þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Minnesota		41-0907434
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification number)

5500 Wayzata Blvd, Suite 800, Golden Valley, Minnesota		55416
(Address of principal executive offices)		(Zip code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

On March 28, 2009, 98,280,976 shares of Registrant’s common stock were outstanding.

 

 

					Page(s)
PART I FINANCIAL INFORMATION
ITEM 1.		Financial Statements (unaudited)
		Condensed Consolidated Statements of Income for the three months ended March 28, 2009 and March 29, 2008			3
		Condensed Consolidated Balance Sheets as of March 28, 2009, December 31, 2008 and March 29, 2008			4
		Condensed Consolidated Statements of Cash Flows for the three months ended March 28, 2009 and March 29, 2008			5
		Notes to Condensed Consolidated Financial Statements			6 - 20
ITEM 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations			21 - 30
ITEM 3.		Quantitative and Qualitative Disclosures about Market Risk			30
ITEM 4.		Controls and Procedures			30
		Report of Independent Registered Public Accounting Firm			31
PART II OTHER INFORMATION
ITEM 1.		Legal Proceedings			32
ITEM 1A.		Risk Factors			32
ITEM 2.		Unregistered Sales of Equity Securities and Use of Proceeds			33
ITEM 6.		Exhibits			34
		Signature			35
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

		Three months ended
		March 28				March 29
In thousands, except per-share data		2009				2008
Net sales		$	633,840			$	830,146
Cost of goods sold			464,608				579,452
Gross profit			169,232				250,694
Selling, general and administrative			117,275				138,103
Research and development			14,743				15,264
Operating income			37,214				97,327
Other (income) expense:
Equity losses of unconsolidated subsidiary			277				917
Net interest expense			11,784				16,089
Income from continuing operations before income taxes and noncontrolling interest			25,153				80,321
Provision for income taxes			7,432				27,858
Income from continuing operations			17,721				52,463
Loss from discontinued operations, net of tax			—				(1,036	)
Gain (loss) on disposal of discontinued operations, net of tax			10				(7,137	)
Net income before noncontrolling interest			17,731				44,290
Noncontrolling interest			466				—
Net income attributable to Pentair, Inc.		$	17,265			$	44,290
Net income from continuing operations attributable to Pentair, Inc.		$	17,255			$	52,463
Earnings (loss) per common share attributable to Pentair, Inc.
Basic
Continuing operations		$	0.18			$	0.53
Discontinued operations			—				(0.08	)
Basic earnings per common share		$	0.18			$	0.45
Diluted
Continuing operations		$	0.18			$	0.53
Discontinued operations			—				(0.08	)
Diluted earnings per common share		$	0.18			$	0.45
Weighted average common shares outstanding
Basic			97,375				98,280
Diluted			97,966				99,558
Cash dividends declared per common share		$	0.18			$	0.17

		March 28				December 31				March 29
In thousands, except share and per-share data		2009				2008				2008
Assets
Current assets
Cash and cash equivalents		$	34,708			$	39,344			$	62,284
Accounts and notes receivable, net			505,196				461,081				609,960
Inventories			393,201				417,287				402,618
Deferred tax assets			51,268				51,354				54,275
Prepaid expenses and other current assets			47,848				63,113				43,125
Current assets of discontinued operations			—				—				20,306
Total current assets			1,032,221				1,032,179				1,192,568
Property, plant and equipment, net			337,898				343,881				364,068
Other assets
Goodwill			2,092,825				2,101,851				2,024,680
Intangibles, net			504,921				515,508				493,564
Other			56,964				59,794				81,447
Non-current assets of discontinued operations			—				—				14,061
Total other assets			2,654,710				2,677,153				2,613,752
Total assets		$	4,024,829			$	4,053,213			$	4,170,388
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings		$	7,404			$	—			$	7,005
Current maturities of long-term debt			630				624				5,209
Accounts payable			196,767				217,898				233,993
Employee compensation and benefits			75,664				90,210				99,364
Current pension and post-retirement benefits			8,890				8,890				8,557
Accrued product claims and warranties			38,639				41,559				45,949
Income taxes			4,312				5,451				34,728
Accrued rebates and sales incentives			20,754				28,897				28,790
Other current liabilities			98,919				104,975				109,278
Current liabilities of discontinued operations			—				—				1,799
Total current liabilities			451,979				498,504				574,672
Other liabilities
Long-term debt			991,807				953,468				1,119,105
Pension and other retirement compensation			270,443				270,139				169,790
Post-retirement medical and other benefits			34,299				34,723				36,179
Long-term income taxes payable			28,076				28,139				24,268
Deferred tax liabilities			145,565				146,559				165,842
Other non-current liabilities			97,260				101,612				105,041
Non-current liabilities of discontinued operations			—				—				1,271
Total liabilities			2,019,429				2,033,144				2,196,168
Commitments and contingencies
Shareholders’ equity
Common shares par value $0.16 2/3; 98,280,976, 98,276,919 and 99,090,432 shares issued and outstanding, respectively			16,380				16,379				16,515
Additional paid-in capital			454,736				451,241				468,930
Retained earnings			1,457,231				1,457,676				1,323,607
Accumulated other comprehensive income			(44,835	)			(26,615	)			165,168
Noncontrolling interest			121,888				121,388				—
Total shareholders’ equity			2,005,400				2,020,069				1,974,220
Total liabilities and shareholders’ equity		$	4,024,829			$	4,053,213			$	4,170,388

