Good afternoon. My name is Meg, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pentair Third Quarter 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. And Mr. Gleason, you may begin your call now.

Thanks Meg and welcome to Pentair's third quarter earnings release conference call. We're glad you could join us. I'm Todd Gleason, Vice President of Investor Relations and Business Analysis and Planning. 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 third quarter results, as well as discuss our guidance for the fourth quarter and full year 2008. We will also discuss how we're approaching our outlook for 2009. 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 31st, 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 presentation which can be found in the financial information section of Pentair's website at Pentair... excuse, 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. We would also like to point out that all financial results and references are 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 time for questions and answer... answers after our prepared remarks. I will now hand it over to Randy, who will take you through Pentair's third quarter results and highlights. Then John will discuss our fourth quarter and full year guidance. And finally, Randy will wrap up by outlining our early view on 2009 and actions we are taking to drive results. Randy?

Thanks Todd and thanks to all of you for joining us today. Let's begin by reviewing our third quarter results shown on slide number 2. The headline is, we had performance in the third quarter. In the quarter, we delivered reported earnings per share from continuing operations of $0.42 which includes non-recurring items predominantly associated with the restructuring actions we announced in July. We'll discuss these items later in more detail. If we remove those items, which get us to the basis of our guidance, we delivered $0.55 of EPS on an adjusted basis. The $0.55 is up to 2% versus the $0.54 in the third quarter of 2007. The $0.55 also bested the high end of our 51 to $0.53 EPS guidance by $0.02 per share. While the economic environment continued to be challenging, sales and operating margins in our Water Group slightly exceeded the expectations we set in July, which enabled us to deliver higher adjusted earnings per share. It also reminds you that our adjusted earnings per share of $0.55 don't include approximately $6 million of expenses related to the integration of our residential water filtration business with General Electric's residential water filtration business. Pentair third quarter sales of $864 million were 5% above the $821 million in sales we generated in Q3 2007. Our organic growth was up 3% in the quarter and up 1% in local currencies. Third quarter sales in our Water segment were up 4% year-over-year. We continue to overcome difficult residential and Pool related end markets with global growth, new products and new vertical market penetrations. Our Technical Products business grew 8% in the third quarter versus Q3 2007, in line with the guidance we provided in July. As the slide shows, margins contracted 100 basis points for the total company. The…

Thanks, Randy. I am going to start on slide number 6. As we typically do each quarter, we'd like to highlight cash and ROIC, which is shown on the chart with the red box around the figures. As mentioned earlier, we generated $70 million of free cash flow in the third quarter, excluding a $23 million net payment related to settling the Horizon litigation. We continue to make progress in regard to working capital. But in a period that was the use of cash, as we have built inventory and advanced several important customer programs that are currently in our Water and Technical Products backlog, we have more working capital from the GE transaction. If we take a look at the components return on invested capital, ROIC, to the right of the slide, you see our fourth quarter trailing adjusted net operating profit after-tax or NOPAT was $277 million. Our average invested capital was $2.90 billion which gives us an after-tax ROIC of 9.3%. This is up 60 basis points versus the same period a year ago. We continue to focus on improving this metric. Our total debt was just over $1 billion for a debt to total capital ratio of 33.6%. As a reminder, the non-GAAP to GAAP reconciliation of these calculations and numbers are included in appendix to this presentation. As we just discussed our debt position, let me take a few minutes to discus our balance sheet and debt in more detail. Please turn to slide number 7. Given the uncertainty in the credit markets, we felt it was important to highlight Pentair's debt and credit position which is a very good position. Our debt levels are healthy. And we expect to reduce debt to about 930 million by the end of the year. A majority of…

