濱特爾 (PNR) 2010 Q3 法說會逐字稿

Good morning; my name is Deshantra, and I will be your conference operator today.

At this time, I would like to welcome everyone to the Pentair Q3 2010 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, Miss Zawoyski, you may begin your conference.

Thank you, Deshantra, and welcome to Pentair's third quarter earnings release conference call.

We're glad you could join us.

I'm Sara Zawoyski, Head of Investor Relations, and with me today is Randy Hogan, our Chairman and Chief Executive Officer, and John Stauch, our Chief Finance Officer.

On today's call, we will provide details on our third quarter results, as well as update you on Pentair's outlook for 2010.

Before we begin, let me remind you that any statements made about the Company's anticipated financial results are forward-looking statements subject to future risks and uncertainties, such as the risks outlined in Pentair's 10-K as of December 31st, 2009, and Pentair's 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 a presentation which has been found in the financial information section of Pentair's website at www.Pentair.com.

We will reference these slides throughout our prepared remarks and any references to non-GAAP financials are reconciled in the appendix of this 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, and comparative with prior year adjusted figures, unless otherwise noted or highlighted.

I will now hand the call over to Randy, who will take you through Pentair's third quarter 2010 results and provide perspective on our markets and performance.

Then, John will provide additional information regarding third quarter performance and updated fourth quarter and 2010 outlook.

As is our custom, we will reserve time for questions and answers after our prepared remarks.

Randy?

Thanks, Sara, and welcome, everyone.

Before we begin, I'd like to thank everyone who attended our investor day here in Minneapolis.

It was great to see many of you, and share Pentair's long-term strategies for sustainable, profitable growth.

For of you who couldn't join us, at reminder that the web cast replay and charts presented are available in the investor section of our website.

Now let's start with the third quarter performance shown on slide number two.

The headline is that focused execution on growth initiatives continues to drive strong revenue and earnings growth, while key end market recoveries providing growth, product innovation, expanding distribution, and a growing presence in emerging markets is enabling us to outperform our served markets.

Sales grew 17% in the quarter, with both Water and Technical Products posting double-digit gains.

Clearly, Technical Products stood out in the quarter with over 30% growth on strong demand across virtually all end markets, while Water growth was generally in line with expectations.

I'll cover both segments in more detail in a few minutes, but you'll recall that coming in the back half, we expected strong underlying demand in Technical Products to continue, offsetting some pockets of slower growth, particularly in US residential, in Water.

As you saw from this morning's release this dynamic read through in the numbers.

Our sales performance was broad-based with good growth across geographies with a 20% uptick in the US, 7% growth in developed markets outside the US and 18% increase in emerging markets.

The key growth markets of China and Latin America grew even faster at more than 27% and 20%, respectively.

In total, operating profits grew 23% while operating margins expanded 50 basis points to 11.7% in the quarter.

In Technical Products, we've successfully leveraged the higher volumes on today's better soft model, and posted our second largest quarterly margin in history, at 16.3% for the quarter, only 10 basis points off the all-time high achieved in the second quarter of 2008, which was on 15% higher sales.

Water margins, on the other hand, were down year over year and below the guidance which provided in July, which John and I will cover in more detail.

But in short, we understand the issues there, have actions underway to address them, and expect Water margins will get better.

In Q3, we delivered earnings per share of $0.55, which was up 31% when compared to adjusted EPS in the third quarter of 2009.

Stronger operating performance in Technical Products, combined with high revenue and a slightly lower tax rate drove EPS $0.03 above the high end of the quarterly guidance we provided in July.

We continue to generate strong free cash flow, with almost $80 million in the quarter.

This brings our year to date free cash flow to $207 million, which represents a net income conversion of 138%.

We're on track to deliver greater than the $225 million in free cash flow for the full year once again.

In sum, our Q3 performance was solid, and importantly, we had strong execution of our growth initiatives.

This positions us well for growth in 2011 and beyond.

Now let's turn to slide number three, which provides an overview of our Water results.

A couple of key points.

Some pluses and minuses before getting into the Water details.

First, I'm pleased with Water's top line results, gross growing 11% to $513 million on strong performance in municipal pumps, our filtration businesses and pools.

Across our water businesses, we are driving new product introductions, expanding distribution and growing our presence in emerging markets to drive growth in the near term and positioning us for further growth in the future.

Second, is the significant work and tremendous effort with our team related to the Gulf Intracoastal Water Way, or GIWW project for the US Army Corp of Engineers.

These are big pumps in an integrated system, that is strengthening our leading position within this important municipal market segment.

On the minus side, Water margins were not at the levels we anticipated due to our material and manufacturing cost performance in certain GBUs.

With pricing actions in place and underway and better yield and productivity to offset inflation, we do anticipate a return to margin expansion as we head into next year.

With that overview, let me spend some time discussing each of our GBUs' top line performance.

Our Residential Flow GBU was up 1% in the quarter, or up 2% excluding FX.

While pump sales were essentially flat in the US, we continue to gain share in the pro channel, drive healthy demand for our energy efficient IntelliDrive line and launched several other new products.

Keeping with the sustainability theme, new product introductions included a new rain water reuse pump in Australia with an integrated remote monitoring device we call H2O Informer, that tracks the quantity of rain water capture and the percentage of water it's saving.

But retail sales in the US declined year over year, and we see pro channel distributors returning to a more cautious view on inventory, heading into the lower volume winter season.

Agriculture, which represents approximately 15% of this business unit, continues to be a key growth driver.

Agricultural equipment sales were up more than 30% in the quarter, with solid demand in the US and further geographic expansion opportunities.

Residential Filtration sales were up 9% in the quarter, or up 11% excluding FX.

As the most globally diverse business unit within Pentair, Residential Filtration's emerging market growth of nearly 30% in the quarter meaningfully contributed, while the US grew only modestly.

We continue to innovate for local market needs, and launch new products as a faster pace than in the past, as we invest in localized engineering and technology capabilities.

This year, for example, we will introduce over 30 new products, including the recent launch of an advanced water softener with one of the highest salt efficiencies on the market.

We've invested to build more innovation capabilities, and it is paying dividends.

This growing product portfolio, targeted at specific markets, also helps support our global distributor and retail channel expansion, increasing penetration and reach.

The Pentair Water University that we discussed with you last water continues to yield positive results for us, extending to southeast Asia this quarter, and reaching over 80 channel partners there.

Our Pool GBU sales were up 10% in the quarter, reflecting solid demand and share gains.

