Good morning. My name is Jody and I will be your conference operator today. At this time, I would like to welcome everyone to the Pentair Q1 2015 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. Jim Lucas, VP of Investor Relations, you may begin your conference.

Thanks, Jody. And welcome to Pentair's first quarter 2015 earnings call. We're glad you could join us. I'm Jim Lucas, Vice President of Investor Relations. With me today is Randy Hogan, our Chairman and CEO; and John Stauch, our Chief Financial Officer. On today's call, we will provide details on our first quarter 2015 performance, as well as our second quarter and full year 2015 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 most recent 10-K 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 Investors section of Pentair's website. We will reference these slides throughout our prepared remarks. Any references to non-GAAP financials are reconciled in the appendix of the presentation. We will be sure to reserve time for questions and answers after our prepared remarks. I would like to request that you limit your questions to one and a follow up and get back in the queue for further questions in order to ensure everyone an opportunity to ask their questions. I will now turn the call over to Randy.

Thanks, Jim, and good morning, everyone. Let me just begin on Slide 4 with a summary of how 2015 has started and how we see Pentair positioned for the remainder of 2015. As we announced two weeks ago this year has started off significantly below our initial forecast. We expected most of our energy related businesses to be challenged this year given the dramatic decline in oil prices in the second half of 2014. But a global capital spending freeze and its impact on industrial businesses was not foreseen. We do not see this to be a Pentair specific issue as this broad-based decline was across virtually every business, every geography and every market. In fact, the only geography of growth we saw was North America. We believe there is broad, economic uncertainty that is contributing to delays in our customer’s spending habits, and we have felt this in both large projects and some MRO business. As a result of the dramatic impact of FX translation and a significantly slower start to the year we are now taking a cautious position on any expected recovery this year. So we have gone back to our cost [paybook] and are working aggressively to adjust our cost structures accordingly. Our balance sheet remains healthy and we expect 2015 to still be a strong free cash flow year. We will continue to invest in M&A where appropriate while executing on costs. Given the uncertainty, we have rebuilt the plan to drive performance in 2015 to equal 2014. As a result we are adjusting our 2015 adjusted EPS guidance to approximately $3.80 per share, making 2015 a pause year. We believe that Pentair is in attractive markets for the long term. We have detailed plans in place to work through the anticipated near-term challenges and…

Thank you, Randy. Please turn to Slide number 15 titled 2015-2016 cost actions. As Randy mentioned, we faced increasing headwinds in the first quarter and we are working to align our cost structure appropriately. To start, we saw a strengthening dollar create both top line and bottom-line headwinds. With euro at $1.07, we anticipate a $65 million operating income headwind for 2015. If the Euro were to move to parity against the dollar, it would create another $10 million impact on operating income. We’re not planning for the dollar to weaken, in fact we are assuming that this will be the new norm for the year, and are now implementing cost out actions to mitigate the translation impact on the go forward basis. If the dollar weakens, we would expect to benefit, but we’re not counting on it. The cost actions will primarily be in Valves & Controls and flow and filtration solutions, the two segments hit the hardest by the global capital spending pause. We expect these actions will yield $40 million in savings in 2015, an accumulative $100 million plus in 2016. We plan to continue to continue to focus on G&A and variable labor, but we are also expanding our cost actions through our fixed cost structure. Please turn to Slide 16 labeled 2015 current outlook. This slide looks at the changes that have occurred since we last updated our forecast in early February. We experienced lower than expected volumes in two of our larger verticals, energy and industrial, and we are now anticipating pricing to be flat for the year and down for the next three quarters. As our Valves & Controls segment is expected to see increase in pricing pressure as the year progresses. Within the residential and commercial vertical, we expect another strong year…

[Operator Instructions] Your first question comes from the line of Deane Dray of RBC Capital Markets. Your line is open.

Thank you. Good morning everyone.

Good morning.

Hi Deane.

Yeah, maybe we could start with the comments about the global CapEx spending freeze, and maybe take us through the cadence of the months and I am particularly interested in the comments regarding how it may have spilled into some of the MRO spending and maybe this was part of the destocking comment in your – the negative [Ph] announcement, so could we start there please?

