PNR-2014.3.29 10Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
 
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
For the Quarterly Period Ended March 29, 2014
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-11625
Pentair Ltd.
 
(Exact name of Registrant as specified in its charter)
Switzerland
  
98-1050812
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification number)
 
 
Freier Platz 10, 8200 Schaffhausen, Switzerland
  
 
(Address of principal executive offices)
  
 
Registrant’s telephone number, including area code: 41-52-630-48-00
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§223.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer þ
  
Accelerated filer o
  
Non-accelerated filer o
  
Smaller reporting company o
 
  
 
  
(Do not check if a smaller reporting company)
  
 
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
On March 29, 2014, 194,702,369 shares of Registrant’s common stock were outstanding.



Table of Contents

Pentair Ltd. and Subsidiaries
 
 
Page
 
 
PART I FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
 
 
 
ITEM 3.
 
 
 
ITEM 4.
 
 
 
PART II OTHER INFORMATION
 
 
 
 
ITEM 1.
 
 
 
ITEM 1A.
 
 
 
ITEM 2.
 
 
 
ITEM 6.
 
 
 
 



2

Table of Contents

PART I FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
Pentair Ltd. and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
 
 
Three months ended
In millions, except per-share data
March 29,
2014
March 30,
2013
Net sales
$
1,725.2

$
1,774.5

Cost of goods sold
1,146.9

1,250.7

Gross profit
578.3

523.8

Selling, general and administrative
368.4

416.0

Research and development
30.0

33.5

Operating income
179.9

74.3

Other (income) expense:
 
 
Equity income of unconsolidated subsidiaries
(0.4
)
(0.2
)
Loss (gain) on sale of businesses
8.0

(16.7
)
Net interest expense
15.7

17.0

Income before income taxes and noncontrolling interest
156.6

74.2

Provision for income taxes
38.0

20.9

Net income before noncontrolling interest
118.6

53.3

Noncontrolling interest

1.6

Net income attributable to Pentair Ltd.
$
118.6

$
51.7

Comprehensive income (loss), net of tax
 
 
Net income before noncontrolling interest
$
118.6

$
53.3

Changes in cumulative translation adjustment
(27.9
)
(76.9
)
Changes in market value of derivative financial instruments, net of $0.1 and $0.4 tax, respectively
0.2

0.7

Total comprehensive income (loss)
90.9

(22.9
)
Less: Comprehensive income attributable to noncontrolling interest

0.7

Comprehensive income (loss) attributable to Pentair Ltd.
$
90.9

$
(23.6
)
Earnings per common share attributable to Pentair Ltd.
 
 
Basic
$
0.60

$
0.25

Diluted
$
0.59

$
0.25

Weighted average common shares outstanding
 
 
Basic
196.2

204.8

Diluted
199.7

208.2

See accompanying notes to condensed consolidated financial statements.



3

Table of Contents

Pentair Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
 
 
March 29,
2014
December 31,
2013
In millions, except per-share data
Assets
Current assets
 
 
Cash and cash equivalents
$
211.1

$
265.1

Accounts and notes receivable, net of allowances of $103.9 and $115.1, respectively
1,410.7

1,334.3

Inventories
1,271.6

1,243.3

Other current assets
411.9

389.4

Total current assets
3,305.3

3,232.1

Property, plant and equipment, net
1,162.0

1,170.0

Other assets
 
 
Goodwill
5,098.9

5,134.2

Intangibles, net
1,747.7

1,776.1

Other non-current assets
452.6

430.9

Total other assets
7,299.2

7,341.2

Total assets
$
11,766.5

$
11,743.3

Liabilities and Equity
Current liabilities
 
 
Current maturities of long-term debt and short-term borrowings
$
2.8

$
2.5

Accounts payable
575.4

596.6

Employee compensation and benefits
294.6

347.1

Other current liabilities
655.3

664.0

Total current liabilities
1,528.1

1,610.2

Other liabilities
 
 
Long-term debt
2,933.8

2,552.6

Pension and other post-retirement compensation and benefits
318.6

324.8

Deferred tax liabilities
599.5

580.6

Other non-current liabilities
450.2

457.4

Total liabilities
5,830.2

5,525.6

Equity
 
 
Common shares CHF 0.50 par value, 213.0 authorized and issued at March 29, 2014 and December 31, 2013, respectively
113.5

113.5

Common shares held in treasury, 18.3 and 15.6 shares at March 29, 2014 and December 31, 2013, respectively
(1,105.1
)
(875.1
)
Capital contribution reserve
5,051.5

5,071.4

Retained earnings
1,947.7

1,829.1

Accumulated other comprehensive income (loss)
(71.3
)
(43.6
)
Shareholders’ equity attributable to Pentair Ltd.
5,936.3

6,095.3

Noncontrolling interest

122.4

Total equity
5,936.3

6,217.7

Total liabilities and equity
$
11,766.5

$
11,743.3

See accompanying notes to condensed consolidated financial statements.

4

Table of Contents

Pentair Ltd. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Three months ended
In millions
March 29,
2014
March 30,
2013
Operating activities
 
 
Net income before noncontrolling interest
$
118.6

$
53.3

Adjustments to reconcile net income before noncontrolling interest to net cash provided by (used for) operating activities
 
 
Equity income of unconsolidated subsidiaries
(0.4
)
(0.2
)
Depreciation
37.3

38.1

Amortization
29.4

41.8

Deferred income taxes
0.1

2.0

Loss (gain) on sale of businesses
8.0

(16.7
)
Share-based compensation
7.4

10.4

Excess tax benefits from share-based compensation
(6.1
)

Loss on sale of assets
0.4


Changes in assets and liabilities, net of effects of business acquisitions
 
 
Accounts and notes receivable
(78.0
)
(129.4
)
Inventories
(28.8
)
29.1

Other current assets
(25.3
)
(21.7
)
Accounts payable
(35.9
)
20.9

Employee compensation and benefits
(53.3
)
(25.7
)
Other current liabilities
37.0

8.9

Other non-current assets and liabilities
(9.8
)
9.1

Net cash provided by (used for) operating activities
0.6

19.9

Investing activities
 
 
Capital expenditures
(27.2
)
(49.7
)
Proceeds from sale of property and equipment
0.4

0.9

Proceeds from sale of businesses, net

30.0

Other
(0.5
)
0.3

Net cash provided by (used for) investing activities
(27.3
)
(18.5
)
Financing activities
 
 
Net receipts of short-term borrowings
0.3

2.9

Net receipts of commercial paper and revolving long-term debt
381.9

139.6

Repayments of long-term debt
(0.9
)
(1.7
)
Debt issuance costs

(1.3
)
Excess tax benefits from share-based compensation
6.1


Shares issued to employees, net of shares withheld
24.0

11.8

Repurchases of common shares
(252.2
)
(140.3
)
Dividends paid
(49.2
)
(47.2
)
Purchase of noncontrolling interest
(134.7
)

Distribution to noncontrolling interest

(2.0
)
Net cash provided by (used for) financing activities
(24.7
)
(38.2
)
Effect of exchange rate changes on cash and cash equivalents
(2.6
)
(10.0
)
Change in cash and cash equivalents
(54.0
)
(46.8
)
Cash and cash equivalents, beginning of period
265.1

261.3

Cash and cash equivalents, end of period
$
211.1

$
214.5

See accompanying notes to condensed consolidated financial statements.

