8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  May 2, 2011

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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

oWritten communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

oSoliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

oPre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

oPre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 8.01Other Events.

Pentair, Inc. (the “Company”) expects that certain subsidiaries of the Company (the “Guarantors”) will fully and unconditionally guarantee the long-term indebtedness that the Company expects to issue in an offering registered under the Securities Act of 1933, as amended.  In connection with the Guarantors’ expected guarantee, the Company has revised the historical financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Form 10-K”) and the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011 (the “First Quarter Form 10-Q”) to include a footnote (the “Guarantors Footnote”) in the Notes to Consolidated Financial Statements and the Notes to Condensed Consolidated Financial Statements (unaudited) summarizing financial information for: (i) the Company; (ii) the Guarantors on a combined basis; and (ii) the Company’s non-guarantor subsidiaries on a combined basis.

These revised historical financial statements are filed as Exhibit 99.1 and Exhibit 99.2 to this Current Report on Form 8-K and, in each case, have been updated, in compliance with generally accepted accounting principles, solely to include the Guarantors Footnote and are incorporated herein by reference. These revised historical financial statements have not been updated for any other purpose and were originally filed with the Securities and Exchange Commission (“SEC”) on February 23, 2011 as part of the 2010 Form 10-K and on April 26, 2011 as part of the First Quarter Form 10-Q.  Such revised historical financial statements should only be read in conjunction with the other information that the Company has filed with the SEC since such dates, which updates and supersedes the information contained in Exhibit 99.1 and Exhibit 99.2.

ITEM 9.01 Financial Statements and Exhibits.

(a)	Not applicable.
(b)	Not applicable.
(c)	Not applicable.
(d)	Exhibits. The following exhibits are filed herewith:

Exhibit	Description
23.1	Consent of Deloitte & Touche LLP.
99.1	Financial Statements and Supplementary Data and Schedule II — Valuation and Qualifying Accounts portions of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
99.2	Financial Statements portion of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011.
101	The following materials are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the three years ended December 31, 2010, 2009 and 2008, (ii) the Consolidated Balance Sheets as of December 31, 2010 and December 31, 2009, (iii) the Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010, 2009 and 2008 and (v) the Notes to the Consolidated Financial Statements. The following materials are also furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income for the three months ended April 2, 2011 and April 3, 2010, (ii) the Condensed Consolidated Balance Sheets as of April 2, 2011, December 31, 2010 and April 3, 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2011 and April 3, 2010, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended April 2, 2011 and April 3, 2010, and (v) Notes to Condensed Consolidated Financial Statements.

2

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 May 2, 2011.

PENTAIR, INC.
Registrant
By:	/s/ Angela D. Lageson
	Angela D. Lageson
	Senior Vice President, General Counsel and Secretary

3

PENTAIR, INC.

Exhibit Index to Current Report on Form 8-K

Dated May 2, 2011

Exhibit Number	Description
23.1	Consent of Deloitte & Touche LLP.
99.1	Financial Statements and Supplementary Data and Schedule II — Valuation and Qualifying Accounts portions of the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.
99.2	Financial Statements portion of the Company’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2011.
101	The following materials are furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Statements of Income for the three years ended December 31, 2010, 2009 and 2008, (ii) the Consolidated Balance Sheets as of December 31, 2010 and December 31, 2009, (iii) the Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008, (iv) the Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2010, 2009 and 2008 and (v) the Notes to the Consolidated Financial Statements. The following materials are also furnished herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Income for the three months ended April 2, 2011 and April 3, 2010, (ii) the Condensed Consolidated Balance Sheets as of April 2, 2011, December 31, 2010 and April 3, 2010, (iii) the Condensed Consolidated Statements of Cash Flows for the three months ended April 2, 2011 and April 3, 2010, (iv) the Condensed Consolidated Statements of Changes in Shareholders’ Equity for the three months ended April 2, 2011 and April 3, 2010, and (v) Notes to Condensed Consolidated Financial Statements.

4

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-12561, 333-62475, 333-75166, 333-115429, 333-115430, 333-115432, 333-126693, 333-152458, 333-160925, and 333-168377 of our reports dated February 22, 2011 (April 29, 2011, as to Note 18), relating to the financial statements and financial statement schedule of Pentair, Inc. and subsidiaries (the “Company”), and the effectiveness of Pentair Inc.’s internal control over financial reporting, appearing in this Current Report on Form 8-K.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

April 29, 2011

EX-99.1

Exhibit 99.1

The following information replaces Item 8 (Financial Statements and Supplementary Data) and Schedule II—Valuation and Qualifying Accounts previously filed by Pentair, Inc. in its Annual Report on Form 10-K for the fiscal year ended December 31, 2010.  All other portions of such Annual Report on Form 10-K are unchanged.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

Management of Pentair, Inc. and its subsidiaries (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed 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. The Company’s internal control over financial reporting includes those policies and procedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010. In making this assessment, management used the criteria for effective internal control over financial reporting described in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management believes that, as of December 31, 2010, the Company’s internal control over financial reporting was effective based on those criteria.

Our independent registered public accounting firm, Deloitte & Touche LLP, has issued an attestation report on the Company’s internal control over financial reporting as of year ended December 31, 2010. That attestation report is set forth immediately following this management report.

Randall J. Hogan	John L. Stauch
Chairman and Chief Executive Officer	Executive Vice President and Chief Financial Officer

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pentair, Inc.

We have audited the internal control over financial reporting of Pentair, Inc. and subsidiaries (the “Company”) as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions and effected by the company’s board of directors, management and other personnel 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule listed in the Index at Item 9.01 as of and for the year ended December 31, 2010 of the Company and our report dated February 22, 2011 (April 29, 2011, as to Note 18) expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

February 22, 2011

2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Pentair, Inc.

We have audited the accompanying consolidated balance sheets of Pentair, Inc. and subsidiaries (the “Company”) as of December 31, 2010 and 2009 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2010. Our audits also included the financial statement schedule listed in the Index at Item 9.01. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2010 and 2009 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 22, 2011 expressed an unqualified opinion on the Company’s internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

February 22, 2011 (April 29, 2011, as to Note 18)

3

Pentair, Inc. and Subsidiaries

Consolidated Statements of Income

	Years Ended December 31
In thousands, except per-share data	2010			2009			2008
Net sales	$	3,030,773		$	2,692,468		$	3,351,976
Cost of goods sold	2,100,133			1,907,333			2,337,426
Gross profit	930,640			785,135			1,014,550
Selling, general and administrative	529,329			507,303			606,980
Research and development	67,156			57,884			62,450
Legal settlement	—			—			20,435
Operating income	334,155			219,948			324,685
Other (income) expense:
Gain on sale of interest in subsidiaries	—			—			(109,648		)
Equity (income) losses of unconsolidated subsidiaries	(2,108		)	1,379			3,041
Loss on early extinguishment of debt	—			4,804			4,611
Interest income	(1,263		)	(999		)	(2,029		)
Interest expense	37,379			42,117			61,464
Other	—			—			106
Income from continuing operations before income taxes and noncontrolling interest	300,147			172,647			367,140
Provision for income taxes	97,200			56,428			108,344
Income from continuing operations	202,947			116,219			258,796
Loss from discontinued operations, net of tax	—			—			(5,783		)
Loss on disposal of discontinued operations, net of tax	(626		)	(19		)	(21,846		)
Net income before noncontrolling interest	202,321			116,200			231,167
Noncontrolling interest	4,493			707			2,433
Net income attributable to Pentair, Inc.	$	197,828		$	115,493		$	228,734
Net income from continuing operations attributable to Pentair, Inc.	$	198,454		$	115,512		$	256,363
Earnings per common share attributable to Pentair, Inc.
Basic
Continuing operations	$	2.02		$	1.19		$	2.62
Discontinued operations	(0.01		)	—			(0.28		)
Basic earnings per common share	$	2.01		$	1.19		$	2.34
Diluted
Continuing operations	$	2.00		$	1.17		$	2.59
Discontinued operations	(0.01		)	—			(0.28		)
Diluted earnings per common share	$	1.99		$	1.17		$	2.31
Weighted average common shares outstanding
Basic	98,037			97,415			97,887
Diluted	99,294			98,522			99,068

See accompanying notes to consolidated financial statements.

4

Pentair, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,			December 31,
In thousands, except share and per-share data	2010			2009
Assets
Current assets
Cash and cash equivalents	$	46,056		$	33,396
Accounts and notes receivable, net of allowances of $36,343 and $27,081, respectively	516,905			455,090
Inventories	405,356			360,627
Deferred tax assets	56,349			49,609
Prepaid expenses and other current assets	44,631			47,576
Total current assets	1,069,297			946,298
Property, plant and equipment, net	329,435			333,688
Other assets
Goodwill	2,066,044			2,088,797
Intangibles, net	453,570			486,407
Other	55,187			56,144
Total other assets	2,574,801			2,631,348
Total assets	$	3,973,533		$	3,911,334
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	4,933		$	2,205
Current maturities of long-term debt	18			81
Accounts payable	262,357			207,661
Employee compensation and benefits	107,995			74,254
Current pension and post-retirement benefits	8,733			8,948
Accrued product claims and warranties	42,295			34,288
Income taxes	5,964			5,659
Accrued rebates and sales incentives	33,559			27,554
Other current liabilities	80,942			85,629
Total current liabilities	546,796			446,279
Other liabilities
Long-term debt	702,521			803,351
Pension and other retirement compensation	209,859			234,948
Post-retirement medical and other benefits	30,325			31,790
Long-term income taxes payable	23,507			26,936
Deferred tax liabilities	169,198			146,630
Other non-current liabilities	86,295			95,060
Total liabilities	1,768,501			1,784,994
Commitments and contingencies
Shareholders’ equity
Common shares par value $0.16 2/3; 98,409,192 and 98,655,506 shares issued and outstanding, respectively	16,401			16,442
Additional paid-in capital	474,489			472,807
Retained earnings	1,624,605			1,502,242
Accumulated other comprehensive income (loss)	(22,342		)	20,597
Noncontrolling interest	111,879			114,252
Total shareholders’ equity	2,205,032			2,126,340
Total liabilities and shareholders’ equity	$	3,973,533		$	3,911,334

See accompanying notes to consolidated financial statements.

5

Pentair, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

	Year Ended
	December 31,			December 31,			December 31,
In thousands	2010			2009			2008
Operating activities
Net income before noncontrolling interest	$	202,321		$	116,200		$	231,167
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss from discontinued operations	—			—			5,783
Loss on disposal of discontinued operations	626			19			21,846
Equity (income) losses of unconsolidated subsidiaries	(2,108		)	1,379			3,041
Depreciation	57,995			64,823			59,673
Amortization	26,184			40,657			27,608
Deferred income taxes	29,453			30,616			40,754
Stock compensation	21,468			17,324			20,572
Excess tax benefits from stock-based compensation	(2,686		)	(1,746		)	(1,617		)
Loss on sale of assets	466			985			510
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	(62,344		)	11,307			(18,247		)
Inventories	(44,495		)	66,684			(33,311		)
Prepaid expenses and other current assets	2,777			16,202			(27,394		)
Accounts payable	55,321			(13,822		)	(1,973		)
Employee compensation and benefits	27,252			(22,431		)	(21,919		)
Accrued product claims and warranties	8,068			(7,440		)	(7,286		)
Income taxes	1,791			1,972			(4,409		)
Other current liabilities	561			(21,081		)	8,987
Pension and post-retirement benefits	(43,024		)	(39,607		)	301
Other assets and liabilities	(9,250		)	(2,141		)	18,174
Net cash provided by (used for) continuing operations	270,376			259,900			212,612
Net cash provided by (used for) operating activities of discontinued operations	—			(1,531		)	(8,397		)
Net cash provided by (used for) operating activities	270,376			258,369			204,215
Investing activities
Capital expenditures	(59,523		)	(54,137		)	(53,089		)
Proceeds from sale of property and equipment	358			1,208			4,741
Acquisitions, net of cash acquired	—			—			(2,027		)
Divestitures	—			1,567			37,907
Other	(1,148		)	(3,224		)	(12		)
Net cash provided by (used for) investing activities	(60,313		)	(54,586		)	(12,480		)
Financing activities
Net short-term borrowings	2,728			2,205			(16,994		)
Proceeds from long-term debt	703,641			580,000			715,000
Repayment of long-term debt	(804,713		)	(730,304		)	(805,016		)
Debt issuance costs	(50		)	(50		)	(114		)
Excess tax benefits from stock-based compensation	2,686			1,746			1,617
Stock issued to employees, net of shares withheld	9,941			8,247			5,590
Repurchases of common stock	(24,712		)	—			(50,000		)
Dividends paid	(75,465		)	(70,927		)	(67,284		)
Distribution to noncontrolling interest	(4,647		)	—			—
Net cash provided by (used for) financing activities	(190,591		)	(209,083		)	(217,201		)
Effect of exchange rate changes on cash and cash equivalents	(6,812		)	(648		)	(5,985		)
Change in cash and cash equivalents	12,660			(5,948		)	(31,451		)
Cash and cash equivalents, beginning of period	33,396			39,344			70,795
Cash and cash equivalents, end of period	$	46,056		$	33,396		$	39,344

See accompanying notes to consolidated financial statements.

6

Pentair, Inc.

Consolidated Statements of Changes in Shareholders’ Equity

												Accumulated												Comprehensive
						Additional						other												income (loss)
In thousands, except share	Common shares					paid-in			Retained			comprehensive			Total			Noncontrolling						attributable
and per-share data	Number		Amount			capital			earnings			income (loss)			Pentair, Inc.			interest			Total			to Pentair, Inc.
Balance - December 31, 2007	99,221,831		$	16,537		$	476,242		$	1,296,226		$	121,866		$	1,910,871		$	—		$	1,910,871
Net income									228,734						228,734						228,734			$	228,734
Change in cumulative translation adjustment												(72,117		)	(72,117		)				(72,117		)	(72,117		)
Adjustment in retirement liability, net of $42,793 tax												(66,933		)	(66,933		)				(66,933		)	(66,933		)
Changes in market value of derivative financial instruments, net of ($6,284) tax												(9,431		)	(9,431		)				(9,431		)	(9,431		)
Comprehensive income (loss)																								$	80,253
Cash dividends - $0.68 per common share									(67,284		)				(67,284		)				(67,284		)
Tax benefit of stock compensation						2,247									2,247						2,247
Share repurchase	(1,549,893	)	(258		)	(49,742		)							(50,000		)				(50,000		)
Exercise of stock options, net of 121,638 shares tendered for payment	322,574		53			4,948									5,001						5,001
Issuance of restricted shares, net of cancellations	366,005		61			388									449						449
Amortization of restricted shares						9,378									9,378						9,378
Shares surrendered by employees to pay taxes	(83,598	)	(14		)	(2,730		)							(2,744		)				(2,744		)
Stock compensation						10,510									10,510						10,510
PRF Acquisition																		121,388			121,388
Balance - December 31, 2008	98,276,919		$	16,379		$	451,241		$	1,457,676		$	(26,615	)	$	1,898,681		$	121,388		$	2,020,069
Net income									115,493						115,493			707			116,200			$	115,493
Change in cumulative translation adjustment												43,371			43,371			(7,843		)	35,528			43,371
Adjustment in retirement liability, net of $164 tax												256			256						256			256
Changes in market value of derivative financial instruments, net of ($2,323) tax												3,585			3,585						3,585			3,585
Comprehensive income (loss)																								$	162,705
Cash dividends - $0.72 per common share									(70,927		)				(70,927		)				(70,927		)
Tax benefit of stock compensation						1,025									1,025						1,025
Exercise of stock options, net of 124,613 shares tendered for payment	433,533		72			7,639									7,711						7,711
Issuance of restricted shares, net of cancellations	24,531		4			516									520						520
Amortization of restricted shares						7,190									7,190						7,190
Shares surrendered by employees to pay taxes	(79,477	)	(13		)	(1,867		)							(1,880		)				(1,880		)
Stock compensation						7,063									7,063						7,063
Balance - December 31, 2009	98,655,506		$	16,442		$	472,807		$	1,502,242		$	20,597		$	2,012,088		$	114,252		$	2,126,340
Net income									197,828						197,828			4,493			202,321			$	197,828
Change in cumulative translation adjustment												(30,487		)	(30,487		)	(2,219		)	(32,706		)	(30,487		)
Adjustment in retirement liability, net of ($8,159) tax												(12,762		)	(12,762		)				(12,762		)	(12,762		)
Changes in market value of derivative financial instruments, net of $229 tax												310			310						310			310
Comprehensive income (loss)																								$	154,889
Tax benefit of stock compensation						2,171									2,171						2,171
Cash dividends - $0.76 per common share									(75,465		)				(75,465		)				(75,465		)
Distribution to noncontrolling interest																		(4,647		)	(4,647		)
Share repurchase	(726,777	)	(121		)	(24,591		)							(24,712		)				(24,712		)
Exercise of stock options, net of 27,177 shares tendered for payment	651,331		109			14,817									14,926						14,926
Issuance of restricted shares, net of cancellations	(4,122	)	(1		)	707									706						706
Amortization of restricted shares						3,538									3,538						3,538
Shares surrendered by employees to pay taxes	(166,746	)	(28		)	(5,663		)							(5,691		)				(5,691		)
Stock compensation						10,703									10,703						10,703
Balance - December 31, 2010	98,409,192		$	16,401		$	474,489		$	1,624,605		$	(22,342	)	$	2,093,153		$	111,879		$	2,205,032

7

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

1.     Summary of Significant Accounting Policies

Fiscal year

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

Principles of consolidation

The accompanying consolidated financial statements include the accounts of Pentair and all subsidiaries, both U.S. and non-U.S., that we control. Intercompany accounts and transactions have been eliminated. Investments in companies of which we own 20% to 50% of the voting stock or have the ability to exercise significant influence over operating and financial policies of the investee are accounted for using the equity method of accounting and as a result, our share of the earnings or losses of such equity affiliates is included in the Consolidated Statements of Income.

Use of estimates

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Due to the inherent uncertainty involved in making estimates, actual results reported in future periods may be based upon amounts that could differ from those estimates. The critical accounting policies that require our most significant estimates and judgments include:

·the assessment of recoverability of long-lived assets, including goodwill and indefinite-life intangibles; and

·accounting for pension benefits, because of the importance in making the estimates necessary to apply these policies.

Revenue recognition

We recognize revenue when it is realized or realizable and has been earned. Revenue is recognized when persuasive evidence of an arrangement exists; shipment or delivery has occurred (depending on the terms of the sale); the seller’s price to the buyer is fixed or determinable; and collectability is reasonably assured.

Generally, there is no post-shipment obligation on product sold other than warranty obligations in the normal and ordinary course of business. In the event significant post-shipment obligations were to exist, revenue recognition would be deferred until substantially all obligations were satisfied.

Sales returns

The right of return may exist explicitly or implicitly with our customers. Our return policy allows for customer returns only upon our authorization. Goods returned must be product we continue to market and must be in salable condition. Returns of custom or modified goods are normally not allowed. At the time of sale, we reduce revenue for the estimated effect of returns. Estimated sales returns include consideration of historical sales levels, the timing and magnitude of historical sales return levels as a percent of sales, type of product, type of customer and a projection of this experience into the future.