Thanks, John. Please turn to slide number 11. Before we review Pentair's early view of 2009 and how we're approaching our plan, let me provide an update on our current environment and year-to-date results. From a financials results perspective, our execution has been pretty solid. Third quarter results exceeded guidance in a high quality way. We continue to invest in growth and also are aggressively cutting our cost structure. And John showed our balance sheet is in great shape. So we're committed to execution in delivering on our commitments. As we think about some key accomplishments, I would like to highlight a few of the major actions our company has driven. We are successfully integrating our residential water filtration business with GE's and that remains on track and on budget. And over the past few years, we have consistently been reducing our factory footprint and moving to best cost regions. These actions are important to drive our profitability in the face of challenging end markets. Also on September 10th, we had a well attended investor and analyst day which highlighted a number of our key growth and productivity initiatives. It was great to see many of you there and the feedback received was positive. So we thank you for your participation. The presentation material for that event is available on our website, and I encourage every one to take a look at it. And finally, we continue to launch a number of exciting new products, many of which were highlighted at the analyst day. Our new energy and environmentally efficient Enviro Reverse Osmosis filtration product, the LT [ph] dry industrial filtration product designed to dramatically improve hydraulic performance like the loop system in wind mills. We also highlighted our Aqua line [ph] pre-filtration solution that will reduce capital requirements as…

Okay. [Operator Instructions]. The first question comes from the line of Deane Dray with Goldman Sachs. Your line is open.

Thank you. Good day gentlemen.

Hi Deane.

Just quick... this is for Randy or for John, just to clarify the whole steel dynamic within Technical Products. You suggested that the steel prices benefit might not come through for the next couple of quarters. Is that because you have locked in supplier agreements or are you less open to spot pricing?

No, we've been... we haven't really locked in. We've been expecting a decline. It just takes a while to work through the... working through the books... with FIFO.

We use the capitalized variant system Deane as our accounting methodology. So some of the --

About a quarter lag.

So we sometimes have a month or too lag on the favorable pricing working its way through the system.

But maybe I just misheard Randy, you said... I thought you said a couple of quarters, what... you mean a couple of months or quarters?

I think I said a couple of periods. I probably should have said a couple of months.

Okay, good. That's helpful. What about the... how sticky will the prices be that the price increases you were able to get over the past year, what have you seen in the past about being able to hold price?

Well one of the things we do is our prices go into our base. We don't do surcharges and the like. So it goes into our base pricing, and 80% of what we sell, we sell through distribution. And prices tend to be pretty sticky for distribution. I think it's evidenced in the fact that we were able to get as much price as we did if you compare that to other business that weren't quite as capable of getting as much price to offset commodities. I don't think that was... that was so much execution differences, that is industry structure differences. So, our planning would be that a lot of that price will stick, won't stick everywhere. But a lot of it will stick. And so that we will get some good read-out material productivity next year, which frankly we haven't this year because of the inflation.

That's helpful. And then we fully appreciate the fact that it's going to be hard to nail down a specific guidance range for '09 at this stage. So, you've actually provided some good level of detail here in terms of some of the end-markets. If there was one that it kind of stuck out, that might be a little in need of explanation is in the water markets, municipal/desal are being up 5%, my guess is it's more of the desal dynamic than in municipal but if you split those two what would the dynamics be?

Yeah, it's really global. Our municipal business covered 100 million bucks. Most of those sales are in the U.S. today on the flow side. We got $100 million of quotes outside of the United States this year. So I mean we are so small. We believe we can grow with a decent hit rate in those and our backlog in CodeLine, the vessels for desal mostly outside the U.S. is really quite strong.

So when we see municipal, we are taking more U.S. but you're talking just water treatment overall?

We have been investing enormously and the team has done a great job of getting focused outside and taking the capability we have outside. Now we have had the advantage of fairly favorable dollar. And that's why I referenced in my prepared talk that the dollar strengthening could be a headwind for those businesses. But obviously really good to have that quote backlog going from zero to $100 million in pumps.,. municipal pumps outside the U.S.

And just last question if I could, on the early buy-program I know that it's always hard to gauge at this stage of the year because it can be... surprise you the upside or the downside. What are your expectations and where do distributor inventories sit today?

Well, if you take a look at... we were down as I said... full equipment business was down some 22% in the second quarter. It was down... the group of that we used [ph] only down 10% in the third quarter which we think reflects more of the market now. So we don't think that the inventory came down much, and at least as a way we set our expectations for the fourth quarter that John just went through assuming that we would see kind of a market level decline in the early buy and everything we see is consistent with that.

Great thank you.

Thank you, Deane.

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

Hi, good morning. Thank you very much for taking my question, and thanks for all the details provided this morning.

You're welcome.

My first question is on Municipal spending, and domestically I was curious what you're seeing on that front, given what we're seeing on in terms of state level budgets, and just the local budget process as well.

