10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended September 27, 2008

OR

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

Commission file number 000-04689

Pentair, Inc.

(Exact name of Registrant as specified in its charter)

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)

Registrant’s telephone number, including area code: (763) 545-1730

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 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	Smaller reporting company o
		(Do not check if a smaller reporting company)

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 September 27, 2008, 98,629,464 shares of Registrant’s common stock were outstanding.

Pentair, Inc. and Subsidiaries

	Page(s)
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements (unaudited)
Condensed Consolidated Statements of Income for the three and nine months ended September 27, 2008 and September 29, 2007		3
Condensed Consolidated Balance Sheets as of September 27, 2008, December 31, 2007 and September 29, 2007		4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 27, 2008 and September 29, 2007		5
Notes to Condensed Consolidated Financial Statements		6 – 22
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		23
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk		32
ITEM 4. Controls and Procedures		32
Report of Independent Registered Public Accounting Firm		34
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings		35
ITEM 1A. Risk Factors		35
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
ITEM 6. Exhibits		37
Signature		38
EX-10.1
EX-15
EX-31.1
EX-31.2
EX-32.1
EX-32.2

2

PART I FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

	Three months ended						Nine months ended
	September 27			September 29			September 27			September 29
In thousands, except per-share data	2008			2007			2008			2007
Net sales	$	864,167		$	821,215		$	2,614,328		$	2,513,359
Cost of goods sold		608,854			576,519			1,829,622			1,753,183
Gross profit		255,313			244,696			784,706			760,176
Selling, general and administrative		154,972			137,100			439,929			428,463
Research and development		16,691			14,446			48,871			44,204
Legal settlement		—			—			20,435			—
Operating income		83,650			93,150			275,471			287,509
Other (income) expense:
Gain on sale of interest in subsidiaries		—			—			(109,648	)		—
Equity losses of unconsolidated subsidiary		669			845			2,433			1,838
Loss on early extinguishment of debt		4,611			—			4,611			—
Net interest expense		13,735			18,157			45,685			51,351
Income from continuing operations before income taxes and minority interest		64,635			74,148			332,390			234,320
Provision for income taxes		21,146			14,869			97,522			71,419
Minority Interest		2,100			—			2,100			—
Income from continuing operations		41,389			59,279			232,768			162,901
Loss from discontinued operations, net of tax		—			(1,235	)		(1,217	)		(726	)
Gain (loss) on disposal of discontinued operations, net of tax		(269	)		—			(7,406	)		207
Net income	$	41,120		$	58,044		$	224,145		$	162,382
Earnings (loss) per common share
Basic
Continuing operations	$	0.42		$	0.60		$	2.37		$	1.65
Discontinued operations		—			(0.01	)		(0.08	)		(0.01	)
Basic earnings per common share	$	0.42		$	0.59		$	2.29		$	1.64
Diluted
Continuing operations	$	0.42		$	0.59		$	2.34		$	1.63
Discontinued operations		—			(0.01	)		(0.08	)		(0.01	)
Diluted earnings per common share	$	0.42		$	0.58		$	2.26		$	1.62
Weighted average common shares outstanding
Basic		97,827			98,747			98,049			98,859
Diluted		99,319			100,365			99,372			100,339
Cash dividends declared per common share	$	0.17		$	0.15		$	0.51		$	0.45

3

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

	September 27		December 31		September 29
In thousands, except share and per-share data	2008		2007		2007
Assets
Current assets
Cash and cash equivalents	$	93,544	$	70,795	$	56,555
Accounts and notes receivable, net		517,240		466,675		473,496
Inventories		430,386		392,416		395,638
Deferred tax assets		50,061		50,511		52,038
Prepaid expenses and other current assets		53,504		35,908		47,746
Current assets of discontinued operations		—		21,716		26,868
Total current assets		1,144,735		1,038,021		1,052,341
Property, plant and equipment, net		363,352		365,990		356,594
Other assets
Goodwill		2,134,031		2,004,720		1,989,620
Intangibles, net		539,133		491,263		492,732
Other		69,874		82,237		77,084
Non-current assets of discontinued operations		—		18,383		18,500
Total other assets		2,743,038		2,596,603		2,577,936
Total assets	$	4,251,125	$	4,000,614	$	3,986,871
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—	$	13,586	$	4,800
Current maturities of long-term debt		3,913		5,075		4,992
Accounts payable		225,928		229,937		204,360
Employee compensation and benefits		107,163		111,475		107,271
Current pension and post-retirement benefits		8,557		8,557		7,918
Accrued product claims and warranties		43,012		49,382		47,719
Income taxes		7,806		12,919		10,862
Accrued rebates and sales incentives		35,907		36,663		36,910
Other current liabilities		101,662		90,377		111,833
Current liabilities of discontinued operations		—		2,935		5,431
Total current liabilities		533,948		560,906		542,096
Other liabilities
Long-term debt		1,035,150		1,041,925		1,102,707
Pension and other retirement compensation		164,776		161,042		222,098
Post-retirement medical and other benefits		34,218		37,147		46,499
Long-term income taxes payable		25,356		21,306		18,214
Deferred tax liabilities		184,514		167,633		134,683
Other non-current liabilities		96,941		97,086		89,898
Non-current liabilities of discontinued operations		—		2,698		2,519
Total liabilities		2,074,903		2,089,743		2,158,714
Commitments and contingencies
Minority interest		120,230		—		—
Shareholders’ equity
Common shares par value $0.16 2/3; 98,629,464, 99,221,831 and 99,468,474 shares issued and outstanding, respectively		16,438		16,537		16,578
Additional paid-in capital		456,144		476,242		478,396
Retained earnings		1,469,830		1,296,226		1,262,604
Accumulated other comprehensive income		113,580		121,866		70,579
Total shareholders’ equity		2,055,992		1,910,871		1,828,157
Total liabilities and shareholders’ equity	$	4,251,125	$	4,000,614	$	3,986,871

See accompanying notes to condensed consolidated financial statements.

4

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Nine months ended
	September 27			September 29
In thousands	2008			2007
Operating activities
Net income	$	224,145		$	162,382
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss from discontinued operations		1,217			726
(Gain) loss on disposal of discontinued operations		7,406			(207	)
Equity losses of unconsolidated subsidiary		2,433			1,838
Minority interest		2,100			—
Depreciation		45,759			45,538
Amortization		20,220			18,635
Deferred income taxes		25,927			(18,883	)
Stock compensation		15,948			17,071
Excess tax benefits from stock-based compensation		(1,617	)		(2,706	)
Gain on sale of assets		87			(2,195	)
Gain on sale of interest in subsidiaries		(109,648	)		—
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		(55,727	)		(27,927	)
Inventories		(26,518	)		13,973
Prepaid expenses and other current assets		(15,798	)		(8,681	)
Accounts payable		1,343			(1,088	)
Employee compensation and benefits		(7,471	)		3,037
Accrued product claims and warranties		(6,483	)		3,199
Income taxes		(5,792	)		(4,573	)
Other current liabilities		9,380			15,955
Pension and post-retirement benefits		592			7,924
Other assets and liabilities		13,146			7,396
Net cash provided by (used for) continuing operations		140,649			231,414
Net cash provided by ( used for) operating activities of discontinued operations		(3,432	)		(2,081	)
Net cash provided by (used for) operating activities		137,217			229,333
Investing activities
Capital expenditures		(40,107	)		(45,163	)
Proceeds from sale of property and equipment		4,304			5,136
Acquisitions, net of cash acquired		(1,609	)		(486,264	)
Divestitures		29,526			—
Other		(7	)		(4,044	)
Net cash provided by (used for) investing activities		(7,893	)		(530,335	)
Financing activities
Net short-term borrowings		(14,180	)		(10,378	)
Proceeds from long-term debt		479,405			1,147,132
Repayment of long-term debt		(486,492	)		(770,822	)
Debt issuance costs		(114	)		(1,876	)
Excess tax benefits from stock-based compensation		1,617			2,706
Proceeds from exercise of stock options		5,140			5,512
Repurchases of common stock		(37,342	)		(27,119	)
Dividends paid		(50,541	)		(44,986	)
Net cash provided by (used for) financing activities		(102,507	)		300,169
Effect of exchange rate changes on cash and cash equivalents		(4,068	)		2,568
Change in cash and cash equivalents		22,749			1,735
Cash and cash equivalents, beginning of period		70,795			54,820
Cash and cash equivalents, end of period	$	93,544		$	56,555

See accompanying notes to condensed consolidated financial statements.

5

Pentair, Inc. and subsidiaries

Notes to condensed consolidated financial statements (unaudited)

1. Basis of Presentation and Responsibility for Interim Financial Statements

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 2007 Annual Report on Form 10-K for the year ended December 31, 2007.

Certain line items within the 2007 Condensed Consolidated Statements of Income and the Condensed Consolidated Statements of Cash Flows have been reclassified from the 2007 presentation to conform to the 2008 presentation. The reclassification reflects the presentation of Equity losses of unconsolidated subsidiary of $0.8 million and $1.8 million for the three and nine months ended September 29, 2007, respectively, as a separate line item below Operating income in the Condensed Consolidated Statements of Income rather than as a component of Selling, general and administrative, and as a separate line in the Adjustments to reconcile net income to net cash provided by( used for) by operating activities in the Condensed Consolidated Statements of Cash Flows, rather than as a component of Other assets and liabilities. This reclassification corrects the previous presentation and was not material to the financial statements. It did not affect Net income within the Condensed Consolidated Statements of Income or net cash provided by (used for) operating, investing or financing activities within the Condensed Consolidated Statements of Cash Flows.

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.

2. New Accounting Standards

In March 2008, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative Instruments and Hedging Activities, an amendment of FASB statement No. 133 (“SFAS 161”). SFAS 161 expands the disclosure requirements in Statement 133 about an entity’s derivative instruments and hedging activities. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. We are currently evaluating the impact of adopting SFAS 161.

In December 2007, the FASB issued 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 will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and 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. Upon adoption, we will classify minority interest as a component of equity for all periods presented.

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R replaces SFAS No. 141. SFAS 141R retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. SFAS 141R also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We will apply SFAS 141R prospectively to business combinations completed on or after that date. We do not expect adoption to have a significant impact to our current consolidated results of operations and financial condition.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value (“the Fair Value Option”). SFAS 159 is effective for fiscal years beginning after November 15, 2007. We did not choose the Fair Value Option; therefore, the adoption of SFAS 159 did not have any impact on our consolidated results of operations and financial condition.

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, 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.

6

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

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.

At September 27, 2008, our interest rate swaps (see note 12) 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.

3. Stock-based Compensation

Total stock-based compensation expense was $4.1 million and $4.4 million for the three months ended September 27, 2008 and September 29, 2007, respectively, and was $16.0 million and $17.0 million for the nine months ended September 27, 2008 and September 29, 2007, respectively.

Non-vested shares of our common stock were granted to eligible employees with a vesting period of two to five years after issuance. Non-vested share awards are valued at market value on the date of grant and are typically expensed over the vesting period. Total compensation expense for non-vested share awards was $2.0 million for the three months ended September 27, 2008 and September 29, 2007, respectively, and was $7.5 million and $7.4 million for the nine months ended September 27, 2008 and September 29, 2007, respectively.

During the first nine months of 2008, option awards were granted under the Omnibus Stock Incentive Plan, the 2008 Omnibus Stock Incentive Plan, as amended, and the Outside Directors Nonqualified Stock Option Plan (together the “Plans”), each with an exercise price equal to the market price of our common stock on the date of grant. Total compensation expense for stock option awards was $2.1 million and $2.4 million for the three months ended September 27, 2008 and September 29, 2007, respectively, and was $8.5 million and $9.6 million for the nine months ended September 27, 2008 and September 29, 2007, 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:

	September 27			September 29
	2008			2007
Expected stock price volatility		27.0	%		28.5	%
Expected life	4.8 yrs			4.8 yrs
Risk-free interest rate		3.11	%		4.46	%
Dividend yield		1.90	%		1.66	%

The weighted-average fair value of options granted during the third quarter of 2008 and 2007 was $8.35 and $8.38 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, (“SFAS 123R”) 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.

7

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				Nine months ended
	September 27		September 29		September 27		September 29
In thousands	2008		2007		2008		2007
Weighted average common shares outstanding — basic		97,827		98,747		98,049		98,859
Dilutive impact of stock options and restricted stock		1,492		1,618		1,323		1,480
Weighted average common shares outstanding — diluted		99,319		100,365		99,372		100,339
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		3,503		2,099		4,594		2,769

In December 2007, the Board of Directors authorized the repurchase of shares of our common stock during 2008 up to a maximum dollar limit of $50 million. As of September 27, 2008, we had purchased 1,094,059 shares for $38.1 million pursuant to this authorization during 2008. This authorization expires on December 31, 2008.

5. Restructuring

During the second quarter of 2008, we announced and initiated certain business restructuring initiatives to further streamline our operations as a result of continuing deterioration in certain end markets. In relation to these initiatives, we recorded restructuring charges (reflected in Selling, general and administrative expense on the accompanying Condensed Consolidated Statements of Income) of $2.7 million primarily for severance benefits paid or to be paid to terminated employees.

During the third quarter of 2008, we announced and initiated additional business restructuring initiatives aimed at reducing our fixed cost structure and rationalizing our manufacturing footprint. These initiatives included the announcement of the closure of certain manufacturing facilities as well as the reduction in hourly and salaried headcount of approximately 850 employees principally within the Water Group. These actions will 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, asset impairment charges and other restructuring costs.

Restructuring costs are summarized as follows:

	Three months ended				Nine months ended
	September 27		September 29		September 27		September 29
In thousands	2008		2007		2008		2007
Severance and related costs	$	10,899	$	—	$	13,583	$	—
Asset impairment		4,600		—		4,600		—
Total restructuring costs	$	15,499	$	—	$	18,183	$	—

Restructuring accrual activity is summarized as follows:

In thousands
Balance at March 29, 2008	$	—
Costs incurred		2,684
Cash payments		(723	)
Balance at June 28, 2008	$	1,961
Costs incurred		10,899
Cash Payments		(3,338	)
Balance at September 27, 2008	$	9,522

8

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

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 “GE Transaction”). The acquisition was effected through the formation of two new entities, 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 the new entities and GE is a 19.9 percent owner. The fair value of the acquisition was $228.9 million, which includes approximately $2.9 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 this business, 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 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 $137.5 million. 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. The following table represents the preliminary purchase price allocation:

In thousands	September 27, 2008
Inventory	$	12,188
Property, plant & equipment		12,934
Goodwill		137,542
Identifiable intangible assets		66,483
Current liabilities		(234	)
	$	228,913

On May 7, 2007, we acquired as part of our Technical Products Group the assets of Calmark Corporation (“Calmark”). Calmark’s results of operations have been included in our condensed consolidated financial statements since the date of acquisition.

On April 30, 2007, we acquired as part of our Water Group all of the capital interests in Porous Media Corporation and Porous Media, Ltd. (together, “Porous Media”). Porous Media’s results of operations have been included in our condensed consolidated financial statements since the date of acquisition.

On February 2, 2007, we acquired as part of our Water Group all of the outstanding shares of capital stock of Jung Pumpen GmbH (“Jung Pump”). Jung Pump’s results of operations have been included in our condensed consolidated financial statements since the date of acquisition.

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 period.

9

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

	Three months ended						Nine months ended
	September 27			September 29			September 27			September 29
In thousands, except share and per-share data	2008			2007			2008			2007
Pro forma net sales from continuing operations	$	864,167		$	842,740		$	2,668,801		$	2,601,906
Pro forma net income from continuing operations		41,389			59,279			232,768			162,714
Income (loss) from discontinued operations, net of tax		(269	)		(1,235	)		(8,623	)		(519	)
Pro forma net income		41,120			58,044			224,145			162,195
Pro forma earnings per common share — continuing operations
Basic	$	0.42		$	0.60		$	2.37		$	1.65
Diluted	$	0.42		$	0.59		$	2.34		$	1.63
Weighted average common shares outstanding
Basic		97,827			98,747			98,049			98,859
Diluted		99,319			100,365			99,372			100,339

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

In February 2008, consistent with our strategy to refine our portfolio and more fully focus on our core pool equipment business globally within our Water Group, 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. NPT is a wholesale distributor of pool tile and composite pool finishes serving professional contractors in the swimming pool refurbish and construction markets. 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.