We expanded our distribution reach by adding nearly 100 new dealers to our network.

Dealer training and strong utility funded rebate programs, including an enhanced pool pump rebate program in California, are helping to boost our sustainable EcoSelect product line, for which sales grew 18% in the quarter.

We've also launched a number of new products like the more energy efficient IntelliBrite LED lighting.

This product uses over 80% less energy than incandescent lights, and we believe 50% less energy than competitive products.

With the stronger and differentiated product portfolio, we continue to further penetrate the dealer channel, outpace the market and post strong sales gains, with the expected benefit of new pool constructions yet to come.

Engineer flow sales were up 35%, driven by municipal pump sales related to the large Gulf Intracoastal Water Way project in New Orleans.

As I said, our team has done a tremendous job supporting the US Army Corps of Engineers during construction of one of the world's largest pump stations.

The project schedule has actually been accelerated, Resulting in the majority of the $57 million sales now occurring in 2010, with little carryover into 2011.

Approximately $30 million in sales benefited Q3, which is $10 million more than we had anticipated.

The underlying municipal business continues to have sluggish order activity, however, and we're making progress in our efforts to leverage our broader portfolio of products with distributors and global customers through marketing and cross-selling efforts.

Filtration Solutions sales were up 10%, led by global Food Service and Energy.

In Food Service, we continue to gain share across all regions and are successfully expanding our international presence through targeting key accounts and increasing penetration.

Additionally our filtration sales in the energy market continue to grow in hydrocarbon processing, driving sales in this key market up over 20% in the quarter.

While backlog is healthy, desalination sales remain sluggish as project initiation is being delayed.

Now, let's move to operating profits and margins.

Operating margins of 11.4% were below expectations in prior year by approximately 70 basis points, or roughly $3 million.

There were two key factors in the miss.

Unfavorable material price impact, as well as some operating inefficiencies within our residential pump business.

As you can see on the operating profit walk, year over year inflation was significant, due to unusually low material costs of a year ago, which we discussed in July.

Commodity costs, however, were slightly higher than anticipated in Q3 due to upward movements, mainly in copper and resin.

Pentair has always been disciplined in pricing to cover costs.

As we entered 2010, you will remember we were very cautious on price increases, even though we expected the coming year over year material cost increases.

We simply did not want to risk volume during this recovery.

With market conditions improving and some higher inflation, we are returning to more normal pricing practices across each of our businesses, but this will likely not read out in the results until early 2011, so we expect similar inflationary pressures to carry into Q4.

In the residential flow business, volume was essentially flat as channel inventories were hardest hit from distributor inventory leveling, and retail resets heading into the winter season.

So there was less volume leverage than expected, resulting in some operational inefficiency.

While we continue to drive productivity across all of our businesses, it was not enough to offset the increased investments and reinstate employee benefits in Water.

So in total, Water's top line was up 11% in the quarter and 12% year to date, despite the slow recovery in residential and sluggish desalination sales, reflecting the excellent execution by our teams.

Relative to margins, we're on track to expand 70 plus basis points year over year in 2010, and I'm confident that we will continue to expand Water margins, as we drive further lean actions in productivity, as well as initiate pricing actions.

Now let's move to slide number four for a review of Water's end markets overall.

To the left of the slide, you can see our Water end market mix, with roughly 40% of our business in US residential, which is shown in the pie chart, and 35% of our business outside the US, which is shown in the geographic mix.

Let me begin with residential, to help you understand what the headlines mean to Pentair.

Today, more than 80% of our residential business is replacement, repair and consumables.

A sump pump replacement, a new filter cartridge for an existing point of use system, or an upgraded disinfection system for your pool.

In addition, we're aggressively driving new product launches, expanding our dealer networks, and increasing channel penetration, so despite the relatively flat year over year housing market, our US residential business has grown year over year.

In fact, we're on track to grow high single digits in US residential for the full year, which reflects double-digit sales growth in the first half, and low to mid single-digit increases in the back half of the year.

Looking forward as the US residential market rebounds,we believe we're in a great position for accelerated growth.

In commercial, we expect to be up slightly for the year, as strong growth in Food Service and Systems has been largely offset by declines in fire, HVAC and circulator pumps within Engineered Flow.

These continued to be impacted by the challenging commercial construction market.

Global and municipal is expected to be up mid single digits for the full year with the GIWW adding another 30 points of growth.

Agriculture is growing nicely and continues to be a growth platform for us and while small today, sales are up 25% year to date.

So again, an overall position view of our key markets in Water that supports our 10% growth for the full year.

Let's move to slide number five for a review of Technical Products.

Third quarter sales were up 32% in local currencies, with all key end markets up double digits.

The breadth and depth of our product portfolio, global manufacturing footprint, and customer-first strategy continues to enable us to outperform the market.

As you've seen in our Company results, the electrical and industrial business recovery has been strong.

We believe Technical Products' performance is among the best in the industry, due to its great market position and continued growth investment.

Our largest end market, Industrial, posted an impressive 31% sales gain in the quarter and General Electronics, Infrastructure, and Energy were all up over 30% as well.

Technical Products growth was also balanced across geographies.

Our developed market growth grew over 25%, with US up approximately 35%.

Fast growth region sales increased 38% with outstanding progress in China, growing sales more than 67% for the second consecutive quarter.

We continue to focus on thermal management expansion opportunities in high growth verticals, including Energy and Infrastructure.

For our cooling products, we added a large distributor in turkey that will extend our reach and penetration within Turkey, but also within Russia, Ukraine and the Middle East.

In infrastructure, the work we've done on our Energy Partnering Project, a European-based modular charging station that combines electrical automotive recharging with parking meters, is helping to establish us as a leader in this emerging market.

We continue to pursue additional market opportunities.

We're also enlarging our industrial sales team outside the US, adding resources in Latin America in particular.

Technical Products once again delivered strong operating margins improvements as growth and productivity more than offset material inflation mix pressures, and employee benefit restatements.

Our teams continue to do a good job in ramping up production above plan levels to meet strong demand to turn sales into highly profitable growth.

In fact, the boom in sales required heroic efforts on the part of our team in order to serve customers.

As we replace those heroic efforts with our standard productive processes, there's opportunity for even higher margins.

Now, let's move to slide six for a review of Technical Products end markets.

To the left of the slide, you can see that we serve a diverse group of end markets with over 35% of our businesses outside the US.