5

Table of Contents

Pentair Ltd. and Subsidiaries
Condensed Consolidated Statements of Changes in Equity (Unaudited)

In millions
Common shares
 
Treasury shares
Capital
contribution reserve
Retained earnings
Accumulated
other
comprehensive income (loss)
Total Pentair Ltd.
Noncontrolling interest
 Total
Number
Amount
 
Number
Amount
Balance - December 31, 2013
213.0

$
113.5

 
(15.6
)
$
(875.1
)
$
5,071.4

$
1,829.1

$
(43.6
)
$
6,095.3

$
122.4

$
6,217.7

Net income


 



118.6


118.6


118.6

Other comprehensive income (loss), net of tax


 




(27.7
)
(27.7
)

(27.7
)
Dividends declared


 


0.6



0.6


0.6

Purchase of noncontrolling interest


 


(12.3
)


(12.3
)
(122.4
)
(134.7
)
Share repurchase


 
(3.5
)
(269.6
)



(269.6
)

(269.6
)
Exercise of options, net of shares tendered for payment


 
0.7

34.3

(7.1
)


27.2


27.2

Issuance of restricted shares, net of cancellations


 
0.2

7.3

(7.3
)





Shares surrendered by employees to pay taxes


 
(0.1
)
(2.0
)
(1.2
)


(3.2
)

(3.2
)
Share-based compensation


 


7.4



7.4


7.4

Balance - March 29, 2014
213.0

$
113.5

 
(18.3
)
$
(1,105.1
)
$
5,051.5

$
1,947.7

$
(71.3
)
$
5,936.3

$

$
5,936.3

 
In millions
Common shares
 
Treasury shares
Capital
contribution reserve
Retained earnings
Accumulated
other
comprehensive income (loss)
Total Pentair Ltd.
Noncontrolling interest
 Total
Number
Amount
Number
Amount
Balance - December 31, 2012
213.0

$
113.5

 
(6.9
)
$
(315.5
)
$
5,292.4

$
1,292.3

$
(11.6
)
$
6,371.1

$
116.4

$
6,487.5

Net income


 



51.7


51.7

1.6

53.3

Other comprehensive income (loss), net of tax


 




(75.3
)
(75.3
)
(0.9
)
(76.2
)
Tax benefits of share-based compensation


 


6.2



6.2


6.2

Dividends declared


 


0.8



0.8


0.8

Distribution to noncontrolling interest


 






(2.0
)
(2.0
)
Share repurchase


 
(2.7
)
(140.3
)



(140.3
)

(140.3
)
Exercise of options, net of shares tendered for payment


 
0.8

33.8

(12.0
)


21.8


21.8

Issuance of restricted shares, net of cancellations


 
0.5

24.0

(24.0
)





Shares surrendered by employees to pay taxes


 
(0.2
)
(8.5
)
(1.5
)


(10.0
)

(10.0
)
Share-based compensation


 


10.4



10.4


10.4

Balance - March 30, 2013
213.0

$
113.5

 
(8.5
)
$
(406.5
)
$
5,272.3

$
1,344.0

$
(86.9
)
$
6,236.4

$
115.1

$
6,351.5


See accompanying notes to condensed consolidated financial statements.


6

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

 
1.Basis of Presentation and Responsibility for Interim Financial Statements
Pentair Ltd. took its current form on September 28, 2012 as a result of a reverse acquisition (the "Merger") involving Pentair, Inc. and an indirect, wholly-owned subsidiary of Flow Control (defined below), with Pentair, Inc. surviving as an indirect, wholly-owned subsidiary of Pentair Ltd. "Flow Control" refers to Pentair Ltd. prior the Merger. Prior to the Merger, Tyco International Ltd. ("Tyco") engaged in an internal restructuring whereby it transferred to Flow Control certain assets related to the flow control business of Tyco, and Flow Control assumed from Tyco certain liabilities related to the flow control business of Tyco. On September 28, 2012 prior to the Merger, Tyco effected a spin-off of Flow Control through the pro-rata distribution of 100% of the outstanding common shares of Flow Control to Tyco’s shareholders (the “Distribution”), resulting in the distribution of approximately 110.9 million of our common shares to Tyco’s shareholders. The Merger was accounted for as a reverse acquisition under the purchase method of accounting with Pentair, Inc. treated as the acquirer.

The accompanying unaudited condensed consolidated financial statements of Pentair Ltd. and subsidiaries (“we,” “us,” “our,” “Pentair,” or “the Company”) have been prepared following the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by accounting principles generally accepted in the United States of America can be condensed or omitted.

During the fourth quarter of 2013, we reorganized our business segments to reflect a new operating structure and management of our Global Business Units, resulting in a change from three reporting segments to four. All prior period amounts related to the segment change have been retrospectively reclassified throughout this Quarterly Report on Form 10-Q to conform to the new presentation.
We are responsible for the unaudited financial statements included in this document. The financial statements include all normal recurring adjustments that are considered necessary for the fair presentation of our financial position and operating results. As these are condensed financial statements, one should also read our consolidated financial statements and notes thereto, which are included in our Annual Report on Form 10-K for the year ended December 31, 2013.
Revenues, expenses, cash flows, assets and liabilities can and do vary during each quarter of the year. Therefore, the results and trends in these interim financial statements may not be indicative of those for a full year.
Our fiscal year ends on December 31. We report our interim quarterly periods on a 13-week basis ending on a Saturday.
2.
Acquisitions and Divestitures
Acquisitions
On January 30, 2014, we acquired, as part of Process Technologies, the remaining 19.9 percent ownership interest in a U.S. entity and an international entity (collectively, "Pentair Residential Filtration" or “PRF”), from GE Water & Process Technologies (a unit of General Electric Company) (“GE”) for $134.3 million in cash. Prior to the acquisition, we held an 80.1 percent ownership equity interest in PRF, representing our and GE's respective global water softener and residential water filtration businesses. There was no material pro forma impact from this acquisition as the results of PRF were consolidated into our financial statements prior to acquiring the remaining interest.
Divestitures
During the three months ended March 29, 2014, we sold a business that was part of Flow Technologies resulting in a loss of $8.0 million.
During the three months ended March 30, 2013, we sold a business that was part of Technical Solutions for a cash purchase price of $30.0 million, net of transaction costs, resulting in a gain of $16.7 million. Goodwill of $5.3 million was included in the assets of the business sold. The sales price was subject to a working capital adjustment and we received an additional $0.1 million cash in the third quarter of 2013 as a result.

