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Press release from PR Newswire

Pentair Reports Fourth Quarter and Full Year 2012 Results

Tuesday, January 29, 2013

Pentair Reports Fourth Quarter and Full Year 2012 Results07:00 EST Tuesday, January 29, 2013-- 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 tablesSCHAFFHAUSEN, 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 HighlightsAll 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.OutlookPentair 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 CallPentair 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 StatementsThis 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.comMedia: Betsy Day, Corporate Communications Manager Direct:  763-656-5537 Email: betsy.day@pentair.comPentair Ltd. and SubsidiariesCondensed Consolidated Statements of Operations (Unaudited)Three months endedTwelve months endedDecember 31,December 31,December 31,December 31,In thousands, except per-share data2012201120122011Net sales$1,750,932$865,692$4,416,146$3,456,686Cost of goods sold1,352,264600,8273,146,5542,382,964Gross profit398,668264,8651,269,5921,073,722% of net sales22.8%30.6%28.7%31.1%Selling, general and administrative609,882230,4571,158,436694,841% of net sales34.8%26.6%26.2%20.1%Research and development32,17420,06393,55778,158% of net sales1.8%2.3%2.1%2.3%Impairment of tradenames and goodwill60,718200,52060,718200,520% of net sales3.5%23.2%1.4%5.8%Operating income (loss)(304,106)(186,175)(43,119)100,203% of net sales-17.4%-21.5%-1.0%2.9%Other (income) expense:Loss on early extinguishment of debt75,367?75,367?Equity (income) losses of unconsolidated subsidiaries145(417)(2,156)(1,898)Net interest expense18,16817,52467,63558,835% of net sales1.0%2.0%1.5%1.7%Income (loss) before income taxes and noncontrolling interest(397,786)(203,282)(183,965)43,266Provision (benefit) for income taxes(123,050)(29,214)(79,353)46,417effective tax rate30.9%14.4%43.1%107.3%Net loss before noncontrolling interest(274,736)(174,068)(104,612)(3,151)Noncontrolling interest (1,653)4192,5744,299Net loss attributable to Pentair Ltd.$(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 outstandingBasic208,40298,395127,36898,233Diluted208,40298,395127,36898,233Cash dividends paid per common share$0.22$0.20$0.88$0.80Pentair Ltd. and SubsidiariesCondensed Consolidated Balance Sheets (Unaudited)December 31In thousands20122011AssetsCurrent assetsCash and cash equivalents$261,341$50,077Accounts and notes receivable, net1,292,648569,204Inventories1,380,271449,863Deferred taxes77,66160,899Prepaid expenses and other current assets248,447107,792Total current assets3,260,3681,237,835Property, plant and equipment, net1,224,488387,525Other assetsGoodwill4,894,5122,273,918Intangibles, net1,909,656592,285Other non-current assets506,28794,750Total other assets7,310,4552,960,953Total assets$11,795,311$4,586,313Liabilities and EquityCurrent liabilitiesCurrent maturities of long-term debt$3,096$4,862Accounts payable569,596294,858Dividends payable94,966?Employee compensation and benefits295,067118,413Accrued product claims and warranties67,04642,630Accrued rebates and sales incentives36,52237,009Other current liabilities471,628144,069Total current liabilities1,537,921641,841Other liabilitiesLong-term debt2,454,2781,304,225Pension and other post-retirement compensation and benefits378,066280,389Deferred tax liabilities488,102188,957Other non-current liabilities453,587123,509Total liabilities5,311,9542,538,921Equity6,483,3572,047,392Total liabilities and equity$11,795,311$4,586,313 Pentair Ltd. and SubsidiariesCondensed Consolidated Statements of Cash Flows (Unaudited)Years ended December 31In thousands20122011Operating activitiesNet loss before noncontrolling interest$(104,612)$(3,151)Adjustments to reconcile net loss to net cash provided by (used for) operating activitiesEquity income of unconsolidated subsidiaries(2,156)(1,898)Depreciation87,83566,235Amortization75,95741,897Deferred income taxes(175,816)(5,583)Share-based compensation35,84719,489Impairment of trade names and goodwill60,718200,520Loss on early extinguishment of debt75,367?Excess tax benefits from share-based compensation(4,976)(3,310)Pension and other post-retirement expense167,23784,549Pension and post-retirement contributions, net(237,532)(67,473)Loss (gain) on sale of assets(2,276)933Changes in assets and liabilities, net of effects of business acquisitionsAccounts and notes receivable55,7201,348Inventories125,09918,263Prepaid