Operating results of the discontinued operations for the third quarter of 2008 and 2007 are summarized below:

	Three months ended						Nine months ended
	September 27			September 29			September 27			September 29
In thousands	2008			2007			2008			2007
Net sales	$	—		$	16,619		$	7,085		$	55,115
Income (loss) from discontinued operations before income taxes		—			(2,008	)		(1,965	)		(1,187	)
Income tax (expense) benefit		—			773			748			461
Income (loss) from discontinued operations, net of income taxes		—			(1,235	)		(1,217	)		(726	)
Gain (loss) on disposal of discontinued operations, before taxes		(433	)		—			(7,021	)		325
Income tax (expense) benefit		164			—			(385	)		(118	)
Gain (loss) on disposal of discontinued operations, net of tax	$	(269	)	$	—		$	(7,406	)	$	207

10

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

Net assets (liabilities) of discontinued operations consist of the following:

	December 31		September 29
In thousands	2007		2007
Accounts and notes receivable, net	$	5,547	$	6,419
Inventories		14,710		18,664
Other current assets		1,459		1,785
Current assets of discontined operations		21,716		26,868
Property, plant and equipment, net		1,436		1,544
Goodwill		16,806		16,806
Other non-current assets		141		150
Non-current assets of discontined operations		18,383		18,500
Total assets	$	40,099	$	45,368
Accounts payable	$	1,712	$	4,145
Other current liabilities		1,223		1,286
Current liabilities of discontined operations		2,935		5,431
Deferred income tax		2,400		2,203
Other non-current liabilities		298		316
Non-current liabilities of discontined operations		2,698		2,519
Total liabilities		5,633		7,950
Net assets of discontinued operations	$	34,466	$	37,418

8. Inventories

Inventories were comprised of:

	September 27		December 31		September 29
In thousands	2008		2007		2007
Raw materials and supplies	$	216,185	$	199,330	$	199,876
Work-in-process		50,864		51,807		53,196
Finished goods		163,337		141,279		142,566
Total inventories	$	430,386	$	392,416	$	395,638

9. Comprehensive Income

Comprehensive income and its components, net of tax, were as follows:

	Three months ended						Nine months ended
	September 27			September 29			September 27			September 29
In thousands	2008			2007			2008			2007
Net income	$	41,120		$	58,044		$	224,145		$	162,382
Changes in cumulative foreign currency translation adjustment		(55,594	)		27,952			(8,709	)		54,899
Changes in market value of derivative financial instruments classified as cash flow hedges		(931	)		(2,336	)		423			(1,024	)
Comprehensive income (loss)	$	(15,405	)	$	83,660		$	215,859		$	216,257

11

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 nine months ended September 27, 2008 and September 29, 2007 by segment were as follows:

						Foreign Currency
In thousands	December 31, 2007		Acquisitions/Other			Translation			September 27, 2008
Water Group	$	1,712,227	$	132,485		$	1,270		$	1,845,982
Technical Products Group		292,493		(46	)		(4,398	)		288,049
Consolidated Total	$	2,004,720	$	132,439		$	(3,128	)	$	2,134,031

					Foreign Currency
In thousands	December 31, 2006		Acquisitions/Other		Translation		September 29, 2007
Water Group	$	1,432,653	$	248,531	$	17,425	$	1,698,609
Technical Products Group		269,311		11,543		10,157		291,011
Consolidated Total	$	1,701,964	$	260,074	$	27,582	$	1,989,620

The increase in goodwill in the Water Group is related primarily to the GE Transaction in 2008 and our acquisitions of Jung Pump and Porous Media during 2007.

Intangible assets, other than goodwill, were comprised of:

	September 27, 2008							December 31, 2007							September 29, 2007
	Gross							Gross							Gross
	carrying		Accumulated					carrying		Accumulated					carrying		Accumulated
In thousands	amount		amortization			Net		amount		amortization			Net		amount		amortization			Net
Finite-life intangibles
Patents	$	15,451	$	(9,319	)	$	6,132	$	15,457	$	(7,904	)	$	7,553	$	15,453	$	(7,427	)	$	8,026
Non-compete agreements		4,722		(4,454	)		268		4,722		(4,050	)		672		4,722		(3,686	)		1,036
Brand names		1,602		(40	)		1,562		—		—			—		—		—			—
Proprietary technology		73,462		(16,371	)		57,091		59,944		(12,564	)		47,380		59,863		(11,361	)		48,502
Customer relationships		289,872		(42,973	)		246,899		238,712		(30,378	)		208,334		236,340		(26,264	)		210,076
Total finite-life intangibles	$	385,109	$	(73,157	)	$	311,952	$	318,835	$	(54,896	)	$	263,939	$	316,378	$	(48,738	)	$	267,640
Indefinite-life intangibles
Brand names		227,181		—			227,181		227,324		—			227,324		225,092		—			225,092
Total intangibles, net	$	612,290	$	(73,157	)	$	539,133	$	546,159	$	(54,896	)	$	491,263	$	541,470	$	(48,738	)	$	492,732

Intangible asset amortization expense was approximately $5.9 million and $4.7 million for the three months ended September 27, 2008 and September 29, 2007, respectively, and was approximately $18.3 million and $15.5 million for the nine months ended September 27, 2008 and September 29, 2007, respectively. The estimated future amortization expense for identifiable intangible assets during the remainder of 2008 and the next five years is as follows:

In thousands	2008 Q4		2009		2010		2011		2012		2013
Estimated amortization expense	$	6,735	$	26,161	$	25,488	$	25,381	$	24,374	$	24,210

12

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		September 27			December 31			September 29
In thousands	September 27, 2008			(Year)		2008			2007			2007
Commercial paper		2.93	%			$	25,392		$	105,990		$	179,772
Revolving credit facilities		3.26	%		2012		267,900			76,722			63,475
Private placement — fixed rate		5.65	%		2013-2017		400,000			400,000			400,000
Private placement — floating rate		3.35	%		2012-2013		205,000			205,000			205,000
Senior notes		7.85	%		2009		133,900			250,000			250,000
Other		2.94	%		2008-2016		6,246			20,387			11,462
Total contractual debt obligations							1,038,438			1,058,099			1,109,709
Deferred income related to swaps							625			2,487			2,790
Total debt, including current portion per balance sheet							1,039,063			1,060,586			1,112,499
Less: Current maturities							(3,913	)		(5,075	)		(4,992	)
Short-term borrowings							—			(13,586	)		(4,800	)
Long-term debt						$	1,035,150		$	1,041,925		$	1,102,707

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 0.50%. Interest rates and fees on the Credit Facility vary based on our credit ratings.

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. As of September 27, 2008, we had $25.4 million of commercial paper outstanding that matures within 34 days. All of the commercial paper was 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.

Total availability under our existing Credit Facility was $506.7 million at September 27, 2008.

In addition to the Credit Facility, we have $25.0 million of uncommitted credit facilities, under which we had no borrowings as of September 27, 2008.

We were in compliance with all debt covenants as of September 27, 2008.

Debt outstanding at September 27, 2008 matures on a calendar year basis as follows:

In thousands	2008 Q4		2009		2010		2011		2012		2013		Thereafter		Total
Contractual debt obligation maturities	$	1,467	$	135,747	$	73	$	6	$	401,116	$	200,007	$	300,022	$	1,038,438
Other maturities		156		469		—		—		—		—		—		625
Total maturities	$	1,623	$	136,216	$	73	$	6	$	401,116	$	200,007	$	300,022	$	1,039,063

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 and $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.

12. Derivatives and Financial Instruments

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 $4.0 million at September 27, 2008 and is 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.

13

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

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 $3.1 million at September 27, 2008 and is 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.

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 nine months ended September 27, 2008 was 29.3% compared to 30.5% for the nine months ended September 29, 2007. We expect the effective tax rate for the remainder of 2008 to be between 32% and 33%, resulting in a full year effective income tax rate of between 30.0% and 31.0%. 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 September 27, 2008 is estimated to be approximately $25.4 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.

14. Benefit Plans

Components of net periodic benefit cost for the three and nine months ended September 27, 2008 and September 29, 2007 were as follows:

	Three months ended
	Pension benefits						Post-retirement
	September 27			September 29			September 27			September 29
In thousands	2008			2007			2008			2007
Service cost	$	3,527		$	4,331		$	65		$	146
Interest cost		8,175			7,891			634			746
Expected return on plan assets		(7,475	)		(7,133	)		—			—
Amortization of transition obligation		12			36			—			—
Amortization of prior year service cost (benefit)		45			40			(34	)		(62	)
Recognized net actuarial loss (gains)		68			799			(825	)		(355	)
Net periodic benefit cost	$	4,352		$	5,964		$	(160	)	$	475

	Nine months ended
	Pension benefits						Post-retirement
	September 27			September 29			September 27			September 29
In thousands	2008			2007			2008			2007
Service cost	$	10,585		$	12,993		$	195		$	438
Interest cost		24,523			23,673			1,902			2,238
Expected return on plan assets		(22,425	)		(21,399	)		—			—
Amortization of transition obligation		36			108			—			—
Amortization of prior year service cost (benefit)		133			120			(102	)		(186	)
Recognized net actuarial loss (gains)		204			2,395			(2,475	)		(1,065	)
Net periodic benefit cost	$	13,056		$	17,890		$	(480	)	$	1,425

14

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

15. Business Segments

Financial information by reportable segment for the three and nine months ended September 27, 2008 and September 29, 2007 is shown below:

	Three months ended						Nine months ended
	September 27			September 29			September 27			September 29
In thousands	2008			2007			2008			2007
Net sales to external customers
Water Group	$	566,328		$	545,514		$	1,726,769		$	1,727,925
Technical Products Group		297,839			275,701			887,559			785,434
Consolidated	$	864,167		$	821,215		$	2,614,328		$	2,513,359
Intersegment sales
Water Group	$	305		$	207		$	816		$	467
Technical Products Group		765			1,526			2,937			4,111
Other		(1,070	)		(1,733	)		(3,753	)		(4,578	)
Consolidated	$	—		$	—		$	—		$	—
Operating income (loss)
Water Group	$	47,612		$	56,061		$	169,853		$	207,682
Technical Products Group		47,585			46,237			142,654			114,008
Other		(11,547	)		(9,148	)		(37,036	)		(34,181	)
Consolidated	$	83,650		$	93,150		$	275,471		$	287,509

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 nine months ended September 27, 2008 and September 29, 2007 were as follows:

	September 27			September 29
In thousands	2008			2007
Balance at beginning of the year	$	39,382		$	34,093
Service and product warranty provision		47,910			51,559
Payments		(54,393	)		(49,476	)
Acquired		184			1,116
Translation		(71	)		427
Balance at end of the period	$	33,012		$	37,719

17. Commitments and Contingencies

Environmental and Litigation

There have been no further material developments from the disclosures contained in our 2007 Annual Report on Form 10-K.

Horizon Litigation

The Horizon litigation against our subsidiary Essef Corporation and certain of its subsidiaries by Celebrity Cruise Lines, Inc. (“Celebrity”) was settled by payment of $35 million to Celebrity in August 2008, a portion of which was covered by insurance. As a result of the settlement, we recorded a charge of $20.4 million in the second quarter of 2008 which is shown on the line Legal settlement in the Condensed Consolidated Statements of Income.

18. Financial Statements of Subsidiary Guarantors

The $133.9 million of Notes due 2009 are 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 September 27, 2008, December 31, 2007 and September 29, 2007, the related Condensed Consolidated Statements of Income for the three and nine-months ended September 27, 2008 and September 29, 2007, and Statements of Cash Flows for the nine-months ended September 27, 2008 and September 29, 2007, for the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries. Net change in advances to subsidiaries in the following 2007 Condensed Consolidated Statements of Cash Flows has been reclassified from investing activities to financing activities to conform to the current year presentation. The following condensed financial statements also reflect a change in the presentation of the earnings from investments in subsidiary as previously disclosed in our 2007 footnote.

15

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
For the three months ended September 27, 2008

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	582,577		$	339,812		$	(58,222	)	$	864,167
Cost of goods sold		12			422,719			243,973			(57,850	)		608,854
Gross profit		(12	)		159,858			95,839			(372	)		255,313
Selling, general and administrative		21,963			84,430			48,950			(371	)		154,972
Research and development		117			10,474			6,100			—			16,691
Legal settlement		—			—			—			—			—
Operating (loss) income		(22,092	)		64,954			40,789			(1	)		83,650
Other (income) expense:
Gain on sale of interest in subsidiaries		—			—			—			—			—
Earnings from investment in subsidiary		(50,645	)		—			—			50,645			—
Equity losses of unconsolidated subsidiary		—			669			—			—			669
Loss on early extinguishment of debt		4,611			—			—			—			4,611
Net interest (income) expense		(22,940	)		38,387			(1,712	)		—			13,735
Income (loss) before income taxes and minority interest		46,882			25,898			42,501			(50,646	)		64,635
Provision for income taxes		5,762			3,184			12,200			—			21,146
Minority interest		—			2,100			—			—			2,100
Income (loss) from continuing operations		41,120			20,614			30,301			(50,646	)		41,389
Loss from discontinued operations, net of tax		—			(269	)		—			—			(269	)
Loss on disposal of discontinued operations, net of tax		—			—			—			—			—
Net income (loss)	$	41,120		$	20,345		$	30,301		$	(50,646	)	$	41,120

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
For the nine months ended September 27, 2008

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,914,851		$	880,440		$	(180,963	)	$	2,614,328
Cost of goods sold		28			1,382,979			626,854			(180,239	)		1,829,622
Gross profit		(28	)		531,872			253,586			(724	)		784,706
Selling, general and administrative		11,761			286,659			142,233			(724	)		439,929
Research and development		283			34,141			14,447			—			48,871
Legal settlement		—			20,435			—			—			20,435
Operating (loss) income		(12,072	)		190,637			96,906			—			275,471
Other (income) expense:
Gain on sale of interest in subsidiaries		—			(109,648	)		—			—			(109,648	)
Earnings from investment in subsidiary		(194,470	)		—			—			194,470			—
Equity losses of unconsolidated subsidiary		—			2,433			—			—			2,433
Loss on early extinguishment of debt		4,611			—			—			—			4,611
Net interest (income) expense		(65,062	)		115,146			(4,399	)		—			45,685
Income (loss) before income taxes and minority interest		242,849			182,706			101,305			(194,470	)		332,390
Provision for income taxes		18,630			49,449			29,443			—			97,522
Minority interest		—			2,100			—			—			2,100
Income (loss) from continuing operations		224,219			131,157			71,862			(194,470	)		232,768
Loss from discontinued operations, net of tax		(74	)		(8,549	)		—			—			(8,623	)
Loss on disposal of discontinued operations, net of tax		—			—			—			—			—
Net income (loss)	$	224,145		$	122,608		$	71,862		$	(194,470	)	$	224,145

16

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
September 27, 2008

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	5,288		$	5,343		$	82,913	$	—		$	93,544
Accounts and notes receivable, net		314			349,297			233,419		(65,790	)		517,240
Inventories		—			274,238			156,148		—			430,386
Deferred tax assets		73,336			35,322			7,363		(65,960	)		50,061
Prepaid expenses and other current assets		8,309			13,698			42,434		(10,937	)		53,504
Total current assets		87,247			677,898			522,277		(142,687	)		1,144,735
Property, plant and equipment, net		7,964			179,534			175,854		—			363,352
Other assets
Investments in/advances to subsidiaries		2,405,114			89,990			692,327		(3,187,431	)		—
Goodwill		2,951			1,333,867			797,213		—			2,134,031
Intangibles, net		—			342,374			196,759		—			539,133
Other		72,114			7,719			20,423		(30,382	)		69,874
Total other assets		2,480,179			1,773,950			1,706,722		(3,217,813	)		2,743,038
Total assets	$	2,575,390		$	2,631,382		$	2,404,853	$	(3,360,500	)	$	4,251,125
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	—		$	—		$	—	$	—		$	—
Current maturities of long-term debt		625			159			239,463		(236,334	)		3,913
Accounts payable		2,333			157,303			131,349		(65,057	)		225,928
Employee compensation and benefits		12,711			50,798			43,654		—			107,163
Current pension and post-retirement benefits		8,557			—			—		—			8,557
Accrued product claims and warranties		—			26,735			16,277		—			43,012
Income taxes		(4,053	)		(1,563	)		13,422		—			7,806
Accrued rebates and sales incentives		—			28,023			7,884		—			35,907
Other current liabilities		126,800			(59,133	)		44,937		(10,942	)		101,662
Total current liabilities		146,973			202,322			496,986		(312,333	)		533,948
Other liabilities
Long-term debt		1,032,193			1,947,540			250,824		(2,195,407	)		1,035,150
Pension and other retirement compensation		73,867			17,686			73,223		—			164,776
Post-retirement medical and other benefits		20,995			43,605			—		(30,382	)		34,218
Long-term taxes payable		25,356			—			—		—			25,356
Deferred tax liabilities		3,550			187,481			59,443		(65,960	)		184,514
Due to / (from) affiliates		(716,943	)		55,674			822,625		(161,356	)		—
Other non-current liabilities		(66,593	)		108,716			54,818		—			96,941
Total liabilities		519,398			2,563,024			1,757,919		(2,765,438	)		2,074,903
Minority Interest		—			—			120,230		—			120,230
Shareholders’ equity		2,055,992			68,358			526,704		(595,062	)		2,055,992
Total liabilities and shareholder’s equity	$	2,575,390		$	2,631,382		$	2,404,853	$	(3,360,500	)	$	4,251,125