7

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

3.
Share Plans
Total share-based compensation expense for the three months ended March 29, 2014 and March 30, 2013 was as follows:
 
Three months ended    
In millions
March 29,
2014
March 30,
2013
Restricted stock units
$
4.9

$
6.8

Stock options
2.5

3.6

Total share-based compensation expense
$
7.4

$
10.4


In the first quarter of 2014, we issued our annual share-based compensation grants under the Pentair Ltd. 2012 Stock and Incentive Plan to eligible employees. The total number of awards issued was approximately 0.7 million, of which 0.5 million were stock options and 0.2 million were restricted stock units. The weighted-average grant date fair value of the stock options and restricted stock units issued was $23.35 and $78.72, respectively.

We estimated the fair value of each stock option award issued in the annual share-based compensation grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:
 
2014
Annual Grant
Risk-free interest rate
1.43
%
Expected dividend yield
1.45
%
Expected share price volatility
35.3
%
Expected term (years)
5.6

These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected.
We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected share price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free interest rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.
4.
Restructuring
During the three months ended March 29, 2014 and the year ended December 31, 2013, we continued execution of certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. The 2014 initiatives included the reduction in hourly and salaried headcount of approximately 450 employees, consisting of approximately 100 in Valves & Controls, 50 in Process Technologies, 250 in Flow Technologies and 50 in Technical Solutions. The 2013 initiatives included the reduction in hourly and salaried headcount of approximately 1,150 employees, consisting of approximately 500 in Valves & Controls, 150 in Process Technologies, 200 in Flow Technologies and 300 in Technical Solutions.
Restructuring related costs included in Selling, general and administrative expenses in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) included costs for severance and other restructuring costs as follows: 
 
Three months ended    
In millions
March 29,
2014
March 30,
2013
Severance and related costs
$
18.4

$
20.1

Other
4.8

1.5

Total restructuring costs
$
23.2

$
21.6

Other restructuring costs primarily consist of asset impairment and various contract termination costs.

8

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Total restructuring costs related to Valves & Controls, Process Technologies, Flow Technologies and Technical Solutions were $9.8 million, $2.6 million, $8.2 million and $2.6 million, respectively, for the three months ended March 29, 2014. Total restructuring costs related to Valves & Controls, Process Technologies, Flow Technologies and Technical Solutions were $4.8 million, $1.5 million, $5.0 million and $10.3 million, respectively, for the three months ended March 30, 2013.
Activity in the restructuring accrual recorded in Other current liabilities and Employee compensation and benefits in the Condensed Consolidated Balance Sheets is summarized as follows for the three months ended March 29, 2014: 
In millions
March 29,
2014
Beginning balance
$
78.6

Costs incurred
18.4

Cash payments and other
(17.8
)
Ending balance
$
79.2

5.
Earnings Per Share
Basic and diluted earnings per share were calculated as follows:
 
Three months ended    
In millions, except per-share data
March 29,
2014
March 30,
2013
Net income attributable to Pentair Ltd.
$
118.6

$
51.7

Weighted average common shares outstanding
 
 
Basic
196.2

204.8

Dilutive impact of stock options and restricted stock units
3.5

3.4

Diluted
199.7

208.2

Earnings per common share attributable to Pentair Ltd.
 
 
Basic earnings per common share
$
0.60

$
0.25

Diluted earnings per common share
$
0.59

$
0.25

Anti-dilutive stock options excluded from the calculation of diluted earnings per share
0.5

1.0


9

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

6.
Supplemental Balance Sheet Information
In millions
March 29,
2014
December 31,
2013
Inventories


Raw materials and supplies
$
564.2

$
557.2

Work-in-process
164.8

166.5

Finished goods
542.6

519.6

Total inventories
$
1,271.6

$
1,243.3

Other current assets


Cost in excess of billings
$
108.7

$
100.8

Prepaid expenses
123.8

103.9

Deferred income taxes
160.9

162.0

Other current assets
18.5

22.7

Total other current assets
$
411.9

$
389.4

Property, plant and equipment, net


Land and land improvements
$
242.5

$
251.3

Buildings and leasehold improvements
523.0

516.8

Machinery and equipment
1,238.0

1,208.0

Construction in progress
76.5

72.6

Total property, plant and equipment
2,080.0

2,048.7

Accumulated depreciation and amortization
918.0

878.7

Total property, plant and equipment, net
$
1,162.0

$
1,170.0

Other non-current assets


Asbestos-related insurance receivable
$
119.3

$
119.6

Deferred income taxes
136.3

93.6

Other non-current assets
197.0

217.7

Total other non-current assets
$
452.6

$
430.9

Other current liabilities


Deferred revenue and customer deposits
$
104.8

$
92.4

Dividends payable
48.7

98.7

Billings in excess of cost
42.6

38.1

Accrued warranty
56.0

56.6

Other current liabilities
403.2

378.2

Total other current liabilities
$
655.3

$
664.0

Other non-current liabilities


Asbestos-related liabilities
$
254.1

$
254.7

Taxes payable
50.4

48.9

Other non-current liabilities
145.7

153.8

Total other non-current liabilities
$
450.2

$
457.4


10

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

7.
Goodwill and Other Identifiable Intangible Assets
The changes in the carrying amount of goodwill by segment were as follows:
In millions
December 31, 2013
Acquisitions/
divestitures 
Foreign currency 
translation/other 
March 29, 2014
Valves & Controls
$
1,511.6

$

$

$
1,511.6

Process Technologies
1,524.5


(0.9
)
1,523.6

Flow Technologies
940.1


(34.7
)
905.4

Technical Solutions
1,158.0


0.3

1,158.3

Total goodwill
$
5,134.2

$

$
(35.3
)
$
5,098.9

Identifiable intangible assets consisted of the following:
 
March 29, 2014
 
December 31, 2013
In millions
Cost
Accumulated
amortization
Net
 
Cost
Accumulated
amortization
Net
Finite-life intangibles



 



Customer relationships
$
1,286.7

$
(267.8
)
$
1,018.9

 
$
1,286.8

$
(243.8
)
$
1,043.0

Trade names
2.1

(1.0
)
1.1

 
2.1

(0.9
)
1.2

Proprietary technology and patents
262.8

(83.6
)
179.2

 
264.6

(80.1
)
184.5

Backlog
2.6

(0.9
)
1.7

 
2.6

(1.2
)
1.4

Total finite-life intangibles
$
1,554.2

$
(353.3
)
$
1,200.9

 
$
1,556.1

$
(326.0
)
$
1,230.1

Indefinite-life intangibles



 



