Post on 30-Aug-2020
PENTAIR
Q2 2013 EARNINGS RELEASEJuly 23, 2013
PENTAIR 2
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This communication contains statements that we believe to be “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact 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,”
"positioned,” "strategy,” "future" 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 our 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, Inc. 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 we serve; 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
markets 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 our
long-term strategic operating goals. Additional information concerning these and other factors is contained in our filings
with the U.S. Securities and Exchange Commission, including in our Quarterly Report on Form 10-Q for the quarter ended
June 29, 2013 and our 2012 Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this
communication. Pentair Ltd. assumes no obligation, and disclaims any obligation, to update the information contained in
this communication.
FORWARD-LOOKING STATEMENTS
PENTAIR 3
Adj. Op Income Up 13%
Adj. Op Margins 13.7% … Up 120 bps• Volume (incl. Acq. and FX) +20 pts.
• Price/Productivity/Mix +260 pts.
• Inflation -160 pts.
Adj. EPS Up 19%• Adj. Effective Tax Rate of 24.6% … In Line
• Adj. Net Interest of $16.3M; Share Count 205.5M
Q2 Free Cash Flow of $331M• Expect to Deliver ~$650M of FCF for 2013
FINANCIAL HIGHLIGHTS
SUMMARY
Sales Up 4% YOY• Volume/Price +4%
• FX 0%
• Water & Fluid Solutions +8%
• Valves & Controls +4%
• Technical Solutions -4%
Strong Operating Performance Drives Better EPS Performance
Q2'13 PENTAIR RESULTS*Q2'13 Q2'12
Sales $1.96B $1.89B
Op Income (Rpt.) $226M $119M
Op Income (Adj.) $268M $237M
ROS (Adj.) 13.7% 12.5%
EPS (Rpt.) $0.75 $0.72
EPS (Adj.) $0.92 $0.77
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
• Top Line Growth Led by NA Residential Recoveryand Strong Food & Beverage Sales
• Operating Margin Expansion Further Evidence ofProductivity and Synergies
• Adj. Tax Rate of 24.6% in Line with Forecast
• Share Buyback on Track for Full Year
• YTD Free Cash Flow Exceeded 125% of Net Income
PENTAIR 4
Operating Margins / Productivity HighlightsSales Highlights (by Vertical)
Revenue and Margin Expansion Led by Residential, Food & Beverage, and PIMS
SALES OPERATING INCOME
Q2'13 WATER & FLUID SOLUTIONS PERFORMANCE*
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
Q2'12Adjusted
Prod./Price
Infl.GrowthQ2'13
Adjusted
$10M$27M
$121M($15M)
+18%YoY
ROS(1.7%)0.2% 2.7%13.8%
$143M
15.0%ROS
$878M
$950M($2M)
Q2'12 Price FX Q2'13
$13M
+8%YoY
1 pts (0 pts) 8pts
Volume
7 pts
$61M
FlowControl
Adjusted Operating Margins 15.0%• Price and Productivity Contribute to
Margin Expansion
• Cost-Out and Standardization Savings
• Price Remains Positive
• Strong Operating Leverage
Sales Up 8%• Residential/Commercial Up 8% on Continued
NA Residential Recovery• Infrastructure Up 2% Led by North American
Backlog and Stabilization in Europe• Food & Beverage Up 25% Led by Strength in
Agriculture, Beverage, and Food Service
Fast Growth Regions Up 5%
PENTAIR 5
Operating Margins / Productivity HighlightsSales Highlights (by Vertical)
Robust Margin Expansion Highlights Execution Capabilities
SALES OPERATING INCOME
Q2'13 VALVES & CONTROLS PERFORMANCE*
$597M
$620M($2M)
Q2'12 Price FX Q2'13
$1M
+4%YoY
0 pts (0 pts) 4 pts
Volume
4 pts
$24M
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
Q2'12Adjusted
Prod./Price
Infl.GrowthQ2'13
Adjusted
$3M$84M$19M
$71M ($9M)
ROS(1.5%)0.0% 3.1%11.9%
ROS
13.5%ROS
+18%YoY
Backlog Flat Sequentially at $1.4B … Ordersup 1% Y-o-Y Driven by Oil & Gas
Sales Up 4%• Energy - Oil & Gas Up 12%• Energy - Mining Up 12%• Energy - Power Down 1%• Industrial - Process Down 3%
Adjusted Operating Margins 13.5%• Integration/Standardization Savings Helped
Drive Productivity in Excess of Inflation
• Streamlined Service Organization SeeingEarly Benefits
• PIMS Adoption Ahead of Expectations
PENTAIR 66
VALVES & CONTROLS BACKLOG*
Total Backlog Remains Healthy and Near Record Levels
INDUSTRIAL - Process ENERGY - Oil & Gas
ENERGY - Power ENERGY - Mining
• 2012: Revenue ~40%
• Second Quarter Orders Up 1% Y-o-Y
• 2012: Revenue ~17%
• Second Quarter Orders Down 24% Y-o-Y
• 2012: Revenue ~34%
• Second Quarter Orders Up 10% Y-o-Y
• 2012: Revenue ~9%
• Second Quarter Orders Up 17% Y-o-Y
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition.