17

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 27, 2008

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	224,145		$	122,608		$	71,862		$	(194,470	)	$	224,145
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations		—			1,217			—			—			1,217
(Gain) loss on disposal of discontinued operations		74			7,332			—			—			7,406
Equity losses of unconsolidated subsidiary		—			2,433			—			—			2,433
Minority interest		—			(97	)		2,197			—			2,100
Depreciation		898			27,890			16,971			—			45,759
Amortization		1,688			13,275			5,257			—			20,220
Earnings from investments in subsidiaries		(194,470	)		—			—			194,470			—
Deferred income taxes		35			23,839			2,053			—			25,927
Stock compensation		15,948			—			—			—			15,948
Excess tax benefits from stock-based compensation		(1,617	)		—			—			—			(1,617	)
Gain on sale of assets, net		87			—			—			—			87
Gain on sale of interest in subsidiaries		—			(109,648	)		—			—			(109,648	)
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		(1,385	)		(46,364	)		(22,379	)		14,401			(55,727	)
Inventories		—			(15,504	)		(11,014	)		—			(26,518	)
Prepaid expenses and other current assets		25,765			(2,970	)		(26,681	)		(11,912	)		(15,798	)
Accounts payable		684			(763	)		15,823			(14,401	)		1,343
Employee compensation and benefits		(6,417	)		(4,763	)		3,709			—			(7,471	)
Accrued product claims and warranties		—			(5,762	)		(721	)		—			(6,483	)
Income taxes		(2,655	)		(1,981	)		(1,156	)		—			(5,792	)
Other current liabilities		(15,746	)		(8,267	)		21,481			11,912			9,380
Pension and post-retirement benefits		5,031			(7,069	)		2,630			—			592
Other assets and liabilities		3,888			7,517			1,741			—			13,146
Net cash provided by (used for) continuing operations		55,953			2,923			81,773			—			140,649
Net cash provided by (used for) discontinued operations		—			(3,432	)		—			—			(3,432	)
Net cash provided (used for) by operating activities		55,953			(509	)		81,773			—			137,217
Investing activities
Capital expenditures		(3,722	)		(25,320	)		(11,065	)		—			(40,107	)
Proceeds from sales of property and equipment		—			177			4,127			—			4,304
Acquisitions, net of cash acquired or received		(1,627	)		—			18			—			(1,609	)
Divestitures		—			29,526			—			—			29,526
Other		(7	)		—			—			—			(7	)
Net cash provided by (used for ) investing activities of continuing operations		(5,356	)		4,383			(6,920	)		—			(7,893	)
Financing activities
Net short-term borrowings (repayments)		(14,180	)		—			—			—			(14,180	)
Proceeds from long-term debt		479,405			—			—			—			479,405
Repayment of long-term debt		(486,492	)		—			—			—			(486,492	)
Debt issuance costs		(114	)		—			—			—			(114	)
Net change in advances to subsidiaries		49,585			(11,126	)		(38,459	)		—			—
Excess tax benefit from stock-based compensation		1,617			—			—			—			1,617
Proceeds from exercise of stock options		5,140			—			—			—			5,140
Repurchases of common stock		(37,342	)		—			—			—			(37,342	)
Dividends paid		(43,171	)		1,123			(8,493	)		—			(50,541	)
Net cash provided by financing activities of continuing operations		(45,552	)		(10,003	)		(46,952	)		—			(102,507	)
Effect of exchange rate changes on cash		(6,431	)		623			1,740			—			(4,068	)
Change in cash and cash equivalents		(1,386	)		(5,506	)		29,641			—			22,749
Cash and cash equivalents, beginning of period		6,674			10,849			53,272			—			70,795
Cash and cash equivalents, end of period	$	5,288		$	5,343		$	82,913		$	—		$	93,544

18

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
For the three months ended September 29, 2007

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	638,166		$	234,992		$	(51,943	)	$	821,215
Cost of goods sold		—			459,594			168,755			(51,830	)		576,519
Gross profit		—			178,572			66,237			(113	)		244,696
Selling, general and administrative		789			93,016			43,408			(113	)		137,100
Research and development		—			10,858			3,588			—			14,446
Operating (loss) income		(789	)		74,698			19,241			—			93,150
Other (income) expense:
Earnings from investment in subsidiary		(38,254	)		—			—			38,254			—
Equity losses of unconsolidated subsidiary		—			845			—			—			845
Net interest (income) expense		(31,874	)		50,920			(889	)		—			18,157
Income (loss) before income taxes		69,339			22,933			20,130			(38,254	)		74,148
Provision for income taxes		11,295			9,168			(5,594	)		—			14,869
Income (loss) from continuing operations		58,044			13,765			25,724			(38,254	)		59,279
Income from discontinued operations, net of tax		—			(1,235	)		—			—			(1,235	)
Gain on disposal of discontinued operations, net of tax		—			—			—			—			—
Net income (loss)	$	58,044		$	12,530		$	25,724		$	(38,254	)	$	58,044

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Income
For the nine months ended September 29, 2007

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,984,338		$	677,696		$	(148,675	)	$	2,513,359
Cost of goods sold		—			1,409,671			491,570			(148,058	)		1,753,183
Gross profit		—			574,667			186,126			(617	)		760,176
Selling, general and administrative		9,695			308,058			111,327			(617	)		428,463
Research and development		—			33,492			10,712			—			44,204
Operating (loss) income		(9,695	)		233,117			64,087			—			287,509
Other (income) expense:
Earnings from investment in subsidiary		(132,229	)		—			—			132,229			—
Equity losses of unconsolidated subsidiary		—			1,838			—			—			1,838
Net interest (income) expense		(56,289	)		109,446			(1,806	)		—			51,351
Income (loss) before income taxes		178,823			121,833			65,893			(132,229	)		234,320
Provision for income taxes		16,648			45,036			9,735			—			71,419
Income (loss) from continuing operations		162,175			76,797			56,158			(132,229	)		162,901
Loss from discontinued operations, net of tax		—			(726	)		—			—			(726	)
Gain on disposal of discontinued operations, net of tax		207			—			—			—			207
Net income (loss)	$	162,382		$	76,071		$	56,158		$	(132,229	)	$	162,382

19

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
September 29, 2007

	Parent			Guarantor		Non-Guarantor
In thousands	Company			Subsidiaries		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	5,088		$	7,068	$	44,399	$	—		$	56,555
Accounts and notes receivable, net		279			334,265		191,604		(52,652	)		473,496
Inventories		—			269,716		125,922		—			395,638
Deferred tax assets		98,206			33,193		6,134		(85,495	)		52,038
Prepaid expenses and other current assets		5,446			9,654		48,225		(15,579	)		47,746
Current assets of discontinued operations		—			26,868		—		—			26,868
Total current assets		109,019			680,764		416,284		(153,726	)		1,052,341
Property, plant and equipment, net		5,332			216,528		134,734		—			356,594
Other assets
Investments in/advances to subsidiaries		2,431,242			93,623		540,441		(3,065,306	)		—
Goodwill		—			1,584,857		404,763		—			1,989,620
Intangibles, net		—			336,924		155,808		—			492,732
Other		72,868			16,157		13,439		(25,380	)		77,084
Non-current assets of discontinued operations		—			18,500		—		—			18,500
Total other assets		2,504,110			2,050,061		1,114,451		(3,090,686	)		2,577,936
Total assets	$	2,618,461		$	2,947,353	$	1,665,469	$	(3,244,412	)	$	3,986,871
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	—		$	—	$	4,800	$	—		$	4,800
Current maturities of long-term debt		8,320			156		314,090		(317,574	)		4,992
Accounts payable		(1,559	)		154,910		102,051		(51,042	)		204,360
Employee compensation and benefits		13,379			55,868		38,024		—			107,271
Current pension and post-retirement benefits		7,918			—		—		—			7,918
Accrued product claims and warranties		—			32,739		14,980		—			47,719
Income taxes		(6,187	)		9,322		7,727		—			10,862
Accrued rebates and sales incentives		—			29,787		7,123		—			36,910
Other current liabilities		27,528			51,810		48,952		(16,457	)		111,833
Current liabilities of discontinued operations		—			5,431		—		—			5,431
Total current liabilities		49,399			340,023		537,747		(385,073	)		542,096
Other liabilities
Long-term debt		1,071,549			1,972,692		46,124		(1,987,658	)		1,102,707
Pension and other retirement compensation		125,909			28,848		67,341		—			222,098
Post-retirement medical and other benefits		22,268			49,611		—		(25,380	)		46,499
Long-term taxes payable		18,214			—		—		—			18,214
Deferred tax liabilities		3,232			159,157		57,789		(85,495	)		134,683
Due to / (from) affiliates		(532,170	)		257,329		670,822		(395,981	)		—
Other non-current liabilities		31,903			7,362		50,633		—			89,898
Non-current liabilities of discontinued operations		—			2,519		—		—			2,519
Total liabilities		790,304			2,817,541		1,430,456		(2,879,587	)		2,158,714
Shareholders’ equity		1,828,157			129,812		235,013		(364,825	)		1,828,157
Total liabilities and shareholders’ equity	$	2,618,461		$	2,947,353	$	1,665,469	$	(3,244,412	)	$	3,986,871

20

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
For the nine months ended September 29, 2007

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income (loss)	$	162,382		$	76,071		$	56,158		$	(132,229	)	$	162,382
Adjustments to reconcile net income to net cash provided by operating activities:
(Income) loss from discontinued operations		—			726			—			—			726
(Gain) loss on disposal of discontinued operations		(207	)		—			—			—			(207	)
Equity losses of unconsolidated subsidiary		—			1,838			—			—			1,838
Depreciation		900			30,191			14,447			—			45,538
Amortization		3,250			11,774			3,611			—			18,635
Earnings from investments in subsidiaries		(132,229	)		—			—			132,229			—
Deferred income taxes		(1,007	)		—			(17,876	)		—			(18,883	)
Stock compensation		17,071			—			—			—			17,071
Excess tax benefits from stock-based compensation		(2,706	)		—			—			—			(2,706	)
Intercompany Dividends		(23	)		13,714			(13,691	)		—			—
Gain on sale of assets, net		(2,195	)		—			—			—			(2,195	)
Gain on sale of interest in subsidiaries		—			—			—			—			—
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		6,468			(13,873	)		(28,858	)		8,336			(27,927	)
Inventories		—			8,695			5,278			—			13,973
Prepaid expenses and other current assets		7,022			13,500			(29,262	)		59			(8,681	)
Accounts payable		(4,419	)		(1,089	)		12,749			(8,329	)		(1,088	)
Employee compensation and benefits		(4,670	)		6,956			751			—			3,037
Accrued product claims and warranties					3,783			(584	)		—			3,199
Income taxes		(5,063	)		342			148			—			(4,573	)
Other current liabilities		9,957			(8,869	)		14,929			(62	)		15,955
Pension and post-retirement benefits		3,354			910			3,660			—			7,924
Other assets and liabilities		2,537			763			4,096			—			7,396
Net cash provided by (used for) continuing operations		60,422			145,432			25,556			4			231,414
Net cash provided by (used for) discontinued operations		(207	)		(2,081	)		207			—			(2,081	)
Net cash provided by (used for) operating activities		60,215			143,351			25,763			4			229,333
Investing activities
Capital expenditures		(1,480	)		(23,317	)		(20,366	)		—			(45,163	)
Proceeds from sales of property and equipment		—			951			4,185			—			5,136
Acquisitions, net of cash acquired or received		(485,913	)		—			(351	)		—			(486,264	)
Other		(606	)		(3,438	)		—			—			(4,044	)
Net cash provided by (used for ) investing activities of continuing operations		(487,999	)		(25,804	)		(16,532	)		—			(530,335	)
Financing activities
Net short-term borrowings (repayments)		—			—			(10,378	)		—			(10,378	)
Proceeds from long-term debt		1,147,132			—			—			—			1,147,132
Repayment of long-term debt		(770,822	)		—			—			—			(770,822	)
Debt issuance costs		(1,876	)		—			—			—			(1,876	)
Net change in advances to subsidiaries		98,009			(119,310	)		21,305			(4	)		—
Excess tax benefit from stock-based compensation		2,706			—			—			—			2,706
Proceeds from exercise of stock options		5,512			—			—			—			5,512
Repurchases of common stock		(27,119	)		—			—			—			(27,119	)
Dividends paid		(44,986	)		—			—			—			(44,986	)
Net cash provided by (used for) financing activities of continuing operations		408,556			(119,310	)		10,927			(4	)		300,169
Effect of exchange rate changes on cash		15,506			2,281			(15,219	)		—			2,568
Change in cash and cash equivalents		(3,722	)		518			4,939			—			1,735
Cash and cash equivalents, beginning of period		8,810			6,550			39,460			—			54,820
Cash and cash equivalents, end of period	$	5,088		$	7,068		$	44,399		$	—		$	56,555

21

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

Pentair, Inc. and Subsidiaries
Unaudited Condensed Consolidated Balance Sheets
December 31, 2007

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets
Cash and cash equivalents	$	6,674		$	10,849		$	53,272	$	—		$	70,795
Accounts and notes receivable, net		522			329,230			188,313		(51,390	)		466,675
Inventories		—			267,742			124,674		—			392,416
Deferred tax assets		70,494			35,152			7,947		(63,082	)		50,511
Prepaid expenses and other current assets		12,673			9,392			37,246		(23,403	)		35,908
Current assets of discontinued operations		—			21,716			—		—			21,716
Total current assets		90,363			674,081			411,452		(137,875	)		1,038,021
Property, plant and equipment, net		5,140			218,989			141,861		—			365,990
Other assets
Investments in/advances to subsidiaries		2,434,205			90,212			575,238		(3,099,655	)		—
Goodwill		—			1,587,996			416,724		—			2,004,720
Intangibles, net		—			329,056			162,207		—			491,263
Other		80,575			14,990			17,054		(30,382	)		82,237
Non-current assets of discontinued operations		—			18,383			—		—			18,383
Total other assets		2,514,780			2,040,637			1,171,223		(3,130,037	)		2,596,603
Total assets	$	2,610,283		$	2,933,707		$	1,724,536	$	(3,267,912	)	$	4,000,614
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Short-term borrowings	$	—		$	—		$	13,586	$	—		$	13,586
Current maturities of long-term debt		20,114			158			338,827		(354,024	)		5,075
Accounts payable		2,138			174,672			104,336		(51,209	)		229,937
Employee compensation and benefits		15,935			58,790			36,750		—			111,475
Current pension and post-retirement benefits		8,557			—			—		—			8,557
Accrued product claims and warranties		—			34,378			15,004		—			49,382
Income taxes		3,207			(5,628	)		15,340		—			12,919
Accrued rebates and sales incentives		—			28,209			8,454		—			36,663
Other current liabilities		19,510			52,940			40,779		(22,852	)		90,377
Current liabilities of discontinued operations		—			2,935			—		—			2,935
Total current liabilities		69,461			346,454			573,076		(428,085	)		560,906
Other liabilities
Long-term debt		1,021,464			1,972,655			34,139		(1,986,333	)		1,041,925
Pension and other retirement compensation		67,872			22,905			70,265		—			161,042
Post-retirement medical and other benefits		21,958			45,571			—		(30,382	)		37,147
Long-term taxes payable		21,306			—			—		—			21,306
Deferred tax liabilities		3,429			168,815			58,471		(63,082	)		167,633
Due to / (from) affiliates		(542,763	)		205,731			689,149		(352,117	)		—
Other non-current liabilities		36,685			7,085			53,316		—			97,086
Non-current liabilities of discontinued operations		—			2,698			—		—			2,698
Total liabilities		699,412			2,771,914			1,478,416		(2,859,999	)		2,089,743
Shareholders’ equity		1,910,871			161,793			246,120		(407,913	)		1,910,871
Total liabilities and shareholders’ equity	$	2,610,283		$	2,933,707		$	1,724,536	$	(3,267,912	)	$	4,000,614

22

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This report contains statements that we believe to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give our current expectations or forecasts of future events. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “project,” or “continue,” or the negative thereof or similar words. From time to time, we also may provide oral or written forward-looking statements in other materials we release to the public. Any or all of our forward-looking statements in this report and in any public statements we make could be materially different from actual results. They can be affected by assumptions we might make or by known or unknown risks or uncertainties. Consequently, we cannot guarantee any forward-looking statements. Investors are cautioned not to place undue reliance on any forward-looking statements. Investors should also understand that it is not possible to predict or identify all such factors and should not consider the following list to be a complete statement of all potential risks and uncertainties.