Trade names
546.8


546.8

 
546.0


546.0

Total intangibles, net
$
2,101.0

$
(353.3
)
$
1,747.7

 
$
2,102.1

$
(326.0
)
$
1,776.1

Intangible asset amortization expense was $29.4 million and $41.8 million for the three months ended March 29, 2014 and March 30, 2013, respectively.
Estimated future amortization expense for identifiable intangible assets during the remainder of 2014 and the next five years is as follows:
 
Q2 - Q4
 
 
 
 
 
In millions
2014
2015
2016
2017
2018
2019
Estimated amortization expense
$
86.8

$
115.4

$
114.4

$
112.8

$
110.2

$
102.5


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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

8.
Debt
Debt and the average interest rates on debt outstanding were as follows: 
In millions
Average interest rate at
March 29, 2014
Maturity
Year
March 29,
2014
December 31,
2013
Commercial paper
0.504%
2017
$
896.3

$
528.9

Revolving credit facilities
1.402%
2017
14.5


Senior notes - fixed rate
1.350%
2015
350.0

350.0

Senior notes - fixed rate
1.875%
2017
350.0

350.0

Senior notes - fixed rate
2.650%
2019
250.0

250.0

Senior notes - fixed rate
5.000%
2021
500.0

500.0

Senior notes - fixed rate
3.150%
2022
550.0

550.0

Other
1.400%
2014-2030
5.1

4.7

Capital lease obligations
4.017%
2014-2025
20.7

21.5

Total debt


2,936.6

2,555.1

Less: Current maturities and short-term borrowings


(2.8
)
(2.5
)
Long-term debt


$
2,933.8

$
2,552.6

The 1.35% Senior Notes due 2015, 1.875% Senior Notes due 2017, 2.65% Senior Notes due 2019, 3.15% Senior Notes due 2022 and $373.0 million of the 5.00% Senior Notes due 2021 (collectively, the “Notes”) were all issued in transactions exempt from the registration requirements of the Securities Act of 1933, as amended. In March 2013, Pentair Ltd. and our 100 percent-owned subsidiary, Pentair Finance S.A. (“PFSA”), filed a Registration Statement with the SEC offering to exchange the Notes for new, registered Notes. The exchange offer expired on April 19, 2013 and did not impact the aggregate principle amount or the terms of the Notes outstanding. The new, registered Notes issued in such exchange offer are guaranteed as to payment by Pentair Ltd.
In September 2012, Pentair, Inc. entered into a credit agreement providing for an unsecured, committed revolving credit facility (the “Credit Facility”) with initial maximum aggregate availability of up to $1,450.0 million. Upon the completion of the Merger, Pentair Ltd. became the guarantor under the Credit Facility and PFSA and certain other of our subsidiaries became affiliate borrowers under the Credit Facility. Borrowings under the Credit Facility generally bear interest at a variable rate equal to the London Interbank Offered Rate plus a specified margin based upon PFSA's credit ratings. PFSA must also pay a facility fee ranging from 10.0 to 30.0 basis points per annum (based upon PFSA's credit ratings) on the amount of each lender's commitment. PFSA is authorized to sell short-term commercial paper notes to the extent availability exists under the Credit Facility. PFSA uses the Credit Facility as back-up liquidity to support 100% of our outstanding commercial paper. As of March 29, 2014 and December 31, 2013, we had $896.3 million and $528.9 million, respectively, of commercial paper outstanding, all of which was classified as long-term as we have the intent and the ability to refinance such obligations on a long-term basis under the Credit Facility.
Total availability under the Credit Facility was $539.2 million as of March 29, 2014, which was not limited by any covenants contained in the Credit Facility’s credit agreement.
Our debt agreements contain certain financial covenants, the most restrictive of which are in the Credit Facility, including that we may not permit (i) the ratio of our consolidated debt plus synthetic lease obligations to our consolidated net income (excluding, among other things, non-cash gains and losses) before interest, taxes, depreciation, amortization, non-cash share-based compensation expense, and up to $40.0 million of costs and expenses incurred in connection with the Merger (“EBITDA”) for the four consecutive fiscal quarters then ended (the “Leverage Ratio”) to exceed 3.50 to 1.00 on the last day of each fiscal quarter, and (ii) the ratio of our EBITDA for the four consecutive fiscal quarters then ended to our consolidated interest expense, including consolidated yield or discount accrued as to outstanding securitization obligations (if any), for the same period to be less than 3.00 to 1.00 as of the end of each fiscal quarter. For purposes of the Leverage Ratio, the Credit Facility provides for the calculation of EBITDA giving pro forma effect to the Merger and certain acquisitions, divestitures and

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

liquidations during the period to which such calculation relates. As of March 29, 2014, we were in compliance with all financial covenants in our debt agreements.
In addition to the Credit Facility, we have various other credit facilities with an aggregate availability of $86.2 million, of which none was outstanding at March 29, 2014. Borrowings under these credit facilities bear interest at variable rates.
Debt outstanding at March 29, 2014 matures on a calendar year basis as follows:
 
Q2 - Q4
 
 
 
 
 
 
 
In millions
2014
2015
2016
2017
2018
2019
Thereafter
Total
Contractual debt obligation maturities
$
0.3

$
350.0

$

$
1,260.8

$

$
250.0

$
1,054.8

$
2,915.9

Capital lease obligations
1.9

5.5

0.5

0.5

0.5

0.5

11.3

20.7

Total maturities
$
2.2

$
355.5

$
0.5

$
1,261.3

$
0.5

$
250.5

$
1,066.1

$
2,936.6

Capital lease obligations relate primarily to land and buildings and consist of total future minimum lease payments of $22.3 million less the imputed interest of $1.6 million as of March 29, 2014.
As of March 29, 2014 and December 31, 2013, assets under capital lease were $41.8 million and $41.7 million, respectively, less accumulated amortization of $7.9 million and $7.6 million, respectively, all of which were included in Property, plant and equipment, net on the Condensed Consolidated Balance Sheets.
9.
Derivatives and Financial Instruments
Derivative financial instruments
We are exposed to market risk related to changes in foreign currency exchange rates and interest rates on our floating rate indebtedness. To manage the volatility related to these exposures, we periodically enter into a variety of derivative financial instruments. Our objective is to reduce, where it is deemed appropriate to do so, fluctuations in earnings and cash flows associated with changes in foreign currency rates and interest rates. The derivative contracts contain credit risk to the extent that our bank counterparties may be unable to meet the terms of the agreements. The amount of such credit risk is generally limited to the unrealized gains, if any, in such contracts. Such risk is minimized by limiting those counterparties to major financial institutions of high credit quality.
Interest rate swaps
In April 2011, we entered into interest rate swap contracts to hedge movement in interest rates through the expected date of a fixed rate debt offering. The swaps had a notional amount of $400.0 million with an average interest rate of 3.65%. In May 2011, upon the sale of the fixed rate debt, the swaps were terminated at a cost of $11.0 million. Because we used the contracts to hedge future interest payments, this was recorded in Accumulated other comprehensive income ("AOCI") in the Condensed Consolidated Balance Sheets and will be amortized as interest expense over the 10 year life of the underlying fixed rate debt. The ending unrealized net loss in AOCI was $7.8 million and $8.1 million at March 29, 2014 and December 31, 2013, respectively.
Foreign currency contracts
We conduct business in various locations throughout the world and are subject to market risk due to changes in the value of foreign currencies in relation to our reporting currency, the U.S. dollar. We manage our economic and transaction exposure to certain market-based risks through the use of foreign currency derivative financial instruments. Our objective in holding these derivatives is to reduce the volatility of net earnings and cash flows associated with changes in foreign currency exchange rates. The majority of our foreign currency contracts have an original maturity date of less than one year. At March 29, 2014 and December 31, 2013, we had outstanding foreign currency derivative contracts with gross notional U.S. dollar equivalent amounts of $131.6 million and $143.0 million, respectively. The impact of these contracts on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) is not material for any period presented.
Gains or losses on foreign currency contracts designated as hedges are reclassified out of AOCI and into Selling, general and administrative expense in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) upon settlement. Such reclassifications during the three months ended March 29, 2014 and March 30, 2013 were not material.