I'll give you a couple of data points. On the flow side, we still have a good backlog. We haven't seen any cancellation in the order and the order rate has remained pretty good. On Tech Products which also serves the public sector, we have seen a slower growth, it went from being double digits to single digits. So we're seeing it there on that Tech Products side.

Okay, that's helpful. And on the Water side, with the margins down in the quarter, I understand largely from the GE transaction, but as you look out to 2009 from the first of all, you're looking into do you see the Water segment margins being relatively flat, is that a realistic expectation? And how much of the drag in Water margins is just coming off the Pool segment right now?

It's a good question. I mean, we really think we have the ability next year even in a down market to expand our Water margins. We've taken a lot of structure out. We continue to migrate the factories. And so we would expect to increase the margins. Pool equipment, which is a part of the Pool Spa business, is roughly around a 10% margin business today. And we would like to say that we're near the bottom of the trough, right? So I think it's reflective of the hard work that that team has done. And we've seen those margins continually tick up as the volumes come back. So we kind of like our core cost position. So we would say that we're bullish on the Water margins, because we got aggressive with the actions early in 2008, and we continue to address our cost structure.

And after two years, flat we feel like up to then.

Sounds good. Thank you very much.

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

Good morning guys.

Hey Mike.

Maybe we can focus on Technical Products, for a minute. Just look back... look through the '01 and '02 challenges, and I'm just curious if you could at least compare the business today to what we saw then. And just as a refresher, I think Technical Products revenue was down 29% peak to trough, earlier this decade and margins basic I cut in half from 12 to 6. As you look at the business now with the acquisitions with the pricing contributions, et cetera, what's kind of... what's your recession expectation for that business and compare to what's going on in the past cycle?

Yeah. I won't jump the [indiscernible] and tell you, I think it's going to be that bad. Let me tell you what the theme is... the theme is that we will not be immune in Tech Products at this downturn. That we're all expecting to need to plan in. And let me tell you what's different. We actually have a much more variable cost structure. We had a lot more structure. We had about six more plants than we have now. And that cost structure was a heavy load. As you recall we had to shut down a lot effective gone, and we have been through lean to be able to grow the business. We have a more variable cost structure. So I think that's important and will help us manage margins. The second thing is we are lot more global than we were. We really weren't active in Asia, and I think towards the amount of growth that we have, the insight in Asia even if Asia softens a little bit or slows... grows at a slower rate, we still get a lot of market penetration there, though... albeit that is lower margin than our U.S. business. But... and the last is that we have a much more diverse vertical market set. We talked a lot of about how we've broadened the business. For instance, we are much more involved with continuous flow. We are much more involved with a deeper and more engaged in energy. And I think energy spending will stay up. And we've already suffered some pretty big slowdowns in automotive in there. So I think the more diverse markets that will help a lot. The other thing is that I think we have... look at the performance we've delivered with the kind of commodity inflation that we've had, and that's going to go away. I mean if we have a recession, there is no place the commodities will go but down and our business has proven, our Tech Products business has proven that they managed really well in their material costs. So I expect. So I will tell you this. I don't think that the best days are behind Tech Products. I think that our team will manage it well. We've had a lot of discussions about getting prepared for it and they are. So while we'll have a little bit of headwinds, so I think we will... we won't see a repeat of the 2001.

And can you just based on your experience in this channel... can you discuss if that... if the price inflation that's occurred over the last three, four years, does that create more risk to margins over the next two years if indeed we go through a recession or is it less of a risk?

I will jump in [ph] and I'll let Randy... Mike, it's John Stauch. I think there is two halves. Right, we got to remember electronics. We've been challenged by going out in bidding and wining jobs on pricing. And we've lost on the material inflation on those fixed price jobs. We've been able to price in the distribution side and the electrical side and capture most of the commodity increases that we've seen by. So it actually will reverse right? I mean if we take a look at the distribution side, we may or may not see price decreases but will have the ability to realize that price inflation. On the electronic side, we won't be caught the way we've been squeezed through this --

Should get us some relief in productivity.

We got to figure it all out Mike, and we are just clearly going through our planning cycle and running a series of scenarios around what that looks like. And we're trying to balance that with the fact that we haven't seen these markets drop significantly yet. And so we're challenging our teams to assume that they will.

Okay, thank you again guys.

