Pentair Reports Fourth Quarter and Full Year 2012 Results -- Fourth quarter adjusted EPS of $0.47 per share and sales of $1.8 billion

-- Integration, standardization, and repositioning continue to gain momentum and company is on track for $90 million in targeted synergies in 2013

-- Adjusted free cash flow exceeded 100 percent of adjusted net income

-- The company affirms 2013 adjusted EPS guidance of $3.10-$3.30

Reconciliations of GAAP to Non-GAAP are in the attached financial tables

SCHAFFHAUSEN, Switzerland, Jan. 29, 2013 /PRNewswire/ -- Pentair Ltd. (NYSE: PNR) today announced fourth quarter 2012 sales of $1.8 billion, an increase of 103 percent from the prior year quarter excluding 1 point of foreign exchange impact, reflecting the Flow Control acquisition.  Adjusted fourth quarter 2012 earnings per diluted share ("EPS") were $0.47, down 16 percent from adjusted EPS of $0.56 in the fourth quarter of last year.  On a GAAP basis, the company reported a loss per share of $1.31 compared to a loss per share of $1.77 in the fourth quarter last year.  Adjusted EPS and operating income exclude certain costs related to transformational activities in 2012, including the Flow Control merger.  These costs include acquisition-related expenses, repositioning costs, "mark-to-market" pension expense, impairments, debt extinguishment expense, and certain tax items.

(Logo: http://photos.prnewswire.com/prnh/20120307/CG65728LOGO)

Fourth quarter 2012 adjusted operating income was $150 million, up 59 percent, and operating margins contracted 240 basis points to 8.5 percent.  Excluding transition costs, pricing and productivity gains offset material inflation and higher labor costs.  On a GAAP basis, the company reported an operating loss of $304 million.

For the full year, the company reported sales of $4.4 billion, adjusted operating income of $489 million, and adjusted EPS of $2.39.  On a GAAP basis, the company reported an operating loss of $43 million and a loss per share of $0.84.

During the fourth quarter the company elected to change to a more preferable method of accounting for pension and postretirement benefits.  Historically, the company recognized actuarial gains and losses annually as a component of Stockholders' Equity, amortizing them into operating results over future periods.  The company has now elected  to immediately recognize these gains and losses in its operating results in the year in which they occur.  These gains and losses will be measured annually as of December 31 and will be recorded in the fourth quarter of each year.  For the fourth quarter of 2012, the Company recorded a charge of $146 million for actuarial losses.  This change in accounting principle will be applied retrospectively.  The impact to prior periods is summarized in a schedule attached to this press release.

During the year, Pentair generated $318 million in adjusted free cash flow; this represented 100 percent conversion of adjusted net income.  Adjusted free cash flow excludes the impact of acquisition-related payments, accelerated pension funding, and repositioning costs.

The company paid approximately $112 million in dividends in 2012, or $0.88 per share.  The new quarterly dividend effective for the first and second quarters of 2013 is $0.23 per share per quarter.  The company intends to seek authorization from its shareholders at its 2013 annual general meeting of shareholders to increase the dividend further for the remainder of 2013.  If approved by the shareholders, the 2013 dividend increase will mark the 37th consecutive year in which Pentair has increased its dividend.

"The fourth quarter results were in line with expectations and marked the end of a historic transformational year for Pentair," said Randall J. Hogan, Pentair chairman and chief executive officer.  "The integration of the Flow Control businesses continues to gain momentum as the teams have come together and are building upon each other's strengths.  While many of our end markets faced some softness in the latter half of 2012, our businesses continued to deliver on the elements within our control, notably price and productivity, capabilities that have become hallmarks of Pentair."

Fourth Quarter Business Highlights

All year over year comparisons against 2011 adjusted results on a pro forma basis for the Flow Control acquisition.  See attached reconciliations of these Non-GAAP measures.

Water & Fluid Solutions sales grew 1 percent year-over-year to $771 million as the impact of foreign exchange was minimal in the quarter.  In fast growth regions, Water & Fluid Solutions sales grew 4 percent driven by strength in Latin America and the Middle East. 

  • Residential & Commercial sales, which accounted for roughly 45 percent of Water & Fluid Solution sales, grew 2 percent.  While there was continued weakness in western Europe and distributors guarded inventory levels closely, an improving North American residential market gained momentum.
  • Infrastructure sales, which includes the former Flow Control WES business, and which accounted for nearly 25 percent of Water & Fluid Solutions sales, were down 3 percent percent as the European infrastructure markets remained weak.  However, the backlog in North American infrastructure projects continued to grow.
  • Food & Beverage sales, which accounted for nearly 15 percent of Water & Fluid Solutions sales, grew 2 percent led by continued gains with food service customers.  Global agriculture sales were down in the quarter due to the timing of orders, but the company believes the 2013 outlook for global agriculture remains sound.  There were several project delays from beverage customers in the quarter with most of this work moved to 2013.

Water & Fluid Solutions' fourth quarter adjusted operating income of $58 million represented a 24 percent decline as compared to $77 million in the same period last year.  Adjusted operating margins decreased by 250 basis points to 7.5 percent.  While price and productivity largely offset inflation in the quarter, the segment incurred substantial transition costs.  Including repositioning, impairment, and acquisition related charges, Water & Fluid Solutions reported a fourth quarter GAAP operating loss of $57 million.

