Todd Gleason - VP, Strategic Planning and IR Randy Hogan - Chairman and CEO John Stauch - EVP and CFO

Michael Schneider - Robert W. Baird Alex Potter - Piper Jaffray Christopher Glynn - Oppenheimer Brian Drab - William Blair & Company Scott Graham - Landenburg Thalmann Chip Moore - Canaccord Adams

Good morning. My name is Anita, and I will be your conference operator today. At this time I would like to welcome everyone to the Pentair Q4 2008 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Mr. Todd Gleason, who will be followed by Randy Hogan, CEO and John Stauch, Chief Financial Officer. Sir, you may begin the conference.

Thanks, Anita, and welcome to Pentair's fourth quarter earnings release conference call. We are glad you could join us. I'm Todd Gleason, Head of Investor Relations. And with me today is, Randy Hogan, our Chairman and Chief Executive Officer, and John Stauch, our Chief Financial Officer. On today's call, we will provide details on our fourth quarter and full year 2008 results, as well as update you on Pentair's outlook for 2009. Before we begin, let me remind you that any statements made about the company's anticipated financial results, are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in Pentair's 10-K as of December 31, 2007, and Pentair news releases. Forward-looking statements included herein are made as of today, and the company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances. Actual results could differ materially from anticipated results. Today's webcast is accompanied by presentation which can be found in the financial information section of Pentair's website at www.pentair.com. We will reference these slides throughout our prepared remarks. Any reference to non-GAAP financials are reconciled in the appendix of the presentation. I would also like to point out that all financial results and references to year-over-year numbers in today's call and presentation are on a continuing operations basis, unless otherwise noted or highlighted. As is our custom we will reserve time for questions and answers after our prepared remarks. I will now hand the call over to Randy who will take you through Pentair's fourth quarter and full year 2008 results provide his perspective on the results of businesses and the market we serve and provide an overview on how we are driving to deliver results in 2009. Then John, will conclude our formal comments with additional information regarding 2008 financials and more color on our 2009 outlook. Randy?