The following factors and those discussed in ITEM 1A, Risk Factors, included in our 2007 Annual Report on Form 10-K may impact the achievement of forward-looking statements:

• general economic and political conditions, such as political instability, credit market uncertainty, the rate of economic growth or decline in our principal geographic or product markets or fluctuations in exchange rates;

• changes in general economic and industry conditions in markets in which we participate, such as:

§	continued deterioration in the North American housing market;
§	the strength of product demand and the markets we serve;
§	the intensity of competition, including that from foreign competitors;
§	pricing pressures;
§	the financial condition of our customers;
§	market acceptance of new product introductions and enhancements;
§	the introduction of new products and enhancements by competitors;
§	our ability to maintain and expand relationships with large customers;
§	our ability to source raw material commodities from our suppliers without interruption and at reasonable prices; and
§	our ability to source components from third parties, in particular from foreign manufacturers, without interruption and at reasonable prices;

• our ability to access capital markets and obtain anticipated financing under favorable terms;

• our ability to identify, complete and integrate acquisitions successfully and to realize expected synergies on our anticipated timetable;

• changes in our business strategies, including acquisition, divestiture and restructuring activities;

• domestic and foreign governmental and regulatory policies;

• changes in operating factors, such as continued improvement in manufacturing activities and the achievement of related efficiencies, cost reductions and inventory risks due to shifts in market demand and costs associated with moving production overseas;

• our ability to generate savings from our excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices;

• our ability to generate savings from our restructuring actions;

• unanticipated developments that could occur with respect to contingencies such as litigation, intellectual property matters, product liability exposures and environmental matters; and

• our ability to accurately evaluate the effects of contingent liabilities such as tax, product liability, environmental and other claims.

The foregoing factors are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. We assume no obligation, and disclaim any duty, to update the forward-looking statements in this report.

Overview

We are a focused diversified industrial manufacturing company comprised of two operating segments: Water and Technical Products. Our Water Group is a global leader in providing innovative products and systems used worldwide in the movement, storage, treatment and enjoyment of water. Our Technical Products Group is a leader in the global enclosures and thermal management markets, designing and manufacturing standard, modified and custom enclosures, which that house and protect sensitive electronics and electrical components, thermal management products and accessories. In 2008, we expect our Water Group and Technical Products Group to generate approximately 2/3 and 1/3 of total revenues, respectively.

Our Water Group has progressively become a more important part of our business portfolio with sales increasing from approximately $125 million in 1995 to approximately $2.3 billion in 2007. We believe the water industry is structurally attractive as a result of a growing demand for clean water and the large global market size (of which we have identified a target market totaling $60 billion). Our vision is to be a leading global provider of innovative products and systems used in the movement, storage, treatment and enjoyment of water.

On February 29, 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.

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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 “GE Transaction”). The acquisition was effected through the formation of two new entities, a U.S. entity and an international entity, into which we and GE contributed certain assets, properties, liabilities and operations representing their respective global water softener and residential water filtration businesses. We are an 80.1 percent owner of the new entities and GE is a 19.9 percent owner.

Our Technical Products Group operates in a large global market with significant potential for growth in industry segments such as defense, security, medical and networking. We believe we have the largest industrial and commercial distribution network in North America for enclosures and the highest brand recognition in the industry in North America. From mid-2001 through 2003, the Technical Products Group experienced significantly lower sales volumes as a result of severely reduced capital spending in the industrial and commercial markets and over-capacity and weak demand in the datacommunication and telecommunication markets. From 2004 through 2008, sales volumes increased due to the addition of new distributors, new products and higher demand in targeted markets.

Key Trends and Uncertainties

The following trends and uncertainties affected the first nine months of our financial performance through 2008 and will likely impact our results in the future:

• We believe many markets we serve are slowing as a result of the tumultuous credit markets and the consequent anticipated general unfavorable economic impact around the world. We have identified specific applications and geographic markets we believe will stagnate, contract or continue contracting over the next two years. We have begun and expect to continue to restructure our operations serving those markets to reduce capacity and costs, optimize our manufacturing footprint and simplify our infrastructure. We have also identified specific markets in which we participate that we believe will continue to grow over this period and are selectively reinforcing our businesses in these markets.

• The housing market and new pool starts slowed in 2006 and 2007, and shrank significantly in the first nine months of 2008. We believe that construction of new homes and new pool starts in North America affect approximately 10% — 15% of sales of our water businesses. We expect this downturn to adversely impact our sales for the remainder of 2008 and may continue to affect sales in 2009. As sales of products into domestic residential end-markets in our Water Group business continued to slow appreciably, we have reduced our investments in businesses in those markets, and further restructured our operations by closing or downsizing facilities, reducing headcount and taking other market-related actions.

• The telecommunication equipment market, particularly in North America, slowed throughout 2007 and impacted North American electronics sales within our Technical Products Group. The 2007 revenue decrease was attributable to telecommunication industry consolidation (which has delayed enclosure product sales) and some Original Equipment Manufacturer (“OEM”) datacommunication programs reaching end-of-life. Based on some recovery of telecommunication equipment procurement in the second half of 2007 and the first nine months of 2008, we anticipate continuing improvement in the remainder of 2008 and an annual growth rate in the high single digits for our North American electronics sales. A weak economy in the United States and Europe would likely reduce marketplace spending on telecommunication capital investments and therefore our anticipated revenue growth.

• We experienced year over year favorable foreign currency effects on net sales and operating results in 2007 and the first nine months of 2008, due to the weakening of the U.S. dollar in relation to other foreign currencies. Our currency effect is primarily for the U.S. dollar against the euro, which strengthened in late September and early October 2008, and which may or may not trend favorably in the future.

• We are experiencing material cost and other inflation in a number of our businesses. We are striving for greater productivity improvements and implementing selective increases in selling prices to help mitigate cost increases we have experienced in base materials such as carbon steel, copper and resins and other costs such as health care and other employee benefit costs.

• We expect our operations to continue to benefit from our Pentair Integrated Management System (“PIMS”) initiatives, which include strategy deployment; lean enterprise with special focus on sourcing and supply management, cash flow management and lean operations; and IGNITE, our process to drive organic growth.

• We have a long-term goal to consistently generate free cash flow that equals or exceeds 100% conversion of our adjusted net income. We define free cash flow as cash flow from continuing operating activities less capital expenditures plus proceeds from sale of property and equipment. Free cash flow for the full year 2007 was approximately $285 million, or 135% of our net income. See our discussion of Other financial measures under the caption “Liquidity and Capital Resources” in this report.

• We experience seasonal demand in a number of markets within our Water Group. End-user demand for pool equipment follows warm weather trends and is normally at seasonal highs from April to August. The magnitude of the sales spike is partially mitigated by employing some advance sale “early buy” programs (generally including extended payment terms and/or additional discounts). Demand for residential and agricultural water systems is also impacted by economic conditions and weather patterns, particularly by heavy flooding and droughts.

• On June 28, 2008, we completed the GE Transaction. We believe this transaction provides us with expanded revenue growth and cost synergy opportunities. The one-time gain on the transaction increased diluted earnings per share, on an after tax basis, by 86 cents in the second quarter of 2008.

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• The effective income tax rate for the nine months ended September 27, 2008 was 29.3% compared to 30.5% for the nine months ended September 29, 2007. We expect the effective tax rate for the remainder of 2008 to be between 32% and 33%, resulting in a full year effective income tax rate of between 30.0% and 31.0%. 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.

Outlook

In 2008, our operating objectives include the following:

• Restructuring our operations in challenging markets while investing in higher growth markets and geographies;

• Increasing our vertical market focus within each of our Global Business Units to grow in those markets in which we have competitive advantages;

• Driving operating excellence through lean enterprise initiatives, with special focus on sourcing and supply management, cash flow management, and lean operations;

• Stressing proactive talent development, particularly in international management and other key functional areas; and

• Completing integration of prior acquisitions and realizing identified synergistic opportunities.

On October 21, 2008, we updated our fiscal 2008 earnings guidance to approximately $2.51 to $2.54 per share on a reported generally accepted accounting principles (“GAAP”) basis. In the fourth quarter, we anticipate earnings per share to be approximately $0.17 — $0.20, taking into account approximately $0.35 per share in changes for restructuring actions to position our operations for increasingly difficult markets.

Our outlook for the fourth quarter is based on several variables. First, we anticipate modest revenue growth in the low single digits, bringing our total revenue to approximately $3.5 billion for the full year. Second, we expect to get the benefit of restructuring and other market-related expense reduction efforts taken in the second and third quarters of 2008. Third, we will have certain integration costs and intangible amortization charges incurred in connection with the GE Transaction. Fourth, as noted above, we will be adversely impacted by the expenses and charges associated with the additional cost reduction actions announced in the fourth quarter of 2008.

Our guidance assumes an absence of significant acquisitions or divestitures in 2008, other than the GE Transaction. As noted above, in 2008 we may seek to expand our geographic reach internationally, expand our presence in our various channels to market and acquire technologies and products to broaden our businesses’ capabilities to serve additional markets. We may also consider the divestiture or closure of discrete business units to further focus our businesses on their most attractive markets.

The Company has not yet introduced guidance for fiscal year 2009, due to the heightened uncertainty around the globe in those markets in which we participate. We anticipate publishing fiscal year 2009 guidance in December.

The ability to achieve our operating objectives will depend, to a certain extent, on factors outside our control. See “Forward-looking statements” in this report and “Risk Factors” under ITEM 1A in our 2007 Annual Report on Form 10-K.

RESULTS OF OPERATIONS

Net sales

Consolidated net sales and the change from the prior year period were as follows:

	Three months ended									Nine months ended
	September 27		September 29							September 27		September 29
In thousands	2008		2007		$ change		% change			2008		2007		$ change		% change
Net sales	$	864,167	$	821,215	$	42,952		5.2	%	$	2,614,328	$	2,513,359	$	100,969		4.0	%

The components of the net sales change in 2008 from 2007 were as follows:

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	% Change from 2007
Percentages	Three months		Nine months
Volume		0.8		(0.6	)
Price		2.4		1.9
Currency		2.0		2.7
Total		5.2		4.0

Consolidated net sales

The 5.2 percent and 4.0 percent increases in consolidated net sales in the third quarter and first nine months, respectively, of 2008 from 2007 were primarily driven by:

• favorable foreign currency effects;

• an increase in sales volume due to the GE Transaction and our April 30, 2007 acquisition of Porous Media Corporation and Porous Media, Ltd. (together “Porous Media”);

• selective increases in selling prices to mitigate inflationary cost increases; and

• higher Technical Products Group sales into electrical markets.

These increases were partially offset by:

• lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American residential housing market.

Net sales by segment and the change from the prior year period were as follows:

	Three months ended									Nine months ended
	September 27		September 27							September 27		September 27
In thousands	2008		2007		$ change		% change			2008		2007		$ change			% change
Water	$	566,328	$	545,514	$	20,814		3.8	%	$	1,726,769	$	1,727,925	$	(1,156	)		(0.1	%)
Technical Products		297,839		275,701		22,138		8.0	%		887,559		785,434		102,125			13.0	%
Total	$	864,167	$	821,215	$	42,952		5.2	%	$	2,614,328	$	2,513,359	$	100,969			4.0	%

Water

The 3.8 percentage point increase in the Water Group net sales in the third quarter of 2008 from 2007 was primarily driven by:

• an increase in sales volume driven by the GE Transaction;

• selective increases in selling prices to mitigate inflationary cost increases;

• increased sales into the global commercial, municipal and agricultural markets;

• continued growth in China and in other markets in Asia-Pacific as well as continued success in penetrating markets in Eastern Europe and the Middle East; and

• favorable foreign currency effects.

These increases were offset by:

• organic sales decline of 1.4 percent for the third quarter of 2008 (excluding acquisitions and foreign currency exchange), which included lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American residential housing market and the slowing of residential markets in Western Europe.

The 0.1 percentage point decrease in the Water Group net sales in first nine months of 2008 from 2007 was primarily driven by:

• organic sales decline of 5.1 percent for the first nine months of 2008 (excluding acquisitions and foreign currency exchange), which included:

§	lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American residential housing market; and
§	second quarter 2007 sales of municipal pumps related to a large flood control project, which did not recur in 2008.

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These decreases were partially offset by:

§	selective increases in selling prices to mitigate inflationary cost increases; and
§	continued growth in China and in other markets in Asia-Pacific as well as continued success in penetrating markets in Eastern Europe and the Middle East.

These decreases were further offset by:

• an increase in sales volume driven by our February 2, 2007 acquisition of Jung Pumpen GmbH (“Jung Pump”), our April 30, 2007 acquisition of Porous Media and the GE Transaction; and

• favorable foreign currency effects.

Technical Products

The 8.0 percent and 13.0 percent increase in Technical Products Group net sales in the third quarter and first nine months, respectively, of 2008 from 2007 were primarily driven by:

• an increase in sales into electrical markets, which includes new products and selective increases in selling prices to mitigate inflationary cost increases;

• favorable foreign currency effects;

• strong sales performance in Asia and Europe; and

• an increase in sales into electronics markets as orders and sales to our telecommunications customers rebounded and we continued to expand into other vertical markets.

These increases were partially offset by:

• decreases in sales into North American electronics markets.

Gross profit

	Three months ended										Nine months ended
	September 27		% of			September 29		% of			September 27		% of			September 29		% of
In thousands	2008		sales			2007		sales			2008		sales			2007		sales
Gross profit	$	255,313		29.5	%	$	244,696		29.8	%	$	784,706		30.0	%	$	760,176		30.2	%
Percentage point change				(0.3	) pts									(0.2	) pts

The 0.3 percent and 0.2 percent decreases in gross profit as a percentage of sales in the third quarter and first nine months, respectively, of 2008 from 2007 were primarily the result of:

• inflationary increases related to raw materials and labor;

• lower sales of certain pump, pool and filtration products primarily related to the downturn in the North American residential housing market and the slowing of residential markets in Western Europe; and

• higher cost of goods sold in 2008 as a result of a fair market value inventory step-up related to the GE Transaction.

These decreases were partially offset by:

• the gross margin impact from higher Technical Products Group sales and the resulting improved fixed cost leverage;

• selective increases in selling prices in our Water and Technical Products Groups to mitigate inflationary cost increases;

• savings generated from our PIMS initiatives including lean and supply management practices; and

• lower comparative cost in 2008 for our Jung Pump and Porous Media businesses due to the absence of a fair market value inventory step-up that was recorded in connection with those acquisitions.

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*Selling, general and administrative (SG&A)

	Three months ended										Nine months ended
	September 27		% of			September 29		% of			September 27		% of			September 29		% of
In thousands	2008		sales			2007		sales			2008		sales			2007		sales
*SG&A	$	154,972		17.9	%	$	137,100		16.7	%	$	460,364		17.6	%	$	428,463		17.0	%
Percentage point change				1.2	pts									0.6	pts

*    Includes Legal settlement

The 1.2 percentage point increase in SG&A expense as a percentage of sales in the third quarter of 2008 from 2007 was primarily due to:

• restructuring actions primarily in our Water Group during the third quarter of 2008; and

• higher selling, general and administrative expenses to fund investments in future growth with emphasis on growth in the international markets, including personnel and business infrastructure investments.