Pricing and sales incentives

We record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the later of the date revenue is recognized or the incentive is offered. Sales incentives given to our customers are recorded as a reduction of revenue unless we (1) receive an identifiable benefit for the goods or services in exchange for the consideration and (2) we can reasonably estimate the fair value of the benefit received. The following represents a description of our pricing arrangements, promotions and other volume-based incentives:

Pricing arrangements

Pricing is established up front with our customers and we record sales at the agreed-upon net selling price. However, one of our businesses allows customers to apply for a refund of a percentage of the original purchase price if they can demonstrate sales to a qualifying OEM customer. At the time of sale, we estimate the anticipated refund to be paid based on historical experience and reduce sales for the probable cost of the discount. The cost of these refunds is recorded as a reduction in gross sales.

Promotions

Our primary promotional activity is what we refer to as cooperative advertising. Under our cooperative advertising programs, we agree to pay the customer a fixed percentage of sales as an allowance that may be used to advertise and promote our products. The

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

customer is generally not required to provide evidence of the advertisement or promotion. We recognize the cost of this cooperative advertising at the time of sale. The cost of this program is recorded as a reduction in gross sales.

Volume-based incentives

These incentives involve rebates that are negotiated up front with the customer and are redeemable only if the customer achieves a specified cumulative level of sales or sales increase. Under these incentive programs, at the time of sale, we reforecast the anticipated rebate to be paid based on forecasted sales levels. These forecasts are updated at least quarterly for each customer and sales are reduced for the anticipated cost of the rebate. If the forecasted sales for a customer changes, the accrual for rebates is adjusted to reflect the new amount of rebates expected to be earned by the customer.

Shipping and handling costs

Amounts billed to customers for shipping and handling are recorded in Net sales in the accompanying Consolidated Statements of Income. Shipping and handling costs incurred by Pentair for the delivery of goods to customers are included in Cost of goods sold in the accompanying Consolidated Statements of Income.

Research and development

We conduct research and development (“R&D”) activities in our own facilities, which consist primarily of the development of new products, product applications and manufacturing processes.  We expense R&D costs as incurred.  R&D expenditures during 2010, 2009 and 2008 were $67.2 million, $57.9 million and $62.5 million, respectively.

Cash equivalents

We consider highly liquid investments with original maturities of three months or less to be cash equivalents.

Trade receivables and concentration of credit risk

We record an allowance for doubtful accounts; reducing our receivables balance to an amount we estimate is collectible from our customers. Estimates used in determining the allowance for doubtful accounts are based on historical collection experience, current trends, aging of accounts receivable and periodic credit evaluations of our customers’ financial condition. We generally do not require collateral.  No customer receivable balances exceeded 10% of total net receivable balances as of December 31, 2010.  One customer had a receivable balance of approximately 10% of the total net receivable balance as of December 31, 2009.

In December 2008 we sold approximately $44 million of one customer’s accounts receivable to a third-party financial institution to mitigate accounts receivable concentration risk. Sales of accounts receivable are reflected as a reduction of accounts receivable in our Consolidated Balance Sheets and the proceeds are included in the cash flows from operating activities in our Consolidated Statements of Cash Flows. In 2008, a loss in the amount of $0.5 million related to the sale of accounts receivable is included in the line item Other in our Consolidated Statements of Income. We did not undertake a similar sale of customer receivables in 2010 or 2009.

Inventories

Inventories are stated at the lower of cost or market with substantially all costed using the first-in, first-out (“FIFO”) method and with an insignificant amount of inventories located outside the United States costed using a moving average method which approximates FIFO.

Property, plant and equipment

Property, plant and equipment is stated at historical cost. We compute depreciation by the straight-line method based on the following estimated useful lives:

	Years
Land improvements	5 to 20
Buildings and leasehold improvements	5 to 50
Machinery and equipment	3 to 15

Significant improvements that add to productive capacity or extend the lives of properties are capitalized. Costs for repairs and maintenance are charged to expense as incurred. When property is retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any related gains or losses are included in income.

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

We review the recoverability of long-lived assets to be held and used, such as property, plant and equipment, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on our ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset or asset group, an impairment loss is recognized for the difference between estimated fair value and carrying value. Impairment losses on long-lived assets held for sale are determined in a similar manner, except that fair values are reduced for the cost to dispose of the assets. The measurement of impairment requires us to estimate future cash flows and the fair value of long-lived assets.

Goodwill and identifiable intangible assets

Goodwill

Goodwill represents the excess of the cost of acquired businesses over the fair value of identifiable tangible net assets and identifiable intangible assets purchased.

Goodwill is tested at least annually for impairment and is tested for impairment more frequently if events or changes in circumstances indicate that the asset might be impaired. The impairment test is performed using a two-step process. In the first step, the fair value of each reporting unit is compared with the carrying amount of the reporting unit, including goodwill.  If the estimated fair value is less than the carrying amount of the reporting unit, an indication that goodwill impairment exists and a second step must be completed in order to determine the amount of the goodwill impairment, if any, that should be recorded. In the second step, an impairment loss is recognized for any excess of the carrying amount of the reporting unit’s goodwill over the implied fair value of that goodwill. The implied fair value of goodwill is determined by allocating the fair value of the reporting unit in a manner similar to a purchase price allocation.

The fair value of each reporting unit is determined using a discounted cash flow analysis and market approach. Projecting discounted future cash flows requires us to make significant estimates regarding future revenues and expenses, projected capital expenditures, changes in working capital and the appropriate discount rate. Use of the market approach consists of comparisons to comparable publicly-traded companies that are similar in size and industry. Actual results may differ from those used in our valuations.  This non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy described below.

In developing our discounted cash flow analysis, assumptions about future revenues and expenses, capital expenditures and changes in working capital, are based on our annual operating plan and long-term business plan for each of our reporting units. These plans take into consideration numerous factors including historical experience, anticipated future economic conditions, changes in raw material prices and growth expectations for the industries and end markets we participate in. These assumptions are determined over a five year long-term planning period. The five year growth rates for revenues and operating profits vary for each reporting unit being evaluated. Revenues and operating profit beyond 2017 are projected to grow at a 3% perpetual growth rate for all reporting units.

Discount rate assumptions for each reporting unit take into consideration our assessment of risks inherent in the future cash flows of the respective reporting unit and our weighted-average cost of capital. We utilized discount rates ranging from 13% to 15% in determining the discounted cash flows in our fair value analysis.

In estimating fair value using the market approach, we identify a group of comparable publicly-traded companies for each operating segment that are similar in terms of size and product offering. These groups of comparable companies are used to develop multiples based on total market-based invested capital as a multiple of earnings before interest, taxes, depreciation and amortization (EBITDA). We determine our estimated values by applying these comparable EBITDA multiples to the operating results of our reporting units. The ultimate fair value of each reporting unit is determined considering the results of both valuation methods.

Identifiable intangible assets

Our primary identifiable intangible assets include trade marks and trade names, patents, non-compete agreements, proprietary technology and customer relationships. Identifiable intangibles with finite lives are amortized and those identifiable intangibles with indefinite lives are not amortized. Identifiable intangible assets that are subject to amortization are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Identifiable intangible assets not subject to amortization are tested for impairment annually or more frequently if events warrant. During the fourth quarter of 2010 and 2009, we completed our annual impairment test for those identifiable assets not subject to amortization and recorded impairment charges in 2009 of $11.3 million, related to trade names. These charges were recorded in Selling, general and administrative in our Consolidated Statements of Income.  There was no impairment charge required in 2010.

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

The impairment test consists of a comparison of the fair value of the trade name with its carrying value. Fair value is measured using the relief-from-royalty method. This method assumes the trade name has value to the extent that their owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital. This non-recurring fair value measurement is a “Level 3” measurement under the fair value hierarchy described below. The impairment charge was the result of significant declines in sales volume. These charges were recorded in Selling, general and administrative in our Consolidated Statements of Income.

At December 31, 2010 our goodwill and intangible assets were approximately $2,519.6 million and represented approximately 63.4% of our total assets. If we experience further declines in sales and operating profit or do not meet our operating forecasts, we may be subject to future impairments. Additionally, changes in assumptions regarding the future performance of our businesses, increases in the discount rate used to determine the discounted cash flows of our businesses or significant declines in our stock price or the market as a whole could result in additional impairment indicators. Because of the significance of our goodwill and intangible assets, any future impairment of these assets could have a material adverse effect on our financial results.

Equity method investments

We have investments that are accounted using the equity method. Our proportionate share of income or losses from investments accounted for under the equity method is recorded in the Consolidated Statements of Income. We write down or write off an investment and recognize a loss when events or circumstances indicate there is impairment in the investment that is other-than-temporary. This requires significant judgment, including assessment of the investees’ financial condition and in certain cases the possibility of subsequent rounds of financing, as well as the investees’ historical and projected results of operations and cash flows. If the actual outcomes for the investees are significantly different from projections, we may incur future charges for the impairment of these investments.

We have a 50% investment in FARADYNE Motors LLC (“FARADYNE”), a joint venture with ITT Water Technologies, Inc. that began design, development and manufacturing of submersible pump motors in 2005. We do not consolidate the investment in our consolidated financial statements as we do not have a controlling interest over the investment. There were investments in and loans to FARADYNE of $6.1 million and $4.5 million at December 31, 2010 and December 31, 2009, respectively, which is net of our proportionate share of the results of their operations.

Income taxes

We use the asset and liability approach to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax basis using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period when the change is enacted. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in our tax provision in the period of change. We recognize the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the period in which the change in judgment occurs.

Environmental

We recognize environmental clean-up liabilities on an undiscounted basis when a loss is probable and can be reasonably estimated. Such liabilities generally are not subject to insurance coverage. The cost of each environmental clean-up is estimated by engineering, financial and legal specialists based on current law. Such estimates are based primarily upon the estimated cost of investigation and remediation required and the likelihood that, where applicable, other potentially responsible parties (“PRPs”) will be able to fulfill their commitments at the sites where Pentair may be jointly and severally liable. The process of estimating environmental clean-up liabilities is complex and dependent primarily on the nature and extent of historical information and physical data relating to a contaminated site, the complexity of the site, the uncertainty as to what remedy and technology will be required and the outcome of discussions with regulatory agencies and other PRPs at multi-party sites. In future periods, new laws or regulations, advances in clean-up technologies and additional information about the ultimate clean-up remedy that is used could significantly change our estimates. Accruals for environmental liabilities are included in Other current liabilities and Other non-current liabilities in the Consolidated Balance Sheets.

Insurance subsidiary

We insure certain general and product liability, property, workers’ compensation and automobile liability risks through our regulated wholly-owned captive insurance subsidiary, Penwald Insurance Company (“Penwald”). Reserves for policy claims are established

11

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

based on actuarial projections of ultimate losses. As of December 31, 2010 and 2009, reserves for policy claims were $49.0 million ($12.0 million included in Accrued product claims and warranties and $37.0 million included in Other non-current liabilities) and $56.3 million ($10.0 million included in Accrued product claims and warranties and $46.3 million included in Other non-current liabilities), respectively.

Stock-based compensation

We account for stock-based compensation awards on a fair value basis. The estimated grant date fair value of each option award is recognized in income on an accelerated basis over the requisite service period (generally the vesting period). The estimated fair value of each option award is calculated using the Black-Scholes option-pricing model. From time to time, we have elected to modify the terms of the original grant. These modified grants are accounted for as a new award and measured using the fair value method, resulting in the inclusion of additional compensation expense in our Consolidated Statements of Income. Restricted share awards and units are recorded as compensation cost on a straight-line basis over the requisite service periods based on the market value on the date of grant.

Earnings per common share

Basic earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share are computed by dividing net income by the weighted-average number of common shares outstanding including the dilutive effects of common stock equivalents. The dilutive effects of stock options and restricted stock awards and units increased weighted average common shares outstanding by 1,257 thousand, 1,107 thousand and 1,181 thousand in 2010, 2009 and 2008, respectively.

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 were 3,711 thousand, 5,283 thousand and 5,268 thousand in 2010, 2009 and 2008, respectively.

Derivative financial instruments

We recognize all derivatives, including those embedded in other contracts, as either assets or liabilities at fair value in our Consolidated Balance Sheets. If the derivative is designated as a fair-value hedge, the changes in the fair value of the derivative and the hedged item are recognized in earnings. If the derivative is designated and is effective as a cash-flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income (“OCI”) and are recognized in the Consolidated Statements of Income when the hedged item affects earnings. If the underlying hedged transaction ceases to exist or if the hedge becomes ineffective, all changes in fair value of the related derivatives that have not been settled are recognized in current earnings. For a derivative that is not designated as or does not qualify as a hedge, changes in fair value are reported in earnings immediately.

We use derivative instruments for the purpose of hedging interest rate and currency exposures, which exist as part of ongoing business operations. We do not hold or issue derivative financial instruments for trading or speculative purposes. All other contracts that contain provisions meeting the definition of a derivative also meet the requirements of and have been designated as, normal purchases or sales. Our policy is not to enter into contracts with terms that cannot be designated as normal purchases or sales.  From time to time, we may enter in to short duration foreign currency contracts to hedge foreign currency risks on intercompany transactions.

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1:  Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.

Level 2:  Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3:  Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

12

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

Foreign currency translation

The financial statements of subsidiaries located outside of the U.S. are measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. The resultant translation adjustments are included in Accumulated other comprehensive income (loss) (“AOCI”), a separate component of shareholders’ equity.

New accounting standards

On January 1, 2009, we adopted new accounting guidance that changes the accounting and reporting for minority interests. Minority interests have been recharacterized as noncontrolling interests and are reported as a component of equity separate from the parent’s equity. Purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the Consolidated Income Statements 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. We have classified noncontrolling interest (previously minority interest) as a component of equity for all periods presented.

In June 2009, the Financial Accounting Standards Board issued an amendment to the accounting and disclosure requirements for the consolidation of variable interest entities. The guidance affects the overall consolidation analysis and requires enhanced disclosures on involvement with variable interest entities. The guidance is effective for fiscal years beginning after November 15, 2009.  We adopted the new guidance as of January 1, 2010, which did not have any effect on our consolidated financial statements.

Subsequent events

In connection with preparing the audited consolidated financial statements for the year ended December 31, 2010, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing.

2.       Acquisitions

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

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

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

The fair value of the business acquired was allocated to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the fair value acquired over the identifiable assets acquired and liabilities assumed is reflected as goodwill. Goodwill recorded as part of the purchase price allocation was approximately $137.9 million, none of which is tax deductible. Identifiable intangible assets acquired as part of the acquisition were $66.5 million, including definite-lived intangibles, such as customer relationships, proprietary technology and trade names with a weighted average amortization period of approximately 15 years.

The following pro forma consolidated condensed financial results of operations for the year ended December 31, 2008 is presented as if the acquisition had been completed at the beginning of the period presented:

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

In thousands, except share and per-share data
Pro forma net sales from continuing operations	$	3,406,449
Pro forma net income from continuing operations	256,363
Pro forma net income	228,734
Pro forma earnings per common share - continuing operations
Basic	$	2.62
Diluted	$	2.59
Weighted average common shares outstanding
Basic	97,887
Diluted	99,068

These pro forma consolidated condensed financial results have been prepared for comparative purposes only and include certain adjustments. The adjustments do not reflect the effect of synergies that would have been expected to result from the integration of this acquisition. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the combination occurred on January 1, or of future results of the consolidated entities.

3.             Discontinued Operations

In 2010 we were notified of a product recall required by our former Tools Group (which was sold to Black and Decker Corporation in 2004 and treated as a discontinued operation).  Under the terms of the sale agreement we are liable for a portion of the product recall costs for products sold prior to the date of sale of the Tools Group.  We recorded a liability of $3.2 million ($2.0 million net of tax) in 2010 representing our estimate of the potential costs associated with this recall.  In addition, we received the remaining escrow balances from our sale of Lincoln Industrial of approximately $0.5 million, and we reversed tax reserves of approximately $1.0 million due to the expiration of various statues of limitations.

On December 15, 2008, we sold our Spa and Bath (“Spa/Bath”) business to Balboa Water Group in a cash transaction for $9.2 million.  The results of Spa/Bath have been reported as discontinued operations for all periods presented.  Goodwill of $5.6 million was included in the assets of Spa/Bath.

On February 28, 2008, we sold our National Pool Tile (“NPT”) business to Pool Corporation in a cash transaction for $29.8 million.  The results of NPT have been reported as discontinued operations for all periods presented.  Goodwill of $16.8 million was included in the assets of NPT.

Operating results of the discontinued operations are summarized below:

In thousands	2010			2009			2008
Net Sales	$	—		$	—		$	43,346
Loss from discontinued operations before income taxes	—			—			(9,392		)
Income tax benefit on operations	—			—			3,609
Loss from discontinued operations, net of tax	—			—			(5,783		)
Gain (loss) on disposal of discontinued operations, before taxes	(2,743		)	221			(28,692		)
Income tax (expense) benefit on (loss)	2,117			(240		)	6,846
Loss on disposal of discontinued operations, net of tax	$	(626	)	$	(19	)	$	(21,846	)

4.             Restructuring

During 2009 and 2008, we announced and initiated certain 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 800 and 1700 employees in 2009 and 2008, respectively, which included 350 and 1,300 in the Water Group and 450 and 400 in the Technical Products Group.  These actions were generally completed by the end of 2009.

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

Restructuring related costs included in Selling, general and administrative expenses on the Consolidated Statements of Income include costs for severance and related benefits, asset impairment charges and other restructuring costs as follows:

	Years Ended December 31
In thousands	2009		2008
Severance and related costs	$	11,160	$	34,615
Asset impairment	4,050		5,282
Contract termination costs	2,030		5,309
Total restructuring costs	$	17,240	$	45,206

Total restructuring costs related to the Water Group and the Technical Products Group were $7.7 million and $9.5 million, respectively, for year ended December 31, 2009.  Total restructuring costs related to the Water Group and the Technical Products Group were $36.3 million and $8.9 million, respectively, for year ended December 31, 2008.

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

	Years Ended December 31
In thousands	2010			2009
Beginning balance	$	14,509		$	34,174
Costs incurred	—			13,190
Cash payments and other	(10,515		)	(32,855		)
Ending balance	$	3,994		$	14,509

5.             Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the year ended December 31, 2010 and December 31, 2009 by segment were as follows:

In thousands	December 31, 2009		Acquisitions/ Divestitures		Foreign Currency Translation/Other			December 31, 2010
Water Group	$	1,802,913	$	—	$	(18,813	)	$	1,784,100
Technical Products Group	285,884		—		(3,940		)	281,944
Consolidated Total	$	2,088,797	$	—	$	(22,753	)	$	2,066,044

In thousands	December 31, 2008		Acquisitions/ Divestitures		Foreign Currency Translation/Other			December 31, 2009
Water Group	$	1,818,470	$	895	$	(16,452	)	$	1,802,913
Technical Products Group	283,381		—		2,503			285,884
Consolidated Total	$	2,101,851	$	895	$	(13,949	)	$	2,088,797

Included in “Foreign Currency Translation/Other” in 2009 is the effect of an immaterial error corrected in 2009 related to the previous accounting treatment for certain acquisitions. The correction resulted in a decrease in goodwill and a decrease of deferred tax liabilities of $28.5 million ($27.5 million in the Water Group and $1.0 million in the Technical Products Group).