Thanks Todd, and thank you all for your joining us today. Let's begin by reviewing our fourth quarter results shown on slide number 2. What started out as an uncertain economic environment quickly became a quarter mired in rapid market declines. Our original forecast did not predict this unprecedented decline, but when we understood the magnitude, we shared our observations, we set the bar and accelerated additional cost actions. Here are results. In the quarter we delivered reported earnings per share in continuing operations of $0.22 which includes non-recurring items predominately associated with the restructuring actions we announced earlier in Q4. We will discuss these items later in the call in more detail if you remove those items which is the basis of our guidance, we delivered $0.41 of EPS on an adjusted basis. The $0.41 is down 21% versus the $0.52 in the fourth quarter of 2007 and is at the mid-point of our $0.40 to $0.42 revised EPS guidance we provided in December. Pentair's fourth quarter sales of $768 million were 5% below the $807 million in sales we generated in Q4 2007. Fourth quarter sales in our Water segment were down 6% year-over-year. Declines in each GBU reflect the sudden and significant volume declines in global markets. In December we completed the sale of our Spa and Bath business which is reflected in discontinued operations in the press release. Until the first quarter, divestiture of our National Pool Tile business the sale of this non-core business allow us to fully focus our core businesses. Our Technical Products business declined 2% in the fourth quarter versus Q4 2007. This 2% decline is in start contrast of a 13% average growth rates we had experienced in the first three quarters of 2008. While we had initiated aggressive cost actions earlier in 2008, we are not able to offset the rapid volume declines in the quarter and our margins contracted 240 basis points for the total company. The positive 400 basis point benefit from price and productivity could not offset the negative 640 basis points impact from inflation, volumes, and foreign exchange. The negative $3 million expense related to the Residential Water Filtration integration with GE is netted in productivity. Relative to our adjusted EPS, our fourth quarter effective tax rate was 32%, reflecting the investments we have made position our global operations more optimally. In the fourth quarter we delivered $63 million of free cash flow, reduced year-over-year debt levels, yielded $3 million reduction in interest expense. And in the quarter, we bought back shares worth approximately $11.9 million. So, difficult environment, but as we will discuss today we continue to take aggressive cost actions. Now let's turn to slide number 3. As you can see what a difference the quarter here makes. During the third quarter of 2008 we recognized that global economy was slowing. We took additional actions to reduce our headcount and reduce our facility footprint. In October, when we reported third quarter 2008 earnings, we also slightly lowered our full year 2008 expectations to reflect a more cautious outlook. However, we did not forecast the magnitude and suddenness with the order and volume declines that are shown on this slide. As the slide shows our orders the red line on the graph were trending very positive in the first three quarters of 2008. In the fourth quarter our orders declined 14% year-over-year. The confluence of continued soft residential demand, tight credit restrictions and aggressive commercial and industrial distributor inventory reductions negatively impacted our order rates in the period. Since the majority of our businesses have short lead times, the immediate drop in orders translated into a drop in Q4 sales. As the data shows on the top right section of the slide. Sales on our Technical Products business were down 2% year-over-year comparative to the 13% growth we were experiencing through the first three quarters. And it is not hard to understand that we had to act quickly to further reduce our cost structure. Our water business also witnessed sales declines in the fourth quarter. But since we have a large residential exposure, sequential sales declines were less pronounced as those markets have been soft for some time as you know. As the slide highlights we sought sequentially more pronounced declines in both EMEA and in Asia were we had been growing over 20%. Which includes the benefit of foreign exchange, we declined the mid single digits in the fourth quarter. Of course you have all seen the headlines effectively every company has highlighted significant slowdowns in either October or November or December. Or perhaps all three. For Pentair the declines were felt more severely in the later parts of the quarter. The speed and severity of the decline was stunning and precipitated our acceleration of cost actions. We show this material as a lead in to why and how Water and Technical Products businesses experienced a level of margin compression they do in the fourth quarter. Certainly not every financial metric is a result of volume, so when the environment changes this quickly its hard to adjust production and forecasting fast enough. Let's take a look at how the sudden drop in sales and demand impacted our two businesses. Please turn to slide number, 4, which provides an overview of our Q4 Water results. Here are the highlights. On the top of the slide, you can see we provide our standard sales and operating income loss. We will refer to these as we describe the performance of the Water Group. Overall, Water sales were down $33 million to $509 million down 6% versus last year's sales and down 7% organically in local currencies. As you know, approximately 40% to 45% of our Water Group is exposed to residential markets. Those businesses continue to be down double-digit as further softness in US and European residential markets continues to impact our sales. In the quarter, we also saw softness in non-residential markets as well as slowing international market. Our Global Flow Technologies sales declined 5% growth in municipal and agriculture which was driven by new products as well as continued global expansion in our commercial organization, did not overcome, continued declines in residential flow. Global Filtration was down 2% in the fourth quarter versus last year as it benefits from the Pentair residential water filtration business combination, could not overcome soft, residential and commercial markets. The Global Pool Equipment business was down 12% in the quarter as new pool builds remained very low. In fact, residential pool permits in the US were down another 50% year-over-year in major markets such as California, Florida and Arizona. As we will discuss in a few minutes, we remained very cautious regarding the pool markets. Internationally, sales in Europe, the Middle East and Africa or EMEA were down mid-single digits as broad based declines in residential markets lowered volumes and offset growth in the Middle East. In Asia, Water sales were down 5%, the sales from China increased double-digits but could not overcome declines in Australia and New Zealand as residential and pool markets in those countries continued to contract. Let's shift gears and discuss the operating profit margins for our Water Group. On the top right you can see our year-over-year operating income loss for Water. Adjusted margins were 10.2% down 250 basis points year-over-year. Inflation impacted Water margins by over 370 basis points and can not be overcome by productivity, price, and product mix. Our fourth quarter adjusted margins include the $3 million associated with the integration costs associated with the setting up Pentair Residential Filtration or as we call it PRF which is the combination with GE. As we announced in October and reiterated in December we are taking significant actions to rationalize our global footprint, reduce structure and invest in our best growth opportunities. We are executing well against these actions but they've yet to read out as volumes declined more dramatically than we had forecasted and many our cost reductions are not yet fully finalized. As we mentioned in the headlines in December we sold our Spa and Bath business, this better positions our pool equipment business to focus solely on its core which is serving residential and commercial distributors, pool builders and end customers with leading pool systems technologies. So, I believe we continue to take the right steps in a challenging environment. Now I will turn to slide number 5 and we will review Technical Products. As we discussed a few minutes ago orders on our Technical Products business dropped off materially in the fourth quarter. This lead to a short fall versus the guidance we provided in October of approximately $25 million which when coupled with high materials costs in the quarter drove margins down. Let's read some of the details. Year-over-year fourth quarter sales in Technical Products were down 2% or flat in local currencies. Our global electrical business grew slightly. Solid growth in our energy vertical market and a few commercial and industrial markets overcame softness in other