These increases were partially offset by:

• reduced costs related to productivity actions taken in the second half of 2007; and

• reduced costs related to the completion of the European SAP implementation in 2007.

The 0.6 percentage point increase in SG&A expense as a percentage of sales in the first nine months of 2008 from 2007 was primarily due to:

• expenses in the second quarter related to the settlement of the Horizon litigation;

• restructuring actions primarily in our Water Group taken during the second and third quarters of 2008; and

• higher selling, general and administrative expenses to fund investments in future growth with emphasis on growth in the international markets, including personnel and business infrastructure investments.

These increases were partially offset by:

• reduced costs related to productivity actions taken in the second half of 2007; and

• reduced costs related to the completion of the European SAP implementation in 2007.

Research and development (R&D)

	Three months ended										Nine months ended
	September 27		% of			September 29		% of			September 27		% of			September 29		% of
In thousands	2008		sales			2007		sales			2008		sales			2007		sales
R&D	$	16,691		1.9	%	$	14,446		1.8	%	$	48,871		1.9	%	$	44,204		1.8	%
Percentage point change				0.1	pts									0.1	pts

The 0.1 percentage point increase as a percentage of sales in the third quarter 2008 from 2007 and the first nine months of 2008 from 2007 were primarily due to:

• increased R&D expense spending with emphasis on new product development and value engineering.

Operating income
Water

	Three months ended										Nine months ended
	September 27		% of			September 29		% of			September 27		% of			September 29		% of
In thousands	2008		sales			2007		sales			2008		sales			2007		sales
Operating income	$	47,612		8.4	%	$	56,061		10.3	%	$	169,853		9.8	%	$	207,682		12.0	%
Percentage point change				(1.9	) pts									(2.2	) pts

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The 1.9 and 2.2 percentage point decreases in Water Group operating income as a percentage of sales in the third quarter and first nine months, respectively, of 2008 from 2007 were primarily the result of:

• inflationary increases related to raw materials and labor;

• a decline in sales of certain pump, pool and filtration products resulting from the downturn in the North American residential housing markets;

• expenses in the second quarter related to the settlement of the Horizon litigation;

• restructuring actions taken during the second and third quarters of 2008;

• second quarter 2007 sales of municipal pumps related to a large flood control project, which did not recur in 2008; and

• higher cost in 2008 as a result of a fair market value inventory step-up and intangible amortization related to the June 2008 GE Transaction.

These decreases were partially offset by:

• selective increases in selling prices to mitigate inflationary cost increases;

• savings generated from our PIMS initiatives, including lean and supply management practices;

• an increase in sales volume driven by our February 2, 2007 acquisition of Jung Pump, our April 30, 2007 acquisition of Porous Media and the GE Transaction; and

• lower comparative cost in 2008 for our Jung and Porous Media businesses due to the absence of a fair market value inventory step-up that was recorded in connection with those acquisitions.

Technical Products

	Three months ended										Nine months ended
	September 27		% of			September 29		% of			September 27		% of			September 29		% of
In thousands	2008		sales			2007		sales			2008		sales			2007		sales
Operating income	$	47,585		16.0	%	$	46,237		16.8	%	$	142,654		16.1	%	$	114,008		14.5	%
Percentage point change				(0.8	) pts									1.6	pts

The 0.8 percentage point decrease in Technical Products Group operating income as a percentage of sales for the third quarter of 2008 from 2007 was primarily the result of:

• inflationary increases related to raw materials such as carbon steel and labor costs; and

These decreases were partially offset by:

• an increase in sales to electrical markets, which includes selective increases in selling prices to mitigate inflationary cost increases; and

• savings realized from the continued success of PIMS initiatives, including lean and supply management activities.

The 1.6 percentage point increase in Technical Products Group operating income as a percentage of sales for the first nine month of 2008 from 2007 was primarily the result of:

• an increase in sales to electrical markets, which includes selective increases in selling prices to mitigate inflationary cost increases;

• savings realized from the continued success of PIMS, including lean and supply management activities;

• an increase in sales into electronics markets as orders and sales to our telecommunications customers rebounded and we continued to expand into other vertical markets; and

• no longer incurring exit costs recognized in 2007 related to a previously announced 2001 French facility closure.

These increases were partially offset by:

• inflationary increases related to raw materials such as carbon steel and labor costs.

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Net interest expense

	Three months ended										Nine months ended
	September 27		September 27								September 27		September 27
In thousands	2008		2007		Difference			% change			2008		2007		Difference			% change
Net interest expense	$	13,735	$	18,157	$	(4,422	)		(24.4	%)	$	45,685	$	51,351	$	(5,666	)		(11.0	%)

The 24.4 and 11.0 percentage point decreases in interest expense in the third quarter and first nine months, respectively, of 2008 from 2007 were primarily the result of:

• a decrease in outstanding debt; and

• favorable impact of lower interest rates.

Loss on early extinguishment of debt

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 and $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.

Provision for income taxes from continuing operations

	Three months ended						Nine months ended
	September 27			September 29			September 27			September 29
In thousands	2008			2007			2008			2007
Income before income taxes	$	64,635		$	74,148		$	332,390		$	234,320
Provision for income taxes		21,146			14,869			97,522			71,419
Effective tax rate		32.7	%		20.1	%		29.3	%		30.5	%

The 12.6 percentage point increase in the effective tax rate in the third quarter of 2008 from 2007 was primarily the result of:

• a favorable adjustment that lowered the effective tax rate in the third quarter of 2007 related to the measurement of deferred tax assets and liabilities to account for changes to German tax law enacted on August 17, 2007.

This increase was partially offset by:

• higher earnings in lower-tax rate jurisdictions during 2008.

The 1.2 percentage point decrease in the effective tax rate in the first nine months of 2008 from 2007 was primarily the result of:

• higher earnings in lower-tax rate jurisdictions during 2008; and

• a portion of the gain on the GE Transaction is taxed at a rate of 0%.

These increases were partially offset by:

• a favorable adjustment in the third quarter of 2007 related to the measurement of deferred tax assets and liabilities to account for changes to German tax law enacted on August 17, 2007.

We estimate our effective income tax rate for the remaining quarter of 2008 will be between 32% and 33% resulting in a full year effective income tax rate of between 30.0% and 31.0%.

LIQUIDITY AND CAPITAL RESOURCES

Cash requirements for working capital, capital expenditures, equity investments, acquisitions, debt repayments, share repurchases and dividend payments have historically been primarily funded from cash generated from operations and availability under existing committed revolving credit facilities as well as in certain instances, public and private debt and equity offerings. We do not anticipate a need for new debt or equity issuances over the foreseeable future.

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We experience seasonal cash flows primarily due to seasonal demand in a number of markets within our Water Group. End-user demand for pool equipment normally follows warm weather trends and is at seasonal highs from April to August. The magnitude of the sales spike is partially mitigated by employing some advance sales “early buy” programs (generally including extended payment terms and/or additional discounts). Demand for residential and agricultural water systems is also impacted by weather patterns, particularly by heavy flooding and droughts.

The following table presents selected working capital measurements calculated from our monthly operating results based on a 13-month moving average:

	September 27		December 31		September 29
Days	2008		2007		2007
Days of sales in accounts receivable		56		53		54
Days inventory on hand		78		75		76
Days in accounts payable		57		54		54

Operating activities

Cash provided by operating activities was $137.2 million in the first nine months of 2008 compared with cash provided by operating activities of $229.3 million in the prior year comparable period. The decrease in cash provided by operating activities was primarily due to an increase in cash used for working capital in the first nine months of 2008 and a decrease in Net Income excluding the Gain on sale of interest in subsidiaries versus the same period of last year. In the future, we expect our working capital ratios to improve as we are able to capitalize on our PIMS initiatives.

Investing activities

Capital expenditures in the first nine months of 2008 were $40.1 million compared with $45.2 million in the prior year period. We currently anticipate capital expenditures for fiscal 2008 will be approximately $60 million to $70 million, primarily for capacity expansions in our low cost country manufacturing facilities, new product development, and replacement equipment.

Cash proceeds from the sale of property and equipment of $4.3 million in 2008 was primarily related to the sale of a facility in our Water Group.

In connection with the GE Transaction, we paid cash of $1.6 million to acquire additional assets and to fund restructuring initiatives in our Pentair Residential Filtration businesses.

On February 29, 2008, we sold our 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.

Financing activities

Net cash used for financing activities was $102.5 million in the first nine months of 2008 compared with $300.2 million provided by financing activities in the prior year period. The reduction primarily relates to the funds borrowed in 2007 for the Porous Media and Jung Pump acquisitions. Financing activities included draw downs and repayments on our revolving credit facilities to fund our operations in the normal course of business, payments of dividends, cash used to repurchase Company stock, cash received from stock option exercises, and tax benefits related to stock-based compensation.

We have a multi-currency 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 0.50%. Interest rates and fees on the Credit Facility vary based on our credit ratings. We believe that internally generated funds and funds available under our Credit Facility will be sufficient to support our normal operations, dividend payments, stock repurchases and debt maturities over the life of the Credit Facility. We have not experienced any disruption in our financing activities currently nor do we anticipate any such disruptions resulting from the turbulence in the credit markets.

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. As of September 27, 2008, we had $25.4 million of commercial paper outstanding that matures within 34 days. All of the commercial paper was 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.

Total availability under our existing Credit Facility was $506.7 million at September 27, 2008.

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In addition to the Credit Facility, we have $25.0 million of uncommitted credit facilities, under which we had no borrowings as of September 27, 2008.

On July 8, 2008, we commenced a cash tender offer for all of our outstanding $250 million aggregate principal of 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 and $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.

We were in compliance with all debt covenants as of September 27, 2008.

Our current credit ratings are as follows:

Rating Agency	Long-Term Debt Rating	Current Rating Outlook
Standard & Poor’s	BBB	Negative
Moody’s	Baa3	Stable

In March 2007, Standard & Poor’s Ratings Services revised its current rating outlook on us from stable to negative. At the same time, Standard & Poor’s affirmed its long-term debt rating of ‘BBB’. Standard & Poor’s stated that the outlook revision reflects the additional leverage and stress on credit metrics that will result from the acquisition of Porous Media, which had been announced at the time. The negative outlook indicates the rating could be lowered if financial policies become more aggressive or if operating results are weaker than expected.

As of September 27, 2008, our capital structure consisted of $1,039.1 million in total indebtedness and $2,056.0 million in shareholders’ equity. The ratio of debt-to-total capital at September 27, 2008 was 33.6 percent, compared with 35.7 percent at December 31, 2007 and 37.8 percent at September 29, 2007. Our targeted debt-to-total capital ratio is approximately 40 percent. We will exceed this target ratio from time to time as needed for operational purposes and/or acquisitions.

Dividends paid in the first nine months of 2008 were $50.5 million, or $0.51 per common share, compared with $45.0 million, or $0.45 per common share, in the prior year period. We have increased dividends every year for the last 32 years and expect to continue paying dividends on a quarterly basis.

In December 2007, the Board of Directors authorized the repurchase of shares of our common stock during 2008 up to a maximum dollar limit of $50 million. As of September 27, 2008, we had repurchased an additional 1,094,059 shares for $38.1 million pursuant to this plan and, accordingly, we have the authority to repurchase additional shares up to a maximum dollar limit of $11.9 million for the remainder of 2008.

The total gross liability for uncertain tax positions under FASB Interpretation No. 48 at September 27, 2008 is approximately $25.4 million. We are not able to reasonably estimate the amount by which the estimate will increase or decrease over time; however, at this time, we do not expect a significant payment related to these obligations within the next twelve months.

There have been no material changes with respect to the contractual obligations, other than noted above, or off-balance sheet arrangements described in our 2007 Annual Report on Form 10-K.

NEW ACCOUNTING STANDARDS

See Note 2 (New Accounting Standards) of ITEM 1.

CRITICAL ACCOUNTING POLICIES

In our 2007 Annual Report on Form 10-K, we identified the critical accounting policies which affect our more significant estimates and assumptions used in preparing our consolidated financial statements. We have not changed these policies from those previously disclosed in our Annual Report.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the quarter ended September 27, 2008. For additional information, refer to Item 7A of our 2007 Annual Report on Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

(a)

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures designed to provide reasonable assurance as to the reliability of our published financial statements and other disclosures included in this report. Our management evaluated, with the participation of our Chief Executive Officer and our Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the quarter ended September 27, 2008 pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the “Exchange Act”). Based upon their evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the quarter ended September 27, 2008 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

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(b)	Changes in Internal Controls
	There was no change in our internal control over financial reporting that occurred during the quarter ended September 27, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Pentair, Inc.:
Minneapolis, MN

We have reviewed the accompanying condensed consolidated balance sheets of Pentair, Inc. and subsidiaries (the “Corporation”) as of September 27, 2008 and September 29, 2007, and the related condensed consolidated statements of income for the three month and nine month periods ended September 27, 2008 and September 29, 2007, and of cash flows for the nine-month periods ended September 27, 2008 and September 29, 2007. These interim condensed consolidated financial statements are the responsibility of the Corporation’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Pentair, Inc. and subsidiaries as of December 31, 2007, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for the year then ended prior to the reclassification for the discontinued operations described in Note 7 to the accompanying condensed consolidated financial statements (not presented herein). Our report dated February 25, 2008, expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph relating to the Corporation’s changes in its method of accounting for uncertain tax positions in 2007. We also audited the adjustments described in Note 7 that were applied to reclassify the December 31, 2007 consolidated balance sheet of Pentair, Inc. and subsidiaries (not presented herein) for discontinued operations. In our opinion, such adjustments are appropriate and have been properly applied to the previously issued consolidated balance sheet in deriving the accompanying retrospectively adjusted condensed consolidated balance sheet as of December 31, 2007.

DELOITTE & TOUCHE LLP

Minneapolis, MN
October 21, 2008

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PART II OTHER INFORMATION

ITEM 1. Legal Proceedings

Environmental and Litigation

There have been no further material developments from the disclosures contained in our 2007 Annual Report on Form 10-K.

Horizon Litigation

The Horizon litigation against our subsidiary Essef Corporation and certain of its subsidiaries by Celebrity Cruise Lines, Inc. (“Celebrity”) was settled by payment of $35 million to Celebrity in August 2008, a portion of which was covered by insurance. As a result of the settlement, we recorded a charge of $20.4 million in the second quarter of 2008 which is shown on the line Legal settlement in the Condensed Consolidated Statements of Income.

ITEM 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed in ITEM 1A. of our 2007 Annual Report on Form 10-K.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following table provides information with respect to purchases we made of our common stock during the third quarter of 2008:

	(a)		(b)		(c)		(d)
					Total Number of Shares		Dollar Value of Shares
	Total Number				Purchased as Part of		that May Yet Be
	Shares of		Average Price		Publicly Announced Plans		Purchased Under the
Period	Purchased		Paid per Share		or Programs		Plans or Programs
June 29 - July 26, 2008		138,753	$	33.87		138,385	$	22,904,343
July 27 - August 23, 2008		168,526	$	36.10		139,198	$	17,904,781
August 24 - September 27, 2008		182,156	$	37.05		162,358	$	11,907,695
Total		489,435				439,941

(a)	The purchases in this column include shares repurchased as part of our publicly announced programs and, in addition, 368 shares for the period June 29 — July 26, 2008; 29,328 shares for the period July 27 — August 23, 2008; and 19,798 shares for the period August 24 - September 27, 2008 deemed surrendered to us by participants in our Omnibus Stock Incentive Plan and the Outside Directors Nonqualified Stock Option Plan (the “Plans”) to satisfy the exercise price or withholding of tax obligations related to the exercise of stock options and non-vested shares.
(b)	The average price paid in this column includes shares repurchased as part of our publicly announced programs and shares deemed surrendered to us by participants in the Plans to satisfy the exercise price or withholding of tax obligations related to the exercise price of stock options and non-vested shares.
(c)	The number of shares in this column represents the number of shares repurchased as part of a publicly announced program to repurchase up to $50 million of our common stock.
(d)	In December 2007, the Board of Directors authorized the repurchase of shares of our common stock during 2008 up to a maximum dollar limit of $50 million. As of September 27, 2008, we had purchased 1,094,059 shares for $38.1 million pursuant to this authorization during 2008. This authorization expires on December 31, 2008.