		Three months ended
		March 28				March 29
In thousands		2009				2008
Operating activities
Net income attributable to Pentair, Inc.		$	17,265			$	44,290
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss from discontinued operations			—				1,036
(Gain) loss on disposal of discontinued operations			(10	)			7,137
Equity losses of unconsolidated subsidiary			277				917
Noncontrolling interest			466				—
Depreciation			15,170				14,811
Amortization			7,233				6,535
Deferred income taxes			7				(5,836	)
Stock compensation			4,720				6,465
Excess tax benefits from stock-based compensation			(64	)			(378	)
Gain (loss) on sale of assets			19				(552	)
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable			(47,021	)			(137,651	)
Inventories			21,069				(16,196	)
Prepaid expenses and other current assets			15,008				(5,644	)
Accounts payable			(18,052	)			5,893
Employee compensation and benefits			(15,470	)			(16,863	)
Accrued product claims and warranties			(2,797	)			(3,400	)
Income taxes			(922	)			17,923
Other current liabilities			(13,337	)			9,504
Pension and post-retirement benefits			1,801				1,885
Other assets and liabilities			(2,415	)			2,589
Net cash provided by (used for) continuing operations			(17,053	)			(67,535	)
Net cash provided by ( used for) operating activities of discontinued operations			—				(2,997	)
Net cash provided by (used for) operating activities			(17,053	)			(70,532	)
Investing activities
Capital expenditures			(15,979	)			(14,042	)
Proceeds from sale of property and equipment			280				3,845
Acquisitions, net of cash acquired			—				165
Divestitures			—				29,959
Other			(40	)			—
Net cash provided by (used for) investing activities			(15,739	)			19,927
Financing activities
Net short-term borrowings (repayments)			7,494				(7,272	)
Proceeds from long-term debt			135,000				159,405
Repayment of long-term debt			(96,679	)			(82,766	)
Excess tax benefits from stock-based compensation			64				378
Proceeds from exercise of stock options			680				851
Repurchases of common stock			—				(12,500	)
Dividends paid			(17,710	)			(16,908	)
Net cash provided by (used for) financing activities			28,849				41,188
Effect of exchange rate changes on cash and cash equivalents			(693	)			906
Change in cash and cash equivalents			(4,636	)			(8,511	)
Cash and cash equivalents, beginning of period			39,344				70,795
Cash and cash equivalents, end of period		$	34,708			$	62,284

We prepared the unaudited condensed consolidated financial statements following the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States can be condensed or omitted.

We are responsible for the unaudited financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto, which are included in our 2008 Annual Report on Form 10-K for the year ended December 31, 2008.

Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.

Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis ending on a Saturday.

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51 (“SFAS 160”). SFAS 160 changes the accounting and reporting for minority interests. Minority interests have been recharacterized as noncontrolling interests and are reported as a component of equity separate from the parent’s equity. Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement and upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, except for the presentation and disclosure requirements, which will apply retrospectively. We adopted SFAS 160 effective January 1, 2009 and have classified noncontrolling interest (previously minority interest) as a component of equity for all periods presented.

Total stock-based compensation expense was $4.7 million and $6.5 million for the first quarter of 2009 and 2008, respectively.

During the first quarter of 2009, restricted shares and restricted stock units of our common stock were granted under the 2008 Omnibus Stock Incentive Plan to eligible employees with a vesting period of two to five years after issuance. Restricted share awards and restricted stock units are valued at market value on the date of grant and are typically expensed over the vesting period. Total compensation expense for restricted share awards during the first quarter of 2009 and 2008 was $2.7 million and $3.2 million respectively.

During the first quarter of 2009, option awards were granted under the 2008 Omnibus Stock Incentive Plan with an exercise price equal to the market price of our common stock on the date of grant and are typically expensed over the vesting period. Total compensation expense for stock option awards was $2.0 million and $3.3 million for the first quarter of 2009 and 2008, respectively.

