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

29 Jan, 2013, 07:00 ET from Pentair Ltd.

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