As we just discussed, every key market we serve posted significant gains in the third quarter.

While this performance, like many other industrial businesses, reflects easy comparisons, our results stand out among our peers, demonstrating the successes of our high growth vertical market focus and good execution of the growth initiatives in those markets.

Let me quickly review some of the highlights on this page.

In our industrial vertical, electrical distribution continues to strengthen in North America, and we're getting traction on channel development and product localization outside the US.

In this significant vertical market, we expect to grow over 20% for the full year.

In communications, strong demand and penetration in datacom continued with good growth in telecom in the third quarter.

In General Electronics, we're seeing good demand in traditional test and measurement and semiconductor markets, and expect this to continue.

Energy and Infrastructure, which combined, represents over 15% of Technical Products are both key growth platforms.

Within Energy, we're expanding in solar and wind power applications, and in Infrastructure, we're investing to further penetrate global railway applications, and driving leadership in the emerging electrical automotive charging station market.

While nonresidential construction is estimated to be down 10% year over year, our commercial business grew 13% in the quarter, and we expect it to be up high single digits for the full year, a significant accomplishment that results from our success in channel development.

As we look ahead at the fourth quarter, we expect the underlying sales strength in Q3 to continue across each of the end markets, adjusting for some seasonality.

Per our standard practice, details of free cash flow on the left of the slide on number seven, the balance sheet and a summary of our debt levels and maturity dates are on the top right section of the slide.

Cash flow continues to be a top priority for us, and we have demonstrated good working capital management, even as sales ramp back up this year.

As you can see, we have a comfortable debt level and no maturities for several years.

I'd like to highlight ROIC, which is shown in the bottom right section of the slide.

We're exiting Q3 at 8% on a return of invested capital ,up 180 basis points from the 6.2% at the end of last year.

We're on the right trajectory here, although not where we would like to be.

Our goal continues to be to drive ROIC back into double digits and ultimately 15% by 2014.

Now please turn to slide number eight, as I wrap up my discussion on the quarter, before turning to an update on strategic priorities in the fourth quarter.

Our Q3 sales performance of up 17% illustrated our ability to drive strong balanced growth across our portfolio.

Even as the recovery is still early in many of the key markets we serve, like US residential and commercial.

Excellent execution of initiatives by both our Water and Technical Products teams continues to drive differentiated growth in many of our key markets.

Operating margins continue to expand, up 50 basis points in the quarter.

Technical Products margins of over 16% demonstrate the strong volume growth and our lean cost structure yield positive results.

And importantly, the team is not satisfied with these levels, and sees opportunities for further improvement.

Water margins, on the other hand, were constrained, but we expect them to improve as we move into 2011.

We continue to convert earnings growth to cash at very healthy rates, giving us balance sheet flexibility.

Year to date, we've returned $57 million to shareholders in dividends, and we commenced our $25 million share buy back in the quarter.

Q3 was another solid quarter for Pentair, enabling us to raise our full-year EPS outlook to a range of $1.93 to $1.98 per share.

Now, if you'll turn to slide nine, let me provide you within an update on our strategic priorities to fuel growth and drive value creation for shareholders.

We're making significant progress in strengthening our business platforms, globalize and expanding emerging markets, driving operational excellence and lastly generating strong cash flow.

First, our portfolio business is much stronger today than in the past, with a globally aligned business unit structure, increased selling and marketing capabilities, and a more innovative product and systems portfolio.

Over the past several years, we have ramped up our R&D capabilities, and this is yielding results, with a number of new product launches at nearly two times last year's rate.

We've also made significant strides in building out our system solutions capability.

In the quarter, we began shipping our newly developed containerized RO systems and had wins in Bangalore and Beijing, for example, for on-site water recycling systems.

In emerging markets, our focus has been on establishing production in-country, so we can be cost-effective and locally responsive.

We feel good about the global footprint we have today with the recent doubling in size of our Suzhou facility, as well as the increases in capacity in Reynosa and Goa, covering our key high growth markets, China, Latin America, and India respectively.

But we're also localizing the innovation and design with much of the R&D in new products targeted at emerging markets.

We have recently added two new laboratories in China, to capture the growing opportunities for filtration in multiple verticals.

Beginning in 2011, we'll have a fully functioning product development lab in Suzhou, with world-class analytical capabilities, and we continue to build our sales and distribution networks, we will be uniquely capable in these markets.

So we have held true to our goal for building the foundation for accelerated growth in key emerging markets, despite the recent downturn.

Operational excellence is critical to our strategy, and we believe, provides a competitive advantage.

As we discussed at our recent Investor Day, Technical Products and now Pool are real proofs of concept in lean and operations excellence, as is illustrated in the Technical Products margins you see this quarter.

We're driving the four other GBUs to a similar level of performance and expect similar results over time, as we make further lean improvements and drive greater operational excellence.

More broadly, we're taking the lean principles outside of the four walls of manufacturing.

For example, we recently completed a project in which we drove standardization within our global set of HR processes, reducing the number of unique HR processes down by over 75%.

And our cash flow performance illustrates our ability to generate strong conversion from net income, regardless of where we are in the cycle.

We expect to return approximately $100 million to shareholders this year, through dividends and share buybacks, still leaving us the flexibility to pursue acquisitions within our strategy, while continuing to invest in organic growth.

We're making significant progress in strengthening Pentair's growth profile.

Now, let's turn to slide 10 to highlight several factors in the fourth quarter and our full-year performance, before I pass things along to John to cover in greater detail.

We believe our Q3 performance positions us well to deliver strong results in 2010, and importantly, sustainable growth in the future.

Year to date, sales are up 14%, operating profit grew over 40%, and EPS increased 51%.

And while John will go through the puts and takes of our Q4 guidance, I wanted to just cover the themes for Q4 as I see them.

For the pluses, we anticipate continued recovery in our end markets served, and as a result, expect the strong daily sales rates in Q3 to generally carry over into Q4, adjusted for normal seasonality.

And of course our underlying productivity focus will continue.

It's also important to note that Q4 is impacted by selling days in our distributor businesses, which translates to less volume in the quarter.

As a negative, we expect the material price head wind to continue into the fourth quarter, but actions are underway to reverse that in 2011.

So in total, we're expecting sales of over $3 billion for 2010, organic revenue growth of 12% with greater than 140 basis points of margin expansion, and operating profit growth greater than 25%, and we expect to generate over $225 million in free cash flow, a net income conversion of over 115%, all while making significant process on our strategic growth platforms to drive future growth for Pentair.