Yeah, thanks Deane. Basically if you take the industrial market that we follow most closely is of course our equipment protection business, and actually industrial and that business, industrial showed some increasing weakness in Valves & Controls as the quarter went. But really we saw a pronounced decline in March in the other industrial businesses, the sell through distribution, which we believe is some destocking and uncertainty as the knock-on effect, which we can see in valves as we saw the knock-on from oil and gas into some slowdowns in other projects and delays in other projects. So we think there is a bit of a knock on effect and uncertainty that has caused this and we do believe this destocking, we even saw some destocking in the residential and commercial side in flow. So we do believe that distribution has taken a cautious turn in their re-ordering in industrial and in some places in residential and commercial.

And then could you expand on that comment on energy regarding seeing the softness starting to work its way into your midstream and downstream businesses, I mean, clearly everyone has been set up for an upstream headwind, and that seems to be playing out a little bit earlier, but could you expand on the comments and any specifics regarding the midstream and downstream activities?

Well, we – particularly the downstream is bigger for us than upstream. So to see the oil and gas decline that we did and when we look at the projects we see a slowing in the orders rate across the board really. Our hit rate seems to be okay. But with the exceptions we pointed out, process, which we count as industrial, in North America was pretty good, but we saw a slowdown in process. In the fast growth markets we saw a slowdown in refining in the fast growth markets and now a lot of that is in specific countries like Brazil, which shouldn’t be much of a surprise. But we do think there is a knock-on effect and I think you can see it in oil and gas companies, who are basically constraining capital and [Indiscernible] constrains capital it is a blunter instrument than just precisely focused on projects. We also saw MRO decline, you know, single digits, but MRO sales in Valves & Controls generally has been up every quarter, and we actually saw a decline, which to us feels like a – obviously you have to maintain things. So, it feels like a slowdown in general capital spending to us in the downstream. We will see how this – if they see it too.

And just last one from me related to the energy side, Randy you made some comments about delays versus cancellations in some of the orders and maybe just expand there by your major energy businesses, you know, how much are delays?

Yes, it was a comment about Valves & Controls, primarily the – our Valves & Controls ship later in projects cycles. And so, you know, every quarter we see projects get pushed out some because they don’t want the valves onsite until they are ready for them. But also usually there is some that get pulled in because projects speed up and slow down. So we always see a mix of delays and expedites in a quarter. We basically saw no expedites in the quarter. I would say delays were probably 20% higher than normal, but there were no expedites to offset it and that to me – that feels like to us just a general slowing on project execution. We have had some specifics, which I won’t get into, people exploring, we have had a few cancellations, but I can’t say that that is any – that is abnormal. You know, orders that we thought were going to go the projects we cancelled. But we are very cautious as to that was my comment about customers reviewing project pipelines. I think mergers in the industry affect that and the customers industry affects that and as they look at adjusting the capital obviously they’re going to take some projects off the list.

Thank you.

Your next question comes from the line of Joe Ritchie of Goldman Sachs, your line is open.

Thank you and good morning Randy, John and Jim. So, my first question clearly oil and gas is weaker you’ve got this contingent effect it’s still over into industrial Randy you mentioned in your prepared comments that the delays accelerated in March. And so, I’m just trying to get, I’m trying to understand I guess, when I think about your organic growth guidance for the year of down 2 to down 3, your complicated puffer organic growth is down 4 in the first quarter and just trying to get the sense for what gives you the confidence that you’ll get some improvement as the year progresses?

Joe just to clarify its John. I think some of the Valves and Controls as we call Q3 and Q4 were not great quarters for us, so we started to see some of the slowdown from the order shortfalls in last Q1 and Q2, start to work its way in Q3 and Q4. So, some of those comps and Valves and Controls gets a little bit better, same thing in industrial (indiscernible) business solid backlog that we feel comfortable is going to continue to shift throughout the year. And then, residential commercial has been strong as Randy said in Water Quality Systems and we also start to anniversary some of the tougher headwinds in our flow and filtration solutions. I think we’ve looked at the organic growth and although we don’t see if we took a 90 day rolling average of historical sales we don’t see that improving throughout the year. We do think that gives us a little bit easier comparison to the back half of the year.

Okay. Do you guys have any clarity at this point on the destocking and when you would anticipate some of the headwinds associated with destock to subside?

We think it continues in the Q2 for us, I mean, we look at some of the same bell weathers that you guys do in the industrial distribution side, I think they saw the slowdown a little later then we did and they started to correct as Randy mentioned and that started to work its way through our March shipments, we expect that to continue through April and May.