Valves & Controls delivered fourth quarter 2012 sales of $547 million, up 3 percent versus the prior year quarter, excluding a 1 percent unfavorable impact from foreign exchange.  Backlog increased 2 percent to $1.4 billion compared to third quarter 2012.

  • Energy sales, which accounted for roughly 60 percent of Valves & Controls sales, grew 2 percent.  Oil & gas industry sales had strong double-digit growth in the quarter, but some project delays impacted orders in the quarter.  Power industry sales remained weak and mining industry sales had continued growth.
  • Industrial sales, which accounted for roughly 30 percent of Valves & Controls sales, grew 2 percent.  Process sales in Asia were weak, but orders and backlog grew in the quarter.

Valves & Controls delivered fourth quarter adjusted operating income of $42 million down 3 percent compared to $43 million in the same quarter last year.  Fourth quarter 2012 adjusted operating margins decreased 40 basis points to 7.6 percent.  Price and productivity generally offset inflation, but mix and transition costs contributed to margin contraction in the quarter.  Including repositioning and acquisition related charges, Valves & Controls reported a GAAP operating loss of $77 million in the fourth quarter.

Technical Solutions delivered fourth quarter 2012 sales of $434 million, up 1 percent versus the prior year quarter including modest unfavorable impact from foreign exchange.

  • Industrial sales, which accounted for roughly 50 percent of Technical Solutions sales, declined 2 percent.
  • Energy sales, which accounted for roughly 30 percent of Technical Solutions sales, grew 6 percent.
  • Residential & Commercial sales, which accounted for roughly 15 percent of Technical Solutions sales, grew 1 percent percent.

Technical Solutions delivered adjusted fourth quarter operating income of $76 million, up 1 percent compared to $75 million in the same quarter last year.  Fourth quarter 2012 adjusted operating margins were flat at 17.4 percent compared to the prior year quarter.  Pricing and productivity gains driven by a better mix of standard products more than offset material and labor inflation.  Transition costs impacted the year-over-year comparison negatively.  Including repositioning, impairment, and acquisition related charges, Technical Solutions' fourth quarter reported GAAP operating income was $12 million.

Outlook

Pentair continues to expect full year 2013 adjusted EPS to be between $3.10 and $3.30, which represents an increase of approximately 22 to 30 percent from 2012 adjusted pro forma EPS of $2.54.  The company anticipates full year 2013 sales to be approximately $7.6 billion, or up approximately 3 to 5 percent over 2012 adjusted pro forma sales.  The company expects to generate free cash flow in excess of 100 percent of net income once again.

Pentair is initiating first quarter 2013 adjusted EPS guidance of $0.54 to $0.56.  This compares to first quarter 2012 adjusted pro-forma EPS of $0.54 and historical adjusted EPS of $0.64.  The company expects first quarter 2013 revenue to be about $1.8 billion, which is up slightly compared to first quarter 2012 adjusted pro-forma revenue and up significantly versus historical first quarter 2012 revenue of $858 million.  These results include around $10 million of costs associated to drive synergy benefits and only around $5 million of expected realized synergies.  Synergies driven by fourth quarter 2012 repositioning actions and functional standardization efforts are on track to deliver $90 million for the full year of 2013 and are expected to ramp to $35 million by fourth quarter 2013.

"Despite much of the global economic uncertainty that persists, we are seeing signs of momentum building in several end markets, such as global energy and North American residential, which combined are just under half of Pentair's revenue," said Hogan.  "Our focus remains on driving PIMS and improving our cost structure while continuing to invest in our businesses for growth.  We remain committed to delivering $90 million in synergies in 2013 and $230 million cumulatively by the end of 2015, in addition to our goal of $5.00 of EPS in 2015."

Earnings Conference Call

Pentair Chairman and CEO Randall J. Hogan and Chief Financial Officer John L. Stauch will discuss the company's performance and fourth quarter 2012 results on a two-way conference call with investors at 9:00 a.m. Eastern today. A live audio webcast of the call, along with the related presentation, can be accessed in the Investors section of the company's website shortly before the call begins. Reconciliations of non-GAAP financial measures are set forth in the attachments to this release and in the presentation, both of which can be found on Pentair's website. The webcast and presentation will be archived at the company's website following the conclusion of the event.

Caution Concerning Forward-Looking Statements

This press release contains statements that Pentair believes to be "forward-looking statements" within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including, without limitation, statements regarding the anticipated benefits of the merger or Pentair's anticipated financial results, are forward-looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans", "believes", "expects", "intends", "will", "likely", "may", "anticipates", "estimates", "projects", "should", "would", "expect", "positioned", "strategy", "future", "outlook", guidance" or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond Pentair's control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the ability to successfully integrate Pentair and the flow control business and achieve expected benefits from the merger; overall global economic and business conditions; competition and pricing pressures in the markets Pentair serves; the strength of housing and related markets; volatility in currency exchange rates and commodity prices; inability to generate savings from excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; increased risks associated with operating foreign businesses; the ability to deliver backlog and win future project work; failure of market to accept new product introductions and enhancements; the impact of changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and governmental proceedings; and the ability to achieve Pentair's long-term strategic operating goals. Additional information concerning these and other factors is contained in Pentair's filings with the U.S. Securities and Exchange Commission ("SEC"), including in Pentair's Quarterly Report on Form 10-Q for the quarter ended September 29, 2012. All forward-looking statements speak only as of the date of this press release. Pentair assumes no obligation, and disclaims any obligation, to update the information contained in this press release.

