration side, the Filtration Solutions business, which is certainly desal and globally. Our large pump business is in municipals, largely U.S. So we don't get the benefit of some of the spending. We don't have much exposure to that outside the U.S. So I'm just talking about the U.S. market. We saw the quote activity rate fall drop down, so our backlog is at a low point right now. Quote activity is picking up. That's encouraging. But until it turns into funded orders, I'm not going to hold my breath. And that's why we said what we said about the second half x GIWW being down 5% for that business despite the fact that commercial and industrial sales will be up globally. And that, we anticipated that. I wish it wasn't true, but that's the reality we're seeing right now. And I think it will still remain break and fix. Something has to change there. I mean, the opportunity we believe is actually going to be different when it comes back. It's going to be water reuse, which is attractive for us with CPT, and our other opportunities on the backside of wastewater. And they're going to have to find new creative ways to pay for it because municipalities are going to remain constrained for a while even though they have pricing capability in water. So it's going to be an interesting debate as to how that gets solved but it has to get solved, particularly where there is heavy drought.

Your next question comes from the line of Deane Dray with Citi Investments.

We've had a lot of focus on the upside coming out of CPT from the Water perspective. I'd be interested in hearing a little bit more color on the other part of the business, the Foodservice. I know you called out some pretty heavy growth coming out of China. So will you just take us through what the opportunity is, how do you go to market? So we're very comfortable in -- you know the water sector, you know all the water customers. You do some business in Foodservice today, but how much of this is new territory for you or selling additional CPT products to existing customers?

Sure. Great question. And let me differentiate between Foodservice. We use Foodservice to describe what we do with Starbucks and McDonald's, and Darden restaurants and the like. So that the -- in restaurants or in hospitality versus food and beverage, which is, if you will, at the factory level which is the focus of the CPT. They're the world leader in the beer business, in Beer Membrane Fil, MBRs -- actually, BMR -- BMFs, Beer Membrane Filters. And we've had a number of very encouraging discussions with the highest level, with the leading manufacturers of beer. And they actually view CPT as part of the Pentair fold as giving additional opportunities for us to expand what we offer in those areas. So that's one of those areas where we're filling out, if you will, the product portfolio, to leverage their very, very strong coverage in the beer business. Similarly, they have leading positions in a number -- they had some really great reference installations in the soft drink area. So again, because of our region and our depth, we're having very encouraging discussions to try to grow that. Because their market share is leading everywhere in the world in beer. It is spotty in soft drinks. So we see an opportunity to fill out market share globally. And then in the dairy business, in particular, their share is low in North America, which is the largest dairy market. So we see real opportunities for them to grow here. Leveraging the MBRs, in particular, not just on the product side, but in the waste side, it varies. I mean, I mentioned the anaerobic membrane bioreactor application. That's basically taking the waste in huge diaries and turning it into one, a water reuse opportunity and two, into biogas that they can use to fund their facilities. So it's a big focus area for us. Their positions with what they call the signal [ph], the market leading positions in, I'd say, is the highest quality, highest value valving. And valving manifolds are used in beverage, as well as Haffmans, which is CO2 removal and CO2 reuse, which is both a green activity. That's also a nice cost savings for the businesses. So we -- a lot of our -- the water investments are easier to think about. The beverage, the food and beverage ones are very exciting as well.

Is there a big margin differential between the Water and food market?

Yes. Food and beverage is higher and in some cases, meaningfully so. But when you take a look at the life cycle on the water side, it's good margins too.

That's good to hear. And over in Technical Products, as you were clicking through the end markets, what kind of jumped out to us was the comment about the opportunities in charging stations for electric vehicles. And this is kind of reminiscent of the opportunity you all had in the wireless base stations, a couple of cycles ago. So what is the opportunity? What's the content for Technical Products, and how do you see this growing from here?