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

The detail of acquired intangible assets consisted of the following:

	2010							2009
	Gross							Gross
	carrying		Accumulated					carrying		Accumulated
In thousands	amount		amortization			Net		amount		amortization			Net
Finite-life intangibles
Patents	$	15,469	$	(12,695	)	$	2,774	$	15,458	$	(11,502	)	$	3,956
Non-compete agreements	—		—			—		4,522		(4,522		)	—
Proprietary technology	74,176		(29,862		)	44,314		73,244		(23,855		)	49,389
Customer relationships	282,479		(82,901		)	199,578		288,122		(66,091		)	222,031
Trade names	1,532		(383		)	1,149		1,562		(235		)	1,327
Total finite-life intangibles	$	373,656	$	(125,841	)	$	247,815	$	382,908	$	(106,205	)	$	276,703
Indefinite-life intangibles
Trade names	205,755		—			205,755		209,704		—			209,704
Total intangibles, net	$	579,411	$	(125,841	)	$	453,570	$	592,612	$	(106,205	)	$	486,407

Intangible asset amortization expense in 2010, 2009 and 2008 was approximately $24.5 million, $27.3 million and $24.0 million, respectively.

In 2009 we recorded an impairment charge to write down trade name intangible assets of $11.3 million in the Water Group.  Additionally, in 2008 we recorded an impairment charge to write-off a trade name intangible asset of $1.0 million in the Technical Products Group.

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

In thousands	2011		2012		2013		2014		2015
Estimated amortization expense	$	25,140	$	24,405	$	23,956	$	23,631	$	23,333

6.             Supplemental Balance Sheet Information

In thousands	2010		2009
Inventories
Raw materials and supplies	$	223,482	$	200,931
Work-in-process	37,748		38,338
Finished goods	144,126		121,358
Total inventories	$	405,356	$	360,627
Property, plant and equipment
Land and land improvements	$	36,484	$	36,635
Buildings and leasehold improvements	212,168		213,453
Machinery and equipment	598,554		586,764
Construction in progress	33,841		28,408
Total property, plant and equipment	881,047		865,260
Less accumulated depreciation and amortization	551,612		531,572
Property, plant and equipment, net	$	329,435	$	333,688

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

7.             Supplemental Cash Flow Information

The following table summarizes supplemental cash flow information:

In thousands	2010		2009		2008
Interest payments	$	37,083	$	43,010	$	63,851
Income tax payments	55,991		8,719		80,765

On June 28, 2008, we entered into a transaction with 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 transaction is more fully described in Note 2. Acquisitions.

8.Accumulated Other Comprehensive Income (Loss)

Components of accumulated other comprehensive income (loss) consists of the following:

In thousands	2010			2009
Retirement liability adjustments, net of tax	$	(71,210	)	$	(58,448	)
Cumulative translation adjustments	58,184			88,671
Market value of derivative financial instruments, net of tax	(9,316		)	(9,626		)
Accumulated other comprehensive income (loss)	$	(22,342	)	$	20,597

9.Debt

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

	Average
	interest rate		Maturity	December 31,			December 31,
In thousands	December 31, 2010		(Year)	2010			2009
Revolving credit facilities	0.89	%	2012	$	97,500		$	198,300
Private placement - fixed rate	5.65	%	2013-2017	400,000			400,000
Private placement - floating rate	0.84	%	2012-2013	205,000			205,000
Other	4.36	%	2012-2016	4,972			2,337
Total debt, including current portion per balance sheet				707,472			805,637
Less:  Current maturities				(18		)	(81		)
Short-term borrowings				(4,933		)	(2,205		)
Long-term debt				$	702,521		$	803,351

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 bear interest at the rate of LIBOR plus 0.625%.  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.  Our use of commercial paper as a funding vehicle depends upon the relative interest rates for our paper compared to the cost of borrowing under our Credit Facility.  As of December 31, 2010 and December 31, 2009 we had no outstanding commercial paper.

Total availability under our existing Credit Facility was $702.5 million as of December 31, 2010, which was not limited by any of the credit agreement’s financial covenants as of that date.

In addition to the Credit Facility, we have $40.0 million of uncommitted credit facilities, under which we had $4.8 million of borrowings as of December 31, 2010.

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

Our debt agreements contain certain financial covenants, the most restrictive of which is a leverage ratio (total consolidated indebtedness, as defined, over consolidated EBITDA, as defined) that may not exceed 3.5 to 1.0.  We were in compliance with all financial covenants in our debt agreements as of December 31, 2010.

On July 8, 2008, we commenced a cash tender offer for all of our outstanding $250 million aggregate principal of 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 in 2008. The loss included the write off of $0.1 million in unamortized deferred financing fees in addition to recognition of $0.6 million in previously unrecognized swap gains and cash paid of $5.1 million related to the tender premium and other costs associated with the purchase.

On March 16, 2009, we announced the redemption of all of our remaining outstanding $133.9 million aggregate principal of Notes.  The Notes were redeemed on April 15, 2009 at a redemption price of $1,035.88 per $1,000 of principal outstanding plus accrued interest thereon.  As a result of this transaction, we recognized a loss of $4.8 million on early extinguishment of debt in the second quarter of 2009.  The loss included the write off of $0.1 million in unamortized deferred financing fees in addition to recognition of $0.3 million in previously unrecognized swap gains and cash paid of $5.0 million related to the redemption and other costs associated with the purchase.

Debt outstanding at December 31, 2010 matures on a calendar year basis as follows:

In thousands	2011		2012		2013		2014		2015		Thereafter		Total
Contractual debt obligation maturities	$	4,951	$	202,517	$	200,003	$	1	$	—	$	300,000	$	707,472

10.          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 $6.4 million and $8.1 million at December 31, 2010 and December 31, 2009, respectively and was recorded in AOCI on the Consolidated Balance Sheets.

In September 2005, we entered into a $100 million interest rate swap agreement with several major financial institutions to exchange variable-rate interest payment obligations for fixed-rate obligations without the exchange of the underlying principal amounts in order to manage interest rate exposures.  The effective date of the fixed-rate swap was April 25, 2006.  The swap agreement has a fixed interest rate of 4.68% and expires in July 2013.  The fixed interest rate of 4.68% plus the .60% interest rate spread over LIBOR results in an effective fixed interest rate of 5.28%.  The fair value of the swap was a liability of $9.4 million and $8.3 million at December 31, 2010 and December 31, 2009, respectively and was recorded in AOCI on the Consolidated Balance Sheets.

The variable to fixed interest rate swaps are designated as cash-flow hedges. The fair value of these swaps are recorded as assets or liabilities on the Consolidated Balance Sheets. Unrealized income/expense is included in AOCI and realized income/expense and amounts due to/from swap counterparties, are included in earnings. We realized incremental interest expense resulting from the swaps of $9.2 million and $7.9 million at December 31, 2010 and December 31, 2009, respectively.

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 OCI.  Derivative gains and losses included in OCI are reclassified into earnings at the time the related interest expense is recognized or the settlement of the related commitment occurs.

Failure of one or more of our swap counterparties would result in the loss of any benefit to us of the swap agreement.  In this case, we would continue to be obligated to pay the variable interest payments per the underlying debt agreements which are at variable interest rates of 3 month LIBOR plus .50% for $105 million of debt and 3 month LIBOR plus .60% for $100 million of debt.  Additionally,

18

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

failure of one or all of our swap counterparties would not eliminate our obligation to continue to make payments under our existing swap agreements if we continue to be in a net pay position.

At December 31, 2010 and 2009, our interest rate swaps are carried at fair value measured on a recurring basis. Fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy.

Foreign currency hedges

At December 31, 2010 we had a euro to U.S. dollar contract that expired on January 7, 2011 with a notional amount of $132.5 million.  The fair value of the contract was an asset of $1.2 million.

Fair value of financial instruments

The recorded amounts and estimated fair values of long-term debt, excluding the effects of derivative financial instruments and the recorded amounts and estimated fair value of those derivative financial instruments were as follows:

	2010						2009
	Recorded			Fair			Recorded			Fair
In thousands	amount			value			amount			value
Total debt, including current portion
Variable rate	$	307,433		$	307,433		$	405,505		$	405,505
Fixed rate	400,039			438,492			400,132			390,930
Total	$	707,472		$	745,925		$	805,637		$	796,435
Derivative financial instruments
Market value of interest rate swaps and foreign currency contracts, net	$	(14,585	)	$	(14,585	)	$	(16,354	)	$	(16,354	)

The following methods were used to estimate the fair values of each class of financial instrument measured on a recurring basis:

·short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;

·long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and

·interest rate swaps and foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance.

11.Income Taxes

Income from continuing operations before income taxes and noncontrolling interest consisted of the following:

In thousands	2010		2009		2008
U.S.	$	217,213	$	111,530	$	220,294
International	82,934		61,117		146,846
Income from continuing operations before taxes and noncontrolling interest	$	300,147	$	172,647	$	367,140

19

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

The provision for income taxes for continuing operations consisted of the following:

In thousands	2010		2009		2008
Currently payable
Federal	$	44,766	$	10,502	$	41,985
State	6,591		2,456		5,140
International	17,877		13,947		25,735
Total current taxes	69,234		26,905		72,860
Deferred
Federal and state	26,445		26,733		35,535
International	1,521		2,790		(51		)
Total deferred taxes	27,966		29,523		35,484
Total provision for income taxes	$	97,200	$	56,428	$	108,344

Reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations follows:

Percentages	2010		2009		2008
U.S. statutory income tax rate	35.0		35.0		35.0
State income taxes, net of federal tax benefit	2.1		2.6		1.6
Tax effect of stock-based compensation	0.2		0.2		0.2
Tax effect of international operations	(3.8	)	(3.5	)	(6.1	)
Tax credits	(0.3	)	(1.4	)	(1.0	)
Domestic manufacturing deduction	(1.4	)	(0.4	)	(0.7	)
ESOP dividend benefit	(0.2	)	(0.4	)	(0.2	)
All other, net	0.8		0.6		0.7
Effective tax rate on continuing operations	32.4		32.7		29.5

Reconciliation of the beginning and ending gross unrecognized tax benefits follows:

In thousands	2010			2009			2008
Gross unrecognized tax benefits — beginning balance	$	29,962		$	28,139		$	23,879
Gross increases for tax positions in prior periods	286			3,191			3,526
Gross decreases for tax positions in prior periods	(2,490		)	(2,433		)	(411		)
Gross increases based on tax positions related to the current year	1,431			1,789			2,666
Gross decreases related to settlements with taxing authorities	(4,182		)	(209		)	—
Reductions due to statute expiration	(747		)	(515		)	(1,521		)
Gross unrecognized tax benefits at December 31	$	24,260		$	29,962		$	28,139

Included in the $24.3 million of total gross unrecognized tax benefits as of December 31, 2010 was $22.4 million of tax benefits that, if recognized, would impact the effective tax rate. It is reasonably possible that the gross unrecognized tax benefits as of December 31, 2010 may decrease by a range of $0 to $17.5 million during the next twelve months primarily as a result of the resolution of federal, state and foreign examinations and the expiration of various statutes of limitations.

The determination of annual income tax expense takes into consideration amounts which may be needed to cover exposures for open tax years. The Internal Revenue Service (“IRS”) has examined our U.S. federal income tax returns through 2003 with no material adjustments. The IRS has also completed a survey of our 2004 U.S. federal income tax return with no material findings. The IRS is currently examining our federal tax returns for years 2005 through 2009. No material adjustments have been proposed, however, actual settlements may differ from amounts accrued.

20

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Interest expense, respectively, which is consistent with our past practices. As of December 31, 2010, we had recorded approximately $0.8 million for the possible payment of penalties and $4.8 million related to the possible payment of interest expense.

U.S. income taxes have not been provided on undistributed earnings of international subsidiaries. It is our intention to reinvest these earnings permanently or to repatriate the earnings only when it is tax effective to do so. As of December 31, 2010, approximately $223.7 million of unremitted earnings attributable to international subsidiaries were considered to be indefinitely invested. It is not practicable to estimate the amount of tax that might be payable if such earnings were to be remitted.

Deferred taxes arise because of different treatment between financial statement accounting and tax accounting, known as “temporary differences.” We record the tax effect of these temporary differences as “deferred tax assets” (generally items that can be used as a tax deduction or credit in future periods) and “deferred tax liabilities” (generally items for which we received a tax deduction but the tax impact has not yet been recorded in the Consolidated Statements of Income).

Deferred taxes were classified in the Consolidated Balance Sheets as follows:

In thousands	2010			2009
Deferred tax assets	$	56,349		$	49,609
Other noncurrent assets	1,647			5,132
Other current liabilities	(547		)	(149		)
Deferred tax liabilities	(169,198		)	(146,630		)
Net deferred tax liability	$	(111,749	)	$	(92,038	)

The tax effects of the major items recorded as deferred tax assets and liabilities are as follows:

	2010					2009
	Deferred tax					Deferred tax
In thousands	Assets		Liabilities			Assets		Liabilities
Accounts receivable allowances	$	4,490	$	—		$	4,073	$	—
Inventory valuation	17,381		—			11,005		—
Accelerated depreciation/amortization	—		11,436			—		12,893
Accrued product claims and warranties	25,753		—			24,558		—
Employee benefit accruals	110,547		—			119,357		—
Goodwill and other intangibles	—		187,103			—		172,675
Other, net	—		71,381			—		65,463
Total deferred taxes	$	158,171	$	269,920		$	158,993	$	251,031
Net deferred tax liability			$	(111,749	)			$	(92,038	)

Included in Other, net in the table above are deferred tax assets of $2.3 million and $4.7 million as of December 31, 2010 and 2009, respectively, related to a foreign tax credit carryover from the tax period ended December 31, 2006 and related to state net operating losses. The foreign tax credit is eligible for carryforward until the tax period ending December 31, 2016.

Non-U.S. tax losses of $49.6 million and $49.1 million were available for carryforward at December 31, 2010 and 2009, respectively. A valuation allowance reflected above in Other, net of $9.4 million and $7.5 million exists for deferred income tax benefits related to the non-U.S. loss carryforwards available as of December 31, 2010 and 2009, respectively that may not be realized. We believe that sufficient taxable income will be generated in the respective countries to allow us to fully recover the remainder of the tax losses. The non-U.S. operating losses are subject to varying expiration periods and will begin to expire in 2011. State tax losses of $69.3 million and $73.0 million were available for carryforward at December 31, 2010 and 2009, respectively. A valuation allowance reflected above in Other, net of $2.4 million and $2.6 million exists for deferred income tax benefits related to the carryforwards available at

21

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

December 31, 2010 and 2009, respectively. Certain state tax losses will expire in 2011, while others are subject to carryforward periods of up to twenty years.

12.          Benefit Plans

Pension and post-retirement benefits

We sponsor domestic and foreign defined-benefit pension and other post-retirement plans. Pension benefits are based principally on an employee’s years of service and/or compensation levels near retirement. In addition, we also provide certain post-retirement health care and life insurance benefits. Generally, the post-retirement health care and life insurance plans require contributions from retirees. We use a December 31 measurement date each year.  In December 2007, we announced that we will be freezing certain pension plans as of December 31, 2017.

Obligations and Funded Status

The following tables present reconciliations of the benefit obligation of the plans, the plan assets of the pension plans and the funded status of the plans:

	Pension benefits						Post-retirement
In thousands	2010			2009			2010			2009
Change in benefit obligation
Benefit obligation beginning of year	$	552,309		$	521,698		$	35,301		$	38,417
Service cost	11,588			12,334			200			214
Interest cost	31,671			32,612			2,013			2,377
Amendments	(281		)	3			—			(1,303		)
Settlements	(104		)	—			—			—
Actuarial (gain) loss	24,677			13,309			(647		)	(1,517		)
Translation (gain) loss	(4,208		)	2,469			—			—
Benefits paid	(28,844		)	(30,116		)	(3,152		)	(2,887		)
Benefit obligation end of year	$	586,808		$	552,309		$	33,715		$	35,301
Change in plan assets
Fair value of plan assets beginning of year	$	329,188		$	265,112		$	—		$	—
Actual gain (loss) return on plan assets	35,495			44,521			—			—
Company contributions	49,840			49,044			3,152			2,887
Settlements	(104		)	—			—			—
Translation gain (loss)	(92		)	627			—			—
Benefits paid	(28,844		)	(30,116		)	(3,152		)	(2,887		)
Fair value of plan assets end of year	$	385,483		$	329,188		$	—		$	—
Funded status
Plan assets less than benefit obligation	$	(201,325	)	$	(223,121	)	$	(33,715	)	$	(35,301	)
Net amount recognized	$	(201,325	)	$	(223,121	)	$	(33,715	)	$	(35,301	)

Of the $201.3 million underfunding at December 31, 2010, $123.6 million relates to foreign pension plans and our supplemental executive retirement plans which are not commonly funded.

Amounts recognized in the Consolidated Balance Sheets are as follows:

	Pension benefits						Post-retirement
In thousands	2010			2009			2010			2009
Current liabilities	$	(5,343	)	$	(5,437	)	$	(3,390	)	$	(3,511	)
Noncurrent liabilities	(195,982		)	(217,684		)	(30,325		)	(31,790		)
Net amount recognized	$	(201,325	)	$	(223,121	)	$	(33,715	)	$	(35,301	)

22

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

The accumulated benefit obligation for all defined benefit plans was $557.7 million and $534.9 million at December 31, 2010 and 2009, respectively.