About Pentair Ltd.

Pentair Ltd. (www.pentair.com) delivers industry-leading products, services and solutions for its customers' diverse needs in water and other fluids, thermal management and equipment protection.   With pro forma revenues of $7.3 billion, Pentair employs more than 30,000 people worldwide.

Pentair Contacts:
Investors:
Jim Lucas, Vice President of Investor Relations
Direct:  763-656-5575
Email: jim.lucas@pentair.com

Media:
Betsy Day, Corporate Communications Manager 
Direct:  763-656-5537
Email: betsy.day@pentair.com













































Pentair Ltd. and Subsidiaries

Condensed Consolidated Statements of Operations (Unaudited)














Three months ended


Twelve months ended



December 31,

December 31,


December 31,

December 31,

In thousands, except per-share data

2012

2011


2012

2011

Net sales

$

1,750,932

$

865,692


$

4,416,146

$

3,456,686

Cost of goods sold


1,352,264


600,827



3,146,554


2,382,964

Gross profit


398,668


264,865



1,269,592


1,073,722

% of net sales


22.8%


30.6%



28.7%


31.1%

Selling, general and administrative

609,882


230,457



1,158,436


694,841

% of net sales


34.8%


26.6%



26.2%


20.1%

Research and development


32,174


20,063



93,557


78,158

% of net sales


1.8%


2.3%



2.1%


2.3%

Impairment of tradenames and goodwill


60,718


200,520



60,718


200,520

% of net sales


3.5%


23.2%



1.4%


5.8%

Operating income (loss)


(304,106)


(186,175)



(43,119)


100,203

% of net sales


-17.4%


-21.5%



-1.0%


2.9%

Other (income) expense:










Loss on early extinguishment of debt


75,367




75,367


Equity (income) losses of unconsolidated subsidiaries


145


(417)



(2,156)


(1,898)

Net interest expense


18,168


17,524



67,635


58,835

% of net sales


1.0%


2.0%



1.5%


1.7%

Income (loss) before income taxes and noncontrolling interest

(397,786)


(203,282)



(183,965)


43,266

Provision (benefit) for income taxes


(123,050)


(29,214)



(79,353)


46,417

effective tax rate


30.9%


14.4%



43.1%


107.3%

Net loss before noncontrolling interest


(274,736)


(174,068)



(104,612)


(3,151)

Noncontrolling interest 


(1,653)


419



2,574


4,299

Net loss attributable to Pentair Ltd.

$

(273,083)

$

(174,487)


$

(107,186)

$

(7,450)























Loss per common share attributable to Pentair Ltd.










Basic

$

(1.31)

$

(1.77)


$

(0.84)

$

(0.08)

Diluted

$

(1.31)

$

(1.77)


$

(0.84)

$

(0.08)












Weighted average common shares outstanding










Basic


208,402


98,395



127,368


98,233

Diluted


208,402


98,395



127,368


98,233












Cash dividends paid per common share

$

0.22

$

0.20


$

0.88

$

0.80











Pentair Ltd. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)







December 31

In thousands

2012

2011

Assets

Current assets





Cash and cash equivalents

$

261,341

$

50,077

Accounts and notes receivable, net


1,292,648


569,204

Inventories


1,380,271


449,863

Deferred taxes


77,661


60,899

Prepaid expenses and other current assets


248,447


107,792

Total current assets


3,260,368


1,237,835






Property, plant and equipment, net


1,224,488


387,525






Other assets





Goodwill


4,894,512


2,273,918

Intangibles, net


1,909,656


592,285

Other non-current assets


506,287


94,750

Total other assets


7,310,455


2,960,953

Total assets

$

11,795,311

$

4,586,313






Liabilities and Equity

Current liabilities





Current maturities of long-term debt

$

3,096

$

4,862

Accounts payable


569,596


294,858

Dividends payable


94,966


Employee compensation and benefits


295,067


118,413

Accrued product claims and warranties


67,046


42,630

Accrued rebates and sales incentives


36,522


37,009

Other current liabilities


471,628


144,069

Total current liabilities


1,537,921


641,841






Other liabilities





Long-term debt


2,454,278


1,304,225

Pension and other post-retirement compensation and benefits


378,066


280,389

Deferred tax liabilities


488,102


188,957

Other non-current liabilities


453,587


123,509

Total liabilities


5,311,954


2,538,921






Equity


6,483,357


2,047,392

Total liabilities and equity

$

11,795,311

$

4,586,313

 

Pentair Ltd. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)











Years ended December 31

In thousands

2012

2011

Operating activities





Net loss before noncontrolling interest

$

(104,612)

$

(3,151)

Adjustments to reconcile net loss to net cash provided by (used for) operating activities





Equity income of unconsolidated subsidiaries


(2,156)


(1,898)

Depreciation


87,835


66,235

Amortization


75,957


41,897

Deferred income taxes


(175,816)


(5,583)

Share-based compensation


35,847


19,489

Impairment of trade names and goodwill


60,718


200,520

Loss on early extinguishment of debt



75,367


Excess tax benefits from share-based compensation


(4,976)