expenses and other current assets(6,696)10,032Accounts payable(61,990)(24,330)Employee compensation and benefits(81,313)(20,486)Accrued product claims and warranties(11,594)(1,984)Income taxes8,06010,084Other current liabilities59,44910,921Other assets and liabilities5,632(15,830)Net cash provided by(used for) operating activities67,960320,226Investing activitiesCapital expenditures(94,532)(73,348)Proceeds from sale of property and equipment5,5081,310Acquisitions, net of cash acquired470,459(733,105)Other(5,858)(2,943)Net cash provided by (used for) investing activities375,577(808,086)Financing activitiesNet short-term borrowings (3,700)(1,239)Proceeds from long-term debt1,536,1461,421,602Repayment 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 compensation4,9763,310Shares issued to employees, net of shares withheld68,17713,322Repurchases 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)503,553Effect of exchange rate changes on cash and cash equivalents33(11,672)Change in cash and cash equivalents211,2644,021Cash and cash equivalents, beginning of year50,07746,056Cash and cash equivalents, end of year$261,341$50,077Pentair Ltd. and SubsidiariesSupplemental Financial Information by Reportable Segment (Unaudited)First QuarterSecond QuarterThird QuarterFourth QuarterTwelve MonthsIn thousands20122012201220122012Net sales to external customersWater & Fluid Solutions$586,978$675,522$605,390$770,513$2,638,403Valves & Controls???546,707546,707Technical Solutions271,199266,003260,122433,7121,231,036Consolidated$858,177$941,525$865,512$1,750,932$4,416,146Intersegment salesWater & Fluid Solutions$73$(116)$60$773$790Valves & Controls???1,9191,919Technical Solutions1,3591,5351,4001,0945,388Other(1,432)(1,419)(1,460)(3,786)(8,097)Consolidated$?$?$?$?$?Operating income (loss)Water & Fluid Solutions$63,677$91,989$69,228$(56,851)$168,043Valves & Controls???(76,843)(76,843)Technical Solutions50,45950,62452,32011,614165,017Other(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 salesWater & Fluid Solutions10.8%13.6%11.4%-7.4%6.4%Valves & Controls0.0%0.0%0.0%-14.1%-14.1%Technical Solutions18.6%19.0%20.1%2.7%13.4%Consolidated9.9%12.5%6.2%-17.4%-1.0%First QuarterSecond QuarterThird QuarterFourth QuarterTwelve MonthsIn thousands20112011201120112011Net sales to external customersWater & Fluid Solutions$515,368$631,994$614,557$607,885$2,369,804Valves & Controls?????Technical Solutions274,905278,181275,989257,8071,086,882Consolidated$790,273$910,175$890,546$865,692$3,456,686Intersegment salesWater & Fluid Solutions$455$316$426$390$1,587Valves & Controls?????Technical Solutions9991,5591,7551,3135,626Other(1,454)(1,875)(2,181)(1,703)(7,213)Consolidated$?$?$?$?$?Operating income (loss)Water & Fluid Solutions$56,528$84,521$59,608$(142,346)$58,311Valves & Controls?????Technical Solutions48,08748,26148,61140,281185,240Other(19,146)(24,068)(16,024)(84,110)(143,348)Consolidated$85,469$108,714$92,195$(186,175)$100,203Operating income as a percent of net salesWater & Fluid Solutions11.0%13.4%9.7%-23.4%2.5%Valves & Controls0.0%0.0%0.0%0.0%0.0%Technical Solutions17.5%17.3%17.6%15.6%17.0%Consolidated10.9%12.0%10.4%-21.5%2.9%Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ended December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)In millions, except per-share dataFirst QuarterSecond QuarterThird QuarterFourth QuarterYear20122012201220122012Total PentairNet sales$  858.2$  941.5$  865.5$  1,750.9$  4,416.1Operating income (loss) - as reported86.5119.355.2(304.1)(43.1)   % of net sales10.1%12.7%6.4%(17.4%)(1.0%)Adjustments:    Deal related costs and expenses11.86.352.712.082.8    Inventory step-up and customer backlog???179.6179.6    Restructuring?10.41.155.366.8    Trade name impairment???60.760.7    Change in accounting method - pension and post-retirement(1.5)(1.5)(1.5)146.2141.7Operating income - as adjusted96.8134.5107.5149.7488.5   % of net sales11.3%14.3%12.4%8.5%11.1%Net income (loss) attributable to Pentair Ltd. - as reported61.872.831.4(273.1)(107.1)    Bond redemption and interest expense(0.8)?1.851.952.9    Other adjustments net of tax3.010.932.3320.9367.1Net income from continuing operations attributable to Pentair Ltd. - as adjusted64.083.765.599.7312.9Continuing earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings (loss) per common share - as reported$  0.62$  0.72$  0.31$  (1.31)$  (0.84)Adjustments0.020.110.331.783.23Diluted earnings per common share - as adjusted$  0.64$  0.83$  0.64$  