Okay. And then, I guess one last question on – I’ll pass it up. On the restructuring side I applaud your efforts to take cost out just given the economic backdrop, can you just maybe provide some more clarity on the run rate that 100 million plus in 2016 just given the restructuring actions that you have 60 million this year, does that bake into some of the restructuring actions that you took last year as well because the magnitude of that number just seems like a big number and the payback seems quick?

Yes. These are new actions incremental to the things we’re working already in synergies and in fact as Randy and I met with the business precedence we’re still hopeful and our sales people are still hopeful that things going to improve throughout the year, we’re trying to be hopeful as we were trained, hope it’s not a plan and we think our view now is react to this new economic uncertainty and take the cost out. So which you’re seeing in G&A and then some entry into footprint actions finally in our Valves and Controls and other businesses where we can get after some product line moves and get ourselves right sized and competitive. As Randy mentioned in his remarks and I followed up, I mean, we now expect pricing to be the new norm in Valves and Controls and so even the projects that we’re anticipating wining we’re expecting to come at lower margins and so we’ve to accelerate our competiveness to continue to bring those projects in at the same drop through that we anticipated for.

Okay, helpful guys, thank you.

Your next question comes from the line of Steve Tusa of JPMorgan, your line is open.

Hi guys, good morning.

Good morning Steve.

So, just on the pricing dynamics, I guess this is just happening in Valves and the orders, just happening a little bit faster than expected in Valves and Controls, I mean, is pricing, are these orders kind of going to impact ’16 now or is this say kind of reshuffling in the backlog such as becoming more, it was longer cycle on the way up and it’s now shorter cycle on the way down I guess. And then, from that perspective prices already kind of stating here in that business in revenues, so I mean, how we think about pricing in the back half of the year does that actually go negative in the back half of the year in Valves?

Let me talk about 2000 – we think, we were very cautious on orders through the year which we think will effect Valves and Control sales in 2016. So, we don’t see a change really in sort of things going faster or slower, I think it’s going to be a tough year on order and we’re going to do everything we can do to win in a discipline way which will put switching the price. We already see pricing and you already heard about what customers are asking in terms of pricing. It might not just be in Valves and Controls, I mean, one of the things that effects does is if you’re, the example I used in – which was a surprise, it won’t be a surprise next time in terms of the transactional impact of effects that was an impact in our technical solutions business. Technical solutions really did pretty well in the quarter but we had a few surprises that being one that was a Canadian dollar transaction in the U.S. dollar cost and that hits prices. And as competitors as foreign, as non-U.S. competitors start using their change in cost advantage, price advantage we expect the challenging price environment in more than just Valves and Controls.

So when think about kind of this total price of Pentair going negative in the second half of this year?

Yes. We do think it goes slightly negative still in some of our distribution business we still expect to gain normal price increase and we have those through and they’ve been accepted but we would expect any project and certainly areas where we got a bid on a cost to the price negative to the back half of the year.

We’ve good material productivity that’s hung up on the balance sheet so that will get more productivity as we go through the year too which will help offset some of that price. But, we think it’s a more cautious plan to assume, we’re going to see tougher pricing environment.

And then, I think you said in Valves and Controls next year, just kind of a high level 100 to 200 basis points as kind of not out at the question, I mean, as you move through the quarter here and assume you’re just seeing on your dashboard, I mean, is that now maybe a little too aggressive, I mean, could we see more, we did – price decline in the long time in any of the markets we cover so the magnitude is always kind of tough, could it be worse in that do you think in ’16?

I don’t know, I think we’re – to address the previous question, we’re getting after the cost in aggressive way to continue to be competitive, so we’re anticipating a tougher environment on the quotes and we’ve got to have more cost competitiveness and so we’re looking to our suppliers to participate as we’re being after participate and we’re also looking on our own cost structure and trying to be more competitive within that cost structure. So, the goal here is to continue to improve margins even with the decline of the revenue and we’re going to have to be very aggressive to accomplish that.

Okay. One last quick question on free cash, what’s kind of the key lever to ramp that cash flow throughout the year, what’s kind of the one or two things that you’re looking at to play out because it’s little bit weaker than expected in the first quarter?

Yes. It’s right sizing the inventory in our working capital levels to the new one.

Yes. Basically we’re relying on working capital inventories to support the higher sales level and needs to be corrected and we know how.

Okay. So that’s a negative for margins going forward then?

That’s baked in.