(3,310)

Pension and other post-retirement expense

167,237


84,549

Pension and post-retirement contributions, net

(237,532)


(67,473)

Loss (gain) on sale of assets


(2,276)


933

Changes in assets and liabilities, net of effects of business acquisitions






Accounts and notes receivable


55,720


1,348


Inventories


125,099


18,263


Prepaid expenses and other current assets


(6,696)


10,032


Accounts payable



(61,990)


(24,330)


Employee compensation and benefits


(81,313)


(20,486)


Accrued product claims and warranties


(11,594)


(1,984)


Income taxes



8,060


10,084


Other current liabilities



59,449


10,921


Other assets and liabilities


5,632


(15,830)


Net cash provided by(used for) operating activities


67,960


320,226

Investing activities





Capital expenditures


(94,532)


(73,348)

Proceeds from sale of property and equipment


5,508


1,310

Acquisitions, net of cash acquired


470,459


(733,105)

Other


(5,858)


(2,943)


Net cash provided by (used for) investing activities


375,577


(808,086)

Financing activities





Net short-term borrowings 


(3,700)


(1,239)

Proceeds from long-term debt


1,536,146


1,421,602

Repayment of long-term debt


(1,305,339)


(832,147)

Debt issuance costs


(9,704)


(8,973)

Debt termination costs




(74,752)


Excess tax benefits from share-based compensation


4,976


3,310

Shares issued to employees, net of shares withheld


68,177


13,322

Repurchases of common shares


(334,159)


(12,785)

Dividends paid


(112,397)


(79,537)

Distributions to noncontrolling interest


(1,554)



Net cash provided by (used for) financing activities


(232,306)


503,553

Effect of exchange rate changes on cash and cash equivalents


33


(11,672)

Change in cash and cash equivalents


211,264


4,021

Cash and cash equivalents, beginning of year


50,077


46,056

Cash and cash equivalents, end of year

$

261,341

$

50,077












Pentair Ltd. and Subsidiaries

Supplemental Financial Information by Reportable Segment (Unaudited)













First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Twelve Months

In thousands

2012

2012

2012

2012

2012

Net sales to external customers











Water & Fluid Solutions

$

586,978

$

675,522

$

605,390

$

770,513

$

2,638,403

Valves & Controls





546,707


546,707

Technical Solutions


271,199


266,003


260,122


433,712


1,231,036

Consolidated

$

858,177

$

941,525

$

865,512

$

1,750,932

$

4,416,146












Intersegment sales











Water & Fluid Solutions

$

73

$

(116)

$

60

$

773

$

790

Valves & Controls





1,919


1,919

Technical Solutions


1,359


1,535


1,400


1,094


5,388

Other


(1,432)


(1,419)


(1,460)


(3,786)


(8,097)

Consolidated

$

$

$

$

$












Operating income (loss)











Water & Fluid Solutions

$

63,677

$

91,989

$

69,228

$

(56,851)

$

168,043

Valves & Controls





(76,843)


(76,843)

Technical Solutions


50,459


50,624


52,320


11,614


165,017

Other


(27,662)


(23,299)


(66,349)


(182,026)


(299,336)

Consolidated

$

86,474

$

119,314

$

55,199

$

(304,106)

$

(43,119)












Operating income as a percent of net sales











Water & Fluid Solutions


10.8%


13.6%


11.4%


-7.4%


6.4%

Valves & Controls


0.0%


0.0%


0.0%


-14.1%


-14.1%

Technical Solutions


18.6%


19.0%


20.1%


2.7%


13.4%

Consolidated


9.9%


12.5%


6.2%


-17.4%


-1.0%
























First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Twelve Months

In thousands

2011

2011

2011

2011

2011

Net sales to external customers











Water & Fluid Solutions

$

515,368

$

631,994

$

614,557

$

607,885

$

2,369,804

Valves & Controls






Technical Solutions


274,905


278,181


275,989


257,807


1,086,882

Consolidated

$

790,273

$

910,175

$

890,546

$

865,692

$

3,456,686












Intersegment sales











Water & Fluid Solutions

$

455

$

316

$

426

$

390

$

1,587

Valves & Controls






Technical Solutions


999


1,559


1,755


1,313


5,626

Other


(1,454)


(1,875)


(2,181)


(1,703)


(7,213)

Consolidated

$

$

$

$

$












Operating income (loss)











Water & Fluid Solutions

$

56,528

$

84,521

$

59,608

$

(142,346)

$

58,311

Valves & Controls






Technical Solutions


48,087


48,261


48,611


40,281


185,240

Other


(19,146)


(24,068)


(16,024)


(84,110)


(143,348)

Consolidated

$

85,469

$

108,714

$

92,195

$

(186,175)

$

100,203












Operating income as a percent of net sales











Water & Fluid Solutions


11.0%


13.4%


9.7%


-23.4%


2.5%

Valves & Controls


0.0%


0.0%


0.0%


0.0%


0.0%

Technical Solutions


17.5%


17.3%


17.6%


15.6%


17.0%

Consolidated


10.9%


12.0%


10.4%


-21.5%


2.9%



Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ended December 31, 2012 to the "Adjusted" non-GAAP

excluding the effect of 2012 adjustments (Unaudited)