We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:

		March 28				March 29
		2009				2008
Expected stock price volatility			32.5	%			27.0	%
Expected life		5.2 yrs				4.8 yrs
Risk-free interest rate			1.77	%			2.75	%
Dividend yield			3.20	%			2.13	%

The weighted-average fair value of options granted during the first quarter of 2009 and 2008 was $5.09 and $7.36 per share, respectively.

These estimates require us to make assumptions based on historical results, observance of trends in our stock price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, stock-based compensation expense, as calculated and recorded under SFAS No. 123R (revised 2004), Share Based Payment, could have been affected.

We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

4. Earnings Per Common Share

Basic and diluted earnings per share were calculated using the following:

		Three months ended
		March 28				March 29
In thousands		2009				2008
Weighted average common shares outstanding — basic			97,375				98,280
Dilutive impact of stock options and restricted stock			591				1,278
Weighted average common shares outstanding — diluted			97,966				99,558
Stock options excluded from the calculation of diluted earnings per share because the exercise price was greater than the average market price of the common shares			8,601				4,612

5. Restructuring

During 2008 and the first quarter of 2009, we announced and initiated certain business restructuring initiatives aimed at reducing our fixed cost structure and rationalizing our manufacturing footprint. These initiatives included the reduction in hourly and salaried headcount of approximately 2,000 employees, of which 1,500 were in the Water Group and 500 were in the Technical Products Group. We expect these restructuring actions to generally be completed by the end of 2009.

Restructuring related costs included in Selling, general and administrative expenses on the Condensed Consolidated Statements of Income include costs for severance and related benefits of $2.8 million in the first three months of 2009.

Restructuring accrual activity recorded on the Condensed Consolidated Balance Sheets is summarized as follows:

In thousands
Balance at December 31, 2008		$	34,174
Costs incurred			2,820
Cash payments and other			(14,274	)
Balance at March 28, 2009		$	22,720

6. Acquisitions

On June 28, 2008, we entered into a transaction with GE Water & Process Technologies (a unit of General Electric Company) (“GE”) that was accounted for as an acquisition of an 80.1 percent ownership interest in GE’s global water softener and residential water filtration business in exchange for a 19.9 percent interest in our global water softener and residential water filtration business. The acquisition was effected through the formation of two new entities (collectively, “Pentair Residential Filtration” or “PRF”), a U.S. entity and an international entity, into which we and GE contributed certain assets, properties, liabilities and operations representing our respective global water softener and residential water filtration businesses. We are an 80.1 percent owner of PRF and GE is a 19.9 percent owner. The fair value of the acquisition was $229.2 million, which includes approximately $3.3 million of acquisition related costs. The acquisition and related sale of our 19.9 percent interest resulted in a gain of $109.6 million ($85.8 million after tax), representing the difference between the carrying amount and the fair value of the 19.9 percent interest sold.

With the formation of Pentair Residential Filtration, we believe we will be better positioned to serve residential customers with industry-leading technical applications in the areas of water conditioning, whole-house filtration, point of use water management and water sustainability and expect to accelerate revenue growth by selling GE’s existing residential conditioning products through our sales channels.

The fair value of the 80.1% interest in the global water softener and residential water filtration business of GE Water and Process Technologies acquired was determined using both an income approach and a market approach. The income approach utilizes a discounted cash flow analysis based on certain key assumptions including a discount rate based on a computed weighted average cost of capital and expected long-term revenue and expense growth rates. The market approach indicates the fair value of a business based on a comparison of the business to guideline publicly traded companies and transactions in its industry.

The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was approximately $137.9 million, none of which is tax deductible. Identifiable intangible assets acquired as part of the acquisition were $66.5 million, including definite-lived intangibles, such as customer relationships, proprietary technology and trade names with a weighted average amortization period of approximately 15 years. We continue to evaluate the purchase price allocation, including tangible and intangible assets, which primarily consist of trademarks, proprietary technology and customer relationships, contingent liabilities and liabilities associated with exit or disposal activities, and expect to revise the purchase price allocation in future periods as these estimates are finalized.

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

The following pro forma condensed financial results of operations are presented as if the acquisitions described above had been completed at the beginning of the first quarter of 2008.

		Three Months
		Ended
		March 29
In thousands, except share and per-share data		2008
Pro forma net sales from continuing operations		$	855,035
Pro forma net income attributable to Pentair, Inc.			44,290
Pro forma earnings per common share — continuing operations
Basic		$	0.53
Diluted		$	0.53
Weighted average common shares outstanding
Basic			98,280
Diluted			99,558

These pro forma condensed consolidated financial results have been prepared for comparative purposes only and include certain adjustments, such as increased interest expense on acquisition debt. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of these acquisitions. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred at the beginning of each period presented, or of future results of the consolidated entities.