Okay, thank you, thanks a lot.

Your next question comes from the line of Steven Winoker of Bernstein, your line is open.

Thanks and good morning. Just I want to stick on pricing and margin for a minute, we are entering this environment you had significant material deflation I think as a tailwind as well as pricing up until now has been helpful. Now those are both going against you and my question is given that you don't know how long this will last the restructuring that you have already taken and that is going to be fairly aggressive here how much more can you do there because there seems to be some risk to the margin opportunity going forward?

Yes Steve, I do want to be – I want to clarify something. I think we expect we have done really well in material productivity we expect material productivity to do even better going forward. We can see that and what we call the deferred productivity as Randy said what’s done in Q1, but its hung up in balance sheet and we work its way in a positive way throughout the rest of the year. We’re continuing to partner with our suppliers to anticipate these potential pricing headwinds and the pricing is an anticipated pricing. It’s not realized so we are expecting that environment is going to be tougher and we are managing it appropriately as when I want you to take away. In addition we are saying if it continues to get more competitive we have to be more competitive and therefore the other actions that we are taking to make sure the long term our margins are still very high.

On the comment about – concerned about cost cut getting into growth we are very cautious about touching our growth resources but what we are doing is, I am personally redoubling my efforts with our platform, we’re using our precedence to make sure that those investments we made are paying off. I didn't see enough read out of some of them in the first quarter.

Okay. And I think it’s also leads into sort of the broader question on M&A that you put out there which is clearly you are on the hunt for attractive M&A at this point in the current environment. But how are you thinking that about that as well given all the pressures that you are seeing yourself and what makes an attractive acquisition given the weakness that you are seeing out there?

One thing is that given how difficult and uncertain things are sometimes opportunities become available that weren't available before so it’s actually a good time to be looking but to your question how are we sure that we are ready, we that's one of the reason I put in the comments that we did in the prepared remarks on the small acquisition we just made, -- this is a good example, our thermal building solutions businesses is a growth business. We have some great innovations there and had a great year in growth last year. We expect to have a great year growth this year. This business built on is augment that are offering gives us more to put through our distribution channel. So, it fit those five questions, it fit our strategy well so there are strategy to drive growth, profitable growth it fit it well. The financials may think, we were able to do that deal with the comfortable set of financials that we know we can execute. We were the right buyers. We have the best fit that's why the financials work the best. And the last two things, we don't do a deal unless one we understand how we are going to integrate into the company and then two, we know who is going to in-charge be -- the in-charge of the integration and we trust them to execute it well. And so we are going to keep that – keep to that discipline and make sure that might start at the bottom and say which businesses are ready, which businesses are more strategically ready and capacity ready and we always do that but I think you should all count on this to continue to put that first.

And is Australia process on track the divestitures?

Yes.

Okay. Alright. Thanks.

Your next question comes from the line of Scott Graham of Jefferies. Your line is open.

Hey. Good morning. I am sorry to beat the old dead horse here but if we can just go to slide 13 where we have the forecast for organic by vertical. The energy number has only really been taken down 1 point versus two months ago and we are talking about more concerns about pricing and moving into mid stream and downstream which I think many of us did expect that but nevertheless I am just wondering why we are only down 1 point incrementally from the two months ago guidance particularly given the order scenario that was laid out on an earlier slide?

Yeah its fair question. Thanks for asking it. I think its couple of things and couple of factors in here, Valves and Controls is experiencing more challenging entering into environment, we are also experiencing some key wins in technical solution primarily around industrial e-trace so these are down streams and later projects there are productivity related and we are starting to see a pickup in that area. So, we do have a mix of where the projects are coming through our typical businesses but all in we have backlogs and those backlogs give us confidence that this is not only appropriate number that we will ship this year.

Yeah we also don't think that the – we think - -we don't think the MRO declines on the first quarter this sounds like one orbit plan, is going to be as acute as it was in the third quarter, as it was in the first quarter.

Alright. Thank you. And the other – my follow-up would essentially be on the share repurchase so I know we are kind of back into the M&A hunt mode and all that which is great I think I am wondering though is that why would we wait on share repurchases given this environment. Do we, you say if we don't find anything then you are kind of – you buy shares sort of a guess that was implied for the second half of the year you have a ton of balance sheet capacity why would we wait for that?