Well, I mentioned the one project that's at over $4 million in content for us in that 1 project. And that is just to place maybe 1,000 units out in the field, and what we're doing is we're doing basically the housings, pedestals, wall mounts, a bunch of different pieces in both the power source and then the individual charging stations. And we -- I'm not going to give you a number, because I've seen some spectacular numbers for the opportunity, but I'd like our team to come up with our own sense of what that opportunity is. As you know, we've done integration in a very high level. And a number of the companies we're talking about are really more technology companies. And they're not really manufacturing companies. So we're very excited about the opportunity, but I can't give you a number now. But I think that's a fair thing for us to mention, and we'll give you that September 14.

Is there an opportunity in thermal, India's charging stations? Will they be outdoors?

Yes, a lot of them will be outdoors. Generally, at the power source itself, at the transformer, there may be some cooling opportunities. But it will probably be air to air. It won't be fully air conditioned, I wouldn't think, but I'm getting out of my league here.

Your next question comes from the line of Michael Cox with Piper.

My first question is on the capacity expansion you've done in China and India. Where do you sit today in utilizing that? And I guess, what sort of runway for growth do you have in the facilities you've already built out?

Well, as many of you have seen, you've been through the facility. We've doubled the facility in Suzhou. We now have -- in Wuxi, we have a pump manufacturing capability, and we still have big opportunities. I would say we're 60, plus or minus, 5% utilization right now, and filling rapidly since we -- particular, with the focus on this in-country for-country. We talked about Pentair Fresh. We talked about a number of other things. We now make CodeLine in China, which lets us get underneath, inside, if you will, the duty that made us uncompetitive in China with our CodeLine. And so we're gaining rapid market share there. And so we still have a lot of room for growth with the space we built. And we have fantastic leadership there.

Will you anticipate a similar type of program in Brazil at some point?

Well, we have. We made the acquisition in residential filtration, Hidro Filtros. And in fact, John and I are going down there as soon as we get cleared with a few things in Brazil. And we think Brazil offers that kind of opportunity. Whether we'll build that out in a similar fashion or not, I think it remains to be seen that it is clearly investable. It's an exciting opportunity for all of our products and the ones we talked about for CPT. That's why CPT has a better position there than we do on the industrial, municipal. And we can leverage that. Yes, we think we have at least that much of an opportunity in Brazil.

My last question on the GIWW, what sort of headwinds does that leave in the fourth quarter? If I remember correctly, most of that was pulled into the third quarter last year but...

Correct, it was mostly third quarter.

It's going to be $16 million of revenue roughly in the fourth quarter and $31 million in Q3.

Your next question comes from the line of Christopher Glynn with Oppenheimer. Christopher Glynn - Oppenheimer & Co. Inc.: I like the slide that showed the Water x CPT there, John. It looks like it did high 30s incremental margins again. So I just want to ask for an update, how you see the fundamental state of all incremental margins for the base business. And then once we get at year end, maybe with CPT, how you think those revenue leverage compare...

It's a great question. If we take CPT and GIWW out of the equation, because we're looking at this ourselves, our incremental margins at this segment line were over 35%, and expected to be 35% for the full year. We obviously have slightly higher corporate cost as we're still continuing to invest in marketing and our sales offices globally. And it's north of 30% at the overall Pentair level. Clearly, for CPT, we're in the process of figuring out what those incremental margins should look like. For CPT, I think we're expecting more of the 20% type of incremental. And we would still be targeting our base business to be north of 30%, and we got to figure out what the mix is. And the difference is they're project-based business, did not go out at the type of incremental margins that a component-based business would be. And there are some exciting opportunities, as Randy mentioned, where we continue to build out reference sites but at the same time, starting to place more projects into some key vertical markets. So I'd say right now, between the component mix and the project mix, 20% incremental for CPT is the more credible number right now. Christopher Parkinson - Crédit Suisse AG: Okay. That's really helpful. And then since you mentioned the general corporate, I didn't catch it if you talked about it earlier. But with the acquisition now and you're talking about some of the investments, what should we think about for a run rate in the back half next year for the general corporate?