Information for pension plans with an accumulated benefit obligation or projected benefit obligation in excess of plan assets are as follows:

In thousands	2010		2009
Pension plans with an accumulated benefit obligation in excess of plan assets:
Fair value of plan assets	$	385,483	$	329,188
Accumulated benefit obligation	557,712		534,936
Pension plans with a projected benefit obligation in excess of plan assets:
Fair value of plan assets	$	385,483	$	329,188
Accumulated benefit obligation	586,808		552,309

Components of net periodic benefit cost are as follows:

	Pension benefits									Post-retirement
In thousands	2010			2009			2008			2010			2009			2008
Service cost	$	11,588		$	12,334		$	14,104		$	200		$	214		$	263
Interest cost	31,671			32,612			32,383			2,013			2,377			2,534
Expected return on plan assets	(30,910		)	(30,286		)	(29,762		)	—			—			—
Amortization of transition obligation	13			25			25			—			—			—
Amortization of prior year service cost (benefit)	7			23			179			(27		)	(41		)	(136		)
Recognized net actuarial (gain) loss	1,674			82			121			(3,295		)	(3,326		)	(3,301		)
Settlement gain	(8		)	(9		)	—			—			—			—
Net periodic benefit cost	$	14,035		$	14,781		$	17,050		$	(1,109	)	$	(776	)	$	(640	)

Amounts not yet recognized in net periodic benefit cost and included in accumulated other comprehensive income (pre-tax):

	Pension benefits					Post-retirement
In thousands	2010			2009		2010			2009
Net transition obligation	$	—		$	11	$	—		$	—
Prior service cost (benefit)	(162		)	118		(878		)	(905		)
Net actuarial (gain) loss	138,558			120,022		(20,781		)	(23,429		)
Accumulated other comprehensive (income) loss	$	138,396		$	120,151	$	(21,659	)	$	(24,334	)

The estimated amount that will be amortized from accumulated other comprehensive income into net periodic benefit cost in 2011 is as follows:

	Pension		Post-
In thousands	benefits		retirement
Prior service cost (benefit)	$	1	$	(27	)
Net actuarial (gain) loss	3,898		(3,306		)
Total estimated 2011 amortization	$	3,899	$	(3,333	)

23

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

Additional Information

Change in accumulated other comprehensive income, net of tax:

In thousands	2010			2009
Beginning of the year	$	(58,448	)	$	(58,704	)
Additional prior service cost incurred during the year	171			794
Actuarial gains (losses) incurred during the year	(11,861		)	1,500
Translation gains (losses) incurred during the year	(75		)	(63		)
Amortization during the year:
Transition obligation	8			15
Unrecognized prior service cost (benefit)	(12		)	(11		)
Actuarial gains	(993		)	(1,979		)
End of the year	$	(71,210	)	$	(58,448	)

Assumptions

Weighted-average assumptions used to determine domestic benefit obligations at December 31 are as follows:

	Pension benefits			Post-retirement
Percentages	2010	2009	2008	2010	2009	2008
Discount rate	5.90	6.00	6.50	5.90	6.00	6.50
Rate of compensation increase	4.00	4.00	4.00

Weighted-average assumptions used to determine the domestic net periodic benefit cost for years ending December 31 are as follows:

	Pension benefits			Post-retirement
Percentages	2010	2009	2008	2010	2009	2008
Discount rate	6.00	6.50	6.50	6.00	6.50	6.50
Expected long-term return on plan assets	8.50	8.50	8.50
Rate of compensation increase	4.00	4.00	5.00

Discount rate

The discount rate reflects the current rate at which the pension liabilities could be effectively settled at the end of the year based on our December 31 measurement date. The discount rate was determined by matching our expected benefit payments to payments from a stream of AA or higher bonds available in the marketplace, adjusted to eliminate the effects of call provisions. This produced a discount rate for our U.S. plans of 5.90% in 2010, 6.00% in 2009 and 6.50% in 2008. The discount rates on our foreign plans ranged from 0.75% to 5.40% in 2010, 2.00% to 6.00% in 2009 and 2.00% to 6.25% in 2008. There are no other known or anticipated changes in our discount rate assumption that will impact our pension expense in 2011.

Expected rate of return

Our expected rate of return on plan assets was 8.5% for 2010, 2009 and 2008.  The expected rate of return is designed to be a long-term assumption that may be subject to considerable year-to-year variance from actual returns. In developing the expected long-term rate of return, we considered our historical returns, with consideration given to forecasted economic conditions, our asset allocations, input from external consultants and broader longer-term market indices. In 2010, the pension plan assets yielded returns of 11.2% and returns of 19.5% in 2009 and a loss of 28.8% in 2008.  Our expected rate of return on plan assets assumption is 8.0% for 2011.

We base our determination of pension expense or income on a market-related valuation of assets which reduces year-to-year volatility. This market-related valuation recognizes investment gains or losses over a five- year period from the year in which they occur. Investment gains or losses for this purpose are the difference between the expected return calculated using the market-related value of assets and the actual return based on the market-related value of assets. Since the market-related value of assets recognizes gains or losses over a five-year-period, the future value of assets will be impacted as previously deferred gains or losses are recorded.

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Notes to consolidated financial statements

Unrecognized pension and post-retirement losses

As of our December 31, 2010 measurement date, our plans have $117.8 million of cumulative unrecognized losses. To the extent the unrecognized losses, when adjusted for the difference between market and market related values of assets, exceeds 10% of the projected benefit obligation, it will be amortized into expense each year on a straight-line basis over the remaining expected future-working lifetime of active participants (currently approximating 12 years).

The assumed health care cost trend rates at December 31 are as follows:

	2010		2009
Health care cost trend rate assumed for next year	7.50	%	7.70	%
Rate to which the cost trend rate is assumed to decline (the ultimate trend rate)	4.50	%	4.50	%
Year that the rate reaches the ultimate trend rate	2027		2027

The assumed health care cost trend rates can have a significant effect on the amounts reported for health care plans. A one-percentage-point change in the assumed health care cost trend rates would have the following effects:

	1-Percentage-Point		1-Percentage-Point
In thousands	Increase		Decrease
Effect on total annual service and interest cost	$	51	$	(45	)
Effect on post-retirement benefit obligation	750		(667		)

Plan Assets

Objective

The primary objective of our investment strategy is to meet the pension obligation to our employees at a reasonable cost to us. This is primarily accomplished through growth of capital and safety of the funds invested. The plans will therefore be actively invested to achieve real growth of capital over inflation through appreciation of securities held and through the accumulation and reinvestment of dividend and interest income.

Asset allocation

Our actual overall asset allocation for the plans as compared to our investment policy goals is as follows:

	Plan Assets				Target Allocation
Asset Class	2010		2009		2010		2009
Equity Securities	47	%	53	%	50	%	60	%
Fixed Income Investments	37	%	22	%	40	%	30	%
Alternative Investments	12	%	14	%	10	%	10	%
Cash	4	%	11	%	—	%	—	%

While the target allocations do not have a percentage allocated to cash, the plan assets will always include some cash due to cash flow requirements. In 2009, as a result of our year end decision to make a $25 million accelerated pension plan contribution, a higher percentage of assets were held in cash equivalents. This contribution was directed to be invested in fixed income investments and was invested shortly after year end. After taking this into consideration, our fixed income investment percentage would have been 30% and our cash percentage would have been 3%.

As part of our strategy to reduce U.S. pension plan funded status volatility, we plan to increase the allocation to long duration fixed income securities in future years as the funded status of our U.S. pension plans improve. In 2010 we increased our fixed income investments from 30% to 40% and from 10% to 30% in 2009.

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Notes to consolidated financial statements

Fair Value Measurement

The following table presents our plan assets using the fair value hierarchy as of December 31, 2010 and December 31, 2009.

	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Cash Equivalents	$	—	$	13,803	$	—	$	13,803
Fixed Income:
Corporate and Non U.S. Government	—		42,544		284		42,828
U.S. Treasuries	—		60,710		—		60,710
Mortgage-Backed Securities	—		30,052		1,368		31,420
Other	—		6,818		125		6,943
Global Equity Securities:
Small Cap Equity	7,982		—		—		7,982
Mid Cap Equity	8,811		—		—		8,811
Large Cap Equity	—		45,700		—		45,700
International Equity	23,964		21,895		—		45,859
Long/short Equity	—		56,639		—		56,639
Pentair Company Stock	18,255		—		—		18,255
Other Investments	—		33,542		12,991		46,533
Total as of December 31, 2010	$	59,012	$	311,703	$	14,768	$	385,483

	Quoted Prices in				Significant
	Active Markets for		Significant Other		Unobservable
	Identical Assets		Observable Inputs		Inputs
in thousands	(Level 1)		(Level 2)		(Level 3)		Total
Cash Equivalents	$	—	$	35,575	$	—	$	35,575
Fixed Income:
Corporate and Non U.S. Government	—		16,682		438		17,120
U.S. Treasuries	—		28,675		—		28,675
Mortgage-Backed Securities	—		21,636		2,109		23,745
Other	—		3,952		192		4,144
Global Equity Securities:
Small Cap Equity	7,227		—		—		7,227
Mid Cap Equity	8,389		—		—		8,389
Large Cap Equity	—		39,569		—		39,569
International Equity	21,665		19,955		—		41,620
Long/short Equity	—		54,082		—		54,082
Pentair Company Stock	21,742		—		—		21,742
Other Investments	—		32,873		14,427		47,300
Total as of December 31, 2009	$	59,023	$	252,999	$	17,166	$	329,188

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Notes to consolidated financial statements

Valuation methodologies used for investments measured at fair value are as follows:

·Cash Equivalents:  Consist of investments in commingled funds valued based on observable market data. Such investments are classified as Level 2.

·Fixed Income:  Investments in corporate bonds, government securities, mortgages and asset backed securities are value based upon quoted market prices for identical or similar securities and other observable market data. Investments in commingled funds are generally valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments are classified as Level 2. Certain investments in commingled funds are valued based on unobservable inputs due to liquidation restrictions. These investments are classified as Level 3.

·Global Equity Securities:  Equity securities and Pentair common stock are valued based on the closing market price in an active market and are classified as Level 1. Investments in commingled funds are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service. Such investments are classified as Level 2.

·Other Investments:  Other investments include investments in commingled funds with diversified investment strategies. Investments in commingled funds that are valued at the net asset value of units held at the end of the period based upon the value of the underlying investments as determined by quoted market prices or by a pricing service are classified as Level 2. Investments in commingled funds that are valued based on unobservable inputs due to liquidation restrictions are classified as Level 3.

The following tables present a reconciliation of Level 3 assets held during the years ended December 31, 2010 and December 31, 2009, respectively.

			Net realized		Net purchases,			Net		Balance
	Balance		and unrealized		issuances and			transfers into		December 31,
	January 1, 2010		gains (losses)		settlements			(out of) level 3		2010
Other Investments	$	14,427	$	678	$	(2,113	)	$	—	$	12,992
Fixed Income Investments	2,739		334		(1,296		)	—		1,777
	$	17,166	$	1,012	$	(3,409	)	$	—	$	14,769

			Net realized			Net purchases,		Net			Balance
	Balance		and unrealized			issuances and		transfers into			December 31,
	January 1, 2009		gains (losses)			settlements		(out of) level 3			2009
Other Investments	$	32,083	$	(774	)	$	—	$	(16,882	)	$	14,427
Fixed Income Investments	25,640		1,027			—		(23,928		)	2,739
	$	57,723	$	253		$	—	$	(40,810	)	$	17,166

Cash Flows

Contributions

Pension contributions totaled $49.8 million and $49.0 million in 2010 and 2009, respectively. Our 2011 required pension contributions are expected to be in the range of $25 million to $30 million. The decrease in the 2011 expected contribution is primarily a result of the December 2010 accelerated contribution of $25 million to our defined benefit pension plan. The 2011 expected contributions will equal or exceed our minimum funding requirements.

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

Estimated Future Benefit Payments

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid by the plans as follows:

In millions	Pension benefits		Post-retirement
2011	$	34.2	$	3.4
2012	31.8		3.3
2013	32.8		3.2
2014	33.7		3.1
2015	35.8		3.0
2016-2020	212.7		13.4

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Notes to consolidated financial statements

Savings plan

We have a 401(k) plan (“the plan”) with an employee stock ownership (“ESOP”) bonus component, which covers certain union and nearly all non-union U.S. employees who meet certain age requirements. Under the plan, eligible U.S. employees may voluntarily contribute a percentage of their eligible compensation. We match contributions made by employees who meet certain eligibility and service requirements. Our matching contribution is 100% of eligible employee contributions for the first 1% of eligible compensation and 50% of the next 5% of eligible compensation. In June 2009, we temporarily suspended the company match of the plan and ESOP.  We reinstated the company match in 2010.

In addition to the matching contribution, all employees who meet certain service requirements receive a discretionary ESOP contribution equal to 1.5% of annual eligible compensation.

Our combined expense for the plan and ESOP was approximately $11.0 million, $6.7 million and $17.0 million, in 2010, 2009 and 2008, respectively.

Other retirement compensation

Total other accrued retirement compensation was $13.9 million and $17.3 million in 2010 and 2009, respectively and is included in the pension and other retirement compensation line of our Consolidated Balance Sheet.

13.          Shareholders’ Equity

Authorized shares

We may issue up to 250 million shares of common stock. Our Board of Directors may designate up to 15 million of those shares as preferred stock. On December 10, 2004, the Board of Directors designated a new series of preferred stock with authorization to issue up to 2.5 million shares, Series A Junior Participating Preferred Stock, par value $0.10 per share. No shares of preferred stock were issued or outstanding as of December 31, 2010 or December 31, 2009.

Purchase rights

On December 10, 2004, our Board of Directors declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of common stock. The dividend was payable upon the close of business on January 28, 2005 to the shareholders of record upon the close of business on January 28, 2005. Each Right entitles the registered holder to purchase one one-hundredth of a share of Series A Junior Participating Preferred Stock, at a price of $240.00 per one one-hundredth of a share, subject to adjustment. However, the Rights are not exercisable unless certain change in control events occur, such as a person acquiring or obtaining the right to acquire beneficial ownership of 15% or more of our outstanding common stock. The description and terms of the Rights are set forth in a Rights Agreement, dated December 10, 2004. The Rights will expire on January 28, 2015, unless the Rights are earlier redeemed or exchanged in accordance with the terms of the Rights Agreement. On January 28, 2005, the common share purchase rights issued pursuant to the Rights Agreement dated July 31, 1995 were redeemed in their entirety for an amount equal to $0.0025 per right.

Share repurchases

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 December 31, 2008, we had purchased 1,549,893 shares for $50.0 million pursuant to this authorization. This authorization expired on December 31, 2008. There were no share repurchase authorizations for 2009.  On July 27, 2010 the Board of Directors authorized the repurchase of shares of our common stock up to a maximum dollar limit of $25 million.  As of December 31, 2010 we had repurchased 734,603 shares for $25 million pursuant to this plan.  In December 2010, the Board of Directors authorized the repurchase of shares of our common stock during 2011 up to a maximum dollar limit of $25 million.  The authorization expires December 2011.

14.          Stock Plans

Total stock-based compensation expense in 2010, 2009 and 2008 was $21.5 million, $17.3 million and $20.6 million, respectively.

Omnibus stock incentive plans

In May 2008, the 2008 Omnibus Stock Incentive Plan as Amended and Restated (the “2008 Plan” or the “Plan”) was approved by shareholders. The 2008 Plan authorizes the issuance of additional shares of our common stock and extends through February 2018. The 2008 Plan allows for the granting of:

·nonqualified stock options;

·incentive stock options;

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

·restricted shares;

·restricted stock units;

·dividend equivalent units;

·stock appreciation rights;

·performance shares;

·performance units; and

·other stock based awards.

The Plan is administered by our Compensation Committee (the “Committee”), which is made up of independent members of our Board of Directors. Employees eligible to receive awards under the Plan are managerial, administrative or other key employees who are in a position to make a material contribution to the continued profitable growth and long-term success of Pentair. The Committee has the authority to select the recipients of awards, determine the type and size of awards, establish certain terms and conditions of award grants and take certain other actions as permitted under the Plan. The Plan restricts the Committee’s authority to reprice awards or to cancel and reissue awards at lower prices.

The Omnibus Stock Incentive Plan approved by the shareholders in 2004 (the “2004 Plan”) expired upon approval of the 2008 Plan by shareholders. Prior grants made under the 2004 Plan and earlier stock incentive plans remained outstanding on the terms in effect at the time of grant.

Non-qualified and incentive stock options

Under the Plan, we may grant stock options to any eligible employee with an exercise price equal to the market value of the shares on the dates the options were granted. Options generally vest over a three-year period commencing on the grant date and expire ten years after the grant date. Prior to 2006, option grants typically had a reload feature when shares are retired to pay the exercise price, allowing individuals to receive additional options upon exercise equal to the number of shares retired. Option awards granted after 2005 under the 2004 Plan and under the 2008 Plan do not have a reload feature attached to the option. Annual expense for the fair value of stock options was $10.7 million in 2010, $7.1 million in 2009 and $10.5 million in 2008.

Restricted shares and restricted stock units

Under the Plan, eligible employees are awarded restricted shares or restricted stock units (awards) of our common stock. Share awards generally vest from two to five years after issuance, subject to continuous employment and certain other conditions. Restricted share awards are valued at market value on the date of grant and are expensed over the vesting period. Annual expense for the fair value of restricted shares and restricted stock units was $10.8 million in 2010, $10.2 million in 2009 and $10.1 million in 2008.

Stock appreciation rights, performance shares and performance units

Under the Plan, the Committee is permitted to issue these awards; however, there have been no issuances of these awards.

Outside directors nonqualified stock option plan

Nonqualified stock options were granted to outside directors under the Outside Directors Nonqualified Stock Option Plan (the “Directors Plan”) with an exercise price equal to the market value of the shares on the option grant dates. Options generally vest over a three-year period commencing on the grant date and expire ten years after the grant date. The Directors Plan expired in January 2008. Prior grants remain outstanding on the terms in effect at the time of grant.

Non-employee Directors are also eligible to receive awards under the 2008 Plan. Director awards are made by our Governance Committee, which is made up of independent members of our Board of Directors.

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Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

Stock options

The following table summarizes stock option activity under all plans:

					Weighted Average
			Weighted Average		Remaining	Aggregate
Options Outstanding	Shares		Exercise Price		Contractual Life	Intrinsic Value
Balance January 1, 2010	7,962,519		$	30.70
Granted	1,478,660		33.54
Exercised	(678,627	)	23.32
Forfeited	(112,528	)	28.38
Expired	(682,608	)	37.08
Balance December 31, 2010	7,967,416		$	31.34	6.0	$	46,776,147
Options exercisable as of December 31, 2010	5,313,225		$	31.80	4.6	$	30,599,073
Options expected to vest as of December 31, 2010	2,608,273		$	30.42	8.3	$	16,177,074
Shares available for grant as of December 31, 2010	5,773,901

The weighted-average grant date fair value of options granted in 2010, 2009 and 2008 was estimated to be $9.47, $5.09 and $7.41 per share, respectively. The total intrinsic value of options that were exercised during 2010, 2009 and 2008 was $7.4 million, $5.2 million and $6.3 million, respectively. At December 31, 2010, the total unrecognized compensation cost related to stock options was $6.5 million. This cost is expected to be recognized over a weighted average period of 1.5 years.

We estimated the fair values using the Black-Scholes option-pricing model, modified for dividends and using the following assumptions:

	2010		2009		2008
Risk-free interest rate	2.45	%	1.77	%	2.78	%
Expected dividend yield	2.30	%	3.20	%	2.12	%
Expected stock price volatility	35.00	%	32.50	%	27.00	%
Expected lives	5.5 yrs		5.2 yrs		4.8 yrs

Cash received from option exercises for the years ended December 31, 2010, 2009 and 2008 was $14.9 million, $8.2 million and $5.6 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $2.8 million, $1.9 million and $2.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.

Restricted Share Awards

The following table summarizes restricted share award activity under all plans:

			Weighted Average
			Grant Date
Restricted Shares Outstanding	Shares		Fair Value
Balance January 1, 2010	1,278,054		$	28.81
Granted	476,840		33.66
Vested	(376,219	)	33.39
Forfeited	(69,272	)	27.49
Balance December 31, 2010	1,309,403		$	29.33

As of December 31, 2010, there was $17.1 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2004 Plan and the 2008 Plan. That cost is expected to be recognized over a weighted-average period of 2.3 years. The total fair value of shares vested during the years ended December 31, 2010, 2009 and 2008, was $12.7 million,

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Notes to consolidated financial statements

$5.5 million and $7.7 million, respectively. The actual tax benefit realized for the tax deductions from restricted share compensation arrangements totaled $3.4 million, $2.2 million and $3.0 million for the years ended December 31, 2010, 2009 and 2008, respectively.

15.          Business Segments

We classify our continuing operations into the following business segments based primarily on types of products offered and markets served:

·Water — manufactures and markets essential products and systems used in the movement, storage, treatment and enjoyment of water. Water segment products include water and wastewater pumps; filtration and purification components and systems; storage tanks and pressure vessels; and pool and spa equipment and accessories.