Backlog ($ Millions)
Backlog ($ Millions)Backlog ($ Millions)
Backlog ($ Millions)
354 354 355 366 359 360 369 359 391 376
0100200300400500600
Q1'11 Q2'11 Q3 11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13
299 340
447493 518 517 540
583 552 559
0100200300400500600
Q1'11 Q2'11 Q3 11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13
423 426 393 397 390 409 379 374 394 387
0100200300400500600
Q1'11 Q2'11 Q3 11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13
72 58 46 53 76 72 82 83 89 101
0100200300400500600
Q1'11 Q2'11 Q3 11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13
PENTAIR 7
Fast Growth Regions Down ~10%
Q2'13 TECHNICAL SOLUTIONS PERFORMANCE*
Margins Remain the Near-Term Focus as Growth is Subdued
SALES OPERATING INCOME
Operating Margins / Productivity HighlightsSales Highlights (by Vertical)
Q2'12Adjusted
Prod./Price
Infl.GrowthQ2'13
Adjusted
($3M)$70M$14M
$65M ($6M)
+9%YoY
ROS(1.5%)(0.0%) 3.5%15.6% 17.6%
ROS
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
$414M
$397M$0M
Q2'12 Volume Price FX Q2'13
$2M
($19M)
(5 pts) 1 pts (0 pts) (4 pts)
FlowControl
(4%)YoY
Sales Down (4%)• Industrial Down (2%)
• Energy Down (9%)
• Residential/Commercial Up 9%
• Infrastructure Down (13%)
Adjusted Operating Margins 17.6%• Price Actions and Productivity Offset
Moderate Inflation
• PIMS Adoption in Legacy FC and StrongExecution in Legacy PNR
• Standardization and Cost-Out EffortsGaining Momentum
PENTAIR
Food & Bev~9% of Sales • Agriculture Still Strong
• Beverage and Food Service Doing Well
Q1: +15% Q2: +23% FY: >+15%
8
TOTAL PENTAIR 1st HALF GROWTH PROFILE*
Growth Continues in Residential/Commercial and Food & Beverage
KEY VERTICALSKEY GEOGRAPHIES
• US/CANADA ~42% of Sales
– NA Residential RecoveryLeading the Way
– Canada Slower with DelayedEnergy Projects
• WESTERN EUROPE ~18% of Sales
– Mixed Signals, but Stabilizing Overall
– FX Neutral in 1H13
– FX Headwind in 2H13
• FAST GROWTH ~25% of Sales
– Overall Up 2% YTD
– China
– Middle East
– Latin America
– SE Asia
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
Vertical Commentary / Growth Rates (Y-o-Y)
Energy~28% of Sales • Oil & Gas Project Strength
• Power Backlog Building
Q1: -2% Q2: +4% FY: ~+2-4%
Industrial~26% of Sales • 2H13 Recovery Not Materializing
• Process Market Quoting Activity Solid
Q1: -5% Q2: -2% FY: ~-1%
Residential/Commercial~24% of Sales
• NA Recovery Continues• European Weakness Persists
Q1: +9% Q2: +8% FY: ~+6-8%
Infrastructure~13% of Sales • NA Backlog Building
• Middle East Quoting Resumed
Q1: -12% Q2: -2% FY: ~-2%
PENTAIR 9
GUIDANCE UPDATE – FULL YEAR 2013 ADJUSTED EPS
Remain on Track to Deliver Strong Double-Digit Adj. EPS Growth
PREVIOUS GUIDANCE
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
$3.10 - $3.30
CURRENT VIEW
$3.15 - $3.25
• Market Uncertainty
• Uncertainty in EMEA
• Integration/Cultural Assimilation
• Needed NA Residential Market to Improve
• Upside Reflected 2nd Half Acceleration
• Downside Reflected Execution Risk
• FY Revenue of $7.6B
• Assumed Synergies of $100M
• Still Unclear Except for NA Residential
• Uncertainty in EMEA Remains
• On Track/Performing Well
• NA Residential Recovery Underway
• Industrial Acceleration Unlikely
• Performing Ahead of Expectations
• FY Revenue of $7.5B (Aspen Div. and FX )