Yes, for Q3 and Q4, in our corporate guidance, we have between $15 million and $16 million a quarter. It usually runs a little higher in the beginning of the year. We have the accelerated accruals and the stock options and those types of things. And the variability in corporate flops around between the medical expenses. But I mean, we're not seeing anything unusual at the moment. So I'd say between 15% to 16% in both Q3 and Q4 is the general run rate of corporate. Christopher Glynn - Oppenheimer & Co. Inc.: Okay. And then last one, the expanded distribution in Europe in the resi flow side, can you talk about where you are in that strategy and what the opportunity is?

Well, we -- our focus has been in Eastern Europe in particular, but we made progress in France and the U.K. as well. We haven't reached that much in Italy and Spain. There's not a lot of action in those countries right now. But Eastern Europe is the biggest opportunity, and we made good progress there.

Your next question comes from the line of Garik Schmois with Longbow Research.

First question is just on the sequential movement for your EPS guidance from 3Q to 4Q. If you look back, I think, historically, 3Q tends to be a stronger earnings number than 4Q. Just if you could walk us through sequentially what you're expecting, is it some seasonality in CPT or something else there?

Yes, I mean, for us, just to set the basis, and we didn't have a Q3 earnings guidance out there. We had a back half. And historically, for us, Q3 and Q4 are relatively flat with each other with the difference being that we have less of a pool season in Q3, more of pool season in Q4 is the early buy. And then some of the residential businesses are stronger in Q3 and fall off in Q4. That's just the normal trend. But Q3 and Q4 tend to be generally the same. What's happening in the dynamic is last year was helped by GIWW in Q3. And that's why I think that distribution was set off. And overall, we've learned a lot more about CPT. And we realized that they have annual service contracts, which for the most part, the profit is flat in Q4. The way that their aftermarket of the membranes and the component ship out is more skewed to Q4 due to maintenance cycles of those businesses. And then their projects tend to be booked earlier in the year, and also shipped into Q4. So a lot more skewing to the Q4 in CPT. I think we've had some original estimates that suggested that. But I think in the firming up, we now know that. And so we're going to see CPT more skewed to the back half of the year on a go-forward basis.

And I guess, just one more question on CPT, you mentioned a 15% return on sales longer-term target. What kind of annualized revenues would you need to get to that 15% view?

It's actually a little inverse of the thought, right? I mean, the higher the revenue, the more likely the higher the project. And therefore, the more squeeze on the overall operating margins. There is enormous opportunity and a lot of demand for most of the products and all of the projects that CPT is participating in. And the challenge for Randy and myself and Mike Schrock will be working with our business leaders to determine the right profitable projects by country and by verticals. And we expect north of double-digit for sure of growth on an ongoing basis, and that's what our view of 150 basis points a year margin expansion is based upon.

If I could on that, our goal is to get to 15%. That's our goal for the whole company. And we know structurally, this business can make it. But as John said, we view CPT as a great opportunity that also, gives us a platform to build a strategic position that's frankly unmatched. What informed that view is our view when you look at the pressures on the world, and you take a look at the pressures on not just from population but wealth growth, which frankly drives pressure on energy and food and water, even more strongly than population growth itself. And you take a look at the stress that the world is under in water both in terms of water directly and water use in energy and food. There's 2 undeniable technologies that are going to be put to play. One is desalination, if you're near the ocean, and the second is water reuse wherever you are. And so when John talked about those systems and putting in those and making those bids, we are -- I think we have a leading position in terms of the reference sites today. And we intend to continue to lead in building out those reference sites, because we are going to be number one in those businesses. That's our goal.

Your next question comes from the line of Scott Graham with Jefferies. R. Scott Graham - Jefferies & Company, Inc.: Kind of the same question but looked at a little bit differently. The third quarter guidance versus the fourth quarter guidance relative to the organic growth, you guys have a stated goal of 8% top line growth, which is certainly admirable. And you've been achieving that recently but more because of the comparisons being easier this quarter or organic growth was about 4, and maybe add a point or 2 for the GIWW. Third quarter of your organic growth, if my math is right here, looks about flat to plus 2 kind of thing. And then the fourth quarter organic growth probably looks more closer to your target. Is there anything in the third quarter other than what you've mentioned in your bridges, GIWW shifts? And any other shifts in other businesses, particularly residential that we are kind of pushing out from the third quarter to the fourth quarter?