verticals particularly automotive and machine tool. Our global electronic business declined 6% led by double digit declines in Asia-Pacific. European sales grew in local currencies. Looking at Technical Products margins the headlines is we declined 260 basis points year-over-year. Several factors impacted margins the most, the first was inflation, which you can see on the operating income loss on the top right section of the slide. In the quarter, we were expensing steel at around $850 to $900 a ton. Earlier in the year our steel expenses are around $550 to $650 a ton. The slowing sales and declining orders we moderated production levels in December which create a negative absorption which cancelled our positive productivity. Finally, we did take aggressive cost actions in the quarter the benefit of which we realized starting in 2009. So, we continue to take aggressive cost actions as expenses associated with materials come down in 2009 we will benefit from much greater productivity. Let's take a look at our full year results. And also please turn to slide number six. For the year totaled company sales were $3.35 billion. Year-over-year our sales were up 2% as 9% growth in Technical Products more than offset a 1% decline in our Water business. Total company full year 2008 margins declined 30 basis points as the items that impacted us the fourth quarter made a significant dent in our full year results. The aggressive actions we took in each quarter of 2008 as well as the lower tax rate, share count, and interest expense enabled us to deliver earnings per share of $2.20 on an adjusted basis, which was up 5% year-over-year. As we articulated on our third quarter earnings call our balance sheet remains healthy and our debt profile is very manageable. So, while we hit new record sales in earnings level we exit the year with more difficult and unpredictable end markets. But also a number of cost actions underway to improve our cost structure and protect margins. Let's turn to slide number 7 to review our full year 2008 sales and operating income loss. You can see the detail on the two walks on the slide. I'm not going to go through all the data as we just walk through our full year results. Instead, let me share some observations. Aside from our pool GBU, which declined 14%, sales grew for the full year in each of our other GBUs. Technical Products, led the way with 9% growth. Flow Technologies grew 2% as our non-residential businesses overall, had a good year. Filtration 7% growth was aided by the formation of Pentair Residential Filtration and our continued growth in food service, desalination, in Europe and Asia, geographically. While we are disappointed at our fourth quarters sales declines impacted the year so heavily, overall, we had a good year given only we are battling soft residential and pool markets, each quarter. We benefited from our pushing the new geographies and our growth in emerging markets of approximately 20% helped to broaden our global reach. Furthermore, new products such as our food service and [Enviro] filtration system and our AquaLine free filtration system have been embraced by customers and partners. On the margin side, you can see the detail in the walk on the top right of the slide. For the year, margins declined 30 basis points. We had negative impact from high commodity costs, foreign exchange, integration costs and expenses related to our factory shut downs and moves. We continued to invest in new systems to improve our infrastructure and also enable the formation of our GBUs. As we have discussed throughout the year, our aggressive cost actions helped expand year-to-date margins until the sudden declines in the fourth quarter. We have a number of cost actions underway and on track to provide significant benefits in 2009 and beyond. Please go to slide number 8 and I will provide my perspective on 2008. This slide is divided into four quadrants financial results, key accomplishments, market observations and our perspective going forward. To the first three quarters of 2008 our financial results met or exceeded our quarterly targets. These results reflect the dedication and hard work of our 15,000 employees demand as in sales and their teams as they serve customers. And I thank them for that great service and performance. Declines in the fourth quarter significantly impacted our full year results however and we are taking aggressive actions to prepare for 2009. Our balance sheet remains healthy. By year end 2008 we have reduced our long term debt by over $100 million. We have secured credit facilities, very good fixed debt rates and ample free cash flows that satisfy our foreseeable needs. And for the 33rd consecutive year we increased our quarterly dividend which now stands at $0.18 per share. We have an opportunity to improve working capital in this contracting environment and this will be a key focus in 2009. Under key accomplishments we continue to drive growth in international markets specially in emerging regions. In 2006 Pentair sales were only 28% international. We improved that global balance at 32% in 2007. In 2008 thanks to our rapid growth in emerging regions, our international sales were 35%, this is great progress. We have already discussed how we improved our portfolio with the formation of Pentair Residential Filtration to sale of National Pool Tile and Spa and Bath all nice accomplishments in the year. It's difficult to shut down over 10 facilities in the year but we accomplished that task and we have another half dozen facilities underway. Much of the benefit will be recognized in 2009, this is an important long-term structural cost improvement we are undertaking. Remaining competitive with leading new products is extremely important as well. Pentair stepped up our efforts in this area and we made solid progress in 2008. I encourage you to review again our September 2008 Analyst Day presentation which is on our website. As we detail many of the new and exciting technologies and systems we are introducing to our market. At our Analyst Day, we also outlined our long-term strategy for growth, productivity and key initiatives. While the challenging economic environment has accelerated our cost actions, it has also reinforced the strategy we outlined in September. Our market observations likely mirror those many of our peer companies. It's a challenging market, it's very unpredictable and there is lots of moving parts right now. Markets in 2008 taught us, thinking you are being conservative doesn't necessarily mean you are being conservative. Residential markets were worst than our original expectations, and our original expectations were lower than most everybody else. Almost all global industrial and commercial market has slowed dramatically. There are a few bright spots, but the majority are in decline. It's not our place to predict the bottom, but it's clear it hasn't come yet. The good news is materials are also coming down, and then we like many others are taking swift cost reduction actions. We know what we can control, and that's our focus in 2009 and we will control it. So, going forward, we are driving labor, materials productivity and accelerating our G&A consolidation actions, which were always our focus for 2009. We have a significant focus on cash and are committed to driving inventory improvements and continuing to generate strong free cash flow. Cash will be used to pay our recently increased dividend and also reduce debt. At this time, that is our only plan for cash usage. Being realistic about the market headwinds we face and other challenges that may come our way in 2009 is also a key thing. This is why slide number 9 is important to review. Before I turn it over to John, let’s take a quick look at some of our major actions heading into 2009 in more detail. The information and the data on this slide tell the story. The data shows we are reduced our headcount by 9% in the second half of 2008, savings from this we will read out in 2009. Additionally, we have announced actions to take our headcount down further to a total of 16% reductions versus the end of Q2 2008. And you can see it is both salaries and hourly workforce that has impacted, all in the savings will be $85 million. Related to the headcount reductions the number of facilities we are exiting, the total number of facilities closures between 2008 and 2009 is 17, with most of the production shifting the best cost regions. This is important not just because our volume declines warrant facility rationalization. But also because the formation of our GBU structure enables more consolidated manufacturing assembly and distribution. It will help us become more competitive and benefit our customers too. And every GBUs driving for material savings, we have a tremendous opportunity to deliver bottom line improvements in this critical area, and I believe we can do better than the 2% to 3% shown here. It’s a good start and certainly an area we are counting on to deliver to the tune of $40 million. Now I will hand it over to John, who will provide additional details on our financials and also discuss our 2009 guidance in more detail. Then we will answer questions. John?