·Technical Products — designs, manufactures and markets standard, modified and custom enclosures that house and protect sensitive electronics and electrical components and protect the people that use them. Applications served include industrial machinery, data communications, networking, telecommunications, test and measurement, automotive, medical, security, defense and general electronics. Products include metallic and composite enclosures, cabinets, cases, subracks, backplanes and associated thermal management systems.

·Other — is primarily composed of unallocated corporate expenses, our captive insurance subsidiary, intermediate finance companies and divested operations.

The accounting policies of our operating segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on the sales and operating income of the segments and use a variety of ratios to measure performance. These results are not necessarily indicative of the results of operations that would have occurred had each segment been an independent, stand-alone entity during the periods presented.

Financial information by reportable business segment is included in the following summary:

	2010		2009		2008		2010			2009			2008
In thousands	Net sales to external customers						Operating income (loss)
Water Group	$	2,041,281	$	1,847,764	$	2,206,142	$	231,588		$	163,745		$	206,357
Technical Products Group	989,492		844,704		1,145,834		151,533			100,355			169,315
Other	—		—		—		(48,966		)	(44,152		)	(50,987		)
Consolidated	$	3,030,773	$	2,692,468	$	3,351,976	$	334,155		$	219,948		$	324,685

	Identifiable assets (1)								Depreciation
Water Group	$	3,409,556		$	3,205,774		$	3,271,039	$	37,449	$	44,063	$	39,237
Technical Products Group	728,969			716,092			697,577		17,544		19,035		19,131
Other (1)	(164,992		)	(10,532		)	84,597		3,002		1,725		1,305
Consolidated	$	3,973,533		$	3,911,334		$	4,053,213	$	57,995	$	64,823	$	59,673

	Amortization						Capital expenditures
Water Group	$	22,981	$	34,919	$	22,062	$	39,631	$	36,513	$	32,916
Technical Products Group	2,610		2,687		2,980		8,336		15,388		15,995
Other	593		3,051		2,566		11,556		2,236		4,178
Consolidated	$	26,184	$	40,657	$	27,608	$	59,523	$	54,137	$	53,089

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Notes to consolidated financial statements

The following table presents certain geographic information:

	2010		2009		2008		2010		2009		2008
In thousands	Net sales to external customers						Long-lived assets
U.S.	$	2,222,856	$	1,964,138	$	2,467,698	$	196,440	$	203,206	$	219,013
Europe	470,879		439,312		571,164		77,000		87,880		89,300
Asia and other	337,038		289,018		313,114		55,995		42,602		35,568
Consolidated	$	3,030,773	$	2,692,468	$	3,351,976	$	329,435	$	333,688	$	343,881

(1)All cash and cash equivalents are included in Other

Net sales are based on the location in which the sale originated. Long-lived assets represent property, plant and equipment, net of related depreciation.

We offer a broad array of products and systems to multiple markets and customers for which we do not have the information systems to track revenues by primary product category. However, our net sales by segment are representative of our sales by major product category.

We sell our products through various distribution channels including wholesale and retail distributors, original equipment manufacturers and home centers. In our Water segment, one customer accounted for approximately 10% of segment sales in 2010, no single customer accounted for more than 10% of segment sales in 2009 and one customer accounted for just over 10% of segment sales in 2008.  In our Technical Products segment, no single customer accounted for more than 10% of segment sales in 2010, 2009 or 2008.

16. Commitments and Contingencies

Operating lease commitments

Net rental expense under operating leases follows:

In thousands	2010			2009			2008
Gross rental expense	$	32,662		$	32,799		$	37,519
Sublease rental income	(225		)	(74		)	(172		)
Net rental expense	$	32,437		$	32,725		$	37,347

Future minimum lease commitments under non-cancelable operating leases, principally related to facilities, vehicles,

and machinery and equipment are as follows:

In thousands	2011			2012			2013			2014			2015			Thereafter		Total
Minimum lease payments	$	21,697		$	17,673		$	12,404		$	9,421		$	7,465		$	11,865	$	80,525
Minimum sublease rentals	(609		)	(152		)	(154		)	(84		)	(7		)	—		(1,006		)
Net future minimum lease commitments	$	21,088		$	17,521		$	12,250		$	9,337		$	7,458		$	11,865	$	79,519

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Notes to consolidated financial statements

Environmental

We have been named as defendants, targets, or PRPs in a small number of environmental clean-ups, in which our current or former business units have generally been given de minimis status. To date, none of these claims have resulted in clean-up costs, fines, penalties, or damages in an amount material to our financial position or results of operations. We have disposed of a number of businesses in the past and in certain cases, such as the disposition of the Cross Pointe Paper Corporation uncoated paper business in 1995, the disposition of the Federal Cartridge Company ammunition business in 1997, the disposition of Lincoln Industrial in 2001 and the disposition of the Tools Group in 2004, we have retained responsibility and potential liability for certain environmental obligations. We have received claims for indemnification from purchasers of these businesses and have established what we believe to be adequate accruals for potential liabilities arising out of retained responsibilities. We settled some of the claims in prior years; to date our recorded accruals have been adequate.

In addition, there are ongoing environmental issues at a limited number of sites, including one site acquired in the acquisition of Essef Corporation in 1999, which relates to operations no longer carried out at the sites. We have established what we believe to be adequate accruals for remediation costs at these sites. We do not believe that projected response costs will result in a material liability.

We may be named as a PRP at other sites in the future, for both divested and acquired businesses. When the outcome of the matter is probable and it is possible to provide reasonable estimates of our liability with respect to environmental sites, provisions have been made in accordance with GAAP.  As of December 31, 2010 and 2009, our undiscounted reserves for such environmental liabilities were approximately $1.3 million and $2.3 million, respectively. We cannot ensure that environmental requirements will not change or become more stringent over time or that our eventual environmental clean-up costs and liabilities will not exceed the amount of our current reserves.

Litigation

We have been made parties to a number of actions filed or have been given notice of potential claims relating to the conduct of our business, including those pertaining to commercial disputes, product liability, environmental, safety and health, patent infringement and employment matters.

We record liabilities for an estimated loss from a loss contingency where the outcome of the matter is probable and can be reasonably estimated. Factors that are considered when determining whether the conditions for accrual have been met include the (a) nature of the litigation, claim, or assessment, (b) progress of the case, including progress after the date of the financial statements but before the issuance date of the financial statements, (c) opinions of legal counsel and (d) management’s intended response to the litigation, claim, or assessment. Where the reasonable estimate of the probable loss is a range, we record the most likely estimate of the loss. When no amount within the range is a better estimate than any other amount, however, the minimum amount in the range is accrued. Gain contingencies are not recorded until realized.

While we believe that a material adverse impact on our consolidated financial position, results of operations, or cash flows from any such future charges is unlikely, given the inherent uncertainty of litigation, a remote possibility exists that a future adverse ruling or unfavorable development could result in future charges that could have a material adverse impact. We do and will continue to periodically reexamine our estimates of probable liabilities and any associated expenses and receivables and make appropriate adjustments to such estimates based on experience and developments in litigation. As a result, the current estimates of the potential impact on our consolidated financial position, results of operations and cash flows for the proceedings and claims could change in the future.

Product liability claims

We are subject to various product liability lawsuits and personal injury claims. A substantial number of these lawsuits and claims are insured and accrued for by Penwald, our captive insurance subsidiary. Penwald records a liability for these claims based on actuarial projections of ultimate losses. For all other claims, accruals covering the claims are recorded, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The accruals are adjusted periodically as additional information becomes available.  In 2004, we disposed of the Tools Group and we retained responsibility for certain product claims.  We have not experienced significant unfavorable trends in either the severity or frequency of product liability lawsuits or personal injury claims.

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

34

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

result of the settlement, we recorded a charge of $20.4 million in 2008 which is shown on the line Legal settlement in the Consolidated Statements of Income.

Warranties and guarantees

In connection with the disposition of our businesses or product lines, we may agree to indemnify purchasers for various potential liabilities relating to the sold business, such as pre-closing tax, product liability, warranty, environmental, or other obligations. The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction. Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial condition or results of operations.

We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.

We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.

The changes in the carrying amount of service and product warranties for the years ended December 31, 2010 and 2009 were as follows:

In thousands	2010			2009
Balance at beginning of the year	$	24,288		$	31,559
Service and product warranty provision	56,553			55,232
Payments	(50,729		)	(62,672		)
Acquired	—			23
Translation	(62		)	146
Balance at end of the period	$	30,050		$	24,288

Stand-by letters of credit and bonds

In the ordinary course of business, we are required to commit to bonds that require payments to our customers for any non-performance. The outstanding face value of the bonds fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs.  As of December 31, 2010 and December 31, 2009, the outstanding value of these instruments totaled $116.5 million and $51.2 million, respectively.

35

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

17.         Selected Quarterly Financial Data (Unaudited)

The following table represents the 2010 quarterly financial information:

	2010
In thousands, except per-share data	First		Second		Third		Fourth			Year
Net sales	$	707,013	$	796,167	$	773,735	$	753,858		$	3,030,773
Gross profit	213,702		248,168		236,542		232,228			930,640
Operating income	63,601		100,126		90,823		79,605			334,155
Income from continuing operations	36,029		61,612		55,729		49,577			202,947
Gain (loss) on disposal of discontinued operations, net of tax	524		593		549		(2,292		)	(626		)
Net income from continuing operations attributable to Pentair, Inc.	34,797		60,488		54,501		48,668			198,454
Earnings per common share attributable to Pentair, Inc. (1)
Basic
Continuing operations	$	0.35	$	0.61	$	0.55	$	0.50		$	2.02
Discontinued operations	0.01		0.01		0.01		(0.02		)	(0.01		)
Basic earnings per common share	$	0.36	$	0.62	$	0.56	$	0.48		$	2.01
Diluted
Continuing operations	$	0.35	$	0.61	$	0.55	$	0.49		$	2.00
Discontinued operations	0.01		—		—		(0.02		)	(0.01		)
Diluted earnings per common share	$	0.36	$	0.61	$	0.55	$	0.47		$	1.99

(1)Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average common shares outstanding during that period.

The following table represents the 2009 quarterly financial information:

	2009
In thousands, except per-share data	First		Second			Third			Fourth		Year
Net sales	$	633,840	$	693,712		$	662,665		$	702,251	$	2,692,468
Gross profit	169,232		196,479			206,967			212,457		785,135
Operating income	37,214		63,560			66,682			52,492		219,948
Income from continuing operations	17,721		32,427			38,677			27,394		116,219
Gain (loss) on disposal of discontinued operations, net of tax	10		(78		)	(85		)	134		(19		)
Net income from continuing operations attributable to to Pentair, Inc.	17,255		32,006			37,033			29,218		115,512
Earnings per common share attributable to Pentair, Inc. (1)
Basic
Continuing operations	$	0.18	$	0.33		$	0.38		$	0.30	$	1.19
Discontinued operations	—		—			—			—		—
Basic earnings per common share	$	0.18	$	0.33		$	0.38		$	0.30	$	1.19
Diluted
Continuing operations	$	0.18	$	0.33		$	0.38		$	0.29	$	1.17
Discontinued operations	—		—			—			—		—
Diluted earnings per common share	$	0.18	$	0.33		$	0.38		$	0.29	$	1.17

(1)Amounts may not total to annual earnings because each quarter and year are calculated separately based on basic and diluted weighted-average common shares outstanding during that period.

36

Pentair, Inc. and Subsidiaries

Notes to consolidated financial statements

18.      Financial Statements of Subsidiary Guarantors

Pentair (the “Parent Company”) expects that certain of its domestic subsidiaries (the “Guarantor Subsidiaries”), each of which is directly or indirectly wholly-owned by the Parent Company will jointly and severally, and fully and unconditionally, guarantee certain long-term indebtedness of the Parent Company.  The following supplemental financial information sets forth the condensed consolidated balance sheets as of December 31, 2010 and 2009, the related condensed consolidated statements of income and statements of cash flows for each of the three years in the period ended December 31, 2010, for the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries.

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the year ended December 31, 2010

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,092,487		$	1,189,597		$	(251,311	)	$	3,030,773
Cost of goods sold	3,167			1,453,786			893,570			(250,390		)	2,100,133
Gross profit	(3,167		)	638,701			296,027			(921		)	930,640
Selling, general and administrative	(3,713		)	337,408			196,555			(921		)	529,329
Research and development	393			42,386			24,377			—			67,156
Operating income	153			258,907			75,095			—			334,155
Earnings from investment in subsidiaries	(129,872		)	—			—			129,872			—
Other (income) expense:
Equity income of unconsolidated subsidiaries	—			(1,551		)	(557		)	—			(2,108		)
Net interest (income) expense	(111,034		)	153,904			(6,754		)	—			36,116
Income (loss) from continuing operations before income taxes and noncontrolling interest	241,059			106,554			82,406			(129,872		)	300,147
Provision for income taxes	42,605			36,447			18,148			—			97,200
Income from continuing operations	198,454			70,107			64,258			(129,872		)	202,947
Loss on disposal of discontinued operations, net of tax	(626		)	—			—			—			(626		)
Net income before noncontrolling interest	197,828			70,107			64,258			(129,872		)	202,321
Noncontrolling interest	—			—			4,493			—			4,493
Net income attributable to Pentair, Inc.	$	197,828		$	70,107		$	59,765		$	(129,872	)	$	197,828
Net income from continuing operations attributable to Pentair, Inc.	$	198,454		$	70,107		$	59,765		$	(129,872	)	$	198,454

37

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the year ended December 31, 2009

	Parent			Guarantor		Non-Guarantor
In thousands	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,827,463	$	1,050,381		$	(185,376	)	$	2,692,468
Cost of goods sold	7,024			1,310,011		775,116			(184,818		)	1,907,333
Gross profit	(7,024		)	517,452		275,265			(558		)	785,135
Selling, general and administrative	10,074			312,079		185,708			(558		)	507,303
Research and development	306			34,844		22,734			—			57,884
Operating (loss) income	(17,404		)	170,529		66,823			—			219,948
Earnings from investment in subsidiaries	(60,528		)	—		—			60,528			—
Other (income) expense:
Equity losses of unconsolidated subsidiaries	—			1,379		—			—			1,379
Loss on early extinguishment of debt	4,804			—		—			—			4,804
Net interest (income) expense	(106,586		)	153,672		(5,968		)	—			41,118
Income (loss) from continuing operations before income taxes and noncontrolling interest	144,906			15,478		72,791			(60,528		)	172,647
Provision for income taxes	29,270			6,063		21,095			—			56,428
Income from continuing operations	115,636			9,415		51,696			(60,528		)	116,219
(Loss) gain on disposal of discontinued operations, net of tax	(143		)	551		(427		)	—			(19		)
Net income before noncontrolling interest	115,493			9,966		51,269			(60,528		)	116,200
Noncontrolling interest	—			—		707			—			707
Net income attributable to Pentair, Inc.	$	115,493		$	9,966	$	50,562		$	(60,528	)	$	115,493
Net income from continuing operations attributable to Pentair, Inc.	$	115,636		$	9,415	$	50,989		$	(60,528	)	$	115,512

38

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the year ended December 31, 2008

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,560,930		$	1,021,096		$	(230,050	)	$	3,351,976
Cost of goods sold	40			1,847,160			719,534			(229,308		)	2,337,426
Gross profit	(40		)	713,770			301,562			(742		)	1,014,550
Selling, general and administrative	3,536			419,013			185,172			(741		)	606,980
Research and development	269			47,186			14,995			—			62,450
Legal settlement	20,435			—			—			—			20,435
Operating (loss) income	(24,280		)	247,571			101,395			(1		)	324,685
Other (income) expense:
Earnings from investment in subsidiaries	(194,295		)	—			—			194,295			—
Gain on sale of interest in subsidiaries	—			(109,648		)	—			—			(109,648		)
Equity losses of unconsolidated subsidiaries	—			3,041			—			—			3,041
Loss on early extinguishment of debt	4,611			—			—			—			4,611
Net interest (income) expense	(88,407		)	153,910			(6,068		)	—			59,435
Other	—			106			—			—			106
Income (loss) from continuing operations before income taxes and noncontrolling interest	253,811			200,162			107,463			(194,296		)	367,140
Provision for income taxes	25,320			53,386			29,638			—			108,344
Income from continuing operations	228,491			146,776			77,825			(194,296		)	258,796
(Loss) income from discontinued operations, net of tax	—			(6,597		)	814			—			(5,783		)
Gain (loss) on disposal of discontinued operations, net of tax	243			(17,570		)	(4,519		)	—			(21,846		)
Net income before noncontrolling interest	228,734			122,609			74,120			(194,296		)	231,167
Noncontrolling interest	—			—			2,433			—			2,433
Net income attributable to Pentair, Inc.	$	228,734		$	122,609		$	71,687		$	(194,296	)	$	228,734
Net income from continuing operations attributable to Pentair, Inc.	$	228,491		$	146,776		$	75,392		$	(194,296	)	$	256,363

39

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

December 31, 2010

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	3,201		$	3,404		$	39,451	$	—		$	46,056
Accounts and notes receivable, net	678			357,730			222,319		(63,822		)	516,905
Inventories	—			232,369			172,987		—			405,356
Deferred tax assets	115,722			40,064			7,928		(107,365		)	56,349
Prepaid expenses and other current assets	8,278			10,098			51,497		(25,242		)	44,631
Total current assets	127,879			643,665			494,182		(196,429		)	1,069,297
Property, plant and equipment, net	17,392			144,332			167,711		—			329,435
Other assets
Investments in/advances to subsidiaries	2,355,343			89,659			748,181		(3,193,183		)	—
Goodwill	—			1,549,537			516,507		—			2,066,044
Intangibles, net	—			265,987			187,583		—			453,570
Other	56,052			4,045			20,139		(25,049		)	55,187
Total other assets	2,411,395			1,909,228			1,472,410		(3,218,232		)	2,574,801
Total assets	$	2,556,666		$	2,697,225		$	2,134,303	$	(3,414,661	)	$	3,973,533
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	4,933	$	—		$	4,933
Current maturities of long-term debt	135,678			—			18,154		(153,814		)	18
Accounts payable	4,908			170,747			150,517		(63,815		)	262,357
Employee compensation and benefits	38,513			32,167			37,315		—			107,995
Current pension and post-retirement benefits	8,733			—			—		—			8,733
Accrued product claims and warranties	12,245			23,410			6,640		—			42,295
Income taxes	4,788			633			543		—			5,964
Accrued rebates and sales incentives	—			23,500			10,059		—			33,559
Other current liabilities	9,772			33,227			63,185		(25,242		)	80,942
Total current liabilities	214,637			283,684			291,346		(242,871		)	546,796
Other liabilities
Long-term debt	702,500			1,947,400			377,539		(2,324,918		)	702,521
Pension and other retirement compensation	136,750			112			72,997		—			209,859
Post-retirement medical and other benefits	18,388			36,986			—		(25,049		)	30,325
Long-term income taxes payable	23,507			—			—		—			23,507
Deferred tax liabilities	5			213,385			63,173		(107,365		)	169,198
Due to/ (from) affiliates	(678,966		)	(80,779		)	810,652		(50,907		)	—
Other non-current liabilities	46,692			1,892			37,711		—			86,295
Total liabilities	463,513			2,402,680			1,653,418		(2,751,110		)	1,768,501
Noncontrolling interest	—			—			111,879		—			111,879
Shareholders’ equity attributable to Pentair, Inc.	2,093,153			294,545			369,006		(663,551		)	2,093,153
Total liabilities and shareholders’ equity	$	2,556,666		$	2,697,225		$	2,134,303	$	(3,414,661	)	$	3,973,533