In millions, except per-share data


First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year



2012

2012

2012

2012

2012

Total Pentair







Net sales


$  858.2

$  941.5

$  865.5

$  1,750.9

$  4,416.1








Operating income (loss) - as reported


86.5

119.3

55.2

(304.1)

(43.1)

   % of net sales


10.1%

12.7%

6.4%

(17.4%)

(1.0%)

Adjustments:







    Deal related costs and expenses


11.8

6.3

52.7

12.0

82.8

    Inventory step-up and customer backlog


179.6

179.6

    Restructuring


10.4

1.1

55.3

66.8

    Trade name impairment


60.7

60.7

    Change in accounting method - pension and post-retirement


(1.5)

(1.5)

(1.5)

146.2

141.7

Operating income - as adjusted


96.8

134.5

107.5

149.7

488.5

   % of net sales


11.3%

14.3%

12.4%

8.5%

11.1%








Net income (loss) attributable to Pentair Ltd. - as reported


61.8

72.8

31.4

(273.1)

(107.1)

    Bond redemption and interest expense


(0.8)

1.8

51.9

52.9

    Other adjustments net of tax


3.0

10.9

32.3

320.9

367.1

Net income from continuing operations attributable to Pentair Ltd. - as adjusted







64.0

83.7

65.5

99.7

312.9








Continuing earnings per common share attributable to Pentair Ltd. - diluted


Diluted earnings (loss) per common share - as reported


$  0.62

$  0.72

$  0.31

$  (1.31)

$  (0.84)

Adjustments


0.02

0.11

0.33

1.78

3.23

Diluted earnings per common share - as adjusted


$  0.64

$  0.83

$  0.64

$  0.47

$  2.39






















Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ended December 31, 2011 to the "Adjusted" non-GAAP

excluding the effect of 2011 adjustments (Unaudited)















In millions, except per-share data


First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year



2011

2011

2011

2011

2011

Total Pentair







Net sales


$  790.3

$  910.2

$  890.5

$  865.7

$  3,456.7








Operating income (loss) - as reported


85.5

108.7

92.2

(186.2)

100.2

   % of net sales


10.8%

11.9%

10.4%

(21.5%)

2.9%

Adjustments:







    Deal related costs and expenses


1.7

6.1

0.5

8.3

    Inventory step-up and customer backlog


0.2

5.3

5.8

2.2

13.5

    Restructuring


2.1

10.8

12.9

    Goodwill impairment


200.5

200.5

    Change in accounting method - pension and post-retirement


0.7

0.7

0.7

66.2

68.3

Operating income - as adjusted


88.1

120.8

100.8

94.0

403.7

   % of net sales


11.1%

13.3%

11.3%

10.9%

11.7%








Net income (loss) attributable to Pentair Ltd. - as reported


50.1

66.3

50.6

(174.5)

(7.5)

    Adjustments net of tax


1.7

9.2

7.1

230.2

248.2

Net income from continuing operations attributable 







    to Pentair Ltd. - as adjusted


51.8

75.5

57.7

55.7

240.7









Continuing earnings per common share attributable to Pentair Ltd. - diluted


Diluted earnings (loss) per common share - as reported


$  0.50

$  0.66

$  0.50

$  (1.77)

$  (0.08)

Adjustments


0.02

0.09

0.08

2.33

2.49

Diluted earnings per common share - as adjusted


$  0.52

$  0.75

$  0.58

$  0.56

$  2.41


Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ended December 31, 2012 to the "Adjusted" non-GAAP

excluding the effect of 2012 adjustments (Unaudited)














First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In millions

2012

2012

2012

2012

2012

Water & Fluid Solutions






Net sales

$587.0

$675.5

$605.4

$770.5

$2,638.4







Operating income (loss) - as reported

63.7

$92.0

$69.2

$(56.9)

$168.0

   % of net sales

10.9%

13.6%

11.4%

(7.4%)

6.4%

Adjustments:






    Restructuring

6.9

1.1

42.5

50.5

    Inventory step-up and customer backlog

23.4

23.4

    Trade name impairment

49.1

49.1

Operating income - as adjusted

63.7

98.9

70.3

58.1

291.0

   % of net sales

10.9%

14.7%

11.6%

7.5%

11.0%







Valves & Controls






Net sales

$  -

$  -

$  -

$546.7

$546.7







Operating income - as reported

(76.8)

(76.8)

   % of net sales

0.0%

0.0%

0.0%

(14.0%)

(14.0%)

Adjustments:






    Restructuring

5.1

5.1

    Inventory step-up and customer backlog

113.5

113.5

Operating income - as adjusted

41.8

41.8

   % of net sales

0.0%

0.0%

0.0%

7.6%

7.6%







Technical Solutions






Net sales

$271.2

$266.0

$260.1

$433.7

$1,231.0







Operating income - as reported

50.5

50.6

52.3

11.6

165.0

   % of net sales

18.6%

19.0%

20.1%

2.7%

13.4%

Adjustments:






    Restructuring

3.1

9.7

12.8

    Inventory step-up and customer backlog

42.7

42.7

    Trade name impairment

11.6

11.6

Operating income - as adjusted

50.5

53.7

52.3

75.6

232.1

   % of net sales

18.6%

20.3%

20.1%

17.4%

18.9%













Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ended December 31, 2011 to the "Adjusted" non-GAAP

excluding the effect of 2011 adjustments (Unaudited)