Thanks Randy. Please turn to slide number 10. we have been using this slide the last few quarters, so you can reconcile the GAAP to non-GAAP EPS results for 2008. Let’s review, on the top of the slide, we show our GAAP or reported EPS results for the fourth quarter and full-year 2008. As you can see we generated $2.59 for the full-year. This is up over 20% versus the $2.12 a full-year EPS in 2008. Moving down the slide, the middle section shows the major adjustments that brings us to our most comparable performance related earnings per share for the fourth quarter and full-year. The first adjustment is the $0.86 per share gain we recognized in the second quarter 2008 in the formation of Pentair residential filtration along with GE. The second item, which is the $0.14 charge also relates to a second quarter action when we settled the 1994 horizon legal case. You can see both items are in the full-year 2008 column as there was no impact in the fourth quarter. The final adjustment is the $0.33 of restructuring charges we took in 2008. We took $0.19 in the fourth quarter which is shown in the first column. We already taken $0.14 to the first three quarters of the year. Thus, the total three years is a $0.33 per share shown on the slide. As we will discuss in a few minutes by taking these $0.33 of restructuring actions, we will significantly improve our cost structure. These adjustments bring us to the $0.41 of EPS for Q4 and $2 of EPS for the full-year of 2008 or $2.20 for the full-year of 2008. The 2007 figures are on a continuing operations basis reflecting our sales both National Pool Tile as Spa and Bath in 2008. Those are reconciliation between reported and adjusted EPS for the quarter and full-year. Now, let's take a look at our balance sheet in cash flow metrics as we exit 2008. Please go to slide number 11. The left half of the slide provides walk from net income to free cash flow for 2008 as well as an outlook for 2009. We will discuss our guidance for 2009 in a few minutes. But if you read in our press release we have maintained full-year 2009 EPS at $1.70 to $2, which was the same guidance we provided back in December. So, net income for 2009 reflects that guidance range. Let me touch on some of the highlights in the cash flow walk. First, for 2008 we delivered $218 million of free cash flow before several discrete payments. This number was slightly below our targeted cash flow of $235 million. A portion is missed around $15 million it was related to the difference between planed and actual cash and our divested businesses of Spa and Bath and National Pool Tile as well as heavy plant integration cost in our residential filtration business. In addition, we utilized around $50 million of working capital a bit more than planed as a dramatic slowdown caught us holding some inventory as well as some collections of receivables at the end of the year were delayed by customers. Cash versus accrued taxes and lower capital spending helped close the gap. You can see that $280 million number in the middle section of the left hand side of the page. A portion of that cash flow generation was used to pay the Horizon legal settlement of $28 million. Further we used $18 million for severance payments associated with the restructuring. And finally we had an incremental $8 million of pension funding in 2008. So, that brings you to $164 million of free cash flow after these discrete items. As we discussed, we are shutting down 17 facilities in 2008 and 2009. This is approximately 25% of Pentair's total plans. Since the majority of those factory shutdowns are well under way or in the final stages of completion, we were burdened with redundant inventory at a number of locations. This helped maintain customer service levels, in fact our on-time delivery and warranty metrics both improved modestly despite all of this moving parts. We know working capital represents a significant opportunity for us in 2009 and we have a number of actions underway to deliver much improved performance in this key area. And while we missed our 2008 free cash flow goal of 100% conversion of net income, it comes on the heels of the year when we delivered over 130%. So, we have solid track record of free cash flow generation and we believe 2009 will be another solid year. The bottom section on the left side of the chart shows how we deployed the free cash flow in 2008. We paid $67 million in dividends and we purchased $50 million of shares. We also paid down long-term debt by over $100 million. Our expectations for 2009 are shown in the two columns immediately next to the 2008 column. The columns tie to our low and high estimates for the year. Our outlook demonstrates our commitment to approve working capital performance and our expectations around debt pay down, dividends and capital expenditures. The right side of the slide provides detail associated with our debt and key ratios. Of note, we have $134 million of senior notes coming due in October of 2009. We have ample cash and credit to satisfy this note. You can also see our average debt is at about 5.13% which includes the 7.85% of senior note debt that we will retire in 2009. So, we exit 2008 with a solid debt position, a healthy debt-to-capital ratio of 33.4%. Now, let’s review our 2009 outlook in more detail and our assumptions for the markets in which we participate. Please turn to slide 12. On this slide, we show our key assumptions for 2009. The top one-third of the slide shows our financial expectations as it relates to our guidance range. The bottom two-thirds outlines our assumptions for the market environment as well as some of our expectation that have an impact to our EPS results. As the slide shows, our view of US residential markets remains cautious. With new home constructions down over 25% and we placed them flat to down slightly. US non-residential markets have clearly softened. In an almost every case we see commercial and industrial demand down double-digits in 2009. Internationally, Europe continues to soften is expected to be down double-digits in both residential and non-residential demand. We see emerging markets such as the Middle-East and Asia providing some growth opportunities, but overall we are planning in those markets to slow compared to the recent period of rapid expansion. So, we are expecting very difficult end markets in 2009 and we are taking cost actions to reflect these challenging times. Embedded in $1.70 to $2 EPS forecast are the following assumption. We expect a negative $0.05 EPS impacts on foreign exchange as the dollar continues to be strong in 2009 than the average 2008 rates. We have a used $1.20 to the Euro for our planning assumptions. Both commodities and logistics are expected to experience deflation, which will benefit EPS in 2009 when compared to 2008. The largest commodity impacts for Pentair steel, resin and copper which all expect to be lower than average cost for 2008. Our investment in sales and R&D remains focused and prioritized to high growth platforms as we continue to invest for long-term growth even in this downturn. Finally, we expect our tax rate will remain around 32% to 33% while lower debt levels and interest rates will benefit interest expenses by about $9 million versus 2008 or around $0.06 per share. With negative pension asset returns in 2008 and a discount rate of 6.5% we expect a negative $0.02 per share impact from pension. So, our market assumptions reflect the challenging environment. However, we have taken aggressive cost actions to ensure we delivered the highest level of profitability in earnings in 2009 given the market situation. Now let's review our first quarter 2009 outlook. Please go to slide number 13. We are forecasting sales declines of approximately 15% in the first quarter. We are forecasting [Technical Difficulty] to remain at or near December 2008 run rate levels. This is what we have seen so far in January and we believe distributors and dealers continue to manage inventories very aggressively. Credit is still difficult for distributors and dealers and financing products like water softeners and pools is less available to our customers. Additionally, difficult comparisons in our pool business in Q1 contribute to significant sales decline in our water business, which is expected to be down significantly in the first quarter. We expect sales in our technical products business will be down approximately 25% it's demand in commercial and industrial segment continuous to slow and distribution inventories are correcting. Operating income and margins are expected to be down significantly in the first quarter as volume declines and drop through are at a high conversion rate. The benefits we will get from restructuring material depletion will not yet be realized in the first quarter, but we will begin to provide benefits sequentially throughout the year. Our guidance for first quarter 2009 EPS has been n updated to reflect our outlook for $0.20 to $0.30 of earnings per share. The updated range reflect the additional cost actions because our ongoing efforts to curb production to maintain inventory and working capital levels. We expect to continue to have 32% to 33% tax rate and interest expense will be lower by about $2 million versus a year ago quarter. Finally, as in the case in the first quarter each year, free cash flow is expected to be negative for the quarter. So, a challenging environment to start the year. However, as we look out to the year, we expect that off of this Q1 run rate, we will see some modest seasonality increases in water shipment as we normally do in Pool, Flow and the Asia Pacific region. As well as start to realize lower material cost as we burn off the negative factory variances on the balance sheet from Q4. In addition, we will continue to reduce salary and hourly headcount associated with the announced plant closures and begin to capitalize from the benefits of overall reduced operating expenses throughout Pentair. Now, let's summarize today's earnings review and then take questions. Please go to slide number 14. We are dealing with unprecedented levels of contraction in many of our end markets. Our fourth quarter 2008 results reflect this challenging time. So, we are taking aggressive actions to bolster our results and reflect the current economy. While we are disappointed that the very end of 2008 has such a negative impact to our earnings, we are proud of many of our key accomplishments, including improving our portfolio by divesting non-core businesses, and advancing our filtration strategy by forming a Pentair residential Filtration business with GE. We strengthen our balance sheet by lowering our debt levels and ensuring our credit facilities are in good shape. We took quick and aggressive action to improve our cost structure, shutting down 17 plants between 2008 and 2009, as well as reducing our overall headcount by greater than 15%. As we transition into 2009, we remain conscious that major markets globally will continue to be challenging. The tough start to the year reflects this caution as we forecast low sales in the first quarter, while still expensing higher costs associated with the materials and headcounts. So, we understand the current environment and are focused on improving your company to deliver the optimum results given the weak market outlook. We would now like to answer any questions you might have. Operator, please open the lines for question, thank you.