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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Fair value measurements
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:
 
Level 1:
  
Valuation is based on observable inputs such as quoted market prices (unadjusted) for identical assets or liabilities in active markets.
 
 
Level 2:
  
Valuation is based on inputs such as quoted market prices for similar assets or liabilities in active markets or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
 
 
Level 3:
  
Valuation is based upon other unobservable inputs that are significant to the fair value measurement.
In making fair value measurements, observable market data must be used when available. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Fair value of financial instruments
The following methods were used to estimate the fair values of each class of financial instruments: 
short-term financial instruments (cash and cash equivalents, accounts and notes receivable, accounts and notes payable and variable-rate debt) — recorded amount approximates fair value because of the short maturity period;
long-term fixed-rate debt, including current maturities — fair value is based on market quotes available for issuance of debt with similar terms, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance; and
foreign currency contract agreements — fair values are determined through the use of models that consider various assumptions, including time value, yield curves, as well as other relevant economic measures, which are inputs that are classified as Level 2 in the valuation hierarchy defined by the accounting guidance.
The recorded amounts and estimated fair values of total debt were as follows:
 
March 29, 2014
 
December 31, 2013
In millions
Recorded
Amount
Fair
Value
 
Recorded
Amount
Fair
Value
Variable rate debt
$
910.8

$
910.8

 
$
528.9

$
528.9

Fixed rate debt
2,025.8

2,046.9

 
2,026.2

2,002.2

Total debt
$
2,936.6

$
2,957.7

 
$
2,555.1

$
2,531.1

Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
 
March 29, 2014
In millions
Level 1
Level 2
Level 3
Total
Recurring fair value measurements




Foreign currency contract assets
$

$
2.3

$

$
2.3

Foreign currency contract liabilities

(1.5
)

(1.5
)
Deferred compensation plan (1)
25.3



25.3

Total recurring fair value measurements
$
25.3

$
0.8

$

$
26.1


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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

 
December 31, 2013
In millions
Level 1
Level 2
Level 3
Total
Recurring fair value measurements




Foreign currency contract assets
$

$
3.6

$

$
3.6

Foreign currency contract liabilities

(0.9
)

(0.9
)
Deferred compensation plan (1)
32.1



32.1

Total recurring fair value measurements
$
32.1

$
2.7

$

$
34.8

Nonrecurring fair value measurements (2)




(1)
Deferred compensation plan assets include mutual funds and cash equivalents for payment of certain non-qualified benefits for retired, terminated and active employees. The fair value of these assets was based on quoted market prices in active markets.
(2)
In the fourth quarter of 2013, we completed our annual intangible assets impairment review. As a result, we recorded a pre-tax non-cash impairment charge of $11.0 million for trade names intangibles. The impairment charge reduced the fair value of the impacted trade name intangible to $0. The fair value of trade names is measured using the relief-from-royalty method. This method assumes the trade name has value to the extent that the owner is relieved of the obligation to pay royalties for the benefits received from them. This method requires us to estimate the future revenue for the related brands, the appropriate royalty rate and the weighted average cost of capital.
10.
Income Taxes
The provision for income taxes consists of provisions for Swiss federal and international income taxes. We operate in an international environment with operations in various locations outside Switzerland. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.
The effective income tax rate for the three months ended March 29, 2014 was 24.3% compared to 28.2% for the three months ended March 30, 2013. Our effective income tax rate was lower due to the mix of global earnings and the timing of losses in jurisdictions where we recognize no tax benefits. The decreases were partially offset by the unfavorable impact of the expiration of certain provisions of the U.S. Internal Revenue Code.
We continue to actively pursue initiatives to reduce our effective tax rate. The tax rate in any quarter can be affected positively or negatively by adjustments that are required to be reported in the specific quarter of resolution.
The liability for uncertain tax positions was $62.5 million and $60.8 million at March 29, 2014 and December 31, 2013, respectively. We record penalties and interest related to unrecognized tax benefits in Provision for income taxes and Net interest expense, respectively, on the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss), which is consistent with our past practices.

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

11.
Benefit Plans
Components of net periodic benefit cost for our pension plans for the three months ended March 29, 2014 and March 30, 2013 were as follows:
 
U.S. pension plans
 
Three months ended
In millions
March 29,
2014
March 30,
2013
Service cost
$
3.3

$
3.9

Interest cost
3.8

3.6

Expected return on plan assets
(2.6
)
(2.4
)
Net periodic benefit cost
$
4.5

$
5.1

 
Non-U.S. pension plans
 
Three months ended
In millions
March 29,
2014
March 30,
2013
Service cost
$
2.0

$
2.4

Interest cost
4.7

4.4

Expected return on plan assets
(4.2
)
(3.8
)
Net periodic benefit cost
$
2.5

$
3.0

Components of net periodic benefit cost for our other post-retirement plans for the three months ended March 29, 2014 and March 30, 2013 were not material.
12.
Shareholders’ Equity
Share repurchases
Prior to the closing of the Merger, our board of directors, and Tyco as our sole shareholder, authorized the repurchase of our common shares with a maximum aggregate value of $400.0 million following the closing of the Merger. In October 2012, our board of directors authorized the repurchase of our common shares with a maximum aggregate value of $800.0 million. This authorization expires on December 31, 2015 and is in addition to the $400.0 million share repurchase authorization. There is no remaining availability for repurchase under these 2012 authorizations. In December 2013, our board of directors authorized the repurchase of our common shares up to a maximum dollar limit of $1.0 billion. This authorization expires on December 31, 2016 and is in addition to the combined $1.2 billion prior share repurchase authorizations.