• Assumed Synergies of $105M
PENTAIR 10
Q2 YTD
1st HALF ASSESSMENT AND FULL YEAR OUTLOOK*
FY 2013Outlook
Adj. Op Margin
Bps Chg from PY
Revenue
% Chg from PY
2H Assumptions EMEA Stabilizes, but FX
Becomes Headwind
Price Continues to Offset Inflation
NA Residential and Food &Beverage Remain Strong
Energy Benefits from 2H ProjectShipments; Industrial AccelerationDoes Not Occur
$3.7B
+2%
12.0%
+80 bps
$1.50
+15%
~$7.5B
~+3%
~12.5%
~+160 bps
$3.15 to $3.25
+24 to 28%
Adj. EPS
% Chg from PY
To
pL
ine
Price Plus Productivity More ThanOffsetting Inflation
On Track for $105M in Synergies
Valves & Controls and TechnicalSolutions Seasonal Strength
A Very Strong Aquatics Year
$825M of $1.2B of ShareRepurchases Completed
Top Line Still Growing and Margin Expansion Accelerating* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
Op
.M
arg
ins
PENTAIR 11
Adj. Op Income Up ~14%
Adj. Op Margins ~12.9% … Up ~140 bps YoY
• Water & Fluid Solutions Margins, ~13.1%
• Valves & Controls Margins, ~13.0%
• Technical Solutions Margins, ~19.2%
Adj. EPS Up ~23%
• Tax Rate ~25%
• Net Interest ~$16.0M; Shares ~202M
Q3’13 FINANCIAL OUTLOOK
KEY HIGHLIGHTS
Sales Up ~1-2%
• Water & Fluid Solutions Up ~3-4%
• Valves & Controls Up ~0-1%
• Technical Solutions Down ~0-1%
Q3’13 Q3'12
Sales ~$1.9B $1.87B
Op Income (Rpt.) ~$245M $55M
Op Income (Adj.) ~$245M $216M
ROS (Adj.) ~12.9% 11.5%
EPS (Rpt.) $0.83-$0.87 $0.31
EPS (Adj.) $0.83-$0.87 $0.69
Strong EPS Growth Expected as Top Line Challenges Persist
Q3’13 PENTAIR OUTLOOK*
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
• Project Timing and FX Impacting Top Line
• Productivity and Synergies Driving RobustMargin Expansion
• Tax Rate and Share Buyback Help Below the Line
• Free Cash Flow Continues to Build Momentum Q3 Free Cash Flow Likely to Be Strong
PENTAIR 12
Q2 Still Likely to Be Peak Quarter … Shifting Fiscal YE Impacts Q3/Q4
QUARTERLY LINEARITY OF EARNINGS**
** Adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
2011 pro-forma 2012 pro-forma 2013 Forecast
• Q2 Still Expected to be “Peak” Quarter for PNR
• 2013 Fairly Consistent with Pattern of 2012
• Timing of Legacy Flow Control Fiscal Year Ends(December vs. September) Expected to Impact Q3/Q4
• Synergy Ramp Helps Offset Some Seasonality
• All Others In Line with Previous Years
Seasonality Most Seasonal BusinessesBest Quarter to Worst Quarter (Typical)
$201 $200
Q2, 2011 Q3, 2011
Op Income ($M)
$237 $216
Q2, 2012 Q3, 2012
Op Income ($M)
$268 $245
Q2, 2013 Q3, 2013
Op Income ($M)
• Aquatic Systems (Q2,Q4,Q3,Q1)
• WES (Q2,Q3,Q4,Q1)
• Thermal Management (Q4,Q3,Q1,Q2)
• Valves & Controls (Q2,Q3,Q4,Q1)
PENTAIR 13
Identified Funnel, History In Delivering Sourcing/Lean Savings
SYNERGY FUNNEL AND REALIZATION UPDATE
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
$10$20
2013 2015
Synergy/StandardizationExpectations
Sourcing Savings Funnel/Comments
Internal Funnel: >$50M (Both Base/Synergies)
• Realized/Forecasted Savings of $10M for 2013
• Key Funnel Actions (through 2015): Plate & Tubing
Castings
Electronics
Fasteners
Plastics
Freight
PC Standardization
IT Support RenegotiationLean/Operations Savings
$10
$45
2013 2015
Synergy/StandardizationExpectations
Internal Funnel: >$115M (Both Base/Synergies)
• Realized/Forecasted Savings of $10M for 2013