First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In millions

2011

2011

2011

2011

2011

Water & Fluid Solutions






Net sales

$ 515.4

$ 632.0

$ 614.6

$ 607.9

$ 2,369.8







Operating income (loss) - as reported

$ 56.5

$ 84.5

$ 59.6

$ (142.3)

$ 58.3

   % of net sales

11.0%

13.4%

9.7%

(23.4%)

2.5%

Adjustments:






    Restructuring

2.0

7.8

9.8

    Inventory step-up and customer backlog

0.2

5.3

5.8

2.2

13.5

    Goodwill impairment

200.5

200.5

Operating income - as adjusted

56.7

89.8

67.4

68.2

282.1

   % of net sales

11.0%

14.2%

11.0%

11.2%

11.9%







Technical Solutions






Net sales

$ 274.9

$ 278.2

$ 276.0

$ 257.8

$ 1,086.9







Operating income - as reported

$ 48.1

$ 48.3

$ 48.6

$ 40.3

$ 185.3

   % of net sales

17.5%

17.3%

17.6%

15.6%

17.0%

Adjustments - restructuring

0.1

2.0

2.1

Operating income - as adjusted

48.1

48.3

48.7

42.3

187.4

   % of net sales

17.5%

17.3%

17.7%

16.4%

17.2%

Pentair Ltd. and Subsidiaries

Reconciliation of the GAAP "As Reported" year ended December 31, 2013 to the "Adjusted" non-GAAP

excluding the effect of 2013 adjustments (Unaudited)









Forecast

Forecast




First Quarter

Year

In millions, except per-share data



2013

2013

Total Pentair





Net sales



           approx        $1,800 

           approx        $7,600 






Operating income - as reported



     approx               97 

      approx             865 

   % of net sales



           approx         5.4% 

            approx        11.4% 

Adjustments:





    Inventory step-up and customer backlog

     approx               78 

     approx               85 

Operating income - as adjusted



     approx             175 

     approx             950 

   % of net sales



            approx         9.7% 

              approx       12.5% 






Net income attributable to Pentair Ltd. - as reported

     approx              58 

     approx             591 

    Adjustments net of tax



     approx              59 

    approx               64 

Net income from continuing operations attributable 



    to Pentair Ltd. - as adjusted



     approx             117 

     approx             655 






Continuing earnings per common share attributable to Pentair Ltd. - diluted

Diluted earnings per common share - as reported

 $0.26-$0.28 

 $2.79-$2.99 

Adjustments



0.28

0.31

Diluted earnings per common share - as adjusted

 $0.54-$0.56 

 $3.10-$3.30 

Pentair Ltd. and Subsidiaries

Reconciliation of Net Cash Provided By (Used For) Operating Activities

to Adjusted Free Cash Flow

For the Year Ended December 31, 2012

(in millions)





Net cash provided by (used for) operating activities

$           68.0

Capital expenditures

(94.5)

Proceeds from sale of property and equipment

5.5

Free cash flow

(21.0)

Adjustments:


Accelerated pension funding

193.0

Acquisition related payments

126.0

Repositioning

20.0

    Adjusted Free Cash Flow

$         318.0

Pentair Ltd. and Subsidiaries

Schedule of "As Reported" to "As Restated"

 for the Change in Accounting for Pension and Post-retirement Benefits












First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In millions, except per-share data



2012

2012

2012

2012

2012









Operating income (loss) - as reported



85.0

117.8

53.7

(157.9)

98.6

    Change in accounting principle



1.5

1.5

1.5

(146.2)

(141.7)

Operating income (loss) - as restated



86.5

119.3

55.2

(304.1)

(43.1)









Net income (loss) attributable to Pentair Ltd. - as reported



60.8

71.8

30.4

(183.9)

(20.9)

    Change in accounting principle



1.0

1.0

1.0

(89.2)

(86.2)

Net income (loss) attributable  to Pentair Ltd. - as restated



61.8

72.8

31.4

(273.1)

(107.1)









Earnings per common share attributable to Pentair Ltd. - diluted





Diluted earnings per common share - as reported



$0.61

$0.71

$0.30

$(0.88)

$(0.16)

Change in accounting principle



0.01

0.01

0.01

(0.43)

(0.68)

Diluted earnings per common share - as restated



$0.62

$0.72

$0.31

$(1.31)

$(0.84)












First Quarter

Second Quarter

Third Quarter

Fourth Quarter

Year

In millions, except per-share data



2011

2011

2011

2011

2011

Operating income (loss) - as reported



86.2

109.4

92.9

(120.0)

168.5

    Change in accounting principle



(0.7)

(0.7)

(0.7)

(66.2)

(68.3)

Operating income (loss) - as restated



85.5

108.7

92.2

(186.2)

100.2









Net income (loss) attributable to Pentair Ltd. - as reported



50.5

66.7

51.1

(134.1)

34.2

    Change in accounting principle



(0.4)

(0.4)

(0.4)

(40.5)

(41.7)

Net income (loss) attributable  to Pentair Ltd. - as restated



50.1

66.3

50.7

(174.6)

(7.5)









Earnings per common share attributable to Pentair Ltd. - diluted





Diluted earnings per common share - as reported



$0.51

$0.67

$0.51

$(1.36)