During the three months ended March 29, 2014, we repurchased 3.5 million of our common shares for $269.6 million pursuant to these authorizations. As of March 29, 2014, we had $880.4 million remaining available for share repurchases under the December 2013 authorization.
Dividends payable
At our 2013 annual meeting of shareholders held on April 29, 2013, our shareholders approved a proposal to pay quarterly cash dividends through the second quarter of 2014. The authorization provides that dividends of $1.00 per share will be made out of our Capital contribution reserve equity position in our statutory accounts to our shareholders in quarterly installments of $0.25 for each of the third and fourth quarters of 2013 and first and second quarters of 2014. As a result, the balance of dividends payable included in Other current liabilities on our Condensed Consolidated Balance Sheets was $48.7 million and $98.7 million at March 29, 2014 and December 31, 2013, respectively. Dividends paid per common share were $0.25 and $0.23 for the quarter ended March 29, 2014 and March 30, 2013, respectively.
On February 25, 2014, our board of directors recommended that our shareholders approve at the 2014 annual general meeting of shareholders a proposal to pay quarterly cash dividends through the second quarter of 2015. The proposal provides that dividends of $1.20 per share will be made out of our Capital contribution reserve to shareholders in quarterly installments of $0.30 per share for each of the third and fourth quarters of 2014 and the first and second quarters of 2015.

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

13.
Segment information
Financial information by reportable segment is shown below:
 
Three months ended
In millions
March 29,
2014
March 30,
2013
Net sales
 
 
Valves & Controls
$
534.8

$
585.8

Process Technologies
418.3

396.6

Flow Technologies
364.1

390.6

Technical Solutions
415.3

410.0

Other
(7.3
)
(8.5
)
Consolidated
$
1,725.2

$
1,774.5

Operating income (loss)
 
 
Valves & Controls
$
52.2

$
(18.6
)
Process Technologies
46.3

43.4

Flow Technologies
27.5

31.4

Technical Solutions
76.2

53.3

Other
(22.3
)
(35.2
)
Consolidated
$
179.9

$
74.3

14.
Commitments and Contingencies
Asbestos Matters
Our subsidiaries and numerous other companies are named as defendants in personal injury lawsuits based on alleged exposure to asbestos-containing materials. These cases typically involve product liability claims based primarily on allegations of manufacture, sale or distribution of industrial products that either contained asbestos or were attached to or used with asbestos-containing components manufactured by third-parties. Each case typically names between dozens to hundreds of corporate defendants. While we have observed an increase in the number of these lawsuits over the past several years, including lawsuits by plaintiffs with mesothelioma-related claims, a large percentage of these suits have not presented viable legal claims and, as a result, have been dismissed by the courts. Our historical strategy has been to mount a vigorous defense aimed at having unsubstantiated suits dismissed, and, where appropriate, settling suits before trial. Although a large percentage of litigated suits have been dismissed, we cannot predict the extent to which we will be successful in resolving lawsuits in the future.
As of March 29, 2014, there were approximately 2,100 lawsuits pending against our subsidiaries. A lawsuit might include several claims, and we have approximately 2,300 claims outstanding as of March 29, 2014. This amount is not adjusted for claims that are not actively being prosecuted, identified incorrect defendants, or duplicated other actions, which would ultimately reflect our current estimate of the number of viable claims made against us, our affiliates or entities for which we assumed responsibility in connection with acquisitions or divestitures. In addition, the amount does not include certain claims pending against third parties for which we have been provided an indemnification.
Periodically, we perform an analysis with the assistance of outside counsel and other experts to update our estimated asbestos-related assets and liabilities. Our estimate of the liability and corresponding insurance recovery for pending and future claims and defense costs is based on our historical claim experience and estimates of the number and resolution cost of potential future claims that may be filed. Our legal strategy for resolving claims also impacts these estimates.
Our estimate of asbestos-related insurance recoveries represents estimated amounts due to us for previously paid and settled claims and the probable reimbursements relating to our estimated liability for pending and future claims. In determining the amount of insurance recoverable, we consider a number of factors, including available insurance, allocation methodologies and the solvency and creditworthiness of insurers.
Our estimated liability for asbestos-related claims was $254.1 million and $254.7 million as of March 29, 2014 and December 31, 2013, respectively, and was recorded in Other non-current liabilities in the Condensed Consolidated Balance Sheets for pending and future claims and related defense costs. Our estimated receivable for insurance recoveries was $119.3

17

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

million and $119.6 million as of March 29, 2014 and December 31, 2013, respectively, and was recorded in Other non-current assets in the Condensed Consolidated Balance Sheets.
The amounts recorded by us for asbestos-related liabilities and insurance-related assets are based on our strategies for resolving our asbestos claims and currently available information as well as estimates and assumptions. Key variables and assumptions include the number and type of new claims filed each year, the average cost of resolution of claims, the resolution of coverage issues with insurance carriers, the amounts of insurance and the related solvency risk with respect to our insurance carriers, and the indemnifications we have provided to and received from third parties. Furthermore, predictions with respect to these variables are subject to greater uncertainty in the latter portion of the projection period. Other factors that may affect our liability and cash payments for asbestos-related matters include uncertainties surrounding the litigation process from jurisdiction to jurisdiction and from case to case, reforms of state or federal tort legislation and the applicability of insurance policies among subsidiaries. As a result, actual liabilities or insurance recoveries could be significantly higher or lower than those recorded if assumptions used in our calculations vary significantly from actual results.
Environmental Matters
We are involved in or have retained responsibility and potential liability for environmental obligations and legal proceedings related to our current business and, including pursuant to certain indemnification obligations, related to certain formerly owned businesses. Our accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated, based on current law and existing technologies. Based upon our experience, current information regarding known contingencies and applicable laws, we have recorded reserves for these environmental matters of $39.2 million and $39.3 million as of March 29, 2014 and December 31, 2013, respectively. We do not anticipate these environmental conditions will have a material adverse effect on our financial position, results of operations or cash flows.
Warranties and guarantees
In connection with the disposition of our businesses or product lines, we may agree to indemnify purchasers for various potential liabilities relating to the sold business, such as pre-closing tax, product liability, warranty, environmental, or other obligations. The subject matter, amounts and duration of any such indemnification obligations vary for each type of liability indemnified and may vary widely from transaction to transaction. Generally, the maximum obligation under such indemnifications is not explicitly stated and as a result, the overall amount of these obligations cannot be reasonably estimated. Historically, we have not made significant payments for these indemnifications. We believe that if we were to incur a loss in any of these matters, the loss would not have a material effect on our financial condition or results of operations.
We recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee.
We provide service and warranty policies on our products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant.
The changes in the carrying amount of service and product warranties for the three months ended March 29, 2014 were as follows: 
In millions
March 29,
2014
Beginning balance
$
56.6