40

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

December 31, 2009

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	2,032		$	1,813		$	29,551	$	—		$	33,396
Accounts and notes receivable, net	421			296,691			210,640		(52,662		)	455,090
Inventories	—			221,687			138,940		—			360,627
Deferred tax assets	123,041			35,250			6,974		(115,656		)	49,609
Prepaid expenses and other current assets	15,016			7,063			43,401		(17,904		)	47,576
Total current assets	140,510			562,504			429,506		(186,222		)	946,298
Property, plant and equipment, net	9,417			148,506			175,765		—			333,688
Other assets
Investments in/advances to subsidiaries	2,378,327			97,035			735,159		(3,210,521		)	—
Goodwill	—			1,549,185			539,612		—			2,088,797
Intangibles, net	—			279,033			207,374		—			486,407
Other	60,862			4,353			18,774		(27,845		)	56,144
Total other assets	2,439,189			1,929,606			1,500,919		(3,238,366		)	2,631,348
Total assets	$	2,589,116		$	2,640,616		$	2,106,190	$	(3,424,588	)	$	3,911,334
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	2,205	$	—		$	2,205
Current maturities of long-term debt	86,609			19			21,320		(107,867		)	81
Accounts payable	4,952			127,142			128,308		(52,741		)	207,661
Employee compensation and benefits	16,656			27,327			30,271		—			74,254
Current pension and post-retirement benefits	8,948			—			—		—			8,948
Accrued product claims and warranties	—			17,715			16,573		—			34,288
Income taxes	27,231			(26,380		)	4,808		—			5,659
Accrued rebates and sales incentives	—			18,665			8,889		—			27,554
Other current liabilities	16,973			43,320			43,162		(17,826		)	85,629
Total current liabilities	161,369			207,808			255,536		(178,434		)	446,279
Other liabilities
Long-term debt	803,300			1,947,442			401,735		(2,349,126		)	803,351
Pension and other retirement compensation	150,766			9,055			75,127		—			234,948
Post-retirement medical and other benefits	19,794			39,841			—		(27,845		)	31,790
Long-term income taxes payable	26,936			—			—		—			26,936
Deferred tax liabilities	615			198,541			63,130		(115,656		)	146,630
Due to/ (from) affiliates	(629,457		)	(15,314		)	829,510		(184,739		)	—
Other non-current liabilities	43,705			4,393			46,962		—			95,060
Total liabilities	577,028			2,391,766			1,672,000		(2,855,800		)	1,784,994
Noncontrolling interest	—			—			114,252					114,252
Shareholders’ equity attributable to Pentair, Inc.	2,012,088			248,850			319,938		(568,788		)	2,012,088
Total liabilities and shareholders’ equity	$	2,589,116		$	2,640,616		$	2,106,190	$	(3,424,588	)	$	3,911,334

41

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the year ended December 31, 2010

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	197,828		$	70,107		$	64,258		$	(129,872	)	$	202,321
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss on disposal of discontinued operations	626			—			—			—			626
Equity income of unconsolidated subsidiaries	—			(1,551		)	(557		)	—			(2,108		)
Depreciation	3,002			29,902			25,091			—			57,995
Amortization	593			15,597			9,994			—			26,184
Earnings from investments in subsidiaries	(129,872		)	—			—			129,872			—
Deferred income taxes	18,075			9,679			1,699			—			29,453
Stock compensation	21,468			—			—			—			21,468
Excess tax benefits from stock-based compensation	(2,686		)	—			—			—			(2,686		)
Loss on sale of assets	466			—			—			—			466
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable	1,759			(61,042		)	(14,222		)	11,161			(62,344		)
Inventories	—			(10,683		)	(33,812		)	—			(44,495		)
Prepaid expenses and other current assets	(8,519		)	(3,035		)	6,993			7,338			2,777
Accounts payable	(1,431		)	43,578			24,248			(11,074		)	55,321
Employee compensation and benefits	14,630			4,840			7,782			—			27,252
Accrued product claims and warranties	12,245			5,695			(9,872		)	—			8,068
Income taxes	(13,267		)	15,813			(755		)	—			1,791
Other current liabilities	3,314			(5,258		)	9,921			(7,416		)	561
Pension and post-retirement benefits	(33,762		)	(11,798		)	2,536			—			(43,024		)
Other assets and liabilities	(2,191		)	(12,731		)	5,672			—			(9,250		)
Net cash provided by (used for) operating activities	82,278			89,113			98,976			9			270,376
Investing activities
Capital expenditures	(11,557		)	(22,954		)	(25,012		)	—			(59,523		)
Proceeds from sale of property and equipment	—			284			74			—			358
Other	525			—			(1,673		)	—			(1,148		)
Net cash provided by (used for) investing activities	(11,032		)	(22,670		)	(26,611		)	—			(60,313		)
Financing activities
Net short-term borrowings	2,728			31			(31		)	—			2,728
Proceeds from long-term debt	703,641			—			—			—			703,641
Repayment of long-term debt	(804,713		)	—			—			—			(804,713		)
Debt issuance costs	(50		)	—			—			—			(50		)
Net change in advances to subsidiaries	106,372			(59,269		)	(47,090		)	(13		)	—
Excess tax benefits from stock-based compensation	2,686			—			—			—			2,686
Stock issued to employees, net of shares withheld	9,941			—			—			—			9,941
Repurchases of common stock	(24,712		)	—			—			—			(24,712		)
Dividends paid	(73,014		)	142			(2,593		)	—			(75,465		)
Distribution to noncontrolling interest	—			—			(4,647		)	—			(4,647		)
Net cash provided by (used for) financing activities	(77,121		)	(59,096		)	(54,361		)	(13		)	(190,591		)
Effect of exchange rate changes on cash and cash equivalents	7,044			(5,756		)	(8,104		)	4			(6,812		)
Change in cash and cash equivalents	1,169			1,591			9,900			—			12,660
Cash and cash equivalents, beginning of period	2,032			1,813			29,551			—			33,396
Cash and cash equivalents, end of period	$	3,201		$	3,404		$	39,451		$	—		$	46,056

42

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the year end December 31, 2009

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	115,493		$	9,966		$	51,269		$	(60,528	)	$	116,200
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss (gain) on disposal of discontinued operations	143			(551		)	427			—			19
Equity losses of unconsolidated subsidiaries	—			1,379			—			—			1,379
Depreciation	8,166			30,506			26,151			—			64,823
Amortization	14,332			15,752			10,573			—			40,657
Earnings from investments in subsidiaries	(60,528		)	—			—			60,528			—
Deferred income taxes	8,223			18,582			3,811			—			30,616
Stock compensation	17,324			—			—			—			17,324
Excess tax benefits from stock-based compensation	(1,746		)	—			—			—			(1,746		)
(Gain) loss on sale of assets	(1,389		)	—			2,374			—			985
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable	(1,456		)	10,492			7,484			(5,213		)	11,307
Inventories	—			46,791			19,893			—			66,684
Prepaid expenses and other current assets	48,529			2,985			(37,221		)	1,909			16,202
Accounts payable	5,615			(18,623		)	(5,209		)	4,395			(13,822		)
Employee compensation and benefits	(1,385		)	(13,968		)	(7,078		)	—			(22,431		)
Accrued product claims and warranties	—			(7,645		)	205			—			(7,440		)
Income taxes	(10,921		)	6,917			5,976			—			1,972
Other current liabilities	(29,030		)	(15,312		)	25,118			(1,857		)	(21,081		)
Pension and post-retirement benefits	(30,630		)	(11,716		)	2,739			—			(39,607		)
Other assets and liabilities	(19,117		)	39,226			(22,250		)	—			(2,141		)
Net cash provided by (used for) continuing operations	61,623			114,781			84,262			(766		)	259,900
Net cash provided by (used for) operating activities of discontinued operations	(30		)	(1,590		)	89			—			(1,531		)
Net cash provided by (used for) operating activities	61,593			113,191			84,351			(766		)	258,369
Investing activities
Capital expenditures	(2,237		)	(19,676		)	(32,224		)	—			(54,137		)
Proceeds from sale of property and equipment	—			446			762			—			1,208
Divestitures	404			1,002			161			—			1,567
Other	7			—			(3,231		)	—			(3,224		)
Net cash provided by (used for) investing activities	(1,826		)	(18,228		)	(34,532		)	—			(54,586		)
Financing activities
Net short-term borrowings	2,205			115			(115		)	—			2,205
Proceeds from long-term debt	580,000			—			—			—			580,000
Repayment of long-term debt	(730,304		)	—			—			—			(730,304		)
Debt issuance costs	(50		)	—			—			—			(50		)
Net change in advances to subsidiaries	152,482			(110,046		)	(43,201		)	765			—
Excess tax benefits from stock-based compensation	1,746			—			—			—			1,746
Stock issued to employees, net of shares withheld	8,247			—			—			—			8,247
Dividends paid	(63,686		)	5,313			(12,554		)	—			(70,927		)
Net cash provided by (used for) financing activities	(49,360		)	(104,618		)	(55,870		)	765			(209,083		)
Effect of exchange rate changes on cash and cash equivalents	(11,095		)	8,123			2,323			1			(648		)
Change in cash and cash equivalents	(688		)	(1,532		)	(3,728		)	—			(5,948		)
Cash and cash equivalents, beginning of period	2,720			3,345			33,279			—			39,344
Cash and cash equivalents, end of period	$	2,032		$	1,813		$	29,551		$	—		$	33,396

43

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the year end December 31, 2008

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	228,734		$	122,609		$	74,120		$	(194,296	)	$	231,167
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss (income) from discontinued operations	—			6,597			(814		)	—			5,783
(Gain) loss on disposal of discontinued operations	(243		)	21,292			797			—			21,846
Equity (income) losses of unconsolidated subsidiaries	—			3,041			—			—			3,041
Depreciation	1,305			38,338			20,030			—			59,673
Amortization	2,567			18,384			6,657			—			27,608
Earnings from investments in subsidiaries	(194,296		)	—			—			194,296			—
Deferred income taxes	(10,925		)	45,449			6,230			—			40,754
Stock compensation	20,572			—			—			—			20,572
Excess tax benefits from stock-based compensation	(1,617		)	—			—			—			(1,617		)
Other	510			—			—			—			510
(Gain) loss on sale of assets	—			(109,648		)	—			—			(109,648		)
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable	1,895			(16,784		)	36,884			(40,242		)	(18,247		)
Inventories	—			(23,930		)	(9,381		)	—			(33,311		)
Prepaid expenses and other current assets	(51,789		)	285			30,913			(6,803		)	(27,394		)
Accounts payable	(4,813		)	(6,296		)	17,626			(8,490		)	(1,973		)
Employee compensation and benefits	(6,435		)	(15,616		)	132			—			(21,919		)
Accrued product claims and warranties	—			(6,812		)	(474		)	—			(7,286		)
Income taxes	43,567			(37,278		)	(10,698		)	—			(4,409		)
Other current liabilities	27,240			2			(25,085		)	6,830			8,987
Pension and post-retirement benefits	5,135			(7,746		)	2,912			—			301
Other assets and liabilities	39,526			8,655			(30,007		)	—			18,174
Net cash provided by (used for) continuing operations	100,933			40,542			119,842			(48,705		)	212,612
Net cash provided by (used for) operating activities of discontinued operations	—			(10,239		)	1,842			—			(8,397		)
Net cash provided by (used for) operating activities	100,933			30,303			121,684			(48,705		)	204,215
Investing activities
Capital expenditures	(4,177		)	(34,371		)	(14,541		)	—			(53,089		)
Proceeds from sale of property and equipment	—			288			4,453			—			4,741
Acquisitions, net of cash acquired	(2,046		)	—			19			—			(2,027		)
Divestitures	—			36,574			1,333			—			37,907
Other	(12		)	—			—			—			(12		)
Net cash provided by (used for) investing activities	(6,235		)	2,491			(8,736		)	—			(12,480		)
Financing activities
Net short-term borrowings	(16,994		)	—			—			—			(16,994		)
Proceeds from long-term debt	715,000			—			—			—			715,000
Repayment of long-term debt	(805,016		)	—			—			—			(805,016		)
Debt issuance costs	(114		)	—			—			—			(114		)
Net change in advances to subsidiaries	107,951			(76,635		)	(80,024		)	48,708			—
Excess tax benefits from stock-based compensation	1,617			—			—			—			1,617
Stock issued to employees, net of shares withheld	5,590			—			—			—			5,590
Repurchases of common stock	(50,000		)	—			—			—			(50,000		)
Dividends paid	(56,631		)	39,193			(49,846		)	—			(67,284		)
Net cash provided by (used for) financing activities	(98,597		)	(37,442		)	(129,870		)	48,708			(217,201		)
Effect of exchange rate changes on cash and cash equivalents	154			(2,858		)	(3,281		)	—			(5,985		)
Change in cash and cash equivalents	(3,745		)	(7,506		)	(20,203		)	3			(31,451		)
Cash and cash equivalents, beginning of period	6,465			10,848			53,482			—			70,795
Cash and cash equivalents, end of period	$	2,720		$	3,342		$	33,279		$	3		$	39,344

44

Schedule II — Valuation and Qualifying Accounts

Pentair, Inc and subsidiaries

			Additions
	Balance		Charged to					Other			Balance
	Beginning		Costs and					Changes			End
in thousands	in Period		Expenses		Deductions			Add (deduct)			of Period
Allowances for doubtful accounts
Year ended December 31, 2010	$	14,154	$	4,300	$	1,152	(1)	$	(183	)(2)	$	17,119
Year ended December 31, 2009	$	8,925	$	6,832	$	2,449	(1)	$	846	(2)	$	14,154
Year ended December 31, 2008	$	8,073	$	3,044	$	1,629	(1)	$	(563	)(2)	$	8,925

(1) Uncollectible accounts written off, net of expense

(2) Result of acquisitions and foreign currency effects

45

EX-99.2

Exhibit 99.2

The following information replaces Item 1 (Financial Statements) previously filed by Pentair, Inc. in its Quarterly Report on Form 10-Q for the quarter ended April 2, 2011.  All other portions of such Quarterly Report on Form 10-Q are unchanged.

PART I FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

	Three months ended
	April 2,			April 3,
In thousands, except per-share data	2011			2010
Net sales	$	790,273		$	707,013
Cost of goods sold	541,214			493,311
Gross profit	249,059			213,702
Selling, general and administrative	144,760			132,890
Research and development	18,122			17,211
Operating income	86,177			63,601
Other (income) expense:
Equity income of unconsolidated subsidiaries	(235		)	(84		)
Net interest expense	9,325			9,527
Income from continuing operations before income taxes and noncontrolling interest	77,087			54,158
Provision for income taxes	25,053			18,129
Income from continuing operations	52,034			36,029
Gain on disposal of discontinued operations, net of tax	—			524
Net income before noncontrolling interest	52,034			36,553
Noncontrolling interest	1,493			1,232
Net income attributable to Pentair, Inc.	$	50,541		$	35,321
Net income from continuing operations attributable to Pentair, Inc.	$	50,541		$	34,797
Earnings per common share attributable to Pentair, Inc.
Basic
Continuing operations	$	0.52		$	0.35
Discontinued operations	—			0.01
Basic earnings per common share	$	0.52		$	0.36
Diluted
Continuing operations	$	0.51		$	0.35
Discontinued operations	—			0.01
Diluted earnings per common share	$	0.51		$	0.36
Weighted average common shares outstanding
Basic	98,098			98,030
Diluted	99,670			99,568
Cash dividends declared per common share	$	0.20		$	0.19

See accompanying notes to condensed consolidated financial statements.

1

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

	April 2,		December 31,			April 3,
In thousands, except share and per-share data	2011		2010			2010
Assets
Current assets
Cash and cash equivalents	$	57,134	$	46,056		$	46,783
Accounts and notes receivable, net	625,856		516,905			550,830
Inventories	411,767		405,356			363,667
Deferred tax assets	56,370		56,349			49,665
Prepaid expenses and other current assets	57,950		44,631			43,580
Total current assets	1,209,077		1,069,297			1,054,525
Property, plant and equipment, net	338,610		329,435			330,201
Other assets
Goodwill	2,097,428		2,066,044			2,067,836
Intangibles, net	461,244		453,570			472,398
Other	56,328		55,187			56,224
Total other assets	2,615,000		2,574,801			2,596,458
Total assets	$	4,162,687	$	3,973,533		$	3,981,184
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	6,093	$	4,933		$	3,731
Current maturities of long-term debt	13		18			51
Accounts payable	256,492		262,357			229,502
Employee compensation and benefits	84,043		107,995			77,496
Current pension and post-retirement benefits	8,733		8,733			8,948
Accrued product claims and warranties	43,418		42,295			37,803
Income taxes	20,492		5,964			8,571
Accrued rebates and sales incentives	29,546		33,559			24,653
Other current liabilities	97,531		80,942			86,763
Total current liabilities	546,361		546,796			477,518
Other liabilities
Long-term debt	802,321		702,521			862,351
Pension and other retirement compensation	216,592		209,859			231,733
Post-retirement medical and other benefits	29,459		30,325			30,630
Long-term income taxes payable	23,548		23,507			25,720
Deferred tax liabilities	175,877		169,198			145,777
Other non-current liabilities	86,085		86,295			95,399
Total liabilities	1,880,243		1,768,501			1,869,128
Commitments and contingencies
Shareholders’ equity
Common shares par value $0.16 2/3; 98,419,314, 98,409,192 and 98,650,967 shares issued and outstanding, respectively	16,403		16,401			16,441
Additional paid-in capital	476,930		474,489			475,135
Retained earnings	1,655,302		1,624,605			1,518,726
Accumulated other comprehensive income (loss)	18,525		(22,342		)	(11,801		)
Noncontrolling interest	115,284		111,879			113,555
Total shareholders’ equity	2,282,444		2,205,032			2,112,056
Total liabilities and shareholders’ equity	$	4,162,687	$	3,973,533		$	3,981,184

See accompanying notes to condensed consolidated financial statements.