Yes. You're right. Our long-term goal is 5% to 8% organic on a sustained basis. And we're actually better than that if we actually had U.S. residential growing at all, which it isn't, with the exception of pools did grow. But the other U.S. residential businesses, as we mentioned, we don't expect growth in the second half. So in the third quarter, more of a normal pool. And then Pool actually stronger in the fourth quarter than the third quarter. So that's -- that may be the whole difference...

Yes, and there is a point of growth related to an end of life program around telecom and Technical Products that's negatively impacting Q3 results more and a little bit in Q4, and that is the program that's end of life-ing, that we've been shipping the light speed program. So other than that, no, we're growing, as Randy said, around 5% a quarter, 6% a quarter for the year, absent those programs. And we're doing it without the market help that we anticipated on North America and our country [ph]. R. Scott Graham - Jefferies & Company, Inc.: So if I could just summarize what you're saying here, just to make sure. The fourth quarter organic will be a lot better than the third quarter organic for the reasons that you've put in here in the slides plus what you've just said? Certainly, the third quarter of Q2 '10 was your most difficult comparison of the year. I get that as well. But you're fully believing that what we don't have in 3Q, we will have in 4Q, and will be in that 5% to 8% range again in the fourth quarter. And that, in fact, even though residential has weakened sequentially, you're not changing your residential thinking on your sales growth. It's just all of these sundry items?

That's absolutely correct.

Your next question comes from the line of Joshua Pokrzywinski with MKM Partners.

Just want to go back to the third quarter of last year and make sure I'm remembering the comp correctly. Wasn't there a pretty decent destocking in the -- in some of the wholesale channel, particularly on residential flow? It seems like we should be bumping up against that now? Is there anything we should keep in mind as far as an easier comp there? That doesn't only seem to be flowing through the numbers, I guess, and maybe a partial offset to GIWW? And then maybe just secondly, kind of an update on the distributor at large, has access to credit, curtailed inventory buys, or is there any change of tone there?

Yes, if anything, our performance and execution on delivery has improved so much that actually, we -- despite all the flooding talk in the U.S., there is actually, there was more inventory in the channel than the floods needed. So actually, I said that there's -- we don't have a good comp coming. We have ample inventory in the channel. And a big part of that in residential flow in the U.S. is retail, as well as through the Pro channel. I'd say, in retail, they're not constrained by financing at all, but they are cautious. And none of these headlines about uncertainty and Washington's craziness and all these, it doesn't help any of these guys invest. Our distributors have credit available. In fact, if you take a look at lending in general, there's credit available for people who are worthy of getting credit if they want it. And they're not drawing it. But I'd say they're keeping, they're counting on us and other manufacturers, continuing to execute at a high delivery level and with shorter lead times and running at lower inventories. And I don't think that's going to change anytime soon, so until there's a broad-based belief that the U.S. economy is going to grow.

I guess what I'm saying or what I'm asking is, is there a risk of another round of destocking from some of these headline issues, or have we already kind of hit bottom on inventory and they're now relying on your lead time?

We had not assumed that there would be a significant destocking because the inventory levels right now are not all that large. I'm not going to predict what will happen if U.S. defaults on their debt, and the borrowings -- no, I can't get there. But I mean, right now, we're pretty much at the low inventory levels. People are buying what they're selling. We've seen a flow through, and our sell through rate is consistent with the inventory. So the 2 issues related in Q3 are just nothing more than we've got that end-of-life program, otherwise our core volume will be up 5, and this is not a whine or excuse. But for us, foreign exchange, we look at as part of organic because we sell in euros in Europe. And so when we have a North American-based business and euro-based business, when that dollar gets weaker, we'll see more sales being shipped out of U.S. And there's some arbitrage there. And so overall, our core volumes are still running in the organic growth range of 5% to 7%, and that's with any bounce back with residential.