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ITEM 6. Exhibits

(a)	Exhibits
		10.1	Amendment to Pentair, Inc. 2008 Omnibus Stock Incentive Plan.
		15	Letter Regarding Unaudited Interim Financial Information.
		31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
		31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
		32.1	Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
		32.2	Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on October 21, 2008.

PENTAIR, INC. Registrant
By	/s/ John L. Stauch
	John L. Stauch
	Executive Vice President and Chief Financial Officer
By	/s/ Mark C. Borin
	Mark C. Borin
	Corporate Controller and Chief Accounting Officer

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Exhibit Index to Form 10-Q for the Period Ended September 27, 2008

10.1	Amendment to Pentair, Inc. 2008 Omnibus Stock Incentive Plan.
15	Letter Regarding Unaudited Interim Financial Information.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.1

Exhibit 10.1

PENTAIR, INC.
2008 OMNIBUS STOCK INCENTIVE PLAN

As Amended Through July 29, 2008

     1. Purpose and Effective Date.

     (a) Purpose. The Pentair, Inc. 2008 Omnibus Stock Incentive Plan has several complementary purposes: (i) to promote the growth and success of the Company by linking a significant portion of participant compensation to the increase in value of the Company’s common stock; (ii) to attract and retain top quality, experienced executives and key employees by offering a competitive incentive compensation program; (iii) to reward innovation and outstanding performance as important contributing factors to the Company’s growth and progress; (iv) to align the interests of executives, key employees, directors and consultants with those of the Company’s shareholders by reinforcing the relationship between participant rewards and shareholder gains obtained through the achievement by plan participants of short-term objectives and long-term goals; and (iv) to encourage executives, key employees, directors and consultants to obtain and maintain an equity interest in the Company.

     (b) Effective Date. This Plan will become effective, and Awards may be granted under this Plan: (1) with regard to Non-Employee Directors, on and after February 26, 2008, provided that any Awards made prior to the date that the Plan is approved by the Company’s shareholders shall be contingent on such shareholder approval, and (2) with regard to all other eligible individuals, the date that the Plan is approved by the Company’s shareholders. If the Company’s shareholders approve this Plan, then the Pentair, Inc. Omnibus Stock Incentive Plan (the “Prior Plan”) will terminate on the date of such shareholder approval, and no new awards will be granted under the Prior Plan after its termination date; provided that the Prior Plan will continue to govern awards outstanding as of the date of such plan’s termination and such awards shall continue in force and effect until fully distributed or terminated pursuant to their terms.

     2. Definitions. Capitalized terms used in this Plan have the following meanings:

     (a) “10% Stockholder” means an Eligible Employee who, as of the date an ISO is granted to such individual, owns more than ten percent (10%) of the total combined voting power of all classes of Stock then issued by the Company or a Subsidiary corporation.

     (b) “Administrator” means (i) the Committee with respect to Participants who are Eligible Employees and Consultants and (ii) the Non-Employee Directors of the Board (or a committee of Non-Employee Directors appointed by the Board) with respect to Participants who are Directors.

     (c) “Affiliate” and “Associate” shall have the respective meanings ascribed to such terms in Rule 12b-2 under the Exchange Act. Notwithstanding the foregoing, for purposes of determining those individuals to whom an Option or Stock Appreciation Right may be granted, the term “Affiliate” means any entity that, directly or through one or more intermediaries, is controlled by, controls, or is under common control with the Company within the meaning of Code Sections 414(b) or (c); provided that, in applying such provisions, the phrase “at least 20 percent” shall be used in place of “at least 80 percent” each place it appears therein.

     (d) “Award” means a grant of Options, Stock Appreciation Rights, Performance Shares, Performance Units, Restricted Stock, Restricted Stock Units, Deferred Stock Rights, Dividend Equivalent Units, or any other type of award permitted under the Plan.

     (e) “Board” means the Board of Directors of the Company.

     (f) “Cause” means, except as otherwise determined by the Administrator and set forth in an Award agreement, such act or omission by a Participant as is determined by the Administrator to constitute cause for termination, including but not limited to any of the following: (i) a material violation of any Company policy, including any policy contained in the Company Code of Business Conduct; (ii) embezzlement from, or theft of property belonging to the Company or any Affiliate; (iii) willful failure to perform or gross negligence in the performance of or failure to perform assigned duties; or (iv) other intentional misconduct, whether related to employment or otherwise, which has, or has the potential to have, a material adverse effect on the business conducted by the Company or its Affiliates.

     (g) “Change of Control” means a change of control of the Company, as that term is defined in the KEESA. Notwithstanding the foregoing, with respect to an Award that is considered deferred compensation subject to Code Section 409A, the definition of “Change of Control” shall be amended and interpreted in a manner that allows the definition to satisfy the requirements of a change of control under Code Section 409A solely for purposes of determining the timing of payment of such Award.

     (h) “Code” means the Internal Revenue Code of 1986, as amended. Any reference to a specific provision of the Code includes any successor provision and the regulations promulgated under such provision.

     (i) “Committee” means the Compensation Committee of the Board (or a successor committee with the same or similar authority).

     (j) “Company” means Pentair, Inc., a Minnesota corporation, or any successor thereto.

     (k) “Consultant” means a person or entity rendering services to the Company or an Affiliate other than as an employee of any such entity or a Director.

     (l) “Deferred Stock Right” means the right to receive Stock or Restricted Stock at some future time.

     (m) “Director” means a member of the Board, and “Non-Employee Director” means a Director who is not also an employee of the Company or its Subsidiaries.

     (n) “Disability” means, except as otherwise determined by the Administrator and set forth in an Award agreement: (i) with respect to an ISO, the meaning given in Code Section 22(e)(3), and (ii) with respect to all other Awards, a physical or mental incapacity which qualifies an individual to collect a benefit under a long term disability plan maintained by the Company, or such similar mental or physical condition which the Administrator may determine to be a disability, regardless of whether either the individual or the condition is covered by any such long term disability plan. The Administrator shall make the determination of Disability and may request such evidence of disability as it reasonably determines.

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     (o) “Dividend Equivalent Unit” means the right to receive a payment, in cash or Shares, equal to the cash dividends or other distributions paid with respect to a Share.

     (p) “Eligible Employee” means a key managerial, administrative or professional employee of the Company or an Affiliate whose position is evaluated at salary grade 40 or higher or who is in a position to make a material contribution to the continued profitable growth and long term success of the Company or an Affiliate.

     (q) “Exchange Act” means the Securities Exchange Act of 1934, as amended. Any reference to a specific provision of the Exchange Act includes any successor provision and the regulations and rules promulgated under such provision.

     (r) “Fair Market Value” means, per Share on a particular date: (i) the closing price on such date on the New York Stock Exchange, as reported in The Wall Street Journal, or if no sales of Stock occur on the date in question, on the last preceding date on which there was a sale on such market; (ii) if the Shares are not listed on the New York Stock Exchange, but are traded on another national securities exchange or in an over-the-counter market, the last sales price (or, if there is no last sales price reported, the average of the closing bid and asked prices) for the Shares on the particular date, or on the last preceding date on which there was a sale of Shares on that exchange or market; or (iii) if the Shares are neither listed on a national securities exchange nor traded in an over-the-counter market, the price determined by the Administrator.

     (s) “Incentive Stock Option” or “ISO” mean an Option that meets the requirements of Code Section 422.

     (t) “KEESA” means the Key Executive Employment and Severance Agreement between the Company and key executives, as approved by the Board and in effect from time to time.

     (u) “Option” means the right to purchase Shares at a stated price for a specified period of time.

     (v) “Participant” means an individual selected by the Administrator to receive an Award.

     (w) “Performance Awards” means a Performance Share and Performance Unit, and any Award of Restricted Stock, Restricted Stock Units, or Deferred Stock Rights the payment or vesting of which is contingent on the attainment of one or more Performance Goals.

     (x) “Performance Goals” means any goals the Administrator establishes that relate to one or more of the following with respect to the Company or any one or more of its Subsidiaries, Affiliates or other business units: net income; income from continuing operations; stockholder return; stock price appreciation; earnings per share (including diluted earnings per share); net operating profit (including after tax); revenue growth; organic sales growth; return on equity; return on investment; return on invested capital (including after-tax); earnings before interest, taxes, depreciation and amortization; operating income; operating margin; market share; return on sales; asset reduction; cost reduction; return on equity; cash flow (including free cash flow); and new product releases. As to each Performance Goal, the relevant measurement of performance shall be computed in accordance with generally accepted accounting principles, if applicable; provided that, the Administrator may, at the time of establishing the Performance Goal(s), exclude the effects of (i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax regulations or laws, or (iv) the effect of a merger or acquisition.

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Notwithstanding the foregoing, the calculation of any Performance Goal established for purposes of an Award shall be made without regard to changes in accounting methods used by the Company or in accounting standards that may be required by the Financial Accounting Standards Board after a Performance Goal relative to an Award is established and prior to the time the compensation earned by reason of the achievement of the relevant Performance Goal is paid to the Participant. In the case of Awards that the Administrator determines will not be considered “performance-based compensation” under Code Section 162(m), the Administrator may establish other Performance Goals not listed in this Plan. Where applicable, the Performance Goals may be expressed, without limitation, in terms of attaining a specified level of the particular criterion or the attainment of an increase or decrease (expressed as absolute numbers or a percentage) in the particular criterion or achievement in relation to a peer group or other index. The Performance Goals may include a threshold level of performance below which no payment will be made (or no vesting will occur), levels of performance at which specified payments will be paid (or specified vesting will occur), and a maximum level of performance above which no additional payment will be made (or at which full vesting will occur).

     (y) “Performance Shares” means the right to receive Shares (including Restricted Stock) to the extent Performance Goals are achieved.

     (z) “Performance Unit” means the right to receive a payment valued in relation to a unit that has a designated dollar value or the value of which is equal to the Fair Market Value of one or more Shares, to the extent Performance Goals are achieved.

     (aa) “Person” has the meaning given in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof.

     (bb) “Plan” means this Pentair, Inc. 2008 Omnibus Stock Incentive Plan, as may be amended from time to time.

     (cc) “Restriction Period” means the length of time established relative to an Award during which the Participant cannot sell, assign, transfer, pledge or otherwise encumber the Stock or Stock Units subject to such Award and at the end of which the Participant obtains an unrestricted right to such Stock or Stock Units.

     (dd) “Restricted Stock” means a Share that is subject to a risk of forfeiture or restrictions on transfer, or both a risk of forfeiture and restrictions on transfer.

     (ee) “Restricted Stock Unit” means the right to receive a payment equal to the Fair Market Value of one Share.

     (ff) “Retirement” means, except as otherwise determined by the Administrator and set forth in an Award agreement, (i) with respect to Participants who are Eligible Employees or Consultants, termination of employment or service from the Company and its Affiliates (for other than Cause) on or after attainment of age fifty-five (55) and completion of ten (10) years of service with the Company and its Affiliates, and (ii) with respect to Director Participants, the Director’s removal (for other than Cause), or resignation or failure to be re-elected (for other than Cause) on or after “retirement” as defined in the Company’s retirement policy for Non-Employee Directors.

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     (gg) “Section 16 Participants” means Participants who are subject to the provisions of Section 16 of the Exchange Act.

     (hh) “Share” means a share of Stock.

     (ii) “Stock” means the Common Stock of the Company, par value of $0.16- 2/3 per share.

     (jj) “Stock Appreciation Right” or “SAR” means the right to receive a payment equal to the appreciation of the Fair Market Value of a Share during a specified period of time.

     (kk) “Subsidiary” means any corporation or limited liability company (except that is treated as a partnership for U.S. income tax purposes) in an unbroken chain of entities beginning with the Company if each of the entities (other than the last entity in the chain) owns stock or equity interests possessing more than fifty percent (50%) of the total combined voting power of all classes of stock or equity interests in one of the other entities in the chain.

     3. Administration.

     (a) Administration. In addition to the authority specifically granted to the Administrator in this Plan, the Administrator has full discretionary authority to administer this Plan, including but not limited to the authority to: (i) interpret the provisions of this Plan; (ii) prescribe, amend and rescind rules and regulations relating to this Plan; (iii) correct any defect, supply any omission, or reconcile any inconsistency in any Award or agreement covering an Award in the manner and to the extent it deems desirable to carry this Plan into effect; and (iv) make all other determinations necessary or advisable for the administration of this Plan. All Administrator determinations shall be made in the sole discretion of the Administrator and are final and binding on all interested parties.

          Notwithstanding any provision of the Plan to the contrary, the Administrator shall have the discretion to grant an Award with any vesting condition, any Restriction Period or any performance period if the Award is granted to a newly hired or promoted Participant, or accelerate the vesting, Restriction Period or performance period of an Award, in connection with a Participant’s death, disability, Retirement or termination by the Company without Cause. Any action by the Committee to accelerate or otherwise amend an Award for reasons other than Retirement, death, Disability or a termination by the Company without Cause, or in connection with a Change of Control, shall include application of a commercially reasonable discount to the compensation otherwise payable to reflect the value of the accelerated payment

          Notwithstanding the above statement or any other provision of the Plan, once established, the Committee shall have no discretion to increase the amount of compensation payable under an Award that is intended to be performance-based compensation under Code Section 162(m), although the Committee may decrease the amount of compensation a Participant may earn under such an Award.

     (b) Delegation to Other Committees or Officers. To the extent applicable law permits, the Board may delegate to another committee of the Board or to one or more officers of the Company, or the Committee may delegate to one or more officers of the Company, any or all of their respective authority and responsibility as an Administrator of the Plan; provided that no such delegation is permitted with respect to Stock-based Awards made to Section 16 Participants at the time any such delegated authority or responsibility is exercised unless the delegation is to another committee of the Board consisting entirely of Non-Employee Directors.

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If the Board or the Committee has made such a delegation, then all references to the Administrator in this Plan include such other committee or one or more officers to the extent of such delegation.

     (c) Indemnification. The Company will indemnify and hold harmless each member of the Board and the Committee, and each officer or member of any other committee to whom a delegation under Section 3(b) has been made, as to any acts or omissions with respect to this Plan or any Award to the maximum extent that the law and the Company’s by-laws permit.

     4. Eligibility. The Administrator may designate any of the following as a Participant from time to time, to the extent of the Administrator’s authority: any Eligible Employee, any Consultant or any Director, including a Non-Employee Director. The Administrator’s granting of an Award to a Participant will not require the Administrator to grant an Award to such individual at any future time. The Administrator’s granting of a particular type of Award to a Participant will not require the Administrator to grant any other type of Award to such individual.

     5. Types of Awards. Subject to the terms of this Plan, the Administrator may grant any type of Award to any Participant it selects, but only employees of the Company or a Subsidiary may receive grants of incentive stock options. Awards may be granted alone or in addition to, in tandem with, or in substitution for any other Award (or any other award granted under another plan of the Company or any Affiliate).

     6. Shares Reserved under this Plan.

     (a) Plan Reserve. Subject to adjustment as provided in Section 16, an aggregate of seven million five hundred thousand (7,500,000) Shares are reserved for issuance under this Plan. The Shares reserved for issuance may be either authorized and unissued Shares or shares reacquired at any time and now or hereafter held as treasury stock.

     (b) Incentive stock Option Award Limits. Subject to adjustment as provided in Section 16, the Company may issue only an aggregate of five million (5,000,000) Shares upon the exercise of incentive stock options.

     (c) Replenishment of Shares Under this Plan. The aggregate number of Shares reserved under Section 6(a) shall be depleted by the number of Shares with respect to which an Award is granted; provided that the aggregate number of Shares reserved under Section 6(a) shall be depleted by three (3) Shares for each Share subject to a full-value Award. For this purpose, a full-value award includes Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units (valued in relation to a Share), Deferred Stock Rights and any other similar Award under which the value of the Award is measured as the full value of a Share, rather than the increase in the value of a Share. If, however, an Award lapses, expires, terminates or is cancelled without the issuance of Shares or the payment of other compensation under the Award, or if Shares are forfeited under an Award, or if Shares are issued under any Award and the Company subsequently reacquires them pursuant to rights reserved upon the issuance of the Shares, then such Shares shall be recredited to the Plan’s reserve (in the same number as they depleted the reserve) and may again be used for new Awards under this Plan. Notwithstanding the foregoing, in no event shall the following Shares be recredited to the Plan’s reserve: Shares tendered in payment of the exercise price of an Option; Shares withheld to satisfy federal, state or local tax withholding obligations; and Shares purchased by the Company using proceeds from Option exercises.