7. Discontinued Operations

On December 15, 2008, we sold our Spa and Bath (“Spa/Bath”) business to Balboa Water Group in a cash transaction for $8.3 million including certain price adjustments based on working capital at closing. The results of Spa/Bath have been reported as discontinued operations for all periods presented. The assets and liabilities of Spa/Bath have been reclassified as discontinued operations for all periods presented. Goodwill of $5.6 million was included in the assets of Spa/Bath.

On February 28, 2008, we sold our National Pool Tile (“NPT”) business to Pool Corporation in a cash transaction for approximately $30.0 million subject to certain price adjustments. The results of NPT have been reported as discontinued operations for all periods presented. The assets and liabilities of NPT have been reclassified as discontinued operations for all periods presented. Goodwill of $16.8 million was included in the assets of NPT.

Operating results of the discontinued operations for the first quarter of 2008 are summarized below:

		Three Months
		Ended
		March 29
In thousands		2008
Net sales		$	17,343
Loss from discontinued operations before income taxes			(2,471	)
Income tax benefit			1,435
Loss from discontinued operations, net of income taxes			(1,036	)
Loss on disposal of discontinued operations, before taxes			(6,588	)
Income tax expense			(549	)
Loss on disposal of discontinued operations, net of tax		$	(7,137	)

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Net assets and liabilities of discontinued operations consist of the following:

		March 29
In thousands		2008
Accounts and notes receivable, net		$	6,744
Inventories			13,440
Other current assets			122
Current assets of discontinued operations			20,306
Property, plant and equipment, net			4,225
Goodwill			5,601
Other non-current assets			4,235
Non-current assets of discontinued operations			14,061
Total assets		$	34,367
Accounts payable		$	1,805
Other current liabilities			(6	)
Current liabilities of discontinued operations			1,799
Deferred income tax			716
Other non-current liabilities			555
Non-current liabilities of discontinued operations			1,271
Total liabilities			3,070
Net assets of discontinued operations		$	31,297

8. Inventories

Inventories were comprised of:

		March 28				December 31				March 29
In thousands		2009				2008				2008
Raw materials and supplies		$	206,348			$	212,792			$	200,639
Work-in-process			50,088				53,241				55,405
Finished goods			136,765				151,254				146,574
Total inventories		$	393,201			$	417,287			$	402,618

9. Comprehensive Income

Comprehensive income (loss) attributable to Pentair, Inc. and its components, net of tax, were as follows:

		Three months ended
		March 28				March 29
In thousands		2009				2008
Net income before noncontrolling interest		$	17,731			$	44,290
Changes in cumulative foreign currency translation adjustment			(18,635	)			47,820
Changes in market value of derivative financial instruments classified as cash flow hedges, net of tax			381				(4,518	)
Comprehensive income (loss) before noncontrolling interest			(523	)			87,592
Noncontrolling interest			(466	)			—
Changes in cumulative foreign currency translation adjustment on noncontrolling interest			34				—
Comprehensive income (loss) attributable to Pentair, Inc.		$	(955	)		$	87,592

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

10. Goodwill and Other Intangible Assets

Changes in the carrying amount of goodwill for the three months ended March 28, 2009 and March 29, 2008 by segment were as follows:

										Foreign Currency
In thousands		December 31, 2008				Acquisitions/Other				Translation				March 28, 2009
Water Group		$	1,818,470			$	(227	)		$	(7,312	)		$	1,810,931
Technical Products Group			283,381				—				(1,487	)			281,894
Consolidated Total		$	2,101,851			$	(227	)		$	(8,799	)		$	2,092,825

										Foreign Currency
In thousands		December 31, 2007				Acquisitions/Other				Translation				March 29, 2008
Water Group		$	1,706,626			$	556			$	23,633			$	1,730,815
Technical Products Group			292,493				50				1,322				293,865
Consolidated Total		$	1,999,119			$	606			$	24,955			$	2,024,680

In 2008, goodwill allocated to divested businesses was $5.6 million.

Intangible assets, other than goodwill, were comprised of:

		March 28, 2009												December 31, 2008												March 29, 2008
		Gross												Gross												Gross
		carrying				Accumulated								carrying				Accumulated								carrying				Accumulated
In thousands		amount				amortization				Net				amount				amortization				Net				amount				amortization				Net
Finite-life intangibles
Patents		$	15,424			$	(10,256	)		$	5,168			$	15,427			$	(9,774	)		$	5,653			$	15,473			$	(8,388	)		$	7,085
Non-compete agreements			4,522				(4,479	)			43				4,722				(4,566	)			156				4,722				(4,186	)			536
Proprietary technology			72,199				(19,097	)			53,102				72,375				(17,652	)			54,723				60,284				(13,854	)			46,430
Customer relationships			280,723				(51,132	)			229,591				283,015				(46,841	)			236,174				245,148				(34,926	)			210,222
Brand names			1,520				(113	)			1,407				961				(77	)			884				—				—				—
Total finite-life intangibles		$	374,388			$	(85,077	)		$	289,311			$	376,500			$	(78,910	)		$	297,590			$	325,627			$	(61,354	)		$	264,273
Indefinite-life intangibles
Brand names			215,610				—				215,610				217,918				—				217,918				229,291				—				229,291
Total intangibles, net		$	589,998			$	(85,077	)		$	504,921			$	594,418			$	(78,910	)		$	515,508			$	554,918			$	(61,354	)		$	493,564