Your next question comes from the line of John Quealy with Canaccord.

It's Chip Moore for John. If you look at your base business, it look like sales came in slightly below the range you guys were projecting, excluding CPT. And was there anything -- that was a little more challenging in there than you thought, or is that more of just a timing issue?

North American residential flow was slightly lower, and then we did have a desal project business in our CodeLine [indiscernible] business that got pushed into Q3 and Q4.

Okay. And then if you look at the strength in desal that you mentioned, do you view that more as a potential restart to that market, or is this more of a kind of one quarter phenomenon?

No. We think it's a -- the financial crisis really stalled a lot of big projects. I mean, the financing, everything just sort of ground to a halt, and we view this as a secular growth coming back. So we believe we're on the uptrend on that.

And we're seeing those projects turn into quotes, and wins and backlogs, and a lot different rates than we're seeing in the North American muni market.

Your next question comes from the line of Ajay Kejriwal with FBR. [Technical Difficulty]

Your next question comes from the line of Mark Barbalato with Vertical Research.

So you guys have been performing pretty well despite a weak residential and housing market. And obviously, you guys said earlier that you're not looking for much contribution in the second half. Do you have a view on those markets recovering or an outlook on 2012?

We'll give you our thoughts on that on September 14, but our focus in both Residential Filtration and Residential Flow, our 2 biggest businesses that are suffering from that flatness, is to grow aggressively outside the U.S. And that's what they're innovation has been focused on, and that's what we've been driving. So that's where I have them focused. The U.S. residential market, there's no down side [ph]. It has to come back eventually. It will be driven by housing sales. Housing sales will give us a lift even before housing starts. But I don't really have an outlook. We haven't really developed an outlook for our plan base for 2012. And I think we can share that instead. We'll develop it by the 14th and have it...

Well then, I'll wait for the 14th.

Your next question comes from the line of Jim Lucas with Janney Capital Markets. [Technical Difficulty]

Your next question comes from the line of Mike Halloran with Robert W. Baird. Michael Halloran - Robert W. Baird & Co. Incorporated: So just a couple of quick sequential questions. Just want to make sure I understand the normal seasonality, Q2 to Q3. If you were to adjust for all the year-over-year impact, specifically, GIWW and back out the CPT acquisition, when you think about your guidance, do you think it reflects pretty normal seasonal trends, 2Q to 3Q?

Yes. I mean, we, as a course of action, I mean, we see a big drop in the Pool business from Q2 to Q3. And that's really what happened seasonally from Q2 to Q3. And as Pool has more normal first half, let's call it, in their cycle that the most difference with taking out CPT from Q2 to Q3 is that one business. Michael Halloran - Robert W. Baird & Co. Incorporated: Okay. That makes sense. And then on the Technical Products side, as I think about the back half of the year, I know you pointed out maybe a little bit more conservative trends, slowing trends in the back part of the year. When you think about the seasonality there, it implies maybe flattish to down Q3 sales sequentially. Are you actually seeing those signs of weakness beyond just the comparisons being tough and seeing really good performance in that unit...

Well, the second to third in Tech Products, you usually see a little bit of a step down because of the European holidays, European markets are important to us, particularly in Germany. But generally, no, it's -- they've had about 8 or 7 good quarters in a row of great growth. And so we're just saying moderate down to that 5% to 7% kind of growth in the second half. Michael Halloran - Robert W. Baird & Co. Incorporated: So it's a comps issue more than anything else?

Yes, I mean, that's also inclusive of that project, end of life, I mentioned. So they're still growing at high single digits excluding that. And right now, the trends, the macro trends that we talked about on Water, all benefit Technical Products. And the industrial production cycle is pretty strong right now, and we're seeing that capital and cash being less as it drives productivity in the factories. So it's a pretty good backdrop for Technical Products right now.