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     (d) Participant Limitations. Subject to adjustment as provided in Section 16, no Participant may be granted Awards that could result in such Participant:

     (i) receiving Options for, and/or Stock Appreciation Rights with respect to, more than 750,000 Shares during any fiscal year of the Company;

     (ii) receiving Awards of Restricted Stock and/or Restricted Stock Units and/or Deferred Stock Rights relating to more than 500,000 Shares during any fiscal year of the Company;

     (iii) receiving Awards of Performance Shares, and/or Awards of Performance Units the value of which is based on the Fair Market Value of Shares, for more than 500,000 Shares during any fiscal year of the Company;

     (iv) receiving Awards of Performance Units the value of which is not based on the Fair Market Value of Shares, for more than $3,000,000 during any fiscal year of the Company; or

     (v) receiving other Stock-based Awards pursuant to Section 11 relating to more than 100,000 Shares during any fiscal year of the Company.

In all cases, determinations under this Section 6(d) should be made in a manner that is consistent with the exemption for performance-based compensation that Code Section 162(m) provides.

     7. Options. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each Option, including but not limited to:

     (a) Whether the Option is an “incentive stock option” which meets the requirements of Code Section 422, or a “nonqualified stock option” which does not meet the requirements of Code Section 422;

     (b) The number of Shares subject to the Option;

     (c) The date of grant, which may not be prior to the date of the Administrator’s approval of the grant;

     (d) The exercise price, which may not be less than the Fair Market Value of the Shares subject to the Option as determined on the date of grant; provided that an incentive stock option granted to a 10% Stockholder must have an exercise price at least equal to 110% of the Fair Market Value of the Shares subject to the Option as determined on the date of grant;

     (e) The terms and conditions of exercise; provided that, subject to the provisions of Sections 12 and 16, one-third (1/3) of each Option may not become exercisable earlier than on each of the first three (3) anniversaries of the date of grant; and provided further that if the aggregate Fair Market Value of the Shares subject to the Option (as determined on the date of grant of such Option) that become exercisable during a calendar year exceed $100,000, then such Option shall be treated as a nonqualified stock option to the extent such $100,000 limitation is exceeded.

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     (f) The term; provided that each Option must terminate no later than ten (10) years after the date of grant and each incentive stock option granted to a 10% Stockholder must terminate no later than five (5) years after the date of grant.

          In all other respects, the terms of any incentive stock option should comply with the provisions of Code section 422 except to the extent the Administrator determines otherwise. If an Option that is intended to be an incentive stock option fails to meet the requirements thereof, the Option shall automatically be treated as a nonqualified stock option to the extent of such failure.

          Subject to the terms and conditions of the Award, vested Options may be exercised, in whole or in part, by giving notice of exercise to the Company in such manner as the Company may prescribe. This notice must be accompanied by payment in full of the exercise price in cash or by use of such other instrument as the Administrator may agree to accept.

          Payment of the exercise price, applicable withholding taxes due upon exercise of the Option, or both may be made in the form of Stock already owned by the Participant, which Stock shall be valued at Fair Market Value on the date the Option is exercised. A Participant who elects to make payment in Stock may not transfer fractional shares or shares of Stock with an aggregate Fair Market Value in excess of the Option exercise price plus applicable withholding taxes. A Participant need not present Stock certificates when making payment in Stock, so long as other satisfactory proof of ownership of the Stock tendered is provided (e.g., attestation of ownership of a sufficient number of shares of Stock to pay the exercise price). The Administrator shall have the discretion to authorize or accept payment by other forms or methods or to establish a cashless exercise program, all within such limitations as may be imposed by the Plan or any applicable law.

     8. Stock Appreciation Rights. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each SAR, including but not limited to:

     (a) Whether the SAR is granted independently of an Option or relates to an Option;

     (b) The number of Shares to which the SAR relates;

     (c) The date of grant, which may not be prior to the date of the Administrator’s approval of the grant;

     (d) The grant price, provided that the grant price shall not be less than the Fair Market Value of the Shares subject to the SAR as determined on the date of grant;

     (e) The terms and conditions of exercise or maturity; provided that, subject to the provisions of Sections 12 and 16, one-third (1/3) of each SAR may not become exercisable or mature earlier than on each of the first three (3) anniversaries of the date of grant;

     (f) The term, provided that each SAR must terminate no later than ten (10) years after the date of grant; and

     (g) Whether the SAR will be settled in cash, Shares or a combination thereof.

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          If an SAR is granted in relation to an Option, then unless otherwise determined by the Administrator, the SAR shall be exercisable or shall mature at the same time or times, on the same conditions and to the extent and in the proportion, that the related Option is exercisable and may be exercised or mature for all or part of the Shares subject to the related Option. Upon exercise of any number of SAR, the number of Shares subject to the related Option shall be reduced accordingly and such Option may not be exercised with respect to that number of Shares. The exercise of any number of Options that relate to an SAR shall likewise result in an equivalent reduction in the number of Shares covered by the related SAR.

     9. Performance and Stock Awards. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Restricted Stock, Restricted Stock Units, Deferred Stock Rights, Performance Shares or Performance Units, including but not limited to:

     (a) The number of Shares and/or units to which such Award relates;

     (b) Whether, as a condition for the Participant to realize all or a portion of the benefit provided under the Award, one or more Performance Goals must be achieved during such period as the Administrator specifies;

     (c) The period of restriction with respect to Restricted Stock or Restricted Stock Units and the period of deferral for Deferred Stock Rights (which, subject to the provisions of Sections 12 and 16, in each case may not be less than three (3) years from the date of grant);

     (d) The performance period for Performance Awards (which, subject to the provisions of Sections 12 and 16, must be at least one year);

     (e) With respect to Performance Units, whether to measure the value of each unit in relation to a designated dollar value or the Fair Market Value of one or more Shares; and

     (f) With respect to Restricted Stock Units and Performance Units, whether to settle such Awards in cash, in Shares, or a combination thereof.

     During the time Restricted Stock is subject to the Period of Restriction, the Participant shall have all of the rights of a shareholder with respect to the Restricted Stock, including the right to vote such Stock and, unless the Administrator shall otherwise provide, the right to receive dividends paid with respect to such Stock.

     Except as otherwise provided in the Plan, at such time as all restrictions applicable to an Award of Restricted Stock, Deferred Stock Rights or Restricted Stock Units are met and the Restriction Period expires, ownership of the Stock subject to such restrictions shall be transferred to the Participant free of all restrictions except those that may be imposed by applicable law; provided that if Restricted Stock Units are paid in cash, said payment shall be made to the Participant after all applicable restrictions lapse and the Restriction Period expires.

     10. Dividend Equivalent Units. Subject to the terms of this Plan, the Administrator will determine all terms and conditions of each award of Dividend Equivalent Units, including but not limited to whether: (a) such Award will be granted in tandem with another Award; (b) payment of the Award be made currently or credited to an account for the Participant which provides for the deferral of such amounts until a stated time; and (c) the Award will be settled in cash or Shares; provided that Dividend Equivalent Units may be granted only in connection with a “full value” Award as defined in Section 6(c).

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     11. Other Stock-Based Awards. Subject to the terms of this Plan, the Administrator may grant to Participants other types of Awards, which shall be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, Shares, either alone or in addition to or in conjunction with other Awards, and payable in Stock or cash. Without limitation, such Award may include the issuance of shares of unrestricted Stock, which may be awarded in payment of director fees, in lieu of cash compensation, in exchange for cancellation of a compensation right, as a bonus, or upon the attainment of Performance Goals or otherwise, or rights to acquire Stock from the Company. The Administrator shall determine all terms and conditions of the Award, including but not limited to, the time or times at which such Awards shall be made, and the number of Shares to be granted pursuant to such Awards or to which such Award shall relate; provided that any Award that provides for purchase rights shall be priced at 100% of Fair Market Value on the date of the Award.

     12. Effect of Termination on Awards. Except as otherwise provided by the Administrator in an Award Agreement or, subject to Section 3(a), as determined by the Administrator at the time of termination of a Participant’s service:

     (a) Termination of Employment or Service. If a Participant’s service with the Company and its Affiliates as an employee or Director ends for any reason other than (i) a termination for Cause, (ii) Retirement, (iii) death or (iv) Disability, then:

     (i) Any outstanding Options or SARs, to the extent otherwise exercisable on the date such Participant’s service ends, shall be exercisable no later than ninety (90) days following the Participant’s termination date or, if earlier, the expiration date of the Option or SAR. At the conclusion of such ninety (90) day period, all such Options and SARs then unexercised shall be forfeited.

     (ii) All other Awards made to the Participant, to the extent not then earned or paid to the Participant, shall terminate no later than the Participant’s last day of employment, or service as a Director.

     (b) Retirement of Corporate Officer or Director. Upon Retirement of a Participant who is then a Board-appointed corporate officer or a Director:

     (i) Any outstanding Options or SARs shall remain outstanding (and shall continue to vest in accordance with the terms of the Award as if the Participant had continued in employment or service) until the earlier of the expiration date of the Award and the fifth anniversary of such Participant’s Retirement date; provided, however, that such extension shall result in the conversion of an incentive stock option to a nonqualified stock option to the extent required under the Code.

     (ii) All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) outstanding on the Participant’s Retirement date shall be immediately vested, and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied. Payment for all such Awards shall be made to the Participant in either unrestricted shares of Stock or cash, depending on the payment terms applicable to such Award.

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     (iii) All Performance Awards outstanding on the Participant’s Retirement date shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired.

     (iv) Notwithstanding the provisions of Section 2(ff), effective for Awards granted on or after July 29, 2008, the provisions of subsections 12(b)(i), (ii) and (iii) shall apply only with respect to the termination of employment or service from the Company and its Affiliates (for other than Cause) of a Board-appointed corporate officer, on or after attainment of age sixty (60) and completion of ten (10) years of service with the Company and its Affiliates.

     (c) Retirement of Other Participants. Upon Retirement of a Participant not covered by Section 12(b):

     (i) Any Options and SARs exercisable on such Participant’s Retirement date shall be exercisable no later than ninety (90) days following such date or, if earlier, the expiration date of the Option or SAR. At the end of such ninety (90) day period, all Options and SARs then unexercised shall be forfeited.

     (ii) All Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) shall vest on a prorated basis, based on the portion of the restriction or deferral period, as applicable, which the Participant has completed at the time of Retirement and any other terms and conditions applicable to such Awards shall be deemed to have lapsed or otherwise been satisfied.

     (iii) All Performance Awards outstanding on the Participant’s Retirement date shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not retired, but prorated based on the portion of the performance period which the Participant has completed at the time of Retirement.

     (d) Death of Participant. If a Participant dies during employment with the Company and its Affiliates or while a Director:

     (i) All outstanding Options and SARS shall be exercisable by the Participant’s estate or the person who has acquired the right to exercise such Awards by bequest or inheritance. The Participant’s estate, or any person who succeeds to the Participant’s benefits under the Plan, shall have up to twelve (12) months following the date of the Participant’s death, or if earlier the expiration date of the Option or SAR, to exercise any outstanding Options or SARs to the same extent the Participant would have been entitled to exercise said Options or SARs on the date of death. At the end of said twelve (12) month period, all Options and SARs then unexercised shall be forfeited.

     (ii) All restrictions on all outstanding Awards of Restricted Stock or Restricted Units (that are not Performance Awards) shall be deemed to have lapsed on a prorated basis based on the portion of the Restriction Period which the Participant has completed on the date of death.

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     (iii) All outstanding Deferred Stock Rights (that are not Performance Awards) shall be vested on a prorated basis based on the portion of the deferral period which the Participant has completed on the date of death.

     (iv) All Performance Awards outstanding on the date of the Participant’s death shall be paid in either unrestricted shares of Stock or cash, as the case may be, following the end of the performance period and based on achievement of the Performance Goals established for such Awards, as if the Participant had not died, but prorated based on the portion of the performance period which the Participant has completed at the time of death.

     (e) Disability of Participant. If a Participant’s employment with the Company and its Affiliates or service as a Director ends due to a Disability, then:

     (i) The Participant shall have up to twelve (12) months, or if earlier the expiration date of the Option or SAR, to exercise any outstanding Options or SARs to the same extent the Participant would have been entitled to exercise said Options or SARs as of the date the Disability determination is effective. At the end of said twelve (12) month period all Options or SARs then unexercised shall be forfeited.

     (ii) All restrictions applicable to an outstanding Award of Restricted Stock or Restricted Units (that are not Performance Awards) shall be deemed to have lapsed on a prorated basis, based on the portion of the Restriction Period the Participant completed as of the date of Disability.

     (iii) All outstanding Deferred Stock Rights (that are not Performance Awards) shall be vested on a prorated basis based on the portion of the deferral period which the Participant completed on the date of Disability.

     (iv) All Performance Awards outstanding on the date of the Participant’s Disability shall be paid in either unrestricted shares of Stock or cash, as the case may be, based on the degree to which the Participant had attained the applicable Performance Goals as of the date of such Participant’s Disability.

     (f) Termination for Cause. If a Participant’s employment with the Company and its Affiliates or service as a Director is terminated for Cause, all Awards and grants of every type, whether or not then vested, shall terminate no later than the Participant’s last day of employment. The Committee shall have discretion to determine whether this Section 12(f) shall apply, whether the event or conduct at issue constitutes Cause for termination and the date on which Awards to a Participant shall terminate.

     (g) Consultants and Other Stock-Based Awards. The Committee shall have the discretion to determine, at the time an Award is made, the effect of the termination of service of a Consultant on Awards held by such individual, and the effect on Other Stock-Based Awards of the Participant’s termination of employment or service with the Company and its Affiliates.

     13. Transferability.

     (a) Restrictions on Transfer. Awards are not transferable other than by will or the laws of descent and distribution, unless and to the extent the Administrator allows a Participant to designate in writing a beneficiary to exercise the Award or receive payment under an Award after the Participant’s death or transfer an Award as provided in subsection (b).

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     (b) Permitted Transfers. If allowed by the Administrator, a Participant may transfer the ownership of some or all of the vested or earned Awards granted to such Participant, other than incentive stock options to (i) the spouse, children or grandchildren of such Participant (the “Family Members”), (ii) a trust or trust established for the exclusive benefit of such Family Members, or (iii) a partnership in which such Family Members are the only partners. Any such transfer shall be without consideration and shall be irrevocable. No Award so transferred may be subsequently transferred, except by will or applicable laws of descent and distribution. The Administrator may create additional conditions and requirements applicable to the transfer of Awards. Following the allowable transfer of a vested Option, such Option shall continue to be subject to the same terms and conditions as were applicable to the Option immediately prior to the transfer. For purposes of settlement of the Award, delivery of Stock upon exercise of an Option and the Plan’s Change of Control provisions, however, any reference to a Participant shall be deemed to refer to the transferee.

     14. Termination and Amendment of Plan; Amendment, Modification or Cancellation of Awards.

     (a) Term of Plan. Unless the Board earlier terminates this Plan pursuant to Section 14(b), this Plan will terminate on the earlier of the date all Shares reserved for issuance have been issued or February 26, 2018.

     (b) Termination and Amendment. The Board or the Committee may amend, alter, suspend, discontinue or terminate this Plan at any time, subject to the following limitations:

     (i) the Board must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) action of the Board, (B) applicable corporate law, or (C) any other applicable law;

     (ii) shareholders must approve any amendment of this Plan to the extent the Company determines such approval is required by: (A) Section 16 of the Exchange Act, (B) the Code, (C) the listing requirements of any principal securities exchange or market on which the Shares are then traded, or (D) any other applicable law; and

     (iii) shareholders must approve any of the following Plan amendments: (A) an amendment to materially increase any number of Shares specified in Section 6(a), 6(b) or the limits set forth in Section 6(d) (except as permitted by Section 16), (B) an amendment to expand the group of individuals that may become Participants, or (C) an amendment that would diminish the protections afforded by Section 14(e) or that would materially change the minimum vesting and performance requirements of an Award as required in the Plan.