Okay, thanks Mike.

Your next question comes from the line of Curt Woodworth with JP Morgan. Your line is open.

Hi, good afternoon. Just want to talk a little bit more about some of the cost actions that you outlined on in the presentation. For your fourth quarter slight deck, regarding the new actions you're talking about $50 million of annualized takeout which is about $0.34 a share. And then on your other slide deck, you talked about $0.25 of total cost benefit to be realized in '09 partly from what you are planning to do in 4Q which is sort of $0.10 and partly from the 1Q to 3Q actions of 15. So is the annualized number that you are throwing out in the fourth quarter slide... is that really kind of the run rate you expect to get to by the end of '09 or how do I think about reconciling some of these numbers?

Curt, we've been... just to hit it head on, we've been dealing with what we are going to do with Spa Bath all year. And in Q4 some type of action related to Spa Bath. Don't know exactly what that action is yet, but we are forecasting either major restructuring or some type of adjustment. And that's why you are not seeing the same payback that you are seeing from the Q1 to Q3 actions.

Okay but that would be embedded in the $0.10 benefit that you outlined for 4Q?

The $0.35 cost that you're referring to, correct.

Okay, got it.

We won't see that benefit until 2009.

Okay. And then in terms of the price raw material conversation, if you look at this quarter on Water, it looked like that hurt you by at least $0.05 a share. So I'm wondering would you expect to get some relief on that metric at least in the short run as commodity prices go down and maybe you can get to more of a neutral or even positive position?

Yes, clearly we're looking at those commodities, as Randy mentioned in his remarks, they are bouncing around right, but we're waiting for them to settle and we would expect that we see more deflationary environment in Water.

Yeah Curt, when I look at Water, I look at the details. We have some pretty, pretty good cost reduction actions and supply just didn't read out because the inflation was that much worse. I think that process will deliver in space next year without in fact inflation and then the turbo charged by deflation for Water.

Okay, and then I guess a follow to Mike's question on the Technical Products. If you look at... I think Randy, you commented on the call that you think you could see better operating leverage even in a down market. So what would the sensitivity be? I know there is lot of moving pieces, but can you help frame maybe what the margins would look like under a flat unit volume growth scenario or down say 5% or down 10%? What... just in terms of thinking about how bad margins could theoretically get next year if volume was to go down 5 to 10?

Yeah, I think we'll give when we do give guidance later this year. I think we will go into a little more detail. And we're thinking about that. But in a flat environment, I think margins can stay wherever they are, because between productivity and particularly materials productivity, I think there is still a lot than these that can go better in tech products, particularly on the electronics side. So I think in a flat environment, they could do better I think in a down environment they... we can build a plan to be flat, but I don't want to jump the gun [ph]. We got meeting schedule of the team over the next week, who work through the scenarios. But I don't Mike said it well, I mean in last in downturn we went from a 12 peak to a 6 and now actual are peak 17. So we are up five points from that peak. And I don't think we necessarily, I don't... there is now way we will drop 30%. I would hopefully it would even drop to 6 points. So that sort of fills my expectations.

Great. Okay, thank you.

The next question comes from the line of John Quealy with Canaccord Adams. Your line is open.

Thanks. This is actually Chip Moore for John. You talked about slowing conditions in Western Europe. Wondering if you can go through what you're seeing from the commercial, industrial, residential markets, et cetera. And kind of how that... what you saw versus your expectations and what you see going forward?

Well, we actually expected the decline when we set the third quarter. One reason we beat quarter revenue was, we actually were expecting the decline we can see it coming. We're skewed residential in water, Europe. So residential is down in Spain, Italy, France and UK. All those residential market were down. So we are seeing slowing commercial and industrial as well, which is before, because residential decline stared earlier but the commercial and industrial, we saw that decline. That said, the European team has done a great job on margins and we've implemented a safety system and that they've leveraged nicely. They have been supporting a lot of growth in the Middle East and in Eastern Europe. So, I think we still have a opportunity.

Great. Thank you.

I think you agree [ph]. Thanks.

And the next question comes from the line of Chris Glynn with Oppenheimer. Your line is open.

Thank you. On the restructuring front, the $0.25 is that all water?

In which period, for next year?

Yeah, just the benefits you are looking for in '09, from the restructuring actions?