$0.34

Change in accounting principle



(0.01)

(0.01)

(0.01)

(0.41)

(0.42)

Diluted earnings per common share - as restated



$0.50

$0.66

$0.50

$(1.77)

$(0.08)









In millions, except per-share data



2010

2009

2008



Operating income - as reported



334.2

219.9

324.7



    Change in accounting principle



(21.2)

(0.9)

(109.9)



Operating income - as restated



313.0

219.0

214.8











Net income from continuing operations attributable to Pentair Ltd. - as reported



198.5

115.5

256.4



    Change in accounting principle



(12.9)

(0.5)

(67.0)



Net income from continuing operations attributable to Pentair Ltd. - as restated










185.6

115.0

189.4











Continuing earnings per common share attributable to Pentair Ltd. - diluted





Diluted earnings per common share - as reported



$2.00

$1.17

$2.59



Change in accounting principle



(0.13)

(0.01)

(0.68)



Diluted earnings per common share - as restated



$1.87

$1.16

$1.91











Pro Forma Reconciliation






Pro Forma Adjustments


2011 Total Pentair

(in millions, except EPS)

Historical Adjusted Results

Historical Flow Control Acquisition

Depreciation & Amortization

Other Adjustments

Adjusted Pro Forma Results

First Quarter






Sales

$     790.3

$            798.1

$                 -

$          (21.2)

$        1,567.2

Operating Income

$       88.1

$              99.2

$          (19.7)

$          (21.2)

$           146.4

Net Income

$       51.8

$              74.4

$          (14.8)

$            (9.9)

$           101.5

Diluted EPS

$       0.52

$              0.35

$          (0.07)

$          (0.33)

$             0.47







Second Quarter






Sales

$     910.2

$            922.6

$                 -

$          (30.8)

$        1,802.0

Operating Income

$     120.8

$            119.9

$          (19.7)

$          (19.6)

$           201.4

Net Income

$       75.5

$              89.9

$          (14.8)

$          (11.5)

$           139.2

Diluted EPS

$       0.75

$              0.42

$          (0.07)

$          (0.45)

$             0.65







Third Quarter






Sales

$     890.5

$         1,079.1

$                 -

$          (42.4)

$        1,927.2

Operating Income

$     100.8

$            136.8

$          (17.2)

$          (20.4)

$           200.0

Net Income

$       57.7

$            102.6

$          (12.9)

$          (11.0)

$           136.4

Diluted EPS

$       0.58

$              0.48

$          (0.06)

$          (0.36)

$              0.64







Fourth Quarter






Sales

$     865.7

$            923.0

$                 -

$          (55.1)

$        1,733.6

Operating Income

$       94.0

$            125.6

$          (17.3)

$          (28.8)

$           173.5

Net Income

$       55.7

$              94.2

$          (13.0)

$          (20.0)

$           116.9

Diluted EPS

$       0.56

$              0.44

$          (0.06)

$          (0.39)

$             0.55







Full Year






Sales

$  3,456.7

$         3,722.8

$                 -

$        (149.5)

$        7,030.0

Operating Income

$     403.7

$            481.5

$          (73.9)

$          (90.0)

$           721.3

Net Income

$     240.7

$            361.1

$          (55.4)

$          (52.4)

$           494.0

Diluted EPS

$       2.41

$              1.68

$          (0.26)

$          (1.53)

$             2.30

Note: "Other" adjustments represent the elimination of certain large projects and sales to sanctioned countries (which were terminated prior to the completion of the Flow Control acquisition), changes in corporate allocation assumptions, income taxes and share count.


Pro Forma Reconciliation







Pro Forma Adjustments


2012 Total Pentai

(in millions, except EPS)

Historical Adjusted Results

Historical Flow Control Acquisition

Depreciation & Amortization

Other Adjustments

Adjusted Pro Forma Results

First Quarter






Sales

$     858.2

$            995.9

$                 -

$          (74.0)

$        1,780.1

Operating Income

$       96.8

$            124.9

$          (17.1)

$          (32.2)

$           172.4

Net Income

$       64.0

$              93.7

$          (12.8)

$          (28.1)

$           116.8

Diluted EPS

$       0.64

$              0.44

$          (0.06)

$          (0.48)

$             0.54







Second Quarter






Sales

$     941.5

$            980.8

$                 -

$          (33.2)

$        1,889.1

Operating Income

$     134.5

$            143.5

$          (17.2)

$          (24.0)

$           236.8

Net Income

$       83.7

$            107.6

$          (12.9)

$          (14.0)

$           164.4

Diluted EPS

$       0.83

$              0.50

$          (0.06)

$          (0.50)

$             0.77







Third Quarter






Sales

$     865.5

$         1,019.8

$                 -

$          (16.0)

$        1,869.3

Operating Income

$     107.5

$            119.9

$          (17.3)

$              5.5

$           215.6

Net Income

$       65.5

$              89.9

$          (13.0)

$              6.3

$           148.8

Diluted EPS

$       0.64

$              0.42

$          (0.06)

$          (0.31)

$             0.69







Fourth Quarter






Sales

$  1,750.9

$                   -

$                 -

$            (7.1)

$        1,743.8

Operating Income

$     149.7

$                   -

$                 -

$           16.6

$           166.3

Net Income

$       99.7

$                   -

$                 -

$           12.7

$           112.4

Diluted EPS

$       0.47

$                   -

$                 -

$           0.06

$             0.53







Full Year






Sales

$  4,416.1

$         2,996.5

$                 -

$       (130.3)

$        7,282.3

Operating Income

$     488.5

$            388.3

$          (51.6)

$          (34.1)

$           791.1

Net Income

$     312.9

$            291.3

$          (38.7)

$          (23.1)

$           542.4

Diluted EPS

$       2.39

$              1.36

$          (0.18)

$          (1.03)

$             2.54

Note: "Other" adjustments represent the elimination of certain large projects and sales to sanctioned countries (which were terminated prior to the completion of the Flow Control acquisition), changes in corporate allocation assumptions, income taxes and share count.