2

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

	Three months ended
	April 2,			April 3,
In thousands	2011			2010
Operating activities
Net income before noncontrolling interest	$	52,034		$	36,553
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Gain on disposal of discontinued operations	—			(524		)
Equity income of unconsolidated subsidiaries	(235		)	(84		)
Depreciation	15,224			14,564
Amortization	6,401			6,746
Deferred income taxes	3,845			1,617
Stock compensation	5,725			6,802
Excess tax benefits from stock-based compensation	(557		)	(980		)
Loss (gain) on sale of assets	7			(147		)
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable	(101,505		)	(99,054		)
Inventories	(708		)	(5,525		)
Prepaid expenses and other current assets	(8,946		)	2,826
Accounts payable	(11,992		)	22,479
Employee compensation and benefits	(28,759		)	1,694
Accrued product claims and warranties	883			3,647
Income taxes	14,506			3,446
Other current liabilities	8,248			(1,584		)
Pension and post-retirement benefits	1,619			(426		)
Other assets and liabilities	(3,970		)	(2,363		)
Net cash provided by (used for) operating activities	(48,180		)	(10,313		)
Investing activities
Capital expenditures	(13,268		)	(12,059		)
Proceeds from sale of property and equipment	42			127
Acquisitions, net of cash acquired	(14,856		)	—
Other	58			292
Net cash provided by (used for) investing activities	(28,024		)	(11,640		)
Financing activities
Net short-term borrowings	1,160			1,526
Proceeds from long-term debt	249,366			200,000
Repayment of long-term debt	(150,000		)	(141,025		)
Excess tax benefits from stock-based compensation	557			980
Stock issued to employees, net of shares withheld	(37		)	(1,938		)
Repurchases of common stock	(287		)	—
Dividends paid	(19,844		)	(18,837		)
Net cash provided by (used for) financing activities	80,915			40,706
Effect of exchange rate changes on cash and cash equivalents	6,367			(5,366		)
Change in cash and cash equivalents	11,078			13,387
Cash and cash equivalents, beginning of period	46,056			33,396
Cash and cash equivalents, end of period	$	57,134		$	46,783

See accompanying notes to condensed consolidated financial statements.

3

Pentair, Inc.

Condensed Consolidated Statements of Changes in Shareholders’ Equity (unaudited)

												Accumulated											Comprehensive
						Additional						other											income
In thousands, except share	Common shares					paid-in			Retained			comprehensive			Total			Noncontrolling					attributable
and per-share data	Number		Amount			capital			earnings			income (loss)			Pentair, Inc.			interest		Total			to Pentair, Inc.
Balance - December 31, 2010	98,409,192		$	16,401		$	474,489		$	1,624,605		$	(22,342	)	$	2,093,153		$	111,879	$	2,205,032
Net income									50,541						50,541			1,493		52,034			$	50,541
Change in cumulative translation adjustment												39,410			39,410			1,912		41,322			39,410
Changes in market value of derivative financial instruments, net of $758 tax												1,457			1,457					1,457			1,457
Comprehensive income																							$	91,408
Cash dividends - $0.20 per common share									(19,844		)				(19,844		)			(19,844		)
Share repurchase	(7,826	)	(1		)	(286		)							(287		)			(287		)
Exercise of stock options, net of 1,825 shares tendered for payment	48,587		8			1,112									1,120					1,120
Issuance of restricted shares, net of cancellations	37,638		6			1,367									1,373					1,373
Amortization of restricted shares						330									330					330
Shares surrendered by employees to pay taxes	(68,277	)	(11		)	(2,520		)							(2,531		)			(2,531		)
Stock compensation						2,438									2,438					2,438
Balance - April 2, 2011	98,419,314		$	16,403		$	476,930		$	1,655,302		$	18,525		$	2,167,160		$	115,284	$	2,282,444

												Accumulated												Comprehensive
						Additional						other												income
In thousands, except share	Common shares					paid-in			Retained			comprehensive			Total			Noncontrolling						attributable
and per-share data	Number		Amount			capital			earnings			income (loss)			Pentair, Inc.			interest			Total			to Pentair, Inc.
Balance - December 31, 2009	98,655,506		$	16,442		$	472,807		$	1,502,242		$	20,597		$	2,012,088		$	114,252		$	2,126,340
Net income									35,321						35,321			1,232			36,553			$	35,321
Change in cumulative translation adjustment												(31,827		)	(31,827		)	(1,929		)	(33,756		)	(31,827		)
Changes in market value of derivative financial instruments, net of ($357) tax												(571		)	(571		)				(571		)	(571		)
Comprehensive income																								$	2,923
Cash dividends - $0.19 per common share									(18,837		)				(18,837		)				(18,837		)
Share repurchases
Exercise of stock options, net of 19,141 shares tendered for payment	107,672		18			1,523									1,541						1,541
Issuance of restricted shares, net of cancellations	6,648		1			508									509						509
Amortization of restricted shares						1,171									1,171						1,171
Shares surrendered by employees to pay taxes	(118,859	)	(20		)	(3,970		)							(3,990		)				(3,990		)
Stock compensation						3,096									3,096						3,096
Balance - April 3, 2010	98,650,967		$	16,441		$	475,135		$	1,518,726		$	(11,801	)	$	1,998,501		$	113,555		$	2,112,056

See accompanying notes to condensed consolidated financial statements

4

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 2010 Annual Report on Form 10-K for the year ended December 31, 2010.

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

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

In connection with preparing the unaudited condensed consolidated financial statements for the three months ended April 2, 2011, we have evaluated subsequent events for potential recognition and disclosure through the date of this filing.

2.New Accounting Standards

There were no new accounting pronouncements issued or effective during the first three months of 2011 which have had or are expected to have a material impact on the Consolidated Financial Statements.

3.Stock-based Compensation

Total stock-based compensation expense was $5.7 million and $6.8 million for the first quarter of 2011 and 2010, respectively.

During the first quarter of 2011, restricted shares and restricted stock units of our common stock were granted under the 2008 Omnibus Stock Incentive Plan to eligible employees with a vesting period of three to four years after issuance.  Restricted share awards and restricted stock units are valued at market value on the date of grant and are typically expensed over the vesting period.  Total compensation expense for restricted share awards and restricted stock units during the first quarter of 2011 and 2010 was $3.3 million and $3.7 million, respectively.

During the first quarter of 2011, option awards were granted under the 2008 Omnibus Stock Incentive Plan with an exercise price equal to the market price of our common stock on the date of grant.  Option awards are typically expensed over the vesting period.  Total compensation expense for stock option awards was $2.4 million and $3.1 million for the first quarter of 2011 and 2010, 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:

	April 2,		April 3,
	2011		2010
Expected stock price volatility	35.5	%	35.0	%
Expected life	5.5 yrs		5.5 yrs
Risk-free interest rate	1.49	%	2.47	%
Dividend yield	2.33	%	2.30	%

The weighted-average fair value of options granted during the first quarter of 2011 and 2010 was $8.04 and $7.84 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 the accounting guidance could have been affected.

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

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 stock price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term.  The risk-free interest 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.

4.Earnings Per Common Share

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

	Three months ended
	April 2,	April 3,
In thousands	2011	2010
Weighted average common shares outstanding — basic	98,098	98,030
Dilutive impact of stock options and restricted stock	1,572	1,538
Weighted average common shares outstanding — diluted	99,670	99,568
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	2,191	4,821

5.Restructuring

Restructuring accrual activity recorded on the Condensed Consolidated Balance Sheets is summarized as follows for the periods ended April 2, 2011, December 31, 2010 and April 3, 2010:

	April 2,			December 31,			April 3,
In thousands	2011			2010			2010
Beginning balance	$	3,994		$	14,509		$	14,509
Cash payments and other	(866		)	(10,515		)	(5,286		)
Ending balance	$	3,128		$	3,994		$	9,223

6.Acquisitions

On January 31, 2011 we acquired as part of our Water Group all of the outstanding shares of capital stock of Hidro Filtros do Brasil (“Hidro Filtros”) for $17.0 million.  The Hidro Filtros results of operations have been included in our consolidated financial statements since the date of acquisition.  Hidro Filtros is a leading manufacturer of water filters and filtering elements for residential and industrial applications operating in Brazil and neighboring countries.  Goodwill recorded as part of the purchase price allocation was $10.1 million, none of which is tax deductible.  Identified intangible assets acquired as part of the acquisition were $6.3 million including definite-lived intangibles, primarily customer relationships, of $5.5 million with an estimated life of 13 years.  The proforma impact of this acquisition was deemed to be not material.

On April 2, 2011, we entered into a definitive agreement to acquire as part of our Water Group the Clean Process Technologies (“CPT”) division, from privately held Norit Holding, B.V.  The purchase price is €503 million (approximately $700 million based on the exchange rate on such date), plus an amount, which we expect to be minimal, equal to third party debt of CPT at closing less cash of CPT available to pay off such bank debt.  We intend to fund the CPT acquisition with a combination of cash, funds available under our revolving credit facility and new debt.

CPT is a global leader in membrane solutions and clean process technologies in the high growth water and beverage filtration and separation segments.  Supported by more than a century of innovation and expertise and backed by its own proprietary technology, CPT provides sustainable purification systems and solutions for desalination, water reuse, industrial applications and beverage segments that effectively address the increasing challenges of clean water scarcity, rising energy costs and pollution.  CPT’s product offerings include innovative ultrafiltration and nanofiltration membrane technologies, aseptic valves, CO2 recovery and control systems and specialty pumping equipment.  Based in the Netherlands, CPT has broad sales diversity with the majority of 2010 revenues generated in European Union countries and Asia-Pacific.

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

The CPT acquisition is expected to close in the second quarter of 2011, subject to satisfaction of customary conditions and applicable regulatory approval.

7.Inventories

Inventories were comprised of:

	April 2,		December 31,		April 3,
In thousands	2011		2010		2010
Raw materials and supplies	$	217,855	$	223,482	$	198,737
Work-in-process	45,553		37,748		39,985
Finished goods	148,359		144,126		124,945
Total inventories	$	411,767	$	405,356	$	363,667

8.Goodwill and Other Identifiable Intangible Assets

The changes in the carrying amount of goodwill for the three months ended April 2, 2011 and April 3, 2010 by segment were as follows:

In thousands	December 31, 2010		Acquisitions/ Divestitures		Foreign Currency Translation/Other		April 2, 2011
Water Group	$	1,784,100	$	10,078	$	17,589	$	1,811,767
Technical Products Group	281,944		—		3,717		285,661
Consolidated Total	$	2,066,044	$	10,078	$	21,306	$	2,097,428

In thousands	December 31, 2009		Acquisitions/ Divestitures		Foreign Currency Translation/Other			April 3, 2010
Water Group	$	1,802,913	$	—	$	(17,388	)	$	1,785,525
Technical Products Group	285,884		—		(3,573		)	282,311
Consolidated Total	$	2,088,797	$	—	$	(20,961	)	$	2,067,836

The detail of acquired intangible assets consisted of the following:

	April 2, 2011							December 31, 2010							April 3, 2010
	Gross							Gross							Gross
	carrying		Accumulated					carrying		Accumulated					carrying		Accumulated
In thousands	amount		amortization			Net		amount		amortization			Net		amount		amortization			Net
Finite-life intangibles
Patents	$	15,476	$	(13,003	)	$	2,473	$	15,469	$	(12,695	)	$	2,774	$	15,455	$	(11,796	)	$	3,659
Proprietary technology	74,169		(31,110		)	43,059		74,176		(29,862		)	44,314		72,965		(25,255		)	47,710
Customer relationships	292,920		(88,830		)	204,090		282,479		(82,901		)	199,578		283,577		(69,910		)	213,667
Trade names	1,557		(430		)	1,127		1,532		(383		)	1,149		1,537		(269		)	1,268
Total finite-life intangibles	$	384,122	$	(133,373	)	$	250,749	$	373,656	$	(125,841	)	$	247,815	$	373,534	$	(107,230	)	$	266,304
Indefinite-life intangibles
Trade names	210,495		—			210,495		205,755		—			205,755		206,094		—			206,094
Total intangibles, net	$	594,617	$	(133,373	)	$	461,244	$	579,411	$	(125,841	)	$	453,570	$	579,628	$	(107,230	)	$	472,398

Intangible asset amortization expense was approximately $6.4 million and $5.5 million for the three months ended April 2, 2011 and April 3, 2010, respectively.

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

The estimated future amortization expense for identifiable intangible assets during the remainder of 2011 and the next five years is as follows:

In thousands	Q2-Q4 2011		2012		2013		2014		2015		2016
Estimated amortization expense	$	19,193	$	24,849	$	24,376	$	24,052	$	23,753	$	23,636

9.Debt

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

	Average
	interest rate		Maturity	April 2,			December 31,			April 3,
In thousands	April 2, 2011		(Year)	2011			2010			2010
Revolving credit facilities	0.88	%	2012	$	197,300		$	97,500		$	257,300
Private placement - fixed rate	5.65	%	2013-2017	400,000			400,000			400,000
Private placement - floating rate	0.86	%	2012-2013	205,000			205,000			205,000
Other	3.01	%	2011-2016	6,127			4,972			3,833
Total debt, including current portion per balance sheet				808,427			707,472			866,133
Less: Current maturities				(13		)	(18		)	(51		)
Short-term borrowings				(6,093		)	(4,933		)	(3,731		)
Long-term debt				$	802,321		$	702,521		$	862,351

The fair value of total debt excluding the deferred gain on interest rate swaps, was $838.9 million, $745.9 million and $872.4 million as of April 2, 2011, December 31, 2010 and  April 3, 2010,  respectively.

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 bear interest at the rate of LIBOR plus 0.625%.  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.  Our use of commercial paper as a funding vehicle depends upon the relative interest rates for our commercial paper compared to the cost of borrowing under our Credit Facility.

Total availability under our existing Credit Facility was $602.7 million as of April 2, 2011, which was not limited by any of the credit agreement’s financial covenants as of that date.

In addition to the Credit Facility, we have $40.0 million of uncommitted credit facilities, under which we had $6.0 million of borrowings as of April 2, 2011.

Our debt agreements contain certain financial covenants, the most restrictive of which is a leverage ratio (total consolidated indebtedness, as defined, over consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), as defined) that may not exceed 3.5 to 1.0.  We were in compliance with all financial covenants in our debt agreements as of April 2, 2011.

Debt outstanding at April 2, 2011 matures on a calendar year basis as follows:

In thousands	Q2 -Q4  2011		2012		2013		2014		2015		2016		Thereafter		Total
Contractual debt obligation maturities	$	6,106	$	302,317	$	200,003	$	1	$	—	$	—	$	300,000	$	808,427

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

10.Derivatives and Financial Instruments

Fair value measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1:Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.

Level 2:Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3:Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

In making fair value measurements, observable market data must be used when available.  When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.

Cash-flow Hedges

In August 2007, we entered into a $105 million interest rate swap agreement with a major financial institution to exchange variable rate interest payment obligations for a fixed rate obligation without the exchange of the underlying principal amounts in order to manage interest rate exposures.  The effective date of the swap was August 30, 2007.  The swap agreement has a fixed interest rate of 4.89% and expires in May 2012. The fixed interest rate of 4.89% plus the .50% interest rate spread over LIBOR results in an effective fixed interest rate of 5.39%.  The fair value of the swap was a liability of $5.3 million, $6.4 million and $8.2 million at April 2, 2011, December 31, 2010 and April 3, 2010, respectively, and was recorded in Other non-current liabilities on the Condensed Consolidated Balance Sheets.

In September 2005, we entered into a $100 million interest rate swap agreement with several major financial institutions to exchange variable rate interest payment obligations for fixed rate obligations without the exchange of the underlying principal amounts in order to manage interest rate exposures.  The effective date of the fixed rate swap was April 25, 2006.  The swap agreement has a fixed interest rate of 4.68% and expires in July 2013.  The fixed interest rate of 4.68% plus the .60% interest rate spread over LIBOR results in an effective fixed interest rate of 5.28%.  The fair value of the swap was a liability of $8.3 million, $9.4 million and $9.0 million at April 2, 2011, December 31, 2010 and April 3, 2010, respectively, and was recorded in Other non-current liabilities on the Condensed Consolidated Balance Sheets.

The variable to fixed interest rate swaps are designated as cash-flow hedges. The fair value of these swaps are recorded as assets or liabilities on the Condensed Consolidated Balance Sheets. Unrealized income/expense is included in Accumulated other comprehensive income (“OCI”) and realized income/expense and amounts due to/from swap counterparties, are recorded in Net interest expense in our Condensed Consolidated Statements of  Income. We realized incremental expense resulting from the swaps of $2.4 million and $2.3 million for the three months ended April 2, 2011 and April 3, 2010, respectively.

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 Condensed Consolidated Balance Sheets, with changes in their fair value included in OCI.  Derivative gains and losses included in OCI are reclassified into earnings at the time the related interest expense is recognized or the settlement of the related commitment occurs.

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

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

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

In April 2011 as part of our planned debt issuance to fund the CPT acquisition, we have entered into interest rate swap contracts to hedge interest rates for a portion of the expected debt offering.  The swaps have a notional amount of $400 million, an average interest rate of 3.65% with an effective date of May 13, 2011.

Foreign currency contract

In March 2011, we entered into a foreign currency option contract to reduce our exposure to fluctuations in the euro related to our €503 million acquisition of CPT.  The contract has a notional amount of €286.0 million, a strike price of 1.4375 and a maturity date of May 13, 2011.  The fair value of the contract was an asset of $2.8 million at April 2, 2011 and was recorded in Prepaid expenses and other current assets on the Condensed Consolidated Balance Sheets.

We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative instruments. Our objective in holding derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates.

Fair value of financial information

Financial assets and liabilities measured at fair value on a recurring basis were as follows:

	Fair Value
In thousands	April 2, 2011		(Level 1)		(Level 2)		(Level 3)
Cash-flow hedges	$	13,540	$	—	$	13,540	$	—
Foreign currency contract	2,817		—		2,817		—
Deferred compensation plan (1)	24,580		24,580		—		—

	Fair Value
In thousands	December 31, 2010		(Level 1)		(Level 2)		(Level 3)
Cash-flow hedges	$	15,768	$	—	$	15,768	$	—
Foreign currency contract	1,183		—		1,183		—
Deferred compensation plan (1)	24,126		24,126		—		—

	Fair Value
In thousands	April 3, 2010		(Level 1)		(Level 2)		(Level 3)
Cash-flow hedges	$	17,270	$	—	$	17,270	$	—
Deferred compensation plan (1)	23,229		23,229		—		—

(1)Deferred compensation plan assets include mutual funds and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees.  The fair value of these assets was based on quoted market prices.

11.Income Taxes

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

The effective income tax rate for the three months ended April 2, 2011 was 32.5% compared to 33.5% for the three months ended April 3, 2010.  We expect the effective tax rate for the remainder of 2011 to be between 32% and 32.5%, resulting in a full year effective income tax rate of between 32% and 32.5%.  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 was $24.5 million, $24.3 million and $28.7 million at April 2, 2011, December 31, 2010 and April 3, 2010, respectively.  We record penalties and interest related to unrecognized tax benefits in Provision for income

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

taxes and Net interest expense, respectively, on the Condensed Consolidated Statements of Income, which is consistent with our past practices.