Yes, sir. (Operator Instructions). Your first question comes from the line of Michael Schneider of Robert W. Baird. Your line is open, sir. Michael Schneider - Robert W. Baird: Good morning guys.

Good morning, Mike. Michael Schneider - Robert W. Baird: Maybe first we can address the cost savings way down on slide nine, you layout the headcount reductions we are going to save your 85 million annually. I am just curious is that at the end of the year, what would you actually expect to realize in 2009 of the 85 or you said the number?

Well clearly the 85 is what we expect and so the 85 million reflects the 2009 benefit, Mike as it pertains to those headcount reductions. Michael Schneider - Robert W. Baird: Okay, than still one in the 2010 would be roughly how much?

Probably, another $10 million to $15 million or so. Michael Schneider - Robert W. Baird: Okay, so if you bare with me for a second and in an elevator right here, if you add up the savings on slide nine, you basically get to $145 million and your operating income assumption for the year at 350 is down call it $41 million. So, I am trying to understand if you take $41 million of decline in operating income and add back the $145 million in savings on slide nine, it looks like you are assuming decremental margins now on this 10% revenue decline of about 55%, which seems extremely sever given what’s going on even over the last quarter, and then certainly given your historical decremental margins. I am curious in that savings versus decline in operating income what I maybe missing or why 55% is the assumption for decremental margins?

I don’t think you are missing it, Mike. The way we have put together the plan Randy and I and Mike Schrock as we laid it out and said, we got sales minus material and let's look at that variable contribution margin, and let's assume that's cost. And let's count on two forms of productivity and this is productivity, we can absolutely see, which is lower purchases and lower payroll. And let's put behind this the challenges capturing it by lien or capturing it by program, or initiatives and so we put together what we think is a tight plan that reflect sales minus material over our payroll reduction and our purchase reduction. And that's what we have guided people to and that's what we are reflecting here today. Michael Schneider - Robert W. Baird: Okay.

We did incremental savings, I mean I think we would feel that would also triple to the bottom-line.

We are not going to predict where the market goes. I mean we wanted volume. I talked before, if I try to put volume on the upside. Frankly, who knows where to start there, it would be uncertainty in the markets though. We are trying to stay focused totally on what we can control as John just described well. Michael Schneider - Robert W. Baird: Okay and then just two questions also on your assumptions. So the material savings of $40 million, I believe there is about 3% on your raw material purchases, I just compared that to 2008 on slide seven you called out that inflation costs you $113 million? Are those two numbers comparable?

That's total inflation.

That includes labor increases and material increases. For a simplistic view though, Mike, you can do 50-50 roughly. Michael Schneider - Robert W. Baird: Okay, so the material savings you expect to get in '09 don't even fully reverse or undo the inflation you experienced the materials in 2008?

That's correct. Michael Schneider - Robert W. Baird: Okay. How do you arrive at the 3% number when we have got steel down massively, we have got copper down massively, I am just curious how you arrive at the 3%.

We planned that closer to 2, Mike, and two things that factor into that, one is, we did a price lock last year in steel, in technical products which gave us a little lift in Q1 or we are buying below market rates. We crossover in technical products, sometime late Q1 or early Q2 the material savings. Michael Schneider - Robert W. Baird: Okay.

So, it’s really taking the percentage change and only counting on about three quarters or a little bit more than 2.5 quarters of benefit. I think you would agree, we have to rollout the variances from our balance sheet. And the new productivity and new purchases are little bit delayed as you have to build the inventory ship the inventory then you recover them.

We didn’t have so much inventory wouldn’t take so long.

That’s fair, Randy Michael Schneider - Robert W. Baird: And the flip side of that is the pricing assumption, you have got revenue down 10%. What amount of pricing have you baked in there?

We roughly are looking at around flattish price and the only price that we counted on as price that’s contractually in. If we took that, we would be looking at about 1.5% to 2% up, Mike, and then we are counting on probably between now and in the end of the year having to get some back. Michael Schneider - Robert W. Baird: Okay. Alright, thanks again guys.

Thank you.

Your next question comes from the line of Alex Potter of Piper Jaffray. Your line is open sir. Alex Potter - Piper Jaffray: Thanks. I was just wondering if you could comment first of all on foodservice, it seems in the release today that foodservice was down and I was wondering at least at the Analyst Day presentation its seem like very impressive presentation and that it seems like there was a lot of energy savings and water savings benefit they call on for this kind of all total solution approached to food service offering. I was wondering why that's not attractive in the current economic environment?