Intangible asset amortization expense was approximately $7.2 million and $6.5 million for the three months ended March 28, 2009 and March 29, 2008, respectively.

The estimated future amortization expense for identifiable intangible assets during the remainder of 2009 and the next five years is as follows:

In thousands		2009 Q2-Q4				2010				2011				2012				2013				2014
Estimated amortization expense		$	19,443			$	25,388			$	25,384			$	24,271			$	24,111			$	23,787

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

11. Debt

Debt and the average interest rate on debt outstanding are summarized as follows:

		Average
		interest rate				Maturity				March 28				December 31				March 29
In thousands		March 28, 2009				(Year)				2009				2008				2008
Commercial paper			—				—			$	—			$	249			$	66,901
Revolving credit facilities			1.17	%			2012				252,800				214,200				193,400
Private placement — fixed rate			5.65	%			2013-2017				400,000				400,000				400,000
Private placement — floating rate			1.75	%			2012-2013				205,000				205,000				205,000
Senior notes			7.85	%			2009				133,900				133,900				250,000
Other			3.00	%			2009-2016				7,829				275				14,270
Total contractual debt obligations											999,529				953,624				1,129,571
Deferred income related to swaps											312				468				1,748
Total debt, including current portion per balance sheet											999,841				954,092				1,131,319
Less: Current maturities											(630	)			(624	)			(5,209	)
Short-term borrowings											(7,404	)			—				(7,005	)
Long-term debt										$	991,807			$	953,468			$	1,119,105

We have a multi-currency revolving Credit Facility (“Credit Facility”). The Credit Facility creates an unsecured, committed revolving credit facility of up to $800 million, with multi-currency sub facilities to support investments outside the U.S. The Credit Facility expires on June 4, 2012. Borrowings under the Credit Facility will bear interest at the rate of LIBOR plus 0.625%. Interest rates and fees on the Credit Facility vary based on our credit ratings.

Total availability under our existing Credit Facility was $547.2 million as of March 28, 2009.

We are authorized to sell short-term commercial paper notes to the extent availability exists under the Credit Facility. We use the Credit Facility as back-up liquidity to support 100% of commercial paper outstanding. Our use of commercial paper as a funding vehicle depends upon the relative interest rates for our paper compared to the cost of borrowing under our Credit Facility. As of March 28, 2009, we had no commercial paper outstanding.

The commercial paper and Notes, (as defined below) were classified as long-term as we have the intent and the ability to refinance such obligations on a long-term basis under the Credit Facility.

In addition to the Credit Facility, we have $25.0 million of uncommitted credit facilities, under which we had $7.4 million of borrowings as of March 28, 2009.

Our debt agreements contain certain financial covenants, the most restrictive of which is a leverage ratio (total consolidated indebtedness, as defined, over consolidated EBITDA, as defined) that may not exceed 3.5 to 1.0. We were in compliance with all covenants in our debt agreements as of March 28, 2009.

On July 8, 2008, we commenced a cash tender offer for all of our outstanding $250 million aggregate principal 7.85% Senior Notes due 2009 (the “Notes”). Upon expiration of the tender offer on August 4, 2008, we purchased $116.1 million aggregate principal amount of the Notes. As a result of this transaction, we recognized a loss of $4.6 million on early extinguishment of debt. The loss included the write off of $0.1 million in unamortized deferred financing fees in addition to recognition of $0.6 million in previously unrecognized swap gains, and cash paid of $5.1 million related to the tender premium and other costs associated with the purchase.

On March 16, 2009, we announced the redemption of all of our remaining outstanding $133.9 million aggregate principle of Notes. The Notes were redeemed on April 15, 2009 at a redemption price of $1,035.88 per $1,000 of principal outstanding plus accrued interest thereon. As a result of this transaction, we will recognize a loss of $4.6 million on early extinguishment of debt in the second quarter. The loss will include the write off of $0.1 million in unamortized deferred financing fees in addition to recognition of $0.3 million in previously unrecognized swap gains, and cash paid of $4.8 million related to the redemption and other costs associated with the purchase.