Service and product warranty provision
13.3

Payments
(13.9
)
Ending balance
$
56.0

Stand-by Letters of Credit, Bank Guarantees and Bonds
In certain situations, Tyco guaranteed Flow Control’s performance to third parties or provided financial guarantees for financial commitments of Flow Control. In situations where Flow Control and Tyco were unable to obtain a release from these guarantees in connection with the spin-off, we will indemnify Tyco for any losses it suffers as a result of such guarantees.
In disposing of assets or businesses, we often provide representations, warranties and indemnities to cover various risks including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental contamination at waste disposal sites and manufacturing facilities and unidentified tax liabilities and

18

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

legal fees related to periods prior to disposition. We do not have the ability to reasonably estimate the potential liability due to the inchoate and unknown nature of these potential liabilities. However, we have no reason to believe that these uncertainties would have a material adverse effect on our financial position, results of operations or cash flows.
In the ordinary course of business, we are required to commit to bonds, letters of credit and bank guarantees that require payments to our customers for any non-performance. The outstanding face value of these instruments fluctuates with the value of our projects in process and in our backlog. In addition, we issue financial stand-by letters of credit primarily to secure our performance to third parties under self-insurance programs.
As of March 29, 2014 and December 31, 2013, the outstanding value of bonds, letters of credit and bank guarantees totaled $527.7 million and $484.0 million, respectively.
15.
Financial Statements of Parent Company Guarantor
Pentair Ltd. (the “Parent Company Guarantor”), fully and unconditionally, guarantees the Notes of Pentair Finance S.A. (the “Subsidiary Issuer”). The Subsidiary Issuer is a Luxembourg public limited liability company formed in January 2012 and 100 percent-owned subsidiary of the Parent Company Guarantor.
The following supplemental financial information sets forth the Company’s Condensed Consolidating Statement of Operations and Comprehensive Income (Loss), Condensed Consolidating Balance Sheets and Condensed Consolidating Statement of Cash Flows of:
Parent Company Guarantor;
Subsidiary Issuer;
Non-guarantor subsidiaries of Pentair Ltd. on a combined basis;
Consolidating entries and eliminations representing adjustments to:
a.
eliminate intercompany transactions between or among the Parent Company Guarantor, the Subsidiary Issuer and the non-guarantor subsidiaries;
b.
eliminate the investments in subsidiaries; and
c.
record consolidating entries.
Pentair Ltd. and subsidiaries on a consolidated basis.

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

 Pentair Ltd. and Subsidiaries
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three months ended March 29, 2014
In millions
Parent
Company
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Pentair Ltd.
and
Subsidiaries
Consolidated
Net sales
$

$

$
1,725.2

$

$
1,725.2

Cost of goods sold


1,146.9


1,146.9

Gross profit


578.3


578.3

Selling, general and administrative
(0.3
)
3.3

365.4


368.4

Research and development


30.0


30.0

Operating income (loss)
0.3

(3.3
)
182.9


179.9

Loss (earnings) from investment in subsidiaries
(118.6
)
(127.1
)

245.7


Other (income) expense:





Equity income of unconsolidated subsidiaries


(0.4
)

(0.4
)
Loss on sale of business


8.0


8.0

Net interest expense
0.3

0.9

14.5


15.7

Income (loss) before income taxes
118.6

122.9

160.8

(245.7
)
156.6

Provision for income taxes


38.0


38.0

Net income (loss) attributable to Pentair Ltd.
$
118.6

$
122.9

$
122.8

$
(245.7
)
$
118.6

Comprehensive income (loss), net of tax





Net income (loss) attributable to Pentair Ltd.
$
118.6

$
122.9

$
122.8

$
(245.7
)
$
118.6

Changes in cumulative translation adjustment
(27.9
)
(27.9
)
(27.9
)
55.8

(27.9
)
Changes in market value of derivative financial instruments
0.2

0.2

0.2

(0.4
)
0.2

Comprehensive income (loss) attributable to Pentair Ltd.
$
90.9

$
95.2

$
95.1

$
(190.3
)
$
90.9




 
 
 
 
 
 


20

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Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Pentair Ltd. and Subsidiaries
Condensed Consolidating Balance Sheet
March 29, 2014
In millions
Parent
Company
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Pentair Ltd.
and
Subsidiaries
Consolidated
Assets
Current assets





Cash and cash equivalents
$
0.2

$
0.4

$
210.5

$

$
211.1

Accounts and notes receivable, net
14.7

10.2

1,522.1

(136.3
)
1,410.7

Inventories


1,271.6


1,271.6

Other current assets
0.9

1.2

409.8


411.9

Total current assets
15.8

11.8

3,414.0

(136.3
)
3,305.3

Property, plant and equipment, net


1,162.0


1,162.0

Other assets





Investments in subsidiaries
6,064.8

8,105.1


(14,169.9
)

Goodwill


5,098.9


5,098.9

Intangibles, net


1,747.7


1,747.7

Other non-current assets
31.6

1,700.8

415.3

(1,695.1
)
452.6

Total other assets
6,096.4

9,805.9

7,261.9

(15,865.0
)
7,299.2

Total assets
$
6,112.2

$
9,817.7

$
11,837.9

$
(16,001.3
)
$
11,766.5

Liabilities and Equity
Current liabilities





Current maturities of long-term debt and short-term borrowings
$

$

$
2.8

$

$
2.8

Accounts payable
108.5

2.9

600.3

(136.3
)
575.4

Employee compensation and benefits
0.1


294.5


294.6

Other current liabilities
49.7

13.9

591.7


655.3

Total current liabilities
158.3

16.8

1,489.3

(136.3
)
1,528.1

Other liabilities





Long-term debt

2,769.3

1,859.6

(1,695.1
)
2,933.8

Pension and other post-retirement compensation and benefits


318.6


318.6

Deferred tax liabilities

2.9

596.6


599.5

Other non-current liabilities
17.6


432.6


450.2

Total liabilities
175.9

2,789.0

4,696.7

(1,831.4
)
5,830.2

Equity
5,936.3

7,028.7

7,141.2

(14,169.9
)
5,936.3

Total liabilities and equity
$
6,112.2

$
9,817.7

$
11,837.9

$
(16,001.3
)
$
11,766.5




21

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Pentair Ltd. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Three months ended March 29, 2014
In millions
Parent
Company
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Pentair Ltd.
and
Subsidiaries
Consolidated
Operating activities





Net cash provided by (used for) operating activities
$
118.0

$
125.6

$
2.7

$
(245.7
)
$
0.6

Investing activities





Capital expenditures


(27.2
)

(27.2
)
Proceeds from sale of property and equipment


0.4


0.4

Other


(0.5
)

(0.5
)
Net cash provided by (used for) investing activities


(27.3
)

(27.3
)
Financing activities





Net receipts (repayments) of short-term borrowings


0.3


0.3

Net receipts (repayments) of commercial paper and revolving long-term debt

367.4

14.5


381.9

Repayments of long-term debt


(0.9
)