With that, let me turn it over to John to review in greater detail the cost performance in Q3 and our Q4 guidance.

John?

Thanks, Randy.

Please turn to slide number 11.

I would like to start with adding my perspective on the third quarter.

Overall, we exceeded expectations, however, it could have been better.

Water revenue came in at $513 million versus our expectations of closer to $505 million.

The overdrive was mainly $10 million of incremental revenue from the GIWW project that was recognized in the quarter.

And roughly $6 million less negative impacts from FX which converted at around 10% operating our margin, far lower than our average conversion rates in Water.

Core volume was actually unfavorable by $8 million to expectations, with most of this attributable to big box and distributor stocking adjustments.

This channel inventory adjustment drove operating inefficiencies in our Residential Flow business unit's operating performance.

This negatively affected Water margins by about $2 million or around 40 basis points.

The other compression versus expected margins was slightly higher raw material costs in plastics and motors.

We expect both of these issues to be resolved in the next couple of quarters, as our pricing actions scheduled for the first quarter will help with the material to sales conversions, and adjustments to our supply chain logistics enhancements, should recover the lost productivity and the volume adjustments in residential flow.

Technical Products had sales which were up 30% in the third quarter, well beyond the 15% to 20% that we had forecasted.

Technical Products had strong volume growth across all vertical markets and geographies.

This upside growth provided incremental margins and income as we would have expected.

Next I'd like you to turn to slide 12, labeled "Cost Model Performance".

We thought this slide may be useful, given the impact of GIWW cost being absorbed through the P&L.

In the quarter, our GIWW shipments were approximately $30 million.

This was up sequentially versus Q2 by about $24 million.

Material costs as a percentage of sales for the GIWW project was about 70% of sales.

As many of the costs within the quarter were provided by third party partners and came through our P&L in the form of purchase materials cost.

You can see the impact it had on materials, but also the benefit it gives us in the labor and overhead cost bucket.

Excluding the GIWW costs, our model is intact with our expectations, and we continue to make progress on improving it.

Overall, as previously mentioned, material costs were up modestly versus Q2, by about 40 basis points.

And are expected to creep up slightly more to about 41% by Q4, excluding the impact of GIWW.

We made a conscious decision in the beginning of the year to only modestly adjust pricing in our channels, given the low material costs in Q3 and Q4 of 2009, and the uncertainty that many of our channel partners were experiencing, heading into 2010.

We were working off of estimates, like many others, on what would happen with material inflation.

In fact, inflation has been relatively modest in 2010, with only recent impacts in a few of our key commodity components.

Given that about 70% of our customer base is distribution, it is a very difficult and cumbersome process for our distributors to change price off of cycle which is why we tend to only adjust price within these normal windows.

For us, those windows are usually in the first quarter.

We have scheduled price adjustments for next year in the majority of our businesses, and expect these price increases to help offset inflation for 2011, combined with continued productivity improvement.

While our operating expenses are relatively flat at about $150 million per quarter, plus or minus around $5 million, the percent that they are of sales fluctuates greatly based on the revenue within the quarter.

These costs reflect our employee benefit reinstatements, sales incentives, distributor incentives, and the incremental investments we are making to fuel future growth.

Overall, operating expenses are within our original and previous estimates of around $600 million for the year, and the pace of expansion for this group of costs should moderate over the next several quarters, as most of the investments we made are being monitored and measured to ensure their success.

Please turn to slide 13, titled "Impact of Selling Days".

We thought it would be helpful to remind you of the fact that Pentair is on a four, four, five closing cycle, versus a calendar quarter end cycle, with a December 31st year end.

Which means about every five to six years, we reset the quarterly calendar and it creates a comparison issue in a couple of the quarters.

This year, when we needed to reset the calendar, it shifted four more days into the first half of the year, while removing four days from the fourth quarter.

We are not sure that everyone's models or estimates reflect this understanding, and therefore, wanted to make sure you had the calendar days associated with our closing schedule, as well as share with you what the revenue growth would look like on a per-day basis.

As you can see, our average daily sales rate year to date is up 12%, and our forecast for Q4 on a daily sales rate is up 11%.

We anticipate most of our markets to behave as they did in Q3, and right now, we are only anticipating our normal seasonality patterns and GIWW to account for the difference in performance versus Q3.

Please turn to slide 14, labeled "Q4 2010 versus Q4 2009 EPS Comparison".

In Q4 2009, we reported EPS of $0.47 per share.

This result included tax and non-controlling interest one-time items of about $0.03 per share, so $0.44 per share without these items.

We are anticipating that the four less selling days or about 6% less shipping days will affect year over year revenue in our distribution based businesses by about $32 million.

We expect this lower revenue to impact EPS by about $0.08 a share, so on an apples-to-apples basis, we're starting from about $0.36 in EPS in 2009 for comparable purposes.

We expect GIWW shipments at Q4 to represent about a $0.01 of EPS versus 2009.

Underlying growth and performance versus 2009, should yield an incremental $0.05 to $0.10 on a year-over-year basis, so while overall projected Q4 EPS of $0.42 to $0.47 , appears down versus prior year, core performance should be up 17% to 31%, fairly consistent with our year to date EPS growth of around 51% and our full year forecasted growth of 31% to 35%.

It's important to understand that while our fourth quarter comparison has a little noise in it, we are reflecting that our core served markets remain solid.

Our growth and productivity initiatives remain on track, and we expect to have a fair bit of momentum heading into 2011.

Please turn to slide 15, titled "Q4 2010 Pentair Forecast".

For Q4 2010, we are forecasting revenue for Pentair to increase in the mid digits to around $725 million to $740 million.

This would represent an increase in Water in the low single digits, and greater than 10% increase in Technical Products.

We expect operating income will be between $73 million and $80 million, as compared to $77 million in the fourth quarter of 2009, which would result in 10% to 11% operating margins for Pentair.

Operating margins in Water expect to be approximately 10.5%, and Technical Products margin should be greater than 15% again.

We expect that the Q4 2010 tax rate will be between 32% and 33%, which is approximately two points worse than 2009, driven by the favorable one-time items in the fourth quarter of 2009 that I just mentioned on the previous slide.

Interest expense will be around $9, and the share count will be about 99.8 million shares.

In addition, we expect the Farradyne joint venture to be flat in the fourth quarter.

Overall, we expect EPS to be flat or down, between $0.42 and $0.47 per share.