We feel optimistic. We have been working for fair amount of time as Randy said we have what we call platforms or businesses underneath the four segments that are high performing both in revenue and also on the operating side and we want to continue to feed the core and we have enough in the pipeline that would give us the feeling that we are going to execute on some of those throughout the year if in fact we don't feel that those are going to come through we are not going to execute clearly we would take a look again at share repurchases.

Right I mean we can only use the part or one so if we can't use our M&A then we will have through that but if we use that when we won’t have M&A.

Right. Fair enough. Thank you.

Your next question comes from the line of Shannon O'Callaghan with UBS. Your line is open.

Good morning guys.

Hi Shannon.

Hey. Can you give a little more color on the geographic difference in Valves and Controls, I mean, you mentioned that the fast growth regions were getting hit the worse maybe a little more kind of specific countries or types of projects just being on there and then in terms of North America being the only piece up was that basically just L&G being the area strength that was there a more positive in North America beyond that?

Starting with that North America was strong in process in industrial as well stronger and L&G was a nice pick up. We had a particular focus on North America and we have actually invested in coverage there and I think that actually helped in Valves and Controls when – few years ago when we first got into it, it looked like our coverage and our share in North America was weaker than it was in other so that's an investment that I think is actually has paid off a little bit. It’s obviously – somewhat by the overall trends. But on the fast growth side both China and Brazil we’re down significant double-digits in the quarter. And Brazil I guess isn’t that surprising, but China was more surprising than we expected and that was in chemicals as well as in oil and gas in industrial.

Okay. And then just maybe a follow-up on this global capital strike point, I mean, as you kind of made sense over the first quarter and talked to your customers what are the most cautious about or uncertain about that sort of driving the decision making is there one sort of macro concerns that's particularly weighing on people one or two things you tend here?

Well, I think the oil and gas industry is one of the biggest drivers in capital spending in the world and I think it’s the uncertain here on the knock-on effect and there is a lot of cuts and there is a high degree of caution and uncertainty about – well, there is projects that are getting delayed and won’t get done but just concern about what all that mean we believe that is the fact and that's why we think destocking. When we see in industrial space where we kind of exclusively distributors we were pretty confident that there is destocking effect going on. But we also – we have seen delays in not just oil and gas we have seen continued delays in deferrals and power. And I think that has more to do with the general need for electricity and the fact that the economy generally is just buttering along in the world and electricity needs grow with the economy so we have had a lot of power projects that are just delayed, delayed, delayed and the fact that percent delays in the first quarter in power were in the projects that we tracked whereas the percent delays was high in oil and gas.

Okay. Great. Thanks a lot.

And I would just add to that I think all the investment tasks could be considered now in the fact of where are the cost basis and while ago you wouldn't have thought of investing in Europe and look at the new competitive nature of how the European factories on the global basis are competitive again and all that gets paused to people to say where do I put my investment and what is my likely return is going to be. So I think there is a lot of uncertainty out there that needs to be worked through. I think we feel good that energy as long term is a great investment cycle and we are going to see that rebound and we also think the industrial cycle long term will rebound. We are not just planning for 2015.

Got it. Great. Thank guys. I appreciate it.

Your next question comes from the line of Nathan Jones of Stifel. Your line is open.

Good morning Randy, John, Jim.

Morning.

There has been a lot of talk about the pricing pressure that you guys are feeling and are planning on feeling, can you discuss a little bit more where the opportunities are for you to put pressure on your suppliers in terms of pricing to participate in the pain if you will?

Yes, I think clearly global commodity prices are not increasing as Randy mentioned we don't want to use the word deflation yet but it feels like we are heading a little bit more into deflation area environment and so we are put our main suppliers on notice that we all have to work competitively to reduce our cost structures and certainly in the long cycle businesses we usually are participate in the “going in and asking everybody to participate with you” so we have our supply base primarily in those long cycle businesses that we certainly put on notice early, we tell them where we are in the quoting cycle and they are prepared, they being in the same headlines we all are and they know what’s coming so we just all have to be more productive and we all have to participate to win the orders.

So couple of things, if I am just going to add to that is the decline in oil prices has led to some good declines in prices in resins. We want to make sure that we are getting the benefit of that. The change in FX means say we are buying something in dollars today if we can get it from supplier who is making in the Euros or the Canadian dollar that can be a transactional benefit to us. So, I mean that's those are the kind of things that we have been working as we said because of the productivity gets defer to the balance sheet to the shipment. So, I mean, we actually feel pretty good about our material productivity, we feel good about the actions our team is taking even beyond what they have already booked in the balance sheet.