     (c) Amendment, Modification or Cancellation of Awards. Except as provided in Section 14(e) and subject to the requirements of this Plan, the Administrator may modify, amend or cancel any Award; or waive any restrictions or conditions applicable to any Award or the exercise of the Award, provided that any modification or amendment that materially diminishes the rights of the Participant, or the cancellation of the Award, shall be effective only if agreed to by the Participant or any other person(s) as may then have an interest in the Award, but the Administrator need not obtain Participant (or other interested party) consent for the adjustment or cancellation of an Award pursuant to the provisions of Section 16 or the modification of an Award to the extent deemed necessary to comply with any applicable law, the listing requirements of any principal securities exchange or market on which the Shares are then traded, or to preserve favorable accounting or tax treatment of any Award for the Company.

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Notwithstanding the foregoing, unless determined otherwise by the Administrator, any such amendment shall be made in a manner that will enable an Award intended to be exempt from Code Section 409A to continue to be so exempt, or to enable an Award intended to comply with Code Section 409A to continue to so comply.

     (d) Survival of Authority and Awards. Notwithstanding the foregoing, the authority of the Board and the Administrator under this Section 14 and to otherwise administer the Plan will extend beyond the date of this Plan’s termination. In addition, termination of this Plan will not affect the rights of Participants with respect to Awards previously granted to them, and all unexpired Awards will continue in force and effect after termination of this Plan except as they may lapse or be terminated by their own terms and conditions.

     (e) Repricing and Backdating Prohibited. Notwithstanding anything in this Plan to the contrary, and except for the adjustments provided in Section 16, neither the Administrator nor any other person may decrease the exercise price for any outstanding Option or SAR after the date of grant nor allow a Participant to surrender an outstanding Option or SAR to the Company as consideration for the grant of a new Option or SAR with a lower exercise price. In addition, the Administrator may not make a grant of an Option or SAR with a grant date that is effective prior to the date the Administrator takes action to approve such Award.

     (f) Foreign Participation. To assure the viability of Awards granted to Participants employed or residing in foreign countries, the Administrator may provide for such special terms as it may consider necessary or appropriate to accommodate differences in local law, tax policy or custom. Moreover, the Administrator may approve such supplements to, or amendments, restatements or alternative versions of, this Plan as it determines is necessary or appropriate for such purposes. Any such amendment, restatement or alternative versions that the Administrator approves for purposes of using this Plan in a foreign country will not affect the terms of this Plan for any other country. In addition, all such supplements, amendments, restatements or alternative versions must comply with the provisions of Section 14(b)(ii).

     (g) Code Section 409A. The provisions of Code Section 409A are incorporated herein by reference to the extent necessary for any Award that is subject to Code Section 409A to comply therewith.

     15. Taxes.

     (a) Withholding. In the event the Company or an Affiliate of the Company is required to withhold any Federal, state or local taxes or other amounts in respect of any income recognized by a Participant as a result of the grant, vesting, payment or settlement of an Award or disposition of any Shares acquired under an Award, the Company may deduct (or require an Affiliate to deduct) from any payments of any kind otherwise due the Participant cash, or with the consent of the Committee, Shares otherwise deliverable or vesting under an Award, to satisfy such tax obligations. Alternatively, the Company may require such Participant to pay to the Company, in cash, promptly on demand, or make other arrangements satisfactory to the Company regarding the payment to the Company of the aggregate amount of any such taxes and other amounts.

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If Shares are deliverable upon exercise or payment of an Award, the Committee may permit a Participant to satisfy all or a portion of the Federal, state and local withholding tax obligations arising in connection with such Award by electing to (a) have the Company withhold Shares otherwise issuable under the Award, (b) tender back Shares received in connection with such Award or (c) deliver other previously owned Shares; provided that the amount to be withheld may not exceed the total minimum federal, state and local tax withholding obligations associated with the transaction to the extent needed for the Company to avoid an accounting charge. If an election is provided, the election must be made on or before the date as of which the amount of tax to be withheld is determined and otherwise as the Committee requires. In any case, the Company may defer making payment or delivery under any Award if any such tax may be pending unless and until indemnified to its satisfaction.

     (b) No Guarantee of Tax Treatment. Notwithstanding any provisions of the Plan, the Company does not guarantee to any Participant or any other Person with an interest in an Award that (i) any Award intended to be exempt from Code Section 409A shall be so exempt, (ii) any Award intended to comply with Code Section 409A or Code Section 422 shall so comply, (iii) any Award shall otherwise receive a specific tax treatment under any other applicable tax law, nor in any such case will the Company or any Affiliate indemnify, defend or hold harmless any individual with respect to the tax consequences of any Award.

     (c) Participant Responsibilities. If a Participant shall dispose of Stock acquired through exercise of an ISO within either (i) two (2) years after the date the Option is granted or (ii) one (1) year after the date the Option is exercised (i.e., in a disqualifying disposition), such Participant shall notify the Company within seven (7) days of the date of such disqualifying disposition. In addition, if a Participant elects, under Code Section 83, to be taxed at the time an Award of Restricted Stock (or other property subject to such Code section) is made, rather than at the time the Award vests, such Participant shall notify the Company within seven (7) days of the date the Restricted Stock subject to the election is awarded.

     16. Adjustment Provisions; Change of Control.

     (a) Adjustment of Shares. If: (i) the Company shall at any time be involved in a merger or other transaction in which the Shares are changed or exchanged; (ii) the Company shall subdivide or combine the Shares or the Company shall declare a dividend payable in Shares, other securities or other property; (iii) the Company shall effect a cash dividend the amount of which, on a per Share basis, exceeds ten percent (10%) of the Fair Market Value of a Share at the time the dividend is declared, or the Company shall effect any other dividend or other distribution on the Shares in the form of cash, or a repurchase of Shares, that the Board determines by resolution is special or extraordinary in nature or that is in connection with a transaction that the Company characterizes publicly as a recapitalization or reorganization involving the Shares; or (iv) any other event shall occur, which, in the case of this clause (iv), in the judgment of the Board or Committee necessitates an adjustment to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, then the Administrator shall, in such manner as it may deem equitable to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under this Plan, adjust as applicable: (A) the number and type of Shares subject to this Plan (including the number and type of Shares described in Sections 6(a), (b) and (d)) and which may after the event be made the subject of Awards; (B) the number and type of Shares subject to outstanding Awards; (C) the grant, purchase, or exercise price with respect to any Award; and (D) to the extent such discretion does not cause an Award that is intended to qualify as performance-based compensation under Code Section 162(m) to lose its status as such, the Performance Goals of an Award. In each case, with respect to Awards of incentive stock options, no such adjustment may be authorized to the extent that such authority would cause this Plan to violate Code Section 422(b).

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          Without limitation, in the event of any reorganization, merger, consolidation, combination or other similar corporate transaction or event, whether or not constituting a Change of Control (other than any such transaction in which the Company is the continuing corporation and in which the outstanding Stock is not being converted into or exchanged for different securities, cash or other property, or any combination thereof), the Administrator may substitute, on an equitable basis as the Administrator determines, for each Share then subject to an Award and the Shares subject to this Plan (if the Plan will continue in effect), the number and kind of shares of stock, other securities, cash or other property to which holders of Stock are or will be entitled in respect of each Share pursuant to the transaction.

          Notwithstanding the foregoing, in the case of a stock dividend (other than a stock dividend declared in lieu of an ordinary cash dividend) or subdivision or combination of the Shares (including a reverse stock split), if no action is taken by the Administrator, adjustments contemplated by this subsection that are proportionate shall nevertheless automatically be made as of the date of such stock dividend or subdivision or combination of the Shares.

     (b) Issuance or Assumption. Notwithstanding any other provision of this Plan, and without affecting the number of Shares otherwise reserved or available under this Plan, in connection with any merger, consolidation, acquisition of property or stock, or reorganization, the Administrator may authorize the issuance or assumption of awards under this Plan upon such terms and conditions as it may deem appropriate.

     (c) Change of Control. If the Participant has in effect an employment, retention, change of control, severance or similar agreement with the Company or any Affiliate that discusses the effect of a Change of Control on the Participant’s Awards, then such agreement shall control. In all other cases, unless provided otherwise in an Award agreement, in the event of a Change of Control:

     (i) Each Option or SAR that is then held by a Participant who is employed by or in the service of the Company or an Affiliate shall become immediately and fully vested, and, unless otherwise determined by the Board or Committee, all Options and SARs shall be cancelled on the date of the Change of Control in exchange for a cash payment equal to the excess of the Change of Control price of the Shares covered by the Option or SAR that is so cancelled over the purchase or grant price of such Shares under the Award;

     (ii) Restricted Stock, Restricted Stock Units and Deferred Stock Rights (that are not Performance Awards) that are not then vested shall vest;

     (iii) All Performance Awards that are earned but not yet paid shall be paid, and all Performance Awards for which the performance period has not expired shall be cancelled in exchange for a cash payment equal to the amount that would have been due under such Award(s) if the Performance Goals (as measured at the time of the Change of Control) were to continue to be achieved at the same rate through the end of the performance period, or if higher, assuming the target Performance Goals had been met at the time of such Change of Control; and

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     (iv) All Dividend Equivalent Units that are not vested shall vest and be paid in cash, and all other Awards that are not vested shall vest and if an amount is payable under such vested Award, such amount shall be paid in cash based on the value of the Award.

          If the value of an Award is based on the Fair Market Value of a Share, Fair Market Value shall be deemed to mean the per share Change of Control price. The Administrator shall determine the per share Change of Control price paid or deemed paid in the Change of Control transaction.

          Except as otherwise expressly provided in any agreement between a Participant and the Company or an Affiliate, if the receipt of any payment by a Participant under the circumstances described above would result in the payment by the Participant of any excise tax provided for in Section 280G and Section 4999 of the Code, then the amount of such payment shall be reduced to the extent required to prevent the imposition of such excise tax.

     17. Miscellaneous.

     (a) Other Terms and Conditions. The grant of any Award may also be subject to other provisions (whether or not applicable to the Award granted to any other Participant) as the Administrator determines appropriate, including, without limitation, provisions for:

     (i) the payment of the purchase price of Options by delivery of cash or other Shares or other securities of the Company (including by attestation) having a then Fair Market Value equal to the purchase price of such Shares, or by delivery (including by fax) to the Company or its designated agent of an executed irrevocable option exercise form together with irrevocable instructions to a broker-dealer to sell or margin a sufficient portion of the Shares and deliver the sale or margin loan proceeds directly to the Company to pay for the exercise price;

     (ii) restrictions on resale or other disposition of Shares; and

     (iii) compliance with federal or state securities laws and stock exchange requirements.

     (b) Employment and Service. The issuance of an Award shall not confer upon a Participant any right with respect to continued employment or service with the Company or any Affiliate, or the right to continue as a Director. Unless determined otherwise by the Administrator, for purposes of the Plan and all Awards, the following rules shall apply:

     (i) a Participant who transfers employment between the Company and its Affiliates, or between Affiliates, will not be considered to have terminated employment;

     (ii) a Participant who ceases to be a Non-Employee Director because he or she becomes an employee of the Company or an Affiliate shall not be considered to have ceased service as a Non-Employee Director with respect to any Award until such Participant’s termination of employment with the Company and its Affiliates;

     (iii) a Participant who ceases to be employed by the Company or an Affiliate and immediately thereafter becomes a Non-Employee Director, a non-employee director of an Affiliate, or a consultant to the Company or any Affiliate shall not be considered to have terminated employment until such Participant’s service as a director of, or consultant to, the Company and its Affiliates has ceased; and

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     (iv) a Participant employed by an Affiliate will be considered to have terminated employment when such entity ceases to be an Affiliate.

          Notwithstanding the foregoing, for purposes of an Award that is subject to Code Section 409A, if a Participant’s termination of employment or service triggers the payment of compensation under such Award, then the Participant will be deemed to have terminated employment or service upon his or her “separation from service” within the meaning of Code Section 409A.

     (c) No Fractional Shares. No fractional Shares or other securities may be issued or delivered pursuant to this Plan, and the Administrator may determine whether cash, other securities or other property will be paid or transferred in lieu of any fractional Shares or other securities, or whether such fractional Shares or other securities or any rights to fractional Shares or other securities will be canceled, terminated or otherwise eliminated.

     (d) Unfunded Plan. This Plan is unfunded and does not create, and should not be construed to create, a trust or separate fund with respect to this Plan’s benefits. This Plan does not establish any fiduciary relationship between the Company and any Participant or other person. To the extent any person holds any rights by virtue of an Award granted under this Plan, such rights are no greater than the rights of the Company’s general unsecured creditors.

     (e) Requirements of Law and Securities Exchange. The granting of Awards and the issuance of Shares in connection with an Award are subject to all applicable laws, rules and regulations and to such approvals by any governmental agencies or national securities exchanges as may be required. Notwithstanding any other provision of this Plan or any award agreement, the Company has no liability to deliver any Shares under this Plan or make any payment unless such delivery or payment would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity, and unless and until the Participant has taken all actions required by the Company in connection therewith. The Company may impose such restrictions on any Shares issued under the Plan as the Company determines necessary or desirable to comply with all applicable laws, rules and regulations or the requirements of any national securities exchanges.

     (f) Governing Law. This Plan, and all agreements under this Plan, will be construed in accordance with and governed by the laws of the State of Minnesota, without reference to any conflict of law principles. Any legal action or proceeding with respect to this Plan, any Award or any award agreement, or for recognition and enforcement of any judgment in respect of this Plan, any Award or any award agreement, may only be heard in a “bench” trial, and any party to such action or proceeding shall agree to waive its right to a jury trial.

     (g) Limitations on Actions. Any legal action or proceeding with respect to this Plan, any Award or any award agreement, must be brought within one year (365 days) after the day the complaining party first knew or should have known of the events giving rise to the complaint.

     (h) Construction. Whenever any words are used herein in the masculine, they shall be construed as though they were used in the feminine in all cases where they would so apply; and wherever any words are used in the singular or plural, they shall be construed as though they were used in the plural or singular, as the case may be, in all cases where they would so apply. Title of sections are for general information only, and this Plan is not to be construed with reference to such titles.

18

     (i) Severability. If any provision of this Plan or any award agreement or any Award (i) is or becomes or is deemed to be invalid, illegal or unenforceable in any jurisdiction, or as to any person or Award, or (ii) would disqualify this Plan, any award agreement or any Award under any law the Administrator deems applicable, then such provision should be construed or deemed amended to conform to applicable laws, or if it cannot be so construed or deemed amended without, in the determination of the Administrator, materially altering the intent of this Plan, award agreement or Award, then such provision should be stricken as to such jurisdiction, person or Award, and the remainder of this Plan, such award agreement and such Award will remain in full force and effect.

19

EX-15

Exhibit 15

Pentair, Inc.
5500 Wayzata Boulevard
Suite 800
Minneapolis, MN

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Pentair, Inc. and subsidiaries (the “Company”) for the periods ended September 27, 2008 and September 29, 2007, as indicated in our report dated October 21, 2008; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended September 27, 2008, is being incorporated by reference in Registration Statements No. 33-38534, 33-45012, 333-12561, 333-62475, 333-75166, 333-115429, 333-115430, 333-115432, and 333-126693.

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

DELOITTE & TOUCHE LLP

Minneapolis, MN
October 21, 2008

EX-31.1

Exhibit 31.1

Certification

I, Randall J. Hogan, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Pentair, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 21, 2008	/s/ Randall J. Hogan
	Randall J. Hogan
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification

I, John L. Stauch, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Pentair, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 21, 2008	/s/ John L. Stauch
	John L. Stauch
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of CEO Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Quarterly Report of Pentair, Inc. (the “Company”) on Form 10-Q for the period ended September 27, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Randall J. Hogan, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: October 21, 2008	/s/ Randall J. Hogan
	Randall J. Hogan      Chairman and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of CFO Pursuant To
18 U.S.C. Section 1350,
As Adopted Pursuant To
Section 906 Of The Sarbanes-Oxley Act Of 2002

In connection with the Quarterly Report of Pentair, Inc. (the “Company”) on Form 10-Q for the period ended September 27, 2008 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John L. Stauch, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that based on my knowledge:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Date: October 21, 2008	/s/ John L. Stauch
	John L. Stauch      Executive Vice President and Chief Financial Officer