We expect Q4 cash flow to be better than $18 million, driving to greater than $225 million in cash flow for the year.

Please turn to slide 16, labeled "Updated Q4 Full Year EPS Guidance".

Our year to date EPS is $1.51, with third quarter EPS of $0.55, which is $0.03 higher than the top end of the third quarter range that we provided.

We are tightening our range for the fourth quarter, based on our view that our core markets and our expectations of early buy shipments in Pool along with our assumptions of customary distributor stocking levels for year-end.

We are expecting material performance to be slightly worse than third quarter as previously mentioned, and expect manufacturing performance to continue to improve on a sequential basis.

We have revised our fourth quarter range to $0.42 to $0.47.

The $0.42 at the low end of this range assumes a stronger adjustment to the distributor inventory levels than I mentioned above, as we approach year-end, and cash from many of our smaller distributors remains tight.

The $0.47 at the high end of the range assumes no correction in distributor inventory levels from those that we saw in the third quarter.

This would result in full year guidance of $1.93 to $1.98 per share.

Please turn to our last slide, slide number 17, titled, "Updated Full Year 2010 Guidance".

Sales for 2010 are expected to be just over $3 billion.

We expect operating income to be approximately $330 million at the mid point of our guidance range, which will yield operating margins greater than 11%.

We are on track for free cash flow in excess of $225 million for 2010.

After tax, ROIC for the year is forecasted slightly above 8%, clearly, we are not in our long-term target of 15%, but we are showing nice progress, and up nearly 200 basis points year-over-year.

Overall, we are very pleased with our year-to-date performance through nine months of 2010.

We delivered 14% revenue growth in the first nine months, and expect that the year will be around 12% versus 2009.

This sales increase was driven by strength from our industrial businesses, and does not yet reflect what we could do when our North American residential markets finally recover.

Our factory closures and migrations to lower cost facilities are paying off.

Our core factories in Reynosa Mexico and Suzhou China are making substantial progress, but are not yet running at optimal levels.

Overall, we expect to have lower labor and fixed costs as a percentage of sales, and this means as we continue to drive sales growth, we have accelerated our earnings power.

We are now focused on four wall accountability, and driving lean deeper in the organization for continued productivity.

Our operating expenses are in line in with expectations, and although up year over year, it's for the right reasons of fueling growth and rewarding our employees for their tremendous efforts to deliver on our productivity and restructuring actions, while making meaningful progress in our top line growth initiatives, all positioning us well for sustainable, profitable long-term growth.

Next year, we will not have the incremental headwind of turning these costs back on, and that should mean expanded conversion rates on our incremental sales volume.

As we turn the page to slide 18, again, we wanted to remind everyone that we will have our Pentair 2011 outlook call on December 17th.

In this call, we will frame our expectations for 2011 and initiate our guidance projections that will reflect our specific business unit operating plans.

Thank you for your time, we will now turn it over for

(Operator Instructions).

We'll pause for a moment to prepare the roster.

Your first question comes from Jim Lucas.

Thanks, good morning, all.

Good morning, Jim.

Couple questions here.

When you were talking about the incremental growth investment for 2010, could you give us an update, have you dialed that back at all this year as some of the head winds appeared and where do you see additional investments preliminary for next year?

Still the same areas?

Jim, it's slightly less.

Let's call it about $5 million to $8 million less than we had previously anticipated but it's not because we necessarily dialed it back, it's just because as we talked at analyst meeting, we're talking about emerging region growth and fast growth regions and aligning engineering and marketing and the pace of getting that in is just a little slower than we could manage.

And if you take a look at next year, what I was mentioning in my comments is similarly, we think we're funding the right growth investments, and right now, we're monitoring measuring those, and ensuring their success, and so I think we're going to see the pace of the expansion be more prioritized.

And you're going to see less of a head wind next year.

Okay.

On the muni side, the GIWW project has gone well and that will create some more challenging comps next year.

As you demonstrate your success with these larger pumps, are there additional activities in the bidding process today?

Could you talk about what kind of door that opens for you?

Sure.

Number one is, there's going to be a follow-on project for the 17th Street Canal.

Our performance on the temporary station of 17th Street Canal and our performance on this project and knock on wood, it's not done, but it's going well, I think sets us up very well for the next big project, which is the permanent 17th Street Station.

We talked before, we expect that bid to be let next year, not really volume next year, but we think our performance there really sets us up well in that process.

Beyond that, we've gotten a lot of attention, for instance, in Indonesia, from the government of Indonesia on flood control, because of this station, the GIWW, and Jim, you saw it.

Nine million gallons a minute of pumping capacity.

Actually,able to move water in across the Gulf Intracoastal Water Way with flood gates closed.

It's a pretty remarkable set of pumps, and so it is getting a lot of attention within specifically flood control area.

And we are following that up by making calls on and explaining and showing them all.

In a lot of ways, these big projects are blue birds, because they're episodic.

At the same time they're something that our team takes a lot of pride in executing.

They're something that become references for us up and down the scale in municipal.

So we like doing them, and we think those references are going to help us grow outside of the US in particular.

Okay.

Thank you.

And finally, you gave a lot of good color on your pricing dynamic, and the impact on the inflation side, but when you look at the long-term goal of 15% margins in Water versus where you are today, can you talk about conceptually, what are the biggest levers that you have to pull that are within your control?

The biggest is volume.

And I would say we don't want to price ourselves out of volume growth.

As I mentioned, we were very cautious going into this year on price, because we didn't -- things were fragile.

We think we're turning to a more normal environment, but at the same time, we want to use volume and productivity to drive margins.

One of the things that we haven't talked that much about, but when we expanded capacity, we doubled the factory in Suzhou, we have three, four new product lines there.

It's duplicative capacity, so we're not really getting volume leverage on capacity, but we now have it in China, and we will get volume.

As we drive volume on these investments, we will get the operating leverage that both you and we expect.

And so I think volume is the most important piece to get there.

And with price in balance.

We can't give away -- the negative price we reported is not Pentair-like and it was on Water in the quarter.

So that's not something that we can have sustained.

And so net material price has got to be positive.

Okay.

Great.

Thank you.

Thanks, Jim.

Your next question comes from the line of Ajay Kejriwal.

Thank you, good morning.

Good morning.

Just on Technical Products, nice margins there near previous peaks.

Maybe talk a little bit about sustainability.

You are still way below peak revenue, so as revenues comes back and you get incremental margins, how should we think about margins going forward from here?