Nathan I think just to finalize this question I don't think this is unique to us and that's my point. I think the industry in itself is going to go through it together and so we are all going to be dealing with the same dynamics and I think we are prepared for it and we are anticipating to be prepared for it and we are making sure that all our partners are prepared for it.

Okay and my follow-up you talked about increasing pricing pressure in Valves, you talked about the residential and commercial part of flow and filtration thinking you saw a greater than market decline due to holding price. Can you talk about where the decision or how you think about the decision to hold the price and lose share versus cut price to protect share in various parts of the business.

To clarify the on the point about where we are being very discipline that's in water, that's in large pumps infrastructure. Large infrastructure pumps. It wasn't I might haven't – I am going to have it blend it together with a sentence before the residential and commercial but just to clarify that comment was about basically our large engineered flow pumps and they had loss on pricing, we felt took some things on lower margins so we changed that and we have more discipline now. We make those products in Europe. Those are more competitive we make those products in North America and in Mexico and well Mexico is good in North America is less competitive. So we are trying to keep pricing disciplines that reflect our margin goals but also where we make things in that infrastructure space. On the residential and commercial side, I would say we haven't really seen pricing pressure. We feel pretty good about that. There are some of the areas that were weaker in residential or not in North America, Europe and Middle East but we think Europe is actually showing some signs of life in residential and commercial that we didn't see it clearly in the first quarter. But we saw some promising signs. So, I would say that pricing is really more of a concern in energy and in industrial not in residential and commercial.

Okay. Thanks very much.

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

I’m all set guys, my questions have been answered.

Okay. Thanks Jeff.

Your next question comes from the line of Brian Konigsberg of Vertical Research Partners. Your line is open.

Yes. High good morning. Couple of more on Valves and Controls just when it comes to the MRO and slowing that you noted are you seeing any in the customer base trying to in-source that service component to try to save cost or is that economically beneficial for the customer to do?

Right. I don't think, we haven’t seen any kind of trend in that regard at all because ours is mostly replacement in parts there is some service, in sort service but on the replacement which is replacing whole valves or whole servicing on existing valves that's I mean the parts for service valves. They have come back and our service revenue was not the issue. It was the parts and replacement valves that was down.

Okay. That makes sense. And also just on the pricing front are you seeing re-pricing of existing backlog or is it that the pricing pressure really on the new bids that you are pursuing?

New bids only.

New bids only. Okay and then lastly are you seeing any trends where for larger projects you are seeing the customer base or potentially EMC substitute start to substitute maybe some of the domestic higher quality suppliers of Valves and Controls with – maybe in some of the non-critical applications with some of the lower cost and potentially lower quality suppliers potentially out of Asia?

We have seen that before the decline in oil prices, we saw some more uses on – particularly on with close of the commodity products throughout the more commodity products and we expect that particularly where companies go to the EPCs for fixed bids. The EPCs have for some time used that as a focus to try to drive profit into their box frame. So that doesn’t always pay off in launch in Valves – don't work but we have seen that in the Middle East. We have seen that in Asia for a long time and we expect that will just continue.

That's it from me. Thank you.

Your next question comes from the line of Brian Drab of William Blair. Your line is open.

Hey good morning. There is one more left I guess. You talked about the 100 million in cost cuts and the timing of that and that we are going to see it I guess more likely in Valves and Controls infiltration but I am just having I don't know how much color you can give on it having trouble figuring out where do you find that much in cost cuttings when you are so successful in developing cost synergies and attacking that after the merger if there is any more detail around the types of moves you can make that will be helpful?

Yes, I think the discipline is, we forecast where we are going to be in organic growth and we certainly look at right sizing labor and the variable cost associated with what those declines would be and then we also take a look at our fixed cost structures and our plans on where we want to be on standardization and we accelerate those based upon where we are on our ratios I mean when you are declining you got to hold margin and to hold margin you got to take your cost out at the rate of sales and then sum. So again we are – we have $6.5 billion in the company in sales and when you take a look at this as a percentage overall cost we are still relatively modest as far as the cost take out on the percentage cost and we have been pretty clear that the more we saw on the standardization front the more opportunities we actually saw in front of it.