0.47$  2.39Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ended December 31, 2011 to the "Adjusted" non-GAAPexcluding the effect of 2011 adjustments (Unaudited)In millions, except per-share dataFirst QuarterSecond QuarterThird QuarterFourth QuarterYear20112011201120112011Total PentairNet sales$  790.3$  910.2$  890.5$  865.7$  3,456.7Operating income (loss) - as reported85.5108.792.2(186.2)100.2   % of net sales10.8%11.9%10.4%(21.5%)2.9%Adjustments:    Deal related costs and expenses1.76.1?0.58.3    Inventory step-up and customer backlog0.25.35.82.213.5    Restructuring??2.110.812.9    Goodwill impairment???200.5200.5    Change in accounting method - pension and post-retirement0.70.70.766.268.3Operating income - as adjusted88.1120.8100.894.0403.7   % of net sales11.1%13.3%11.3%10.9%11.7%Net income (loss) attributable to Pentair Ltd. - as reported50.166.350.6(174.5)(7.5)    Adjustments net of tax1.79.27.1230.2248.2Net income from continuing operations attributable     to Pentair Ltd. - as adjusted51.875.557.755.7240.7Continuing earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings (loss) per common share - as reported$  0.50$  0.66$  0.50$  (1.77)$  (0.08)Adjustments0.020.090.082.332.49Diluted earnings per common share - as adjusted$  0.52$  0.75$  0.58$  0.56$  2.41Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ended December 31, 2012 to the "Adjusted" non-GAAPexcluding the effect of 2012 adjustments (Unaudited)First QuarterSecond QuarterThird QuarterFourth QuarterYearIn millions20122012201220122012Water & Fluid SolutionsNet sales$587.0$675.5$605.4$770.5$2,638.4Operating income (loss) - as reported63.7$92.0$69.2$(56.9)$168.0   % of net sales10.9%13.6%11.4%(7.4%)6.4%Adjustments:    Restructuring?6.91.142.550.5    Inventory step-up and customer backlog???23.423.4    Trade name impairment???49.149.1Operating income - as adjusted63.798.970.358.1291.0   % of net sales10.9%14.7%11.6%7.5%11.0%Valves & ControlsNet sales$  -$  -$  -$546.7$546.7Operating income - as reported???(76.8)(76.8)   % of net sales0.0%0.0%0.0%(14.0%)(14.0%)Adjustments:    Restructuring???5.15.1    Inventory step-up and customer backlog???113.5113.5Operating income - as adjusted???41.841.8   % of net sales0.0%0.0%0.0%7.6%7.6%Technical SolutionsNet sales$271.2$266.0$260.1$433.7$1,231.0Operating income - as reported50.550.652.311.6165.0   % of net sales18.6%19.0%20.1%2.7%13.4%Adjustments:    Restructuring?3.1?9.712.8    Inventory step-up and customer backlog???42.742.7    Trade name impairment???11.611.6Operating income - as adjusted50.553.752.375.6232.1   % of net sales18.6%20.3%20.1%17.4%18.9%Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ended December 31, 2011 to the "Adjusted" non-GAAPexcluding the effect of 2011 adjustments (Unaudited)First QuarterSecond QuarterThird QuarterFourth QuarterYearIn millions20112011201120112011Water & Fluid SolutionsNet sales$ 515.4$ 632.0$ 614.6$ 607.9$ 2,369.8Operating income (loss) - as reported$ 56.5$ 84.5$ 59.6$ (142.3)$ 58.3   % of net sales11.0%13.4%9.7%(23.4%)2.5%Adjustments:    Restructuring??2.07.89.8    Inventory step-up and customer backlog0.25.35.82.213.5    Goodwill impairment???200.5200.5Operating income - as adjusted56.789.867.468.2282.1   % of net sales11.0%14.2%11.0%11.2%11.9%Technical SolutionsNet sales$ 274.9$ 278.2$ 276.0$ 257.8$ 1,086.9Operating income - as reported$ 48.1$ 48.3$ 48.6$ 40.3$ 185.3   % of net sales17.5%17.3%17.6%15.6%17.0%Adjustments - restructuring??0.12.02.1Operating income - as adjusted48.148.348.742.3187.4   % of net sales17.5%17.3%17.7%16.4%17.2%Pentair Ltd. and SubsidiariesReconciliation of the GAAP "As Reported" year ended December 31, 2013 to the "Adjusted" non-GAAPexcluding the effect of 2013 adjustments (Unaudited)ForecastForecastFirst QuarterYearIn millions, except per-share data20132013Total PentairNet 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. - dilutedDiluted earnings per common share - as reported $0.26-$0.28  $2.79-$2.99 Adjustments0.280.31Diluted earnings per common share - as adjusted $0.54-$0.56  $3.10-$3.30 Pentair Ltd. and SubsidiariesReconciliation of Net Cash Provided By (Used For) Operating Activitiesto Adjusted Free Cash FlowFor the Year Ended December 31, 2012(in millions)Net cash provided by (used for) operating activities$           68.0Capital expenditures(94.5)Proceeds from sale of property and equipment5.5Free cash flow(21.0)Adjustments:Accelerated pension funding193.0Acquisition related payments126.0Repositioning20.0    