• Key Funnel Actions (through 2015): PNR Experience has Been >$2M per Factory over 3 Year Horizon
~115 Total Factories in PNR Expect to Read Out Through:
o Warranty/Quality/E&O
o Premium OT and Leverage
o Freight
o OTD/Growth
($M)
($M)
PENTAIR 14
Over $230M of Combined Synergies Targeted … Expanding Funnel
SYNERGY FUNNEL AND REALIZATION UPDATE
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
$85$130
2013 2015
Synergy/StandardizationExpectations
Back Office/Repositioning Funnel/Comments
Internal Funnel: >$175M (Both Base/Synergies)
• Realized/Forecasted Savings of $85M for 2013
• Key Funnel Actions (through 2015):
Current G&A is Greater than 8% of Sales … 2015 Target of 6%/Sales
Legacy PNR Businesses are <4% of Sales
Legacy Flow Control Businesses are >7.5%/Sales
Elimination of ERP’s, Data Centers, Legal Entities, Applications, andStandardization of Accounting/Payroll Centers
Op Inc. From Revenue
$35
2013 2015
Synergy/StandardizationExpectations
Internal Funnel: >$50M (Synergies Only)
• Realized/Forecasted Savings of $0M for 2013
• Key Funnel Actions (through 2015): Addition/Expansion of Service Cross-Business Pull Through
o Energy: V&C, W&FS, and Technical Solutions
o Food & Beverage: V&C and W&FS
o Middle East: V&C Pulling & Localizing W&FS
o Brazil: Technical Solutions Leveraging Footprint
o China: Utilization/Expansion of Legacy PNR Capacity
($M)
($M)
PENTAIR
$-
$10
$20
$30
$40
Q1 Q2 Q3 Q4
15
TIMING & SEGMENTATION OF 2013 IST BENEFIT STATUS
INTEGRATION & STANDARDIZATION UPDATE
Expecting $105M of Synergies …Slightly Better than Previous Expectations
$M
• $85M of Full Year Repositioning Benefit Expected• Lean Savings Expected at $10M+• Sourcing Benefit Expected to be $10M+
Sourcing
Lean/Ops
Repositioning
• Repositioning ActionsCompleted in Q2 … >$85MExpected
• Lean & Sourcing BenefitAccelerating as TeamsIdentify More Opportunities(Momentum, Enthusiasm and MoreImportantly … Funnel Building)
• Still IdentifyingMore Opportunities
• Accelerating Actions andPipeline to Help Ensure 2014and 2015 Performance
~$105M of Expected 2013 Benefit … On Track for >$230M by 2015
$10M
$29M$31M
$35M
PENTAIR 16
BALANCE SHEET AND CASH FLOW
Full Year Free Cash Flow on Track
DEBT ROLLFORWARD
CASH FLOW DEBT SUMMARY
*Does Not Include $253M of Cash on Hand
Maturity Avg. Rate
Variable
$2.7B*
Q2'13 Avg. Rate ~2.5%~74% Fixed …
$2.0B
$0.7B 0.6%‘17
3.2%Fixed ’14 – ‘30
Other FY Key Financial Metrics:
• Cap Ex ~$200M or ~125% of Depreciation
• Total D&A ~$320M + ~$30M of Non-CashStock Compensation
• Share Buyback $350M in Q2 (~$825M of$1.2B Cumulative by YE, 2013);~204M Share Count for FY and ~202M by Q4
($M) Q2 '13 Q2 '12 YOY Chg
Net Income attributable toPentair Ltd. $ 154 $ 73 $ 81
Non-Cash Items $ 83 $ 32 $ 51
Subtotal $ 237 $ 105 $ 132
Working Capital $ 82 $ 102 $ (20)
Capital Expenditures $ (38) $ (16) $ (22)
Asset Sales $ 3 $ 3 $ -
Other Accruals/Other $ 47 $ 28 $ 19
Free Cash Flow $ 331 $ 222 $ 109
Use of Cash: ($M) Q2 '13 Q2 '12 YOY Chg
Beginning Debt $ 2,598 $ 1,415 $ (1,183)
Generated Cash $ (331) $ (222) $ 109
Share Repurchase $ 343 $ - $ (343)
Dividends $ 47 $ 22 $ (25)
Other $ 83 $ 20 $ (63)
Ending Debt $ 2,740 $ 1,235 $ (1,505)
PENTAIR 17
Adj. Op Income Up ~19%
Adj. Op Margins ~12.5% ... Up ~160 bps YoY
• Water & Fluid Solutions Margins, ~13.1%
• Valves & Controls Margins, ~12.2%