Pro Forma Reconciliation







Pro Forma Adjustments


2011 Water & Fluid Solutions Segment (in millions)

Historical Adjusted Results

Historical Flow Control Acquisition

Depreciation & Amortization

Other Adjustments

Adjusted Pro Forma Results

First Quarter






Sales

$     515.4

$            129.7

$                    -

$                -

$           645.1

Operating Income

$       56.7

$                9.7

$               (0.1)

$           (1.8)

$             64.5







Second Quarter






Sales

$     632.0

$            168.7

$                    -

$                -

$           800.7

Operating Income

$       89.8

$              14.5

$               (0.1)

$           (1.7)

$           102.5







Third Quarter






Sales

$     614.6

$            201.0

$                    -

$                -

$           815.6

Operating Income

$       67.4

$                5.8

$               (0.1)

$           (1.7)

$             71.4







Fourth Quarter






Sales

$     607.9

$            158.5

$                    -

$                -

$           766.4

Operating Income

$       68.2

$              10.1

$               (0.1)

$           (1.7)

$             76.5







Full Year






Sales

$ 2,369.8

$            658.0

$                    -

$                -

$        3,027.8

Operating Income

$    282.1

$              40.0

$               (0.3)

$           (6.8)

$           315.0









Pro Forma Adjustments


2012 Water & Fluid Solutions Segment (in millions)

Historical Adjusted Results

Historical Flow Control Acquisition

Depreciation & Amortization

Other Adjustments

Adjusted Pro Forma Results

First Quarter






Sales

$    587.0

$            163.4

$                    -

$                -

$           750.4

Operating Income

$      63.7

$              11.1

$               (0.1)

$           (1.8)

$             72.9







Second Quarter






Sales

$     675.5

$            202.3

$                    -

$                -

$           877.8

Operating Income

$       98.9

$              24.3

$               (0.1)

$           (1.7)

$           121.4







Third Quarter






Sales

$     605.4

$            202.1

$                    -

$                -

$           807.5

Operating Income

$       70.3

$              14.9

$               (0.1)

$            0.6

$             85.7







Fourth Quarter






Sales

$     770.5

$                   -

$                    -

$                -

$           770.5

Operating Income

$       58.1

$                   -

$                    -

$          14.2

$             72.3







Full Year






Sales

$  2,638.4

$            567.8

$                    -

$                -

$        3,206.2

Operating Income

$     291.0

$              50.3

$               (0.3)

$          11.2

$           352.2

Note:  "Other" adjustments represent changes in corporate allocation assumptions


Pro Forma Reconciliation







Pro Forma Adjustments


2011 Valves & Controls Segment   (in millions)

Historical Adjusted Results

Historical Flow Control Acquisition

Depreciation & Amortization

Other Adjustments

Adjusted Pro Forma Results

First Quarter






Sales

$         -

$            506.2

$                 -

$            (0.2)

$           506.0

Operating Income

$         -

$              66.4

$          (14.9)

$            (9.3)

$             42.2







Second Quarter






Sales

$         -

$            575.4

$                 -

$            (0.9)

$           574.5

Operating Income

$         -

$              87.9

$          (14.9)

$            (9.4)

$             63.6







Third Quarter






Sales

$         -

$            661.1

$                 -

$            (0.1)

$           661.0

Operating Income

$         -

$            101.9

$          (12.4)

$            (6.2)

$             83.3







Fourth Quarter






Sales

$         -

$            539.7

$                 -

$            (3.0)

$           536.7

Operating Income

$         -

$              68.9

$          (12.5)

$          (13.3)

$             43.1







Full Year






Sales

$         -

$         2,282.4

$                 -

$            (4.2)

$        2,278.2

Operating Income

$         -

$            328.2

$          (54.4)

$          (41.6)

$           232.2









Pro Forma Adjustments


2012 Valves & Controls Segment   (in millions)

Historical Adjusted Results

Historical Flow Control Acquisition

Depreciation & Amortization

Other Adjustments

Adjusted Pro Forma Results

First Quarter






Sales

$         -

$            621.3

$                 -

$          (12.7)

$           608.6

Operating Income

$         -

$              83.7

$          (12.3)

$          (10.6)

$             60.8







Second Quarter






Sales

$         -

$            602.4

$                 -

$            (5.0)

$           597.4

Operating Income

$         -

$              93.1

$          (12.4)

$            (9.8)

$             70.9







Third Quarter






Sales

$         -

$            629.6

$                 -

$            (9.5)

$           620.1

Operating Income

$         -

$              70.9

$          (12.5)