We're... we took more aggressive actions in the first part of the year in the water, but we are certainly looking to do something in technical products as well and the technical products business is reviewing those actions, and they'll be presenting us some ideas here in Q4.

Okay. And just in terms of restructuring beyond what you've laid out, would you expect a couple of factories a year type of thing, or prospects for another significant sort of action strategy? And then specifically, with respect to your China or Eastern European footprint, are those appropriate comfort level with the ground expertise in those areas?

Yeah, I think we've presented some thoughts on that at the Analyst Meeting, as you recall. We continue to see the need, we have a lot of plans. We need to continue to have a more productive footprint, and particularly get to what we call best cost countries which isn't just surely chasing the low lay birds, it's having the best cost plans to serve the markets we're serving. So well, we like our position in China. We like the position we're building in India. Our Poland factory in tech products is finally profitable, and in helping us in Europe. It's in fact actually in Europe, we were up in tech products in the third quarter, so we haven't seen the market decline there yet. And I think one of the reasons is that the Polish factory is giving us a more competitive cost position to grow by itself. We like the position... we have a nice position in Brazil as well, with our tech products business, we're leveraging in the Water.

And the teams they are solid, Chris and I think what we've planned to do is take this tranche of savings and continue to divest annually and constantly getting after the cost basis on a more continued basis.

Okay and then just lastly, at Pool, what's the mix of newbuilds versus after-market shaking out at these days?

It's getting close to a 100.

About 75

Yeah we'd estimate 75-80% right now, as after market.

Well. Okay, thanks a lot.

Thank you.

And you have another question coming from the line of Mike Schneider with Robert W. Baird. Your line is open.

I'm just curious on the ballot this fall, the California legislature is going to take up this issue of banning water softeners. Have you... can you give us an update just on your market analysis around that and maybe what your exposure is, if indeed this becomes one of the green phenomenon?

Senator Larry [ph] took it out and Governor Schwarzenegger vetoed it. That said, water softener is a fairly small part of the salinity problems in the water in California. The big problem in California is it does not enough water. And so you'll see right now the State of Washington is looking at banning personal car washes and lot by checked a... a lot so. I don't think there they lack of water and so wash. But I think there is long-term trend towards there is more restrictions on water use and that's a long-term trend that is favorable for us for water reuse is favorable for us for filtration and it's favorable for us actually fluff. So we're... I think the largest provider of products into water conditioning and water softening. So we pay for a lot of attention to things like what's going on in California. And we view long-term that probably would be a saltless way to de-ionize water. None of those are viable now both economically or technically. But one of the things that we're working on with GE is that technology. That's all we're thinking about.

Okay. And as far as the GE deal goes; given that the world has changed just even in the last three weeks, four weeks. Have you gone back to your GE modeling assumptions for the joint venture and made any material adjustments to that?

No, when we form that venture it was really a shared view that we had with GE that the residential markets would be viable and exciting in the future and why not build now during this weak time, a world beating company to winning it. So that's really what we are. We had a review yesterday actually, our monthly review and status is quite good from a plant restructuring standpoint. The thing I am most excited about is the growth strategy that they are building. So we don't see any need with recent events to change the assumptions are on that venture. If anything I am more confident that we will be, when residential comes back and I'm not picking a date or time, but I will tell you I'm bullish on our prospects when it comes back.

Mike this is Todd Gleason. I just want to make sure, we are able to get to everybody in the queue. And I know we have about five minutes left on the scheduled time. But we want to take it over. How many people do we have in the queue?

Actually Mr. Schneider's call... question was the last question.

Okay. Well Mike go ahead. Do you have anything else Mike?

No, that's it. Thanks, guys.

Okay. Thanks Mike.

Great thanks.

Okay. Well, it sounds like we have no one else left in the queue. And if that's the case, then we will go ahead and wrap up today's conference call. Thank you very much for joining us. And if you have any questions, let us know. Again our presentation material is on our website and hopefully you have access to that. Thank you very much.

Thanks.

Thank you.

Today's call has been recorded and will be available for a playback today, two hours after the call has ended, through October 31st. It maybe accessed by dialing 800-642-1687 or for international callers, 706-645-9291. You will be prompted for the conference ID number, which is 6630-4540. Thank you. And this concludes today's conference call. You may now disconnect. .