Debt outstanding at March 28, 2009 matures on a calendar year basis as follows:

In thousands		2009 Q2-Q4				2010				2011				2012				2013				2014				Thereafter				Total
Contractual debt obligation maturities		$	7,700			$	78			$	16			$	491,706			$	200,007			$	7			$	300,015			$	999,529
Other maturities			312				—				—				—				—				—				—				312
Total maturities		$	8,012			$	78			$	16			$	491,706			$	200,007			$	7			$	300,015			$	999,841

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

12. Derivatives and Financial Instruments

Fair Value of Financial Instruments

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS 157 does not require any new fair value measurements, but rather eliminates inconsistencies in guidance found in various prior accounting pronouncements. SFAS 157 is effective for fiscal years beginning after November 15, 2007 (adopted by Pentair as of January 1, 2008), with the exception of the application of the statement to the determination of fair value of nonfinancial assets and liabilities that are recognized or disclosed on a nonrecurring basis, which is effective for fiscal years beginning after November 15, 2008 (adopted by Pentair as of January 1, 2009).

SFAS 157 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based upon our own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

Cash-flow hedges

In August 2007, we entered into a $105 million interest rate swap agreement with a major financial institution to exchange variable rate interest payment obligations for a fixed rate obligation without the exchange of the underlying principal amounts in order to manage interest rate exposures. The effective date of the swap was August 30, 2007. The swap agreement has a fixed interest rate of 4.89% and expires in May 2012. The fixed interest rate of 4.89% plus the .50% interest rate spread over LIBOR results in an effective fixed interest rate of 5.39%. The fair value of the swap was a liability of $10.4 million, $10.7 million and $7.6 million at March 28, 2009, December 31, 2008 and March 29, 2008, respectively, and was recorded in Other non-current liabilities.

In September 2005, we entered into a $100 million interest rate swap agreement with several major financial institutions to exchange variable rate interest payment obligations for fixed rate obligations without the exchange of the underlying principal amounts in order to manage interest rate exposures. The effective date of the fixed rate swap was April 25, 2006. The swap agreement has a fixed interest rate of 4.68% and expires in July 2013. The fixed interest rate of 4.68% plus the .60% interest rate spread over LIBOR results in an effective fixed interest rate of 5.28%. The fair value of the swap was a liability of $11.3 million, $11.6 million and $6.7 million at March 28, 2009, December 31, 2008 and March 29, 2008, respectively, and was recorded in Other non-current liabilities.

The variable to fixed interest rate swaps are designated as and are effective as cash-flow hedges. The fair value of these swaps are recorded as assets or liabilities on the Consolidated Balance Sheets, with changes in their fair value included in Accumulated other comprehensive income (“OCI”). Derivative gains and losses included in OCI are reclassified into earnings at the time the related interest expense is recognized or the settlement of the related commitment occurs.

Failure of one or more of our swap counterparties would result in the loss of any benefit to us of the swap agreement. In this case, we would continue to be obligated to pay the variable interest payments per the underlying debt agreements which are at variable interest rates of 3 month LIBOR plus .50% for $105 million of debt and 3 month LIBOR plus .60% for $100 million of debt. Additionally, failure of one or all of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to be in a net pay position.

At March 28, 2009, our interest rate swaps are carried at fair value measured on a recurring basis. Fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by SFAS 157.

13. Income Taxes

The provision for income taxes consists of provisions for federal, state and foreign income taxes. We operate in an international environment with operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

The effective income tax rate for the three months ended March 28, 2009 was 29.5% compared to 34.7% for the three months ended March 29, 2008. We expect the effective tax rate for the remainder of 2009 to be between 32% and 33%, resulting in a full year effective income tax rate of between 32% and 33%. We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.

The total gross liability for uncertain tax positions under FASB Interpretation No. 48 at March 28, 2009 is estimated to be approximately $28.1 million. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, which is consistent with our past practices.

Pentair, Inc. and subsidiaries
Notes to condensed consolidated financial statements (unaudited)

14. Benefit Plans

Components of net periodic benefit cost for the three months ended March 28, 2009 and March 29, 2008 were as follows:

		Three months ended
		Pension benefits								Post-retirement
		March 28				March 29				March 28				March 29
In thousands		2009				2008				2009				2008
Service cost		$	3,067			$	3,529			$	54			$	65
Interest cost			8,115				8,174				594				634
Expected return on plan assets			(7,563	)			(7,475	)			—				—
Amortization of transition obligation			14				12				—				—
Amortization of prior year service cost (benefit)			6				44				(10	)			(34	)
Recognized net actuarial loss (gains)			18				68				(832	)			(825	)
Net periodic benefit cost		$	3,657			$	4,352			$	(194	)		$	(160	)

15. Business Segments

Financial information by reportable segment for the three months ended March 28, 2009 and March 29, 2008 is shown below:

		Three months ended
		March 28				March 29
In thousands		2009				2008
Net sales to external customers
Water Group		$	423,932			$	544,686
Technical Products Group			209,908				285,460
Consolidated		$	633,840			$	830,146
Intersegment sales
Water Group		$	289			$	372
Technical Products Group			233				1,138
Other			(522	)			(1,510	)
Consolidated		$	—			$	—
Operating income (loss)
Water Group		$	26,976			$	65,035
Technical Products Group			20,462				45,337
Other			(10,224	)			(13,045	)
Consolidated		$	37,214			$	97,327

Other sales and operating loss is primarily composed of unallocated corporate expenses, costs related to our captive insurance subsidiary and our intermediate finance companies, and intercompany eliminations.

16. Warranty

The changes in the carrying amount of service and product warranties for the three months ended March 28, 2009 and March 29, 2008 were as follows:

		March 28				March 29
In thousands		2009				2008
Balance at beginning of the year		$	31,559			$	39,077
Service and product warranty provision			11,644				15,391
Payments			(14,441	)			(18,791	)
Translation			(123	)			272
Balance at end of the period		$	28,639			$	35,949

17. Commitments and Contingencies

Environmental and Litigation

There have been no further material developments from the disclosures contained in our 2008 Annual Report on Form 10-K.

The $133.9 million of Notes due 2009 were jointly and severally guaranteed by 100% owned domestic subsidiaries (the “Guarantor Subsidiaries”), each of which is directly or indirectly wholly-owned by Pentair (the “Parent Company”). The following supplemental financial information sets forth the Condensed Consolidated Balance Sheets as of March 28, 2009, December 31, 2008 and March 29, 2008, the related Condensed Consolidated Statements of Income for the three months ended March 28, 2009 and March 29, 2008, and Statements of Cash Flows for the three months ended March 28, 2009 and March 29, 2008, for the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries.

		Parent				Guarantor				Non-Guarantor
In thousands		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Net sales		$	—			$	478,569			$	195,579			$	(40,308	)		$	633,840
Cost of goods sold			8				362,271				142,459				(40,130	)			464,608
Gross profit			(8	)			116,298				53,120				(178	)			169,232
Selling, general and administrative			2,578				80,052				34,823				(178	)			117,275
Research and development			54				11,412				3,277				—				14,743
Operating (loss) income			(2,640	)			24,834				15,020				—				37,214
Other (income) expense:
Earnings from investment in subsidiary			(2,946	)			—				—				2,946				—
Equity losses of unconsolidated subsidiary			—				240				37				—				277
Net interest (income) expense			(25,127	)			38,375				(1,464	)			—				11,784
Income (loss)from continuing operations before income taxes and noncontrolling interest			25,433				(13,781	)			16,447				(2,946	)			25,153
Provision for income taxes			8,168				(5,989	)			5,253				—				7,432
Income (loss) from continuing operations			17,265				(7,792	)			11,194				(2,946	)			17,721
Income (loss) on disposal of discontinued operations, net of tax			—				18				(8	)			—				10
Net income (loss) before noncontrolling interest			17,265				(7,774	)			11,186				(2,946	)			17,731
Noncontrolling interest			—				455				11				—				466
Net income (loss) attributable to Pentair, Inc.		$	17,265			$	(8,229	)		$	11,175			$	(2,946	)		$	17,265