I'd like to see them keep this 30% growth rate and margins right where they are, I'd love that.

But I think more volume certainly in their core is going to yield higher margins.

As I mentioned, they had 30% growth in the quarter.

They weren't planning on that, so really a hot of heroic efforts in order to meet those customer demands and heroic is almost almost always not the most productive effort, that's why I referenced the fact that when we get back to our standard practice, our standard productive processes, we'll see more margin pickup.

But what I really like to see is we're really showing some great progress in growing outside of the United States and outside of western Europe, and what I'd like to see is for that sustained investment to continue to drove growth there, at high margins.

I think this as a business can be 18%.

I've thought that for a long time, and John just signalled 20, so.

And I think that's -- that's also possible in this kind of business.

I don't think they're done by any means.

Good.

Good.

Then on Water, sounds like you lost some volume because pricing.

I know you put through pricing, would be curious to hear what are you seeing from a competitors.

Do you expect competitors to follow through or, what's kind of your expectation on volume from here as you up with the pricing?

Just to clarify, the only volume loss in Water for the quarter was primarily retail restocking.

Big box and read into that the companies you know, kind of reset their volumes heading into the winter season on our pumps and there was a reset on that and that caused disruption in the residential business.

Absent that, we're seeing as we prepare to look at 2011, we feel very comfortable about getting our pricing back to where it's historically been, and remind people, in Water, that's historically been about 150 to 200 basis points a year, and we just didn't feel as we headed into this year that we saw that type of material inflation to drive that type and level of pricing, so we got hit with sequential material inflation versus our expectations, and that's caused us to struggle on the margin side.

Also when you get to this level of growth, mid-teens growth, you'll see rebates being hit to our distributors.

We have a number of different channels that are year over year, they're and that goes against price.

That answer your question?

Yes.

If I understand it correctly, so you don't expect to lose volume from any competitive issues on pricing, meaning you've seen follow throughs from your competitors?

We would not anticipate losing price -- losing volume from our price actions heading into next year.

Thank you.

Your next question comes from the line of Hamzah Mazari.

Thank you, good morning.

Just a couple of questions.

First of all, could you just comment on your inventory levels across your business lines and in the channel, are there where they need to be in your view given what you're seeing on the demand side particularly US residential markets?

Short answer is yes.

Obviously we saw a pretty good restock.

That hurt us in Q3 from the retail side, so we're feeling pretty comfortable about that inventory level in the channel.

As we look across all the other businesses, we're seeing our distributors, and to remind everybody, some of the distributors are smaller like, so these are not large companies, their availability of cash remains constrained, so they're running very thin inventory levels and we're working through those supply chain needs.

All right.

Then just in your Water business, you mentioned negative mix.

Could you touch on that a little more and how that plays out going forward?

And then given your initiative to sort of bring pricing up, how gradual is that process going to be?

Is this, is this something that's going to be late next year, given you're saying it's going to take a couple of quarters?

How should we be thinking about that?

No.

Just to frame it, sequentially as you take a look at our guidance, we've had only modest inflation versus our Q2 guidance range.

But the significant impact is more on a year over year as you look at Q4 and look at Q3 and those are based upon assumptions we made last year, when we enter into our price discussions in Q1.

So as we talk about heading into next year, our pricing actions will take hold in Q1 in 2011 and we're working through those actions right now with our businesses and we're taking a look at those on a global basis.

The nice thing about pricing and distribution is when you sell through distribution, whenever you raise prices, the value of a distributor's inventory goes up and they can borrow more against it.

Just last question, is it fair to say that most of the shift of labor to lower cost regions and realignment work on your footprint is all behind you and it's a question of when volumes come back that you can leverage that?

I would say the majority of the heavy lifting, yes.

You're never don with logistics and supply chain and aligning our suppliers with our operations in Mexico and Suzhou, we have a lot of opportunity there.

But I think -- I agree the heavy lifting is done.

The machines are moved.

The people are on the machines.

Correct.

But and tuning supply chain, that's -- that's also going to help us with material costs.

All right.

Thank you very much.

Thank you.

Your next question comes from the line of Michael Cox.

Thanks a lot.

Congratulations on a nice quarter, guys.

My first question is on the actions here to offset the material price inflation, I guess following up on some of the other questions.

I was wondering if you could maybe give a sense for what percentage of the offset will be done through price increases versus some of the other manufacturing improvements, and then also, if you could maybe quantify just a ballpark what sort of order of magnitude we're talking about on the price increase?

With our call in December, I'd rather have like the firm business details, the business to answer that specifically.

But if I give you a high level kind of response, I think we want to make sure that when we take a look at 2011 price, we're being cognizant of recapturing what we lost this year but also anticipating what our incremental inflation will be next year so we don't get ourselves in the same bind as this year and we have to understand the detailed productivity actions that the businesses are working on.

And we're in that planning process right now.

Right.

In terms of the operating detail.

And we'll get some careful planning around that.

If you step back in high level, I expect pretty good leverage on the factory.

As Randy said, a lot of our growth is coming on new product lines and new expansion and we would also expect some better leverage on the operating expenses because we don't have the head wind of those employee put back costs which we've been struggling with this year.

To follow up on your last point there, with not having to lap the reinstatement of those costs.

As we look out over the next 12 to 18 months, should we think incremental markets should expand like the last 12 months or is that a realistic expectation because of that projection?

I think better.

Certainly we expect better in Water.

My last question is on a geography that hasn't really come up much, which is Europe.

You've talked about US, and emerging or fast-growing markets, but could you talk a little bit about the trend you're seeing there?

If you go back to some of the details we saw good growth in western Europe really in both businesses but in particularly Technical Products.

We have a -- we have a nice mix of countries in Europe, we're bigger in Germany and the Benelux countries and France and we're not so big in the UK and Spain and we're decent size in Italy.

So I think we, in particular, in Technical Products have benefited from Germany's strength.

But also in Water, our young pump business has done fine in Germany.

I think I mentioned the second quarter conference call, that actually was kind of an upside to our base plan, and I say it continued that way in the third quarter, and I think it will in the fourth as well.

Thank you very much.

Thank you.

Your next question comes from the line of [Brian Kosimer].

Good evening, gentlemen.

I'm trying to get a sense of the cadence of business activity during the quarter and what you're seeing quarter to date so far?

By cadence you mean?

By month.

How activity progressed.

Q3 was a very solid quarter, September stood out as even stronger than the rest of the quarter.