It was actually down low single-digits in the fourth quarter which was the first time it's been down in ages. We love our products, we love our market position but you can't deny what's happening. If you look at the three different segments in food service the faster the medium priced sit down in the high end, you can read about how they are struggling. There is few at the low end that are doing well and we will do well with them. And our globalization is going well but you can’t deny what's happening with the other restaurants chains. With that said, I like our competitive position as I like our new products. What we have done with that team is we have broadened the focus from being just food service to being food service in the hospitality. So, we are actually cutting deals for broad-based supply agreements with some of the larger hospitality companies, which I think are going to be the source of growth for us. But even with all of that we are not assuming that we can do much more than gain share because you can't deny what's happening in the restaurant industry. Alex Potter - Piper Jaffray: Okay. Fair enough. That’s good to hear that it wasn’t down double-digit or something. Okay. And then also if we could just switch gears to residential flow. I was wondering what it's going to take for residential flow to turn around. I mean it's basically just going to stronger housing is that the story?

Basically that’s the key. We kind of a mix bag in the fourth quarter, the pro channel in residential flow was down a lot which was inventory being adjusted, actually retail was strong because there was some early flooding in winter as they came up, so actually retail came up. So, the key is going to be housing. That said most economists think that housing is going to be the key to the whole turn in the industry. So, I believe that's true, the fundamentals say that should be true, question is when? There is a lot of water yet to go under the bridge before I will see the residential market turning. So, what we are doing is we are focusing on getting our cost structure right. Getting our channel strengthened. And being there so when the market comes back, that's both in residential flow and in residential [features]. So that's really what we are talking about. Alex Potter - Piper Jaffray: Great. And then I guess on the topic of trying to get things when the economy turned around. My last question here is, there is obviously you made clear that you are just going to be focusing on things that you can control and things you can predict. There is a lot of uncertainty right now in terms of the stimulus package. But we are just wondering how you see Pentair as being positioned to benefit if and when something eventually doesn't pass the congress?

I don't know where it is today. But that has been targeted some $45 billion to $50 billion to go to water. We through industry associations are engaged with understanding that. We have a team set up to track those things to make sure that we get our bids in. And I think we can win more than our fair share. We are the most US centric supplier for that equipment. If it goes into waste water plans or goes into water supply plants anything that requires pumps or filtration equipment. I think we will do fine. I am hopeful that there will be a lot of that. I am also not building my plan based on it. Alex Potter - Piper Jaffray: Okay, great. That's all I have got thanks.

Your next question comes from the line of Christopher Glynn of Oppenheimer. Your line is open, sir. Christopher Glynn - Oppenheimer: Thanks, good afternoon.

Hi Chris. Christopher Glynn - Oppenheimer: On your slide 12 of the different vertical markets, it looks like the US raise your replacement flat-to-down. One of the more optimistic forecast among the different verticals could you go into what’s behind that at all?

Well residential replacement if you think about our business whether, this is water right we don’t have residential and tech products. Basically, if your some pump breaks in the basement and you have lot of water in the basement it doesn’t matter if you have a jug or not have a jug, you can go get a new pump. If you need a well pump, you are going to get a well pump, that’s what the replacement market is. Even on the Pool side, when we talk to people in the channel, people pumps break on their pool; they are still going to replace it. So, it's fundamental how people operate and it’s true with filter too. The filter system breaks that generally it will replace it. The only reason it's not up, it’s typically is all based on price, but we are going for price and we are expecting some inventory drawdown in the channel. Christopher Glynn - Oppenheimer: So, I guess what are going to do this year and it sounds like you don’t really project any remodel impact in it?

It was flat and flow actually in the fourth quarter was a little up, the flooding related business we would call that replacement that goes into the replacement category. One is, flooding and people run out by pumps.

Retail has been at low inventory levels for sometime and it does go to the retail channel as well. Christopher Glynn - Oppenheimer: Okay and then on Mike’s comments dissecting the earnings guidance teasing out decremental, etcetera. It sounded like part of the reasons for the build up was the fact that you simply know exactly what the volumes trends will be throughout the year. Is the EPS range sensitized to more dramatic volumes or above the narrow range that's kind of referenced?

I think the better way to think about it, Chris, is that we are taking a look at it sequentially, right. So if you take a look at Q4 and you are brining into Q1. We would assume that things don’t get better than somewhat we have seen in December and January. That we continue to see the inventory corrections in the channels and that we continue to see some cautious views as far as taking product either for capital reasons or just through the distribution channels. If you then take that sequentially and you go forward, the question is what happens and what we do about the seasonality that we usually get. And we usually do get some seasonality of Pool, it's always a Pool season. Just a matter of how we get in.

Always has been.

Always has been. We are hopeful it happens again. And then we tend to see seasonality in Q2 both in technical products and also across the Water businesses especially in Europe this is more [shippable days]. That will be a good gauge as to where the year is going to play out. And I think as we started to exit Q2 we are going to get a clearer picture with the back half of the year. So, I would say that we feel we have got tons of cost actions that put us squarely in that range. And we control those and that’s what Randy was talking about and that’s what we are focused on here. We are probably going to go after more labor than even what we have got identified. We want to make sure that we are utilizing the full options in our plans as most of businesses have to not build inventory and to manage the cash position. We got some room in interest as we continue to pay down the debt. And then we will give an update kind of where we are again in Q2. So, those markets are the uncertainty right now, we can't predict. Christopher Glynn - Oppenheimer: And then just lastly. The first quarter margin impacts obviously a lot of different things seems like significant under absorption. First we expect to see inventories come down a lot and second what's kind of netted out for some restructuring benefits in that quarter and what's the exit run rate I'm guessing $25 million in the fourth quarter?

I am trying to get, I am sorry. I guess the quarter you are referring to.

You talked about the end of the year. Christopher Glynn - Oppenheimer: Yeah, just tell me the impact on margins in the first quarter from under absorption and what you might get with those inventory levels?

When we exited Q4 directionally we had about $13 million to $15 million of factory variances on the balance sheet that need to be respond in Q1 and that's reflected in our number. So, the easier way to say that not take into accounting exercise the first $13 million to $15 million of inventory burn doesn't get you the new pricing. Right so the material that better than that and purchase better doesn't get experience until we work through that and that's what you are seeing in Q1. That will all be gone by the end of Q1 and then you start to see sequentially better than that, so, that's a minimum.