12. Benefit Plans

Components of net periodic benefit cost (income) for the three months ended April 2, 2011 and April 3, 2010 were as follows:

	Three months ended
	Pension benefits						Post-retirement
	April 2,			April 3,			April 2,			April 3,
In thousands	2011			2010			2011			2010
Service cost	$	3,130		$	2,886		$	45		$	50
Interest cost	8,225			7,887			472			503
Expected return on plan assets	(7,963		)	(7,710		)	—			—
Amortization of transition obligation	—			6			—			—
Amortization of prior year service cost (benefit)	—			8			(7		)	(7		)
Recognized net actuarial loss (gains)	971			406			(826		)	(823		)
Net periodic benefit cost (income)	$	4,363		$	3,483		$	(316	)	$	(277	)

13.Business Segments

Financial information by reportable segment for the three months ended April 2, 2011 and April 3, 2010 is shown below:

	Three months ended
	April 2,			April 3,
In thousands	2011			2010
Net sales to external customers
Water Group	$	515,368		$	478,038
Technical Products Group	274,905			228,975
Consolidated	$	790,273		$	707,013
Intersegment sales
Water Group	$	455		$	517
Technical Products Group	999			703
Other	(1,454		)	(1,220		)
Consolidated	$	—		$	—
Operating income (loss)
Water Group	$	56,528		$	42,138
Technical Products Group	48,087			33,098
Other	(18,438		)	(11,635		)
Consolidated	$	86,177		$	63,601

14.Warranty

The changes in the carrying amount of service and product warranties for the three months ended April 2, 2011 and April 3, 2010 and the year ended December 31, 2010 were as follows:

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Pentair, Inc. and Subsidiaries

Notes to condensed consolidated financial statements (unaudited)

	April 2,			December 31,			April 3,
In thousands	2011			2010			2010
Balance at beginning of the year	$	30,050		$	24,288		$	24,288
Service and product warranty provision	11,769			56,553			14,924
Payments	(10,886		)	(50,729		)	(11,276		)
Acquired	40			—			—
Translation	197			(62		)	(133		)
Balance at end of the period	$	31,170		$	30,050		$	27,803

15.Commitments and Contingencies

There have been no further material developments from the disclosures contained in our 2010 Annual Report on Form 10-K.

16.          Financial Statements of Subsidiary Guarantors

Pentair (the “Parent Company”) expects that certain of its domestic subsidiaries (the “Guarantor Subsidiaries”), each of which is directly or indirectly wholly-owned by the Parent Company will jointly and severally, and fully and unconditionally, guarantee certain long-term indebtedness of the Parent Company.  The following supplemental financial information sets forth the Condensed Consolidated Balance Sheets as of April 2, 2011, December 31, 2010 and April 3, 2010, the related Condensed Consolidated Statements of Income for the three months ended April 2, 2011 and April 3, 2010, and Statements of Cash Flows for the three months ended April 3, 2011 and April 3, 2010, for the Parent Company, the Guarantor Subsidiaries, the Non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries.

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the period ended April 2, 2011

	Parent			Guarantor		Non-Guarantor
In thousands	Company			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	515,054	$	341,578		$	(66,359	)	$	790,273
Cost of goods sold	—			355,561		251,730			(66,077		)	541,214
Gross profit	—			159,493		89,848			(282		)	249,059
Selling, general and administrative	6,606			85,119		53,317			(282		)	144,760
Research and development	170			10,846		7,106			—			18,122
Operating (loss) income	(6,776		)	63,528		29,425			—			86,177
Earnings from investment in subsidiaries	(37,306		)	—		—			37,306			—
Other (income) expense:
Equity income of unconsolidated subsidiaries	(176		)	—		(59		)	—			(235		)
Net interest (income) expense	(27,379		)	38,485		(1,781		)	—			9,325
Income (loss) from continuing operations before income taxes and noncontrolling interest	58,085			25,043		31,265			(37,306		)	77,087
Provision for income taxes	7,544			8,481		9,028			—			25,053
Income from continuing operations	50,541			16,562		22,237			(37,306		)	52,034
Net income before noncontrolling interest	50,541			16,562		22,237			(37,306		)	52,034
Noncontrolling interest	—			—		1,493			—			1,493
Net income attributable to Pentair, Inc.	$	50,541		$	16,562	$	20,744		$	(37,306	)	$	50,541
Net income from continuing operations attributable to Pentair, Inc.	$	50,541		$	16,562	$	20,744		$	(37,306	)	$	50,541

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Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the period ended April 3, 2010

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	476,355		$	290,430		$	(59,772	)	$	707,013
Cost of goods sold	—			331,723			221,149			(59,561		)	493,311
Gross profit	—			144,632			69,281			(211		)	213,702
Selling, general and administrative	(992		)	80,528			53,565			(211		)	132,890
Research and development	136			10,844			6,231			—			17,211
Operating income	856			53,260			9,485			—			63,601
Earnings from investment in subsidiaries	(17,160		)	—			—			17,160			—
Other (income) expense:
Equity income of unconsolidated subsidiaries	—			(84		)	—			—			(84		)
Net interest (income) expense	(27,281		)	38,494			(1,686		)	—			9,527
Income (loss) from continuing operations before income taxes and noncontrolling interest	45,297			14,850			11,171			(17,160		)	54,158
Provision for income taxes	10,500			5,264			2,365			—			18,129
Income from continuing operations	34,797			9,586			8,806			(17,160		)	36,029
Gain on disposal of discontinued operations, net of tax	524			—			—			—			524
Net income before noncontrolling interest	35,321			9,586			8,806			(17,160		)	36,553
Noncontrolling interest	—			—			1,232			—			1,232
Net income attributable to Pentair, Inc.	$	35,321		$	9,586		$	7,574		$	(17,160	)	$	35,321
Net income from continuing operations attributable to Pentair, Inc.	$	34,797		$	9,586		$	7,574		$	(17,160	)	$	34,797

13

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

April 2, 2011

	Parent			Guarantor			Non-Guarantor
In thousands	Company			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	4,685		$	3,002		$	49,447	$	—		$	57,134
Accounts and notes receivable, net	920			396,800			296,182		(68,046		)	625,856
Inventories	—			199,662			212,105		—			411,767
Deferred tax assets	113,937			40,064			9,032		(106,663		)	56,370
Prepaid expenses and other current assets	12,344			7,471			52,328		(14,193		)	57,950
Total current assets	131,886			646,999			619,094		(188,902		)	1,209,077
Property, plant and equipment, net	20,002			112,276			206,332		—			338,610
Other assets
Investments in/advances to subsidiaries	2,376,211			92,230			785,383		(3,253,824		)	—
Goodwill	—			1,471,582			625,846		—			2,097,428
Intangibles, net	—			220,344			240,900		—			461,244
Other	55,588			4,167			21,622		(25,049		)	56,328
Total other assets	2,431,799			1,788,323			1,673,751		(3,278,873		)	2,615,000
Total assets	$	2,583,687		$	2,547,598		$	2,499,177	$	(3,467,775	)	$	4,162,687
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	6,093	$	—		$	6,093
Current maturities of long-term debt	118,836			(13		)	29,684		(148,494		)	13
Accounts payable	9,445			148,024			167,071		(68,048		)	256,492
Employee compensation and benefits	24,218			19,759			40,066		—			84,043
Current pension and post-retirement benefits	8,733			—			—		—			8,733
Accrued product claims and warranties	12,248			22,121			9,049		—			43,418
Income taxes	2,318			7,524			10,650		—			20,492
Accrued rebates and sales incentives	—			21,560			7,986		—			29,546
Other current liabilities	15,551			31,461			64,710		(14,191		)	97,531
Total current liabilities	191,349			250,436			335,309		(230,733		)	546,361
Other liabilities
Long-term debt	802,300			1,947,379			399,205		(2,346,563		)	802,321
Pension and other retirement compensation	138,135			501			77,956		—			216,592
Post-retirement medical and other benefits	18,135			36,373			—		(25,049		)	29,459
Long-term income taxes payable	23,548			—			—		—			23,548
Deferred tax liabilities	25			213,385			69,130		(106,663		)	175,877
Due to/ (from) affiliates	(802,224		)	(160,911		)	948,590		14,545			—
Other non-current liabilities	45,259			1,797			39,029		—			86,085
Total liabilities	416,527			2,288,960			1,869,219		(2,694,463		)	1,880,243
Noncontrolling interest	—			—			115,284		—			115,284
Shareholders’ equity attributable to Pentair, Inc.	2,167,160			258,638			514,674		(773,312		)	2,167,160
Total liabilities and shareholders’ equity	$	2,583,687		$	2,547,598		$	2,499,177	$	(3,467,775	)	$	4,162,687

14

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

December 31, 2010

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	3,201		$	3,404		$	39,451	$	—		$	46,056
Accounts and notes receivable, net	678			357,730			222,319		(63,822		)	516,905
Inventories	—			232,369			172,987		—			405,356
Deferred tax assets	115,722			40,064			7,928		(107,365		)	56,349
Prepaid expenses and other current assets	8,278			10,098			51,497		(25,242		)	44,631
Total current assets	127,879			643,665			494,182		(196,429		)	1,069,297
Property, plant and equipment, net	17,392			144,332			167,711		—			329,435
Other assets
Investments in/advances to subsidiaries	2,355,343			89,659			748,181		(3,193,183		)	—
Goodwill	—			1,549,537			516,507		—			2,066,044
Intangibles, net	—			265,987			187,583		—			453,570
Other	56,052			4,045			20,139		(25,049		)	55,187
Total other assets	2,411,395			1,909,228			1,472,410		(3,218,232		)	2,574,801
Total assets	$	2,556,666		$	2,697,225		$	2,134,303	$	(3,414,661	)	$	3,973,533
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	4,933	$	—		$	4,933
Current maturities of long-term debt	135,678			—			18,154		(153,814		)	18
Accounts payable	4,908			170,747			150,517		(63,815		)	262,357
Employee compensation and benefits	38,513			32,167			37,315		—			107,995
Current pension and post-retirement benefits	8,733			—			—		—			8,733
Accrued product claims and warranties	12,245			23,410			6,640		—			42,295
Income taxes	4,788			633			543		—			5,964
Accrued rebates and sales incentives	—			23,500			10,059		—			33,559
Other current liabilities	9,772			33,227			63,185		(25,242		)	80,942
Total current liabilities	214,637			283,684			291,346		(242,871		)	546,796
Other liabilities
Long-term debt	702,500			1,947,400			377,539		(2,324,918		)	702,521
Pension and other retirement compensation	136,750			112			72,997		—			209,859
Post-retirement medical and other benefits	18,388			36,986			—		(25,049		)	30,325
Long-term income taxes payable	23,507			—			—		—			23,507
Deferred tax liabilities	5			213,385			63,173		(107,365		)	169,198
Due to/ (from) affiliates	(678,966		)	(80,779		)	810,652		(50,907		)	—
Other non-current liabilities	46,692			1,892			37,711		—			86,295
Total liabilities	463,513			2,402,680			1,653,418		(2,751,110		)	1,768,501
Noncontrolling interest	—			—			111,879		—			111,879
Shareholders' equity attributable to Pentair, Inc.	2,093,153			294,545			369,006		(663,551		)	2,093,153
Total liabilities and shareholders' equity	$	2,556,666		$	2,697,225		$	2,134,303	$	(3,414,661	)	$	3,973,533

15

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

April 3, 2010

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	3,025		$	3,475		$	40,283		$	—		$	46,783
Accounts and notes receivable, net	1,203			344,850			258,048			(53,271		)	550,830
Inventories	—			195,190			168,477			—			363,667
Deferred tax assets	121,399			35,222			6,721			(113,677		)	49,665
Prepaid expenses and other current assets	10,250			8,898			35,479			(11,047		)	43,580
Total current assets	135,877			587,635			509,008			(177,995		)	1,054,525
Property, plant and equipment, net	12,119			116,676			201,406			—			330,201
Other assets
Investments in/advances to subsidiaries	2,358,246			94,051			711,247			(3,163,544		)	—
Goodwill	—			1,471,582			596,254			—			2,067,836
Intangibles, net	—			233,575			238,823			—			472,398
Other	61,617			4,548			17,904			(27,845		)	56,224
Total other assets	2,419,863			1,803,756			1,564,228			(3,191,389		)	2,596,458
Total assets	$	2,567,859		$	2,508,067		$	2,274,642		$	(3,369,384	)	$	3,981,184
Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	3,731		$	—		$	3,731
Current maturities of long-term debt	90,000			(26		)	20,685			(110,608		)	51
Accounts payable	6,880			126,364			149,520			(53,262		)	229,502
Employee compensation and benefits	17,737			23,443			36,316			—			77,496
Current pension and post-retirement benefits	8,948			—			—			—			8,948
Accrued product claims and warranties	—			19,072			18,731			—			37,803
Income taxes	(1,161		)	10,561			(829		)	—			8,571
Accrued rebates and sales incentives	—			17,561			7,092			—			24,653
Other current liabilities	20,972			36,103			40,741			(11,053		)	86,763
Total current liabilities	143,376			233,078			275,987			(174,923		)	477,518
Other liabilities
Long-term debt	862,300			1,947,432			382,087			(2,329,468		)	862,351
Pension and other retirement compensation	150,378			9,264			72,091			—			231,733
Post-retirement medical and other benefits	19,244			39,231			—			(27,845		)	30,630
Long-term income taxes payable	25,720			—			—			—			25,720
Deferred tax liabilities	637			198,892			59,925			(113,677		)	145,777
Due to/ (from) affiliates	(676,791		)	(141,741		)	931,678			(113,146		)	—
Other non-current liabilities	44,494			4,294			46,611			—			95,399
Total liabilities	569,358			2,290,450			1,768,379			(2,759,059		)	1,869,128
Noncontrolling interest	—			—			113,555			—			113,555
Shareholders’ equity attributable to Pentair, Inc.	1,998,501			217,617			392,708			(610,325		)	1,998,501
Total liabilities and shareholders’ equity	$	2,567,859		$	2,508,067		$	2,274,642		$	(3,369,384	)	$	3,981,184

16

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the period ended April 2, 2011

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	50,541		$	16,562		$	22,237		$	(37,306	)	$	52,034
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Equity (income) losses of unconsolidated subsidiaries	(176		)	—			(59		)	—			(235		)
Depreciation	1,189			7,056			6,979			—			15,224
Amortization	(12		)	3,872			2,541			—			6,401
Earnings from investments in subsidiaries	(37,306		)	—			—			37,306			—
Deferred income taxes	3,568			—			277			—			3,845
Stock compensation	5,725			—			—			—			5,725
Excess tax benefits from stock-based compensation	(557		)	—			—			—			(557		)
Loss on sale of assets	7			—			—			—			7
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable	(4,834		)	(44,822		)	(56,080		)	4,231			(101,505		)
Inventories	—			36,134			(36,842		)	—			(708		)
Prepaid expenses and other current assets	36,766			2,789			(37,452		)	(11,049		)	(8,946		)
Accounts payable	6,676			(28,954		)	14,519			(4,233		)	(11,992		)
Employee compensation and benefits	(17,251		)	(13,544		)	2,036			—			(28,759		)
Accrued product claims and warranties	—			(1,498		)	2,381			—			883
Income taxes	7,917			2,477			4,112			—			14,506
Other current liabilities	(44,480		)	(4,785		)	46,462			11,051			8,248
Pension and post-retirement benefits	1,132			(485		)	972			—			1,619
Other assets and liabilities	(41,206		)	42,583			(5,347		)	—			(3,970		)
Net cash provided by (used for) operating activities	(32,301		)	17,385			(33,264		)	—			(48,180		)
Investing activities
Capital expenditures	(1,129		)	(6,112		)	(6,027		)	—			(13,268		)
Proceeds from sale of property and equipment	—			23			19			—			42
Acquisitions, net of cash acquired	—			—			(14,856		)	—			(14,856		)
Other	234			(176		)	—			—			58
Net cash provided by (used for) investing activities	(895		)	(6,265		)	(20,864		)	—			(28,024		)
Financing activities
Net short-term borrowings	1,160			(33		)	33			—			1,160
Proceeds from long-term debt	249,366			—			—			—			249,366
Repayment of long-term debt	(150,000		)	—			—			—			(150,000		)
Net change in advances to subsidiaries	(15,920		)	(104,670		)	120,590			—			—
Excess tax benefits from stock-based compensation	557			—			—			—			557
Stock issued to employees, net of shares withheld	(37		)	—			—			—			(37		)
Repurchases of common stock	(287		)										(287		)
Dividends paid	(19,835		)	—			(9		)	—			(19,844		)
Net cash provided by (used for) financing activities	65,004			(104,703		)	120,614			—			80,915
Effect of exchange rate changes on cash and cash equivalents	(30,324		)	93,181			(56,490		)	—			6,367
Change in cash and cash equivalents	1,484			(402		)	9,996			—			11,078
Cash and cash equivalents, beginning of period	3,201			3,404			39,451			—			46,056
Cash and cash equivalents, end of period	$	4,685		$	3,002		$	49,447		$	—		$	57,134

17

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the period ended April 3, 2010

	Parent			Guarantor			Non- Guarantor
In thousands	Company			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	35,321		$	9,586		$	8,806		$	(17,160	)	$	36,553
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Gain on disposal of discontinued operations	(524		)	—			—			—			(524		)
Equity income of unconsolidated subsidiaries	—			(84		)	—			—			(84		)
Depreciation	434			7,757			6,373			—			14,564
Amortization	291			3,899			2,556			—			6,746
Earnings from investments in subsidiaries	(17,160		)	—						17,160			—
Deferred income taxes	1,293			28			296			—			1,617
Stock compensation	6,802			—			—			—			6,802
Excess tax benefits from stock-based compensation	(980		)	—			—			—			(980		)
Gain on sale of assets	(147		)	—			—			—			(147		)
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable	2,237			(86,078		)	(15,821		)	608			(99,054		)
Inventories	—			(1,152		)	(4,373		)	—			(5,525		)
Prepaid expenses and other current assets	27,302			(2,265		)	(15,354		)	(6,857		)	2,826
Accounts payable	(2,862		)	21,752			4,110			(521		)	22,479
Employee compensation and benefits	(1,455		)	(1,215		)	4,364			—			1,694
Accrued product claims and warranties	—			3,455			192			—			3,647
Income taxes	(17,797		)	24,262			(3,019		)	—			3,446
Other current liabilities	(18,537		)	(6,015		)	16,195			6,773			(1,584		)
Pension and post-retirement benefits	(937		)	(275		)	786			—			(426		)
Other assets and liabilities	(1,062		)	(11,894		)	10,593			—			(2,363		)
Net cash provided by (used for) operating activities	12,219			(38,239		)	15,704			3			(10,313		)
Investing activities
Capital expenditures	(1,690		)	(6,430		)	(3,939		)	—			(12,059		)
Proceeds from sale of property and equipment	—			94			33			—			127
Other	265			—			27			—			292
Net cash provided by (used for) investing activities	(1,425		)	(6,336		)	(3,879		)	—			(11,640		)
Financing activities
Net short-term borrowings	1,526			—			—			—			1,526
Proceeds from long-term debt	200,000			—			—			—			200,000
Repayment of long-term debt	(141,025		)	—			—			—			(141,025		)
Net change in advances to subsidiaries	(47,261		)	50,018			(2,754		)	(3		)	—
Excess tax benefits from stock-based compensation	980			—			—			—			980
Stock issued to employees, net of shares withheld	(1,938		)	—			—			—			(1,938		)
Dividends paid	(18,837		)	—			—			—			(18,837		)
Net cash provided by (used for) financing activities	(6,555		)	50,018			(2,754		)	(3		)	40,706
Effect of exchange rate changes on cash and cash equivalents	(3,246		)	(3,781		)	1,661			—			(5,366		)
Change in cash and cash equivalents	993			1,662			10,732			—			13,387
Cash and cash equivalents, beginning of period	2,032			1,813			29,551			—			33,396
Cash and cash equivalents, end of period	$	3,025		$	3,475		$	40,283		$	—		$	46,783

18