And I would say, we have three weeks of October when we come to these earnings calls and there's nothing suggests that, we mentioned there was significant slowdown.

I'd also say the third quarter is always, the third quarter is -- it's all about September and September was good.

Basically western Europe is very slow in August and I would tell you a lot of the US is as well, so it's always about what happens after Labor Day.

September was strong.

A lot of that strength we saw in the high level sales order is a result of that.

Thank you.

And can you give us, I know you guys had frozen your plans a few years ago, but any thoughts on pension in 2011?

Two things related to pension.

One is asset returns and the other is discount rate.

The discount rate not favorable to companies at this moment.

I mean, to frame it for you, if we ran the numbers right now heading into 2011, you're looking at just slightly over $0.05 of head wind for next year versus what our expense was this year.

A lot can change between now and the end of the year but that's where the direction will be at the moment.

Thanks.

Does that answer your questions?

Yes.

And finally on tax rate, actually I know it's up year over year but actually you brought it down slightly relative to last quarter's guidance for 2010.

Maybe just talk about what's going on there?

Just a mix of where the income's earned.

We're always booking to a full year and truing up where we are in the quarter.

So nothing highly unusual.

Just as our European, our tax rate in Europe gives us a little bit better positive performance there.

Thank you very much.

Thank you.

Your next question comes from the line of Deane Dray.

Thank you, good morning, everyone.

Good morning.

The question of Pool and up 10%, in the prepared remarks, I heard there were a number of new dealers, I think you said 100.

How much of that Pool up was a channel fill going into the dealers or how much was really sales?

It's primarily sell through.

Our early buy programs don't start until Q4.

So they really affect Q4 and Q1, and maybe just to follow up on the next question, our early buy rate now is anticipated to be almost flat with last year and Pool will be down slightly in Q4 because of the selling day impact.

It's pretty much channel sell through.

If you recall, we were up very strong in Q2 so we're up double digit in Q3, so the channel tends to be still having a pretty good year.

The nice thing about, basically because of the EcoSelect product and the IntelliFlo pumps in particular, dealers have to have it, and that really is a compelling offer when you have a dealer that was not using our products, they've come aboard.

That's something our business has done a great job with.

One of the things that we've gone through and analyzed our full year performance, we've benefited significantly this year from maintenance and finally seeing the homeowner spend on maintenance upgrades, especially on heaters and pumps.

It's been a pretty good year for us, Deane.

If you stay with the mixes,aftermarket has to be north of 70%?

My guess would be 92.

No surprise.

My number is 92.

Of the growth in Pool, how much of these came from the new products, the EcoSelect and the IntelliDrive?

EcoSelect grew 18% versus the overall of 10% so it's about a third.

So do that math in my head, 18% versus the 7 would be the rest, so about two and a half times.

Then over in Technical Products a number that jumps out is China up 68%.

Can you expand what end markets that's going to?

Number one, we've increased the number of distributors, we've doubled and I forget the exact number, we've doubled the number of distributors carrying our industrial product.

We've had a strong focus on rail.

We have, through Schroff in Europe, we have a good position with the global rail suppliers, so we're focusing on rail opportunities and what that has is the control cap, and it's on board train is the biggest place for us, but there's also fixed controls, track side.

And then energy.

Those are the two big market focuses, as well as distribution that's helping.

Which is good because telecom has been the biggest part of our China play and we still are involved there, but these other areas of growth are quite encouraging.

How about on restructuring, just give us an update.

Sounds like you're doing quiet structuring on an go-forward basis but if John could update us on what the carryover has been in the fourth quarter and there are no new net productivity initiatives here?

We've got a little bit here and there, Deane.

A million here, a million there in a quarter, and as you said, we're self-funding those.

They're mostly around staffing, so primarily at this point more white collar workers and salary workers that are being shifted from North America into the emerging regions because we're moving more of our labor and our engineering and our growth initiatives across to China and India.

We're just trimming.

But it's nothing significant at the moment.

I would add, too, the way I heard it anyway, Deane, we do have a lot of new productivity initiatives.

We're launching them every day, they just don't require restructuring dollars to do it, correct?

Right.

In particular, we need to get better traction on the material side.

Because our tradition material inflation be damned, we're going to get material parts to you anyway, new suppliers, substitution materials, reduction in use of materials.

All of those things.

I'm frankly not happy with where we are on that front and so we got a lot of focus to get that.

Because we're better than this.

Just last question for me, I was surprised to hear that you were actually already shipping those containerized RO systems.

It looks like that would be a good niche business for you, and what's been the demand, the market response and request for quotes and so forth?

Well, we're selling them in Asia Middle East and so we've sold four and let me give you an update after we have more response having sold four to some distributors.

I think it's -- I'm excited about it.

I think it's a nice niche.

It's -- and hopefully we can grow it to more than a niche.

Right now it's four units and a couple of distributors, so we'll give you more update on that later.

Thank you.

Thank you.

Your next question comes from the line of Mike Halloran.

Good morning.

Just a couple questions here.

Just to make sure I understand the commentary correct, if you back out the fewer selling days, you're generally expecting normalized seasonal trends 3Q to 4Q, correct?

That's correct.

On the muni pump side or the muni side in general, obviously when you back up the GIWW, your presentation comment on mid single digit type growth, how does that compare to your expectations coming into the quarter and when you kind of parse the market down a little bit more fully and look at the pump side versus the filtration side in some of your other end markets you sell into there?

In terms of municipal ex-GIWW, it was about what we thought it would be.

The thing we saw a lull in the second quarter in quotation activity and that's why our backlog came down some.

Looks like quotation activity is coming up again, but I think municipal is going to continue to be constrained on the smaller jobs because of funding, so that's why we need to grow this business outside.

In commercial was also, in our large pumps, commercial US was down, but we're trying to grow that internationally and our industrial in that segment was up, so there's other places for us to go to get growth.

Just one more question on the Residential Flow side.

If you try to normalize for the changes in the big box retailers' purchasing habits, how would you characterize the underlying demand in that market and maybe give a little bit more color on that?

It's really hard to discuss right now because the strong season's Q2.

As you know, the expectation around residential new housing starts in North America was more bullish than what it read out.

So what you see is that inventory expectation being worked off through the channel.

The other squirrely thing is, usually the fall is affected in retail heavily by whether any really heavy rains, hurricanes, hit the east coast, and it was really -- there were some scares but there was nothing really terrible, so that's why they adjust the inventory down.