Right. One of the other things is we have taken production levels down we believe in the first quarter that will help keep from passing more brains through to the next quarter we are trying to get production levels down, so we don't keep just passing this forward, right. That's in the quarter.

That's obviously pretty good as well, Chris. Christopher Glynn - Oppenheimer: Okay. Thanks for the help.

Thank you.

Our next question comes from the line of Brian Drab of William Blair. Your line is open, sir. Brian Drab - William Blair & Company: Good morning.

Good morning Brian. Brian Drab - William Blair & Company: Just looking at your top line growth assumptions for 2009 looks I should say top line decline assumption negative 8% to negative 10%. Trying to get a better feel for the break down there, I know you have already threw the answer to one question so that you expect price to be flat. And then, did I hear correctly, that for your FX you are assuming an exchange rate of $1.20.

Roughly. For the euro.

Dollar to euro. Brian Drab - William Blair & Company: For the euro. And what would you expect the impact to be on the top line, given that assumption?

Its going to be about $20 million to $30 million roughly. Brian Drab - William Blair & Company: $20 million to $30 million for the year?

Yes. I would call it $30 million. Brian Drab - William Blair & Company: Okay. So, just one percentage point, what you'd expect?

Yes. We're going on different ways here, right? So, you got the Canadian dollar, you have the US dollar. But we built a plan, dollar, euro is most meaningful to us. Right now, its about 27 today when I looked last. We built offline in about 20. So, I think we got a little cushion before we would see that impact. But you have also got the Canadian currency, you have got the Australian dollar, all of these move forward. So, I'm calling about $30 million make sure about a point of revenue reduction related to currency. Brian Drab - William Blair & Company: Okay. Then on, I guess I have not taken into account all the other currencies as much as I should, but I would have expected that that would have been, it would have been a much bigger impact. But year-over-year in 2008, the exchange rate was favorable to you by about 3%?

No. If you go with me, you could do the math just to reverse that. If you go to Randy's slide, where he talked about full year Pentair performance on page 7, you could see the impact of the currency was $51 million favorable. Brian Drab - William Blair & Company: Okay.

Okay.

On the revenue side? Brian Drab - William Blair & Company: Yeah.

You can do kind of calculation there, it rounds to two points but nothing and so if you take a look at where it is this year, most of Q4 was less than $1.30 to the euro we have experienced in, in the first part of the year, okay. Brian Drab - William Blair & Company: Okay, sounds good so in terms of volume when your, I guess if you could say that you are expecting to be down in the high single digit range and also. And then one last question could you give us a break down of volume and price for the segments for the most recent quarter here in Water and in Technical Products?

That's on the chart as well. Brian Drab - William Blair & Company: I think you just have total growth with no break down.

Right.

The price in Water about 2%. Brian Drab - William Blair & Company: Okay.

And probably Technical Products is about 2% to 2.5%. And just one point of clarification just to make sure you have it right Brian. You think price in 2009 are zero. That basically, just that you know means that we give up price in 2009 because the tail end of our price actions for 2008 would naturally give us about 1.5 of price in 2009 with well tell us if its right you are getting the same. Brian Drab - William Blair & Company: Yeah.

Yeah. Brian Drab - William Blair & Company: Okay.

So let's take data that we basically have some price erosion naturally happening. Brian Drab - William Blair & Company: Okay thank you very much.

How many more do we have in the queue because I think we have 5 minutes left.

Yeah, few more in queue.

Okay let’s go ahead finish them.

Okay. And your next question comes from the line of Scott Graham of Landenburg, your line is open. Scott Graham - Landenburg Thalmann: Good afternoon.

Hey, Scott. Scott Graham - Landenburg Thalmann: There are several questions for you on when you do your walk through on the operating margin by segment, can you guys explain how operating income has green growth graph boxes to them when we have.

I got to answer this.

Yeah, bet. You got to answer this one, go ahead Randy?

Right. When they gave me the chart, I had the same question. Basically, our volume is down, but price was positive. Price has a 100% margin, so that's how that works. So the growth on the op income side, growth includes the acquisition, it includes volume growth and it includes price, so that's how it works.

If I do the math, you said 40 percentage on the conversion of the downward side of volume, and then you add back the price component 100% as Randy said, that's how you get small positive for growth. Scott Graham - Landenburg Thalmann: That was pretty good conversion. Next couple of questions are, any chance you guys can give us an idea what the restructuring charge assumptions are as we roll through 2009?

Yeah. Right now we have taken some sizable actions in the tail end of 2008. And so everything that you are seeing today encompassed in the slide has been taken and accrued for as we exited 2008.

So Scott, our outlook for 2009 is that we are only now going to be doing the pay as you go expenses, which is $1.70 to $2, so as we move assets and other things that we are just now, we call that pay as you go, we are not going to charge that off. Scott Graham - Landenburg Thalmann: Okay, so when you say in your press release that the heightened restructuring activity in the first quarter, back to pay as you go. Those are not charges?

Correct, things like scrap, its negative efficiencies on moving it from one plant to another, it’s a physical relocation cost of the capital expensing and its consulting contracts related to ERP migrations et cetera. Scott Graham - Landenburg Thalmann: Here is one for the, maybe the longer term which will be nice to talk about converse at the current environment, you guys have some very healthy expectations to grow out to size of your addressable markets and here we have, this 15% reduction in employee headcount and 17 factories to be closed which I think is up from my 12 or 13 from when we last checked in with you guys and that's great for the current environment because that obviously gets us closer to $150 million savings number versus where you have previously so. But the flip side of course is that in 2010 and hopefully maybe even later this year, when we really want to drive, look to drive the organic through the addressable market strategies. How does that impact us, I mean, how does that impact that strategy and I think just as importantly if volume does improve late in the year, how does the so many closures there are taking place right now, which are probably easier to do on volume declines. How does that, does that dynamic change does that put you in some jeopardy manufacturing wise and does that slow the addressable market strategy.