Adjusted Free Cash Flow$         318.0Pentair Ltd. and SubsidiariesSchedule of "As Reported" to "As Restated" for the Change in Accounting for Pension and Post-retirement BenefitsFirst QuarterSecond QuarterThird QuarterFourth QuarterYearIn millions, except per-share data20122012201220122012Operating income (loss) - as reported85.0117.853.7(157.9)98.6    Change in accounting principle1.51.51.5(146.2)(141.7)Operating income (loss) - as restated86.5119.355.2(304.1)(43.1)Net income (loss) attributable to Pentair Ltd. - as reported60.871.830.4(183.9)(20.9)    Change in accounting principle1.01.01.0(89.2)(86.2)Net income (loss) attributable  to Pentair Ltd. - as restated61.872.831.4(273.1)(107.1)Earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings per common share - as reported$0.61$0.71$0.30$(0.88)$(0.16)Change in accounting principle0.010.010.01(0.43)(0.68)Diluted earnings per common share - as restated$0.62$0.72$0.31$(1.31)$(0.84)First QuarterSecond QuarterThird QuarterFourth QuarterYearIn millions, except per-share data20112011201120112011Operating income (loss) - as reported86.2109.492.9(120.0)168.5    Change in accounting principle(0.7)(0.7)(0.7)(66.2)(68.3)Operating income (loss) - as restated85.5108.792.2(186.2)100.2Net income (loss) attributable to Pentair Ltd. - as reported50.566.751.1(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 restated50.166.350.7(174.6)(7.5)Earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings per common share - as reported$0.51$0.67$0.51$(1.36)$0.34Change 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 data201020092008Operating income - as reported334.2219.9324.7    Change in accounting principle(21.2)(0.9)(109.9)Operating income - as restated313.0219.0214.8Net income from continuing operations attributable to Pentair Ltd. - as reported198.5115.5256.4    Change in accounting principle(12.9)(0.5)(67.0)Net income from continuing operations attributable to Pentair Ltd. - as restated185.6115.0189.4Continuing earnings per common share attributable to Pentair Ltd. - dilutedDiluted earnings per common share - as reported$2.00$1.17$2.59Change in accounting principle(0.13)(0.01)(0.68)Diluted earnings per common share - as restated$1.87$1.16$1.91Pro Forma ReconciliationPro Forma Adjustments2011 Total Pentair(in millions, except EPS)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$     790.3$            798.1$                 -$          (21.2)$        1,567.2Operating Income$       88.1$              99.2$          (19.7)$          (21.2)$           146.4Net Income$       51.8$              74.4$          (14.8)$            (9.9)$           101.5Diluted EPS$       0.52$              0.35$          (0.07)$          (0.33)$             0.47Second QuarterSales$     910.2$            922.6$                 -$          (30.8)$        1,802.0Operating Income$     120.8$            119.9$          (19.7)$          (19.6)$           201.4Net Income$       75.5$              89.9$          (14.8)$          (11.5)$           139.2Diluted EPS$       0.75$              0.42$          (0.07)$          (0.45)$             0.65Third QuarterSales$     890.5$         1,079.1$                 -$          (42.4)$        1,927.2Operating Income$     100.8$            136.8$          (17.2)$          (20.4)$           200.0Net Income$       57.7$            102.6$          (12.9)$          (11.0)$           136.4Diluted EPS$       0.58$              0.48$          (0.06)$          (0.36)$              0.64Fourth QuarterSales$     865.7$            923.0$                 -$          (55.1)$        1,733.6Operating Income$       94.0$            125.6$          (17.3)$          (28.8)$           173.5Net Income$       55.7$              94.2$          (13.0)$          (20.0)$           116.9Diluted EPS$       0.56$              0.44$          (0.06)$          (0.39)$             0.55Full YearSales$  3,456.7$         3,722.8$                 -$        (149.5)$        7,030.0Operating Income$     403.7$            481.5$          (73.9)$          (90.0)$           721.3Net Income$     240.7$            361.1$          (55.4)$          (52.4)$           494.0Diluted EPS$       2.41$              1.68$          (0.26)$          (1.53)$             2.30Note: "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 ReconciliationPro Forma Adjustments2012 Total Pentai(in millions, except EPS)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$     858.2$            995.9$                 -$          (74.0)$        1,780.1Operating Income$       96.8$            124.9$          (17.1)$          (32.2)$           172.4Net Income$       64.0$              93.7$          (12.8)$          (28.1)$           116.8Diluted EPS$       0.64$              0.44$          (0.06)$          (0.48)$             0.54Second QuarterSales$     941.5$            980.8$                 -$          (33.2)$        1,889.1Operating Income$     134.5$            143.5$          (17.2)$          (24.0)$           236.8Net Income$       83.7$            107.6$          (12.9)$          (14.0)$           164.4Diluted EPS$       0.83$              0.50$          (0.06)$          (0.50)$             0.77Third QuarterSales$     865.5$         1,019.8$                 -$          (16.0)$        1,869.3Operating Income$     107.5$            119.9$          (17.3)$              5.5$           215.6Net Income$       65.5$              89.9$          (13.0)$              6.3$           148.8Diluted EPS$       0.64$              0.42$          (0.06)$          (0.31)$             0.69Fourth QuarterSales$  1,750.9$                   -$                 -$            (7.1)$        1,743.8Operating Income$     149.7$                   -$                 -$           16.6$           166.3Net Income$       99.7$                   -$                 -$           12.7$           112.4Diluted EPS$       0.47$                   -$                 -$           0.06$             0.53Full YearSales$  4,416.1$         2,996.5$                 -$       (130.3)$        7,282.3Operating Income$     488.5$            388.3$          (51.6)$          (34.1)$           791.1Net Income$     312.9$            291.3$          (38.7)$          (23.1)$           542.4Diluted EPS$       2.39$              1.36$          (0.18)$          (1.03)$             2.54Note: "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 ReconciliationPro Forma Adjustments2011 Water & Fluid Solutions Segment (in millions)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$     515.4$            129.7$                    -$                -$           645.1Operating Income$       56.7$                9.7$               (0.1)$           (1.8)$             64.5Second QuarterSales$     632.0$            168.7$                    -$                -$           800.7Operating Income$       89.8$              14.5$               (0.1)$           (1.7)$           102.5Third QuarterSales$     614.6$            201.0$                    -$                -$           815.6Operating Income$       67.4$                5.8$               (0.1)$           (1.7)$             71.4Fourth QuarterSales$     607.9$            158.5$                    -$                -$           766.4Operating Income$       68.2$              10.1$               (0.1)$           (1.7)$             76.5Full YearSales$ 2,369.8$            658.0$                    -$                -$        3,027.8Operating Income$    282.1$              40.0$               (0.3)$           (6.8)$           315.0Pro Forma Adjustments2012 Water & Fluid Solutions Segment (in millions)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$    587.0$            163.4$                    -$                -$           750.4Operating Income$      63.7$              11.1$               (0.1)$           (1.8)$             72.9Second QuarterSales$     675.5$            202.3$                    -$                -$           877.8Operating Income$       98.9$              24.3$               (0.1)$           (1.7)$           121.4Third QuarterSales$     605.4$            202.1$                    -$                -$           807.5Operating Income$       70.3$              14.9$               (0.1)$            0.6$             85.7Fourth QuarterSales$     770.5$                   -$                    -$                -$           770.5Operating Income$       58.1$                   -$                    -$          14.2$             72.3Full YearSales$  2,638.4$            567.8$                    -$                -$        3,206.2Operating Income$     291.0$              50.3$               (0.3)$          11.2$           352.2Note:  "Other" adjustments represent changes in corporate allocation assumptions Pro Forma ReconciliationPro Forma Adjustments2011 Valves & Controls Segment   (in millions)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$         -$            506.2$                 -$            (0.2)$           