• Technical Solutions Margins, ~19.0%
FY Adj. EPS Up ~26%
• Tax Rate ~25%
• Net Interest ~($65-$67M); Shares ~204M
FY’13 FINANCIAL OUTLOOK
KEY HIGHLIGHTS
Sales Up ~2-3%
• Water & Fluid Solutions Up ~5-6%
• Valves & Controls Up ~1-2%
• Technical Solutions Down ~0-1%
FY’13 FY'12
Sales ~$7.5B $7.3B
Op Income/(Loss) (Rpt.) ~$793M ($43M)Op Income (Adj.) ~$940M $791M
ROS (Adj.) ~12.5% 10.9%
EPS/(Loss) (Rpt.) $2.65-$2.75 ($0.84)EPS (Adj.) $3.15-$3.25 $2.54
• Expecting 2-3% Organic Revenue Growth
• PIMS Acceleration Across all GBU’s
• Margins Expected to Increase by >160 bpsto ~12.5% … All Segments Increasing
• $105M of IST Benefits in 2013 Forecast
• Efficient Capital Allocation Deployment
Growing in a Mixed Environment and Delivering Strong EPS Growth
FY’13 Free Cash Flow >100% Net IncomeConversion
* All year-over-year comparisons against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See Appendix for reconciliation of non GAAP measures.
FULL YEAR 2013 PENTAIR OUTLOOK*
PENTAIR
SUMMARY
18
Remain Well Positioned to Control our Destiny in 2013
• On Track to Deliver $105M in Synergies
• Building Funnels to Drive Additional Synergies in 2014-15
• One Pentair Culture is Progressing; PIMS is Key
• NA Residential Tailwind and Strength in Food & Beverageand Energy Offsetting Weak Infrastructure and Industrial
• Capital Allocation Remains Disciplined
PENTAIR 19
APPENDIXGAAP to Non-GAAP Measurements & Reconciliations
PENTAIR 20
REPORTED TO ADJUSTED 2013 RECONCILIATION
Pentair Ltd. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ended December 31, 2013 to the "Adjusted" non-GAAPexcluding the effect of 2013 adjustments (Unaudited)
Forecast Forecast
First Quarter Second Quarter Third Quarter YearIn millions, except per-share data 2013 2013 2013 2013
Total Pentair
Net sales 1,774.5$ 1,963.7$ approx $1,900 approx $7,500
Operating income - as reported 74.3 225.9 approx 245 approx 793% of net sales 4.2% 11.5% approx 12.9% approx 10.6%
Adjustments:
Inventory step-up and customer backlog 76.8 10.1 — approx 87
Restructuring and other 27.4 32.4 — approx 60
Operating income - as adjusted 178.5 268.4 approx 245 approx 940% of net sales 10.1% 13.7% approx 12.9% approx 12.5%
Net income attributable to Pentair Ltd. - as reported 51.7 154.1 approx 171 approx 550
Gain on sale of business, net of tax (12.5) — — approx (13)
Interest expense, net of tax — 1.6 — approx 2
Adjustments, net of tax 80.8 33.5 — approx 114
Net income from attributable
to Pentair Ltd. - as adjusted 120.0 189.2 approx 171 approx 653
Earnings per common share attributable to Pentair Ltd. - diluted
Diluted earnings per common share - as reported 0.25$ 0.75$ $0.83-$0.87 $2.65-$2.75
Adjustments 0.33 0.17 — 0.50
Diluted earnings per common share - as adjusted 0.58$ 0.92$ $0.83-$0.87 $3.15-$3.25
PENTAIR 21
REPORTED TO ADJUSTED 2013 RECONCILIATIONPentair Ltd. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ended December 31, 2013 to the "Adjusted" non-GAAP
excluding the effect of 2013 adjustments (Unaudited)
Forecast Forecast
First Quarter Second Quarter Third Quarter YearIn millions 2013 2013 2013 2013
Water & Fluid Solutions
Net sales 782.0$ 949.8$ approx $840 approx $3,400
Operating income - as reported 74.8 136.1 approx 105-110 approx 425-430% of net sales 9.6% 14.3% approx 13.1% approx 12.6%
Adjustments:
Restructuring 7.5 6.6 — approx 14
Inventory step-up and customer backlog 0.6 0.2 — approx 1
Operating income - as adjusted 82.9 142.9 approx 105-110 approx 440-445% of net sales 10.6% 15.0% approx 13.1% approx 13.1%
Valves & Controls
Net sales 585.8$ 619.9$ approx $625 approx $2,400
Operating income (loss) - as reported (18.6) 56.9 approx 76-81 approx 182-187% of net sales (3.2%) 9.2% approx 13.0% approx 7.8%
Adjustments:
Restructuring 7.3 17.0 — approx 24
Inventory step-up and customer backlog 70.6 10.0 —$ approx 81
Operating income - as adjusted 59.3 83.9 approx 76-81 approx 287-292% of net sales 10.1% 13.5% approx 13.0% approx 12.2%
Technical Solutions
Net sales 410.0$ 397.4$ approx $438 approx $1,700
Operating income - as reported 53.3 65.1 approx 79-84 approx 296-301% of net sales 13.0% 16.4% approx 19.2% approx 17.7%
Adjustments:
Restructuring 10.7 4.9 — approx 16
Inventory step-up and customer backlog 5.7 — — approx 6
Operating income - as adjusted 69.7 70.0 approx 79-84 approx 318-323% of net sales 17.0% 17.6% approx 19.2% approx 19.0%
PENTAIR 22
REPORTED TO ADJUSTED 2012 RECONCILIATIONPentair Ltd. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ended December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)
First Quarter Second Quarter Third Quarter Fourth Quarter YearIn millions, except per-share data 2012 2012 2012 2012 2012
Total Pentair
Net sales 858.2$ 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 23Note: Inventory step-up and customer backlog reflect amortization of fair market value step-up associated with inventory and in process customer contracts.
REPORTED TO ADJUSTED 2012 RECONCILIATIONPentair 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 YearIn millions 2012 2012 2012 2012 2012
Water & Fluid Solutions
Net sales 587.1$ 675.4$ 605.5$ 771.2$ 2,639.2$
Operating income (loss) - as reported 63.7 92.0 69.2 (56.9) 168.0% of net sales 10.8% 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 10.8% 14.6% 11.6% 7.5% 11.0%
Valves & Controls
Net sales —$ —$ —$ 548.6$ 548.6$
Operating income (loss) - 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 272.6$ 267.5$ 261.5$ 434.8$ 1,236.4$
Operating income - as reported 50.5 50.6 52.3 11.6 165.0% of net sales 18.5% 18.9% 20.0% 2.7% 13.3%
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 18.5% 20.1% 20.0% 17.4% 18.8%
PENTAIR 24
2012 PRO FORMA ADJUSTMENTS – TOTAL PENTAIR
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 Adjustments
2012 Total Pentair(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$
PENTAIR 25
2011 PRO FORMA ADJUSTMENTS – TOTAL PENTAIR
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 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$
PENTAIR 26
2012 PRO FORMA ADJUSTMENTS – WATER & FLUID SOLUTIONS
Note: “Other” adjustments represent changes in corporate allocation assumptions
PENTAIR 27
2012 PRO FORMA ADJUSTMENTS – VALVES & CONTROLS
Note: “Other” adjustments represent the elimination of sales to sanctioned countries (which were terminated prior to the completion of the Flow Control acquisition),and changes in corporate allocation assumptions
PENTAIR 28
2012 PRO FORMA ADJUSTMENTS – TECHNICAL SOLUTIONS
Note: “Other” adjustments represent the elimination of certain large projects and changes in corporate allocation assumptions.