The way we look at it is we benchmark against the best and you can look at our businesses and you can see two of our GBUs that do not have margins close to the best of the peers and that would be on filtration solutions GBU in our Valves and Controls GBU. So these are not plans that we invent in the moment. These are long range plans that we accelerate it. The – we have ambitions to get to the valves and control business to be the best among the bests in right margin so that's a roadmap that we have contemplated for some time and it’s just the matter of in this environment that you accelerate and we have done that before.

Right. What's the long term target there Randy for that business if you could remind me.

Well we have talked in Valves and Controls I mean I don't want people to think I am hallucinating given the first quarter we just had you know valves and controls was well above 15% margin we got it to 45 with lots of more opportunities. So we have talked about a number of well north of 15 but I don't want to give that again because I think it might lack credibility right now.

Understood and then John what percentage of your cash is broad versus in the U.S. today?

Well, I mean two roughly – keep in mind we are outside the United States, so it’s not as relevant but we have roughly $100 million of cash that we hold in any given time under 150 and most of that is international are outside the U.S.

Okay. Thanks.

Your next question comes from the line of Christopher Glynn of Oppenheimer, your line is open.

Yes thanks. Hey good morning. So you made an effort to sort of ring-fence the price pressure dynamic. How do you feel about that exercise of being able to ring fence it in the guidance?

I am – I guess Chris I would say again we don't think it’s going to be unique to us and we think we are in the forward looking piece of it and I think if you are in this industry and space as you are not anticipating and I think it’s going to be a challenge later and so we feel like we have pushed the business to accept the reality of where we are and to get on with the solutions that would be required to still maintain competitiveness and bake the margins that we expect within that environment. We are hopeful we’re wrong, but I think the worse case is if we are wrong we feel like there is upside to it. I wouldn't want to be anticipating it not coming and then have to rely on the back half of the year to take the cost out. So, I think the fact that we are dealing with it now and right sizing where we think the businesses are, I think it’s going to put us in much better position for 2015 and 2016.

Fair enough and then just quickly the MRO side I think would be debt pressure more concentrated in the first quarter could you just elaborate briefly on that?

Well, I mean most MROs is maintenance related and you can defer maintenance for a little while but you can't defer it forever and I mean there are – these are industries that care a lot about safety and so we believe that its MRO side is one that should be at least zero, and it wasn't it was negative and it has been positive right up until the first quarter. So that's why I mean I kind of view it as the same thing of destocking in distribution that can't go on forever.

Right. It makes sense. Okay. Thanks.

Was that last question or – okay one more question. Thanks.

Your last question comes from the line of Josh Pokrzywinski of Buckingham Research, your line is open.

Hi good morning guys and thanks for taking question. Just back on the comment on MRO Randy, if you can help me out on Valves and Controls it looks like first half to second half there is about maybe 500, 600 basis point acceleration in core growth actually looks like the comp gets a little tougher so maybe from your earlier comment Jim and I can follow up on the math there but how much of that acceleration would you call MRO kind of normalizing versus some visibility have in the backlog just trying to dimension out some of the drivers there?

Yes, I think it’s right sizing the shippable backlog and timing that out I mean I think there is most certainty as you move into Q2, Q3 and Q4 with what that backlog produces. We are not expecting a significant order rate in the back half of the year to be helping our revenues this year and we think you can't unless you are going to cancel the job you can't push these projects out for a while some of these are so far along and that will be – we’re pretty confident that we ship, it’s just the matter of the timing of when they are going to ship. So clearly we are taking a look at current run rate and you can look at the current run rates that we are seeing in Q1 and Q2 and take a look at the seasonality bumps that we normally see we are not expecting those seasonality bumps that usually happen to Q3 and Q4 at the full year capital projects finish out to be consistent with where they were in prior years.

Okay. I guess if you have to think about it backlog visibility versus MRO normalization half and half, 60:40?

We are probably most confident about the MRO which you know in any given years call it a billion dollar of business and we feel like that's within a deviation certainly going to be closed to right around where it was last year if not slightly better on a core basis. And then, the projects are coming out of the shippable backlog from that shipment timing.

Got you. Alright. Thanks John.

Alright. Thank you all.

Alright thank you. And Johnny if you can give the replay number.

Thank you for participating in today's earning conference call. This call will be available for replay beginning at 11 o'clock central time today April 21, 2015 to midnight on May 29, 2015. The conference ID number for the replay is 22709435. The number to dial for the replay is 8558592056. And this concludes today's conference call. You may now disconnect.