Yeah, let me take that and John you can add to if you want to. First, while we have not talked about the 17 plants they were always in our plan. We through acquisitions we have assembled some nice businesses. But we always had too much structure and it’s always been we have too many, we have had too many plants. So the 17 plants were always on the agenda. What we done is we pulled them in, in particular our Sheboygan and our Cypress factories. We pulled in because of the near-term reality where volumes were. So, we always wanted to reduce our structure and continue to grow in particularly in best cost country and in growing country. So for example, we are increasing our capacity. Right now, we are investing to increase our capacity in our cold line vessels for ROD sale, because we know that's the growth market. We are still investing there, we are still investing in China, we are still investing in our Middle East. So, it's hard on the one hand be taking cost down some places, while you are adding in other places, but we are trying to remain disciplined on that. The second point I would make is, we are on the journey to really become a great company lean creates capacity. Also our cost structure is such that we are not huge capital compared a lot of industries, so we can ramp volume just by adding back overtime, adding back temporaries and adding shifts. So from the production standpoint, we can ramp up pretty well. I would say after we are done with this, we can still probably going 15% without really a lot of capital. There maybe some bottlenecks in a like, but I think that we will be okay from that capacity. Then there is engineering, we haven't cutback engineering that much. We in fact, I would like to get back to continuing to invest in engineering. So that's how we are thinking about it. Mike and John and I and the presidents are committed to being in a position to grow when it ends. And I hope you are right, I hope we actually can talk about growth by the end of '09. That's how we were planning on them. Scott Graham - Landenburg Thalmann: And there is nothing that you feel Randy that you have done here that will impact these addressable market strategies. You are still incrementally adding some people in feet on the ground kind of thing in the markets that you think are the markets that you should be in?

Yes. Now not in the states, not in Western Europe, and we are not adding feet on the street there. But we know we are keeping our investments in China and keeping our investments in India, even in technical products which has gotten lagged and downturn, we are still investing and building a plant in India right now. So I am committed to grow again, but what we have to do is persevere through this.

And Scott, just to dive a little deeper here, if you could recall, and look at our analyst presentation, I mean our G&A is heavy. So a lot of the numbers you are talking about here in G&A they are not in sales and marketing. And in fact, we are very careful as we peal back the onion and looked at the headcount reductions. We went lighter in sales and marketing and lot heavy in the G&A. And then a lot of the one-for-one reduction and the factories are falling out. And what you are seeing here is also netted investment in Reynosa, which is a best cost country production facility for us as well as Suzhou. If you look at the capacity levels of both those plants right now, there is still excess capacity.

Well we created more of that, where we sold Spa and Bath. Spa and Bath coming out of a factory and free up space for us.

But I want to add by saying it's a great question, and that's what we are looking as an executive team. And as we continue to look further out and the economy continues to be challenged further out, those are the types of questions we are asking ourselves.

And I really look forward to proving that we can do this. That’s going to be a lot of fun. Scott Graham - Landenburg Thalmann: You sound like you have a lot of confidence on the course side, and I think in this environment that's good enough for me. So, thank you.

Alright, thank you. Anita, if there's no more questions.

Is there one more?

Is there one more?

Sir, there is one more if you have time?

We will take that one.

We will take it.

Very good. That question comes from the line of John Quealy of Canaccord Adams. Your line is open, sir. Chip Moore - Canaccord Adams: Yeah, thanks it’s actually Chip Moore for John. Follow-up on that last question a little bit, if you can provide me with some little more color on our export markets. Obviously that's held up relatively well versus the US recent quarters. Just maybe you can talk about the visibility you have there, particularly the Middle East, China, etcetera.

Yeah. When you look at the Middle East, actually Middle East, we serve residential in the Middle East, residential is down in the Middle East. So to give you a sense of the fact that residential is a global phenomenon, and it's even slower in Asia than we would like, as we are a big player in residential. But commercial and municipal, municipal is ruling strong actually for us in terms of backlogs and order rates. We haven't really seen anything flagged there yet. In fact, we have opened up a whole area in Australia, the Philippine and where we are actually bidding municipal jobs for the first time, and we are very hopeful that that will be a positive. Now these are small numbers, they are ones and two bids. But it begins that way right? So municipal, we haven't seen any weakness yet. Commercial, the shipments are good, we are seeing order rates coming up even in Middle East still up at year-over-year, but not at the same rate. So, we are seeing some deceleration, if you will, in Middle East on the commercial side. But then again, we still have a lot of share to get. I still, I am very pleased with the performance of our team in the Middle East. They have done an incredible job of growing from pretty much being nothing to being 2%, 3% of the company now. And then in China, still growing, but at a little slower rate. Chip Moore - Canaccord Adams: Okay. And I know you talked about municipal there abroad, may be domestically, are you hearing anything, or see anything from distributors.

We exited the year with highest municipal backlog we ever had. Chip Moore - Canaccord Adams: Okay.

But what we are doing in our planning, we are assuming that some of this stuff is going to move out. The amount maybe some of it gets accelerated with if the money goes to the right place and the Stimulus Package, but we are assuming that some of these including some of the commercial projects may move out on us, or get out, right cancelled, so we are cautious. Even through we look at the backlog and we are not saying that. Chip Moore - Canaccord Adams: Okay, great. Thanks.

Alright, thank you.

Thank you. Anita, is there anyone else in the queue?

No, sir.

I don't want to jump in any conclusions again. Well, I guess we are going to go ahead and conclude if you want to give the replay information that would be great. Thank you for your time, everybody.

Yes, sir. And the replay of today's conference will be available starting two hours. To access the replay dial 1800-642-1687, and when prompted use the conference ID number from today, which was 80028855. Again, the telephone number for the replay is 1800-642-1687 and today's conference ID number was 80028855. Thank you ladies and gentlemen; this does conclude today's conference call. You may now disconnect your line.