Pentair Reports Fourth Quarter and Full Year 2013 Results

Adjusted fourth quarter 2013 earnings per diluted share ("EPS") were $0.86, up 62 percent from adjusted pro forma EPS of $0.53 in the fourth quarter of last year. On a GAAP basis, the company reported EPS of $0.78 compared to a loss of $1.31 in the fourth quarter of 2012. Adjusted EPS and operating income exclude acquisition and redomicile-related expenses, repositioning costs, "mark-to-market" pension adjustment, impairments, gain on sale of businesses, and certain tax items.

Fourth quarter 2013 adjusted operating income was $249 million, up 50 percent compared to adjusted pro forma operating income for fourth quarter 2012, and adjusted operating margins were 13.0 percent, an expansion of 350 basis points when compared to adjusted pro forma 2012 operating margins. On a GAAP basis, the company reported operating income of $234 million.

For the full year, the company reported sales of $7.5 billion, adjusted operating income of $944 million, and adjusted EPS of $3.21. On a GAAP basis, the company reported operating income of $774 million and EPS of $2.62.

Free cash flow was $244 million for the quarter and $751 million for the full year; which represented greater than 110 percent conversion of adjusted net income.

Pentair paid dividends of $0.25 per share in the fourth quarter of 2013. Pentair had previously announced on April 29, 2013 the approval by its shareholders of an ordinary cash dividend of $1.00 per share to be paid out of Pentair s capital contribution reserve in four equal quarterly installments of $0.25 in each of the third and fourth quarters of 2013 and the first and second quarters of 2014. Pentair has increased its dividend for 37 consecutive years.

"Pentair had a very good year with an extremely strong fourth quarter," said Randall J. Hogan, Pentair Chairman and Chief Executive Officer. "The power of the Pentair Integrated Management System in delivering superior results through the first full year after our merger was clearly demonstrated, and we now look forward to year two of the new Pentair."

Fourth Quarter and Business Highlights

Unless otherwise indicated, all comparisons are year-over-year against 2012 adjusted results on a pro forma basis for the Flow Control acquisition. See attached reconciliations of these Non-GAAP measures.

Water & Fluid Solutions fourth quarter sales were $819 million, up 6 percent versus the prior year quarter.

• Sales in the Residential & Commercial vertical, which accounted for roughly 50 percent of Water & Fluid Solutions revenue in the quarter, grew 9 percent.
• Sales in the Infrastructure vertical, which accounted for nearly 20 percent of Water & Fluid Solutions revenue in the quarter, were down 7 percent.
• Sales in the Food & Beverage vertical, which accounted for roughly 20 percent of Water & Fluid Solutions revenue in the quarter, grew 16 percent.

Water & Fluid Solutions fourth quarter adjusted operating income of $92 million represented a 28 percent increase as compared to $72 million in the same period last year. Adjusted operating margins increased by 190 basis points to 11.3 percent. Price and productivity more than offset inflation in the quarter. Including repositioning and other charges, Water & Fluid Solutions reported a GAAP operating income of $76 million.

Valves & Controls delivered fourth quarter 2013 sales of $652 million, up 19 percent versus the prior year quarter. Backlog declined 1 percent to $1.4 billion compared to third quarter