They laid some inventory in.

Right.

And they adjusted down.

Thank you.

It's not something we haven't seen before.

I don't think it's something we see as a sustained correction.

We think we got reset and as we head into Q4, we think we'll return to more normalized growth.

Thank you.

Appreciate the time.

DeShantra, can we do a quick check on how many more people are in the queue because I know we're past the hour mark here?

There are six participants remaining in queue.

Let's go.

Let's go.

Next question comes from the line of Christopher Glynn.

Thanks, good morning.

On the resi side you mentioned residential recovery, as and when it comes, but I think you also mentioned your 80% replacement now.

How do we reconcile thinking that there is material leverage to a residential construction recovery?

Well, I mean, the estimates are that somewhere between 1 million and 1.5 million units of housing need to be built a year for just to be at equilibrium in terms of household formations and households being end of light.

So you know, where are we?

We're at 480.

Use whatever number you want, so it's a 3X on 20% of the business is one way to think about it.

But the other thing to realize is the other thing that drives residential spending is consumer spending and sales of homes.

Most money gets spent on a home, six months prior to and the year after its sold, and so we still think there's quite a bit of upside in terms of not only housing starts but a return to a more normal level of housing.

We've got strong single digit growth with no recovery.

That was just a little bit of a, if you will, a loosening of the valve on consumer spending.

And I think you know, unless we see a wholesale change in the American ethos around housing, which I'm not saying is impossible, I think that residential still has a lot of leverage to go.

Okay.

Thanks.

I'll defer to the five others.

Thank you.

Thanks.

Your next question comes from the line of Terry Darling.

Thanks, good morning.

Appreciate all the color on the water margins, and I think I'm just slow today in terms of synthesizing them all here, but I'm wondering if maybe we could go back and understand the bridge versus your expectations, so one of the pieces, I think, John, you said that revenues were $8 million light of your expectations.

Was that just on the business going through distribution or was that the total piece?

That was the total piece and that was primarily just retail in Residential Flow.

And it would add a lower margin anyway just to be clear.

That's sort of part two, based on the way you're reflecting the bridge and slide deck, I would have thought that meant profit shortfall of about $3.5 million off that $8 million on the flow through.

But we picked up the $10 million of additional GIWW versus expectation which had low margin, too.

That was $10 million additional GIWW revenues at the lower margins?

At the lower margins, right.

On the GIWW commentary, I think I heard you say that you don't control your costs fully in that project of the can you expand on that?

If that's what I said, I apologize.

There's a timing element, if you remember, we had a fair amount of third party pass through engines this quarter that were attached to the pumps and there's not a lot of margin on that.

It was bought through.

We control it because we bid it, and it was in our bid, so we control it to the extent but we're buying and passing through.

Just to summarize, if we take a look at Water versus expectations, we would say that we're down about $3 million, about $2 million of that we attribute to the Residential Flow.

About $1 million we attributed to the sequential material uptick in our forecast.

Okay.

And so the commentary on pricing it's sort of value gap versus raw pricing, is that right or is it also raw pricing has deteriorated sequentially, too?

The only pricing deterioration in the quarter was rebates associated with large sell-through.

Those rebates.

The rest of the price to price as you would say in the system is holding steady.

That makes sense.

Last quarter, you had a commentary that price was up but it's just that rebates were stronger.

Right.

Lastly, on the 4Q tech products margins, I know there's seasonality in the business and margins are typically down, but it would seem that if you're in the low to mid 15 range that implies a deterioration in year over year incrementals and --

I think it's going to be the distributor days that are out there.

Absent that, there's nothing fundamental changing sequentially from Q3 to Q4 in Technical Products.

Just coming back to Randy's comment that you would have hoped for higher incrementals on a normalized basis.

Volume was so strong, you felt like you did a very good job.

Right.

Managing that surprise volume, 23% incrementals.

We're talking about now 10%-ish year over year growth and I'm wondering why incrementals on a year over year basis not then go back up.

You're correct of the we have less contribution on the fixed cost.

We have the full fixed cost.

And I want to remind you we still have the 401(k) and the ESOP and the put back costs that the last quarter for that is Q4.

Okay, all right.

Thank you.

Your next question comes from the line of John Quealy.

Hi, good morning, folks.

Two questions.

First on the balance sheet, accounts receivable ticked up about 3% when normally for this quarter it usually goes down sub-10, so are we looking for better free cash flow than expected in Q4 and my next question, qualitative, can you talk just about milestones or expectations about the vehicle charging business?

I know it's a bit of a one off, there's a lot of momentum to kick off in the States, the next couple of months on charging.

What your expectations are.

I'll take the first one, Randy can take the one on charging.

Simply put, we have a fair amount of the GIWW receivables still on the balance sheet expected to be collected in Q4.

That's why you're seeing a small tick up there in the accounts receivable line in Q3.

Which we expect to be collected in Q4.

I think the opportunity on vehicle charges is exciting.

I don't have a specific number, but we're working with a couple of the key OEMs, including ABB over in Europe on the energy parking and one of the parking companies and actually we're doing the integration on that.

We build the cabinet and we actually put it together.

That's a pretty full scope one.

We're excited about that and it's a project that we are now talking to other people who are aiming at this.

It's the electrical guys who we work with on other things, so I can't put a number on it yet but I believe that it's going to be large.

The way it goes, whether it's going to be charging stations in parking garages, there's home charging stations, there's street side parking stations, and the European thing we're working on is street side parking and then in ramp parking.

There's a lot of different ways that this could go, so I can't put a number on it.

Its just an exciting place to be right now, but it could be big.

Thank you.

We owe you a number.

The business owes us a number, too.

Thank you.

Your next question comes from the line of Jeff Hammond.

Hey, Jeff.

Jeff?

Maybe he dropped out of queue.

Jeff, your line is open.

He might have left us.

I'm sure we'll catch up with him.

Are there any other calls?

There are no other questions at this time.

Okay.

All right.

Well, thank you very much and replay will be available as per the operator will say, and thank you very much.

Operator?

Thank you for participating in today's Pentair Q3 2010 earnings conference call.

This call will be available for replay beginning at 1 PM Eastern Standard Time today until 11.59 PM eastern standard time November 23rd, 2010.

The conference ID number for the replay is 54422978.

Again, the conference ID number for the replay is 54422978.

The number to dial in for the replay is 1-800-642-1687, or 1-706-645-9291.

Thank you.