		Parent				Guarantor				Non-Guarantor
In thousands		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
ASSETS
Current assets
Cash and cash equivalents		$	4,759			$	3,648			$	26,301			$	—			$	34,708
Accounts and notes receivable, net			353				375,216				189,598				(59,971	)			505,196
Inventories			—				277,898				115,303				—				393,201
Deferred tax assets			132,096				38,712				4,308				(123,848	)			51,268
Prepaid expenses and other current assets			19,835				9,963				33,856				(15,806	)			47,848
Total current assets			157,043				705,437				369,366				(199,625	)			1,032,221
Property, plant and equipment, net			8,345				209,151				120,402				—				337,898
Other assets
Investments in/advances to subsidiaries			2,713,541				86,479				886,517				(3,686,537	)			—
Goodwill			—				1,643,116				449,709				—				2,092,825
Intangibles, net			—				344,734				160,187				—				504,921
Other			61,877				8,730				14,931				(28,574	)			56,964
Total other assets			2,775,418				2,083,059				1,511,344				(3,715,111	)			2,654,710
Total assets		$	2,940,806			$	2,997,647			$	2,001,112			$	(3,914,736	)		$	4,024,829
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings		$	—			$	—			$	7,404			$	—			$	7,404
Current maturities of long-term debt			117,844				126				151,308				(268,648	)			630
Accounts payable			2,235				149,784				103,985				(59,237	)			196,767
Employee compensation and benefits			9,412				34,505				31,747				—				75,664
Current pension and post-retirement benefits			8,890				—				—				—				8,890
Accrued product claims and warranties			—				24,738				13,901				—				38,639
Income taxes			4,130				2,098				(1,916	)			—				4,312
Accrued rebates and sales incentives			—				15,973				4,781				—				20,754
Other current liabilities			27,442				49,289				37,994				(15,806	)			98,919
Total current liabilities			169,953				276,513				349,204				(343,691	)			451,979
Other liabilities
Long-term debt			991,700				1,947,507				307,036				(2,254,436	)			991,807
Pension and other retirement compensation			182,910				18,564				68,969				—				270,443
Post-retirement medical and other benefits			20,265				42,608				—				(28,574	)			34,299
Long-term taxes payable			28,076				—				—				—				28,076
Deferred tax liabilities			2,111				211,919				55,383				(123,848	)			145,565
Due to / (from) affiliates			(502,985	)			178,564				845,475				(521,054	)			—
Other non-current liabilities			43,376				(86,095	)			139,979				—				97,260
Total liabilities			935,406				2,589,580				1,766,046				(3,271,603	)			2,019,429
Shareholders’ equity			2,005,400				408,067				235,066				(643,133	)			2,005,400
Total liabilities and shareholder’s equity		$	2,940,806			$	2,997,647			$	2,001,112			$	(3,914,736	)		$	4,024,829

		Parent				Guarantor				Non-Guarantor
In thousands		Company				Subsidiaries				Subsidiaries				Eliminations				Consolidated
Operating activities
Net income (loss) attributable to Pentair, Inc.		$	17,265			$	(8,229	)		$	11,175			$	(2,946	)		$	17,265
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
(Gain) loss on disposal of discontinued operations			—				(18	)			8				—				(10	)
Equity losses of unconsolidated subsidiary			—				240				37				—				277
Noncontrolling interest			(37	)			455				48				—				466
Depreciation			420				9,498				5,252				—				15,170
Amortization			646				4,935				1,652				—				7,233
Earnings from investments in subsidiaries			(2,946	)			—				—				2,946				—
Deferred income taxes			(366	)			—				373				—				7
Stock compensation			4,720				—				—				—				4,720
Excess tax benefits from stock-based compensation			(64	)			—				—				—				(64	)
Other			19				—				—				—				19
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable			2,026				(37,084	)			(60,786	)			48,823				(47,021	)
Inventories			—				13,365				7,704				—				21,069
Prepaid expenses and other current assets			66,662				558				(51,972	)			(240	)			15,008
Accounts payable			(1,875	)			(9,810	)			(6,275	)			(92	)			(18,052	)
Employee compensation and benefits			(5,567	)			(8,158	)			(1,745	)			—				(15,470	)
Accrued product claims and warranties			—				(2,684	)			(113	)			—				(2,797	)
Income taxes			(34,366	)			35,246				(1,802	)			—				(922	)
Other current liabilities			(41,610	)			(17,022	)			45,080				215				(13,337	)
Pension and post-retirement benefits			777				443				581				—				1,801
Other assets and liabilities			(381	)			(3,813	)			1,779				—				(2,415	)
Net cash provided by (used for) operating activities			5,323				(22,078	)			(49,004	)			48,706				(17,053	)
Investing activities
Capital expenditures			(753	)			(9,502	)			(5,724	)			—				(15,979	)
Proceeds from sales of property and equipment			—				117				163				—				280
Other			(3	)			—				(37	)			—				(40	)
Net cash provided by (used for ) investing activities of continuing operations			(756	)			(9,385	)			(5,598	)			—				(15,739	)
Financing activities
Net short-term borrowings (repayments)			7,494				—				—				—				7,494
Proceeds from long-term debt			135,000				—				—				—				135,000
Repayment of long-term debt			(96,679	)			—				—				—				(96,679	)
Net change in advances to subsidiaries			(33,766	)			32,045				50,427				(48,706	)			—
Excess tax benefit from stock-based compensation			64				—				—				—				64
Proceeds from exercise of stock options			680				—				—				—				680
Dividends paid			(17,707	)			750				(753	)			—				(17,710	)
Net cash provided by (used for) financing activities of continuing operations			(4,914	)			32,795				49,674				(48,706	)			28,849
Effect of exchange rate changes on cash			2,386				(1,029	)			(2,050	)			—				(693	)
Change in cash and cash equivalents			2,039				303				(6,978	)			—				(4,636	)
Cash and cash equivalents, beginning of period			2,720				3,345				33,279				—				39,344
Cash and cash equivalents, end of period		$	4,759			$	3,648			$	26,301			$	—			$	34,708