(0.9
)
Net change in advances to subsidiaries
(69.1
)
(539.6
)
363.0

245.7


Excess tax benefits from share-based compensation


6.1


6.1

Shares issued to employees, net of shares withheld


24.0


24.0

Repurchases of common shares


(252.2
)

(252.2
)
Dividends paid
(49.2
)



(49.2
)
Purchase of noncontrolling interest


(134.7
)

(134.7
)
Net cash provided by (used for) financing activities
(118.3
)
(172.2
)
20.1

245.7

(24.7
)
Effect of exchange rate changes on cash and cash equivalents


(2.6
)

(2.6
)
Change in cash and cash equivalents
(0.3
)
(46.6
)
(7.1
)

(54.0
)
Cash and cash equivalents, beginning of period
0.5

47.0

217.6


265.1

Cash and cash equivalents, end of period
$
0.2

$
0.4

$
210.5

$

$
211.1












22

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

 Pentair Ltd. and Subsidiaries
Condensed Consolidating Statement of Operations and Comprehensive Income (Loss)
Three months ended March 30, 2013
In millions
Parent
Company
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Pentair Ltd.
and
Subsidiaries
Consolidated
Net sales
$

$

$
1,774.5

$

$
1,774.5

Cost of goods sold


1,250.7


1,250.7

Gross profit


523.8


523.8

Selling, general and administrative
(1.0
)
3.6

413.4


416.0

Research and development


33.5


33.5

Operating income (loss)
1.0

(3.6
)
76.9


74.3

Loss (earnings) from investment in subsidiaries
(50.7
)
(54.9
)

105.6


Other (income) expense:





Equity income of unconsolidated subsidiaries


(0.2
)

(0.2
)
Gain on sale of business


(16.7
)

(16.7
)
Net interest expense
0.3

2.6

14.1


17.0

Income (loss) before income taxes and noncontrolling interest
51.4

48.7

79.7

(105.6
)
74.2

Provision (benefit) for income taxes
(0.3
)

21.2


20.9

Net income (loss) before noncontrolling interest
51.7

48.7

58.5

(105.6
)
53.3

Noncontrolling interest


1.6


1.6

Net income (loss) attributable to Pentair Ltd.
$
51.7

$
48.7

$
56.9

$
(105.6
)
$
51.7

Comprehensive income (loss), net of tax
 
 
 
 
 
Net income (loss) before noncontrolling interest
$
51.7

$
48.7

$
58.5

$
(105.6
)
$
53.3

Changes in cumulative translation adjustment
(76.0
)
(76.0
)
(76.9
)
152.0

(76.9
)
Changes in market value of derivative financial instruments
0.7

0.7

0.7

(1.4
)
0.7

Total comprehensive income (loss)
(23.6
)
(26.6
)
(17.7
)
45.0

(22.9
)
Less: Comprehensive income attributable to noncontrolling interest


0.7


0.7

Comprehensive income (loss) attributable to Pentair Ltd.
$
(23.6
)
$
(26.6
)
$
(18.4
)
$
45.0

$
(23.6
)



23

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Pentair Ltd. and Subsidiaries
Condensed Consolidating Balance Sheet
December 31, 2013
In millions
Parent
Company
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Pentair Ltd.
and
Subsidiaries
Consolidated
Assets
Current assets





Cash and cash equivalents
$
0.5

$
47.0

$
217.6

$

$
265.1

Accounts and notes receivable, net
2.9

4.0

1,391.0

(63.6
)
1,334.3

Inventories


1,243.3


1,243.3

Other current assets
1.4

0.6

387.4


389.4

Total current assets
4.8

51.6

3,239.3

(63.6
)
3,232.1

Property, plant and equipment, net


1,170.0


1,170.0

Other assets





Investments in subsidiaries
6,224.7

8,066.6


(14,291.3
)

Goodwill


5,134.2


5,134.2

Intangibles, net


1,776.1


1,776.1

Other non-current assets
31.6

1,302.7

393.3

(1,296.7
)
430.9

Total other assets
6,256.3

9,369.3

7,303.6

(15,588.0
)
7,341.2

Total assets
$
6,261.1

$
9,420.9

$
11,712.9

$
(15,651.6
)
$
11,743.3

Liabilities and Equity
Current liabilities





Current maturities of long-term debt and short-term borrowings
$

$

$
2.5

$

$
2.5

Accounts payable
48.1

8.6

603.5

(63.6
)
596.6

Employee compensation and benefits
0.5


346.6


347.1

Other current liabilities
99.6

11.7

552.7


664.0

Total current liabilities
148.2

20.3

1,505.3

(63.6
)
1,610.2

Other liabilities





Long-term debt

2,401.9

1,447.4

(1,296.7
)
2,552.6

Pension and other post-retirement compensation and benefits


324.8


324.8

Deferred tax liabilities

2.2

578.4


580.6

Other non-current liabilities
17.6


439.8


457.4

Total liabilities
165.8

2,424.4

4,295.7

(1,360.3
)
5,525.6

Equity





Shareholders’ equity attributable to Pentair Ltd. and subsidiaries
6,095.3

6,996.5

7,294.8

(14,291.3
)
6,095.3

Noncontrolling interest


122.4


122.4

Total equity
6,095.3

6,996.5

7,417.2

(14,291.3
)
6,217.7

Total liabilities and equity
$
6,261.1

$
9,420.9

$
11,712.9

$
(15,651.6
)
$
11,743.3





24

Table of Contents
Pentair Ltd. and Subsidiaries
Notes to condensed consolidated financial statements (unaudited)

Pentair Ltd. and Subsidiaries
Condensed Consolidating Statement of Cash Flows
Three months ended March 30, 2013

In millions
Parent
Company
Guarantor
Subsidiary
Issuer
Non-guarantor
Subsidiaries
Eliminations
Pentair Ltd.
and
Subsidiaries
Consolidated
Operating activities
 
 
 
 
 
Net cash provided by (used for) operating activities
$
95.1

$
50.9

$
(20.1
)
$
(106.0
)
$
19.9

Investing activities





Capital expenditures


(49.7
)

(49.7
)
Proceeds from sale of property and equipment


0.9


0.9

Proceeds from sale of businesses, net


30.0


30.0

Other


0.3


0.3

Net cash provided by (used for) investing activities


(18.5
)

(18.5
)
Financing activities





Net receipts (repayments) of short-term borrowings


2.9


2.9

Net receipts (repayments) of commercial paper and revolving long-term debt

102.6

37.0


139.6

Repayments of long-term debt


(1.7
)

(1.7
)
Debt issuance costs

(1.1
)
(0.2
)

(1.3
)
Net change in advances to subsidiaries
(47.9
)
(152.4
)
94.3

106.0


Shares issued to employees, net of shares withheld


11.8


11.8

Repurchases of common shares


(140.3
)

(140.3
)
Dividends paid
(47.2
)



(47.2
)
Distributions to noncontrolling interest


(2.0
)

(2.0
)
Net cash provided by (used for) financing activities
(95.1