506.0Operating Income$         -$              66.4$          (14.9)$            (9.3)$             42.2Second QuarterSales$         -$            575.4$                 -$            (0.9)$           574.5Operating Income$         -$              87.9$          (14.9)$            (9.4)$             63.6Third QuarterSales$         -$            661.1$                 -$            (0.1)$           661.0Operating Income$         -$            101.9$          (12.4)$            (6.2)$             83.3Fourth QuarterSales$         -$            539.7$                 -$            (3.0)$           536.7Operating Income$         -$              68.9$          (12.5)$          (13.3)$             43.1Full YearSales$         -$         2,282.4$                 -$            (4.2)$        2,278.2Operating Income$         -$            328.2$          (54.4)$          (41.6)$           232.2Pro Forma Adjustments2012 Valves & Controls Segment   (in millions)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$         -$            621.3$                 -$          (12.7)$           608.6Operating Income$         -$              83.7$          (12.3)$          (10.6)$             60.8Second QuarterSales$         -$            602.4$                 -$            (5.0)$           597.4Operating Income$         -$              93.1$          (12.4)$            (9.8)$             70.9Third QuarterSales$         -$            629.6$                 -$            (9.5)$           620.1Operating Income$         -$              70.9$          (12.5)$           11.3$             69.7Fourth QuarterSales$  546.7$                   -$                 -$                -$           546.7Operating Income$    41.8$                   -$                 -$             0.4$             42.2Full YearSales$  546.7$         1,853.3$                 -$          (27.2)$        2,372.8Operating Income$    41.8$            247.7$          (37.2)$            (8.7)$           243.6Note:  "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. Pro Forma ReconciliationPro Forma Adjustments2011 Technical Solutions Segment   (in millions)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$    274.9$            162.2$                 -$          (21.0)$           416.1Operating Income$      48.1$              29.4$            (4.7)$          (10.1)$             62.7Second QuarterSales$    278.2$            178.5$                 -$          (29.9)$           426.8Operating Income$      48.3$              20.2$            (4.7)$            (8.5)$             55.3Third QuarterSales$    276.0$            217.0$                 -$          (42.3)$           450.7Operating Income$      48.7$              33.6$            (4.7)$          (12.3)$             65.3Fourth QuarterSales$    257.8$            224.8$                 -$          (52.2)$           430.4Operating Income$      42.3$              51.0$            (4.7)$          (13.8)$             74.8Full YearSales$ 1,086.9$            782.5$                 -$       (145.4)$        1,724.0Operating Income$    187.4$            134.1$          (18.8)$         (44.7)$           258.0Pro Forma Adjustments2012 Technical Solutions Segment   (in millions)Historical Adjusted ResultsHistorical Flow Control AcquisitionDepreciation & AmortizationOther AdjustmentsAdjusted Pro Forma ResultsFirst QuarterSales$    271.2$            211.2$                 -$          (61.3)$           421.1Operating Income$      50.5$              35.8$            (4.7)$          (19.7)$             61.9Second QuarterSales$    266.0$            176.1$                 -$          (28.3)$           413.8Operating Income$      53.7$              27.9$            (4.7)$          (12.4)$             64.5Third QuarterSales$    260.1$            188.1$                 -$            (6.5)$           441.7Operating Income$      52.3$              39.0$            (4.7)$            (6.4)$             80.2Fourth QuarterSales$    433.7$                   -$                 -$            (7.2)$           426.5Operating Income$      75.6$                   -$                 -$              2.0$             77.6Full YearSales$ 1,231.0$            575.4$                 -$       (103.2)$        1,703.2Operating Income$    232.1$            102.7$          (14.1)$         (36.6)$           284.1Note:  "Other" adjustments represent the elimination of certain large projects and changes in corporate allocation assumptions. SOURCE Pentair Ltd.