Your next question comes from the line of David Rose with Wedbush Securities.

I just want to finish up on the CPT and then the final question on the fourth quarter. Can you kind of clarify a little bit more the margin impact from system sales on CPT? I mean you had 20-plus million dollars in system sales. I'm assuming that pushed down margins a bit more than what you would've liked or what I would have expected. Is there an impact that we see from that? And going forward, how does that change going forward...

Yes, let me take the first part of it. And then I'll let Randy quickly address some of the market strategic -- I mean, the reason that you pursue the system in CPT, both on the beverage and the Water side is twofold. Your installing a system, which is going to protect and secure the installed base, because you have a proprietary technology that will be replaced with your membranes and/or your aseptic valves. The second piece of it is we're gaining service contracts. Those service contracts allow us to go in and work on the maintenance and get a long-term maintenance contract. So the initial sale of the system doesn't provide what looks like a significant margin benefit, but the life cycle of the system or the project is a very substantial margin. And for the right vertical markets, we want to pursue those aggressively. What we don't want to do is dilute the capacity utilization and/or the resources to chase markets that are not what we would call our core vertical markets strategically.

The $20 million I mentioned was ordered. We haven't actually shipped those yet. And so they aren't impacting margins in the near term. As John described how the systems business works, one of the opportunities for us to improve the systems margin is -- now that includes a lot of bought through [ph] Equipment. If you look at the embedded margin on the product that this business makes, it's still 50% plus, so they get a lot of pass through. There's going to be -- we're going to be in-sourcing a lot. We're going to be in-sourcing the pumps, the enclosures, the housing, the tanks, more valves. So we believe we can be competitive on the systems business, and actually raise the margin as we raise the manufacturing content.

Yes and I appreciate the value add, and going forward on the system sales as one of your competitors appreciates as well. The big question is, is how long does that take? Because if your mix continues to be weighted towards the system sales, I'm assuming then the margins will be compressed at least for the rest of this year, and then you start to see the shift next year?

The compression in the margin, really, is -- I want to remind everyone, we started at 15% EBITDA. So when you rebuy a business, you restate the fair market value, all of the assets, and then continue the growth on this business at the growth rate that they're delivering now and that we expect to happen. We'll leverage that D&A up relatively quickly. And there's a fair amount of capacity. And I mean, it's not inexpensive to build a membrane facility, and that's volume dependent as well. So we're pretty confident that we can grow the systems, grow our installed base, and continue to raise margins.

Okay. And lastly on the revenue side, clearly, there's a level of comfort that you've had in the fourth quarter for the meaningful step up, and you've walked through the different nuances. I was wondering on the CPT side, if you can give us a little bit more clarity on what percentage of that business do you feel has effectively booked or contracted versus what you expect to sell through other new orders or bid activity that you're working on?

We've been generally conservative with our CPT revenue forecast as we get to know the business. So the revenue that we're projecting is primarily all booked.

Okay. And so there is upside to that number?

Possibly.

And lastly, if I can, Aurora Pumps, it seems like you have some weakness on that side, is there any particular reason?

Well, Aurora was focused on -- it's mostly commercial, HVAC and fire. They're mostly in the U.S., and the commercial market was creamed. Actually, they're up a little bit because of -- in the Aurora area because of export sales and again, I mentioned in the script in the Middle East in particular. So Aurora decline was going on for the last 10, 12, months anyway.

Presenters, your last question have been withdrawn, you may proceed with any closing remarks.

All right. Thank you all again. I look forward to seeing you at the investor conference in September. Thank you.

And Julie, can you please just restate the replay number?

Certainly. Thank you for participating in today's Pentair Second Quarter 2011 Earnings Conference Call. This call will be available for replay beginning at 2:30 Eastern Time today through 11:59 P.M. Eastern Standard Time August 26, 2011. The conference ID number for the replay is 80384045. The number to dial for the replay is 1 (800) 642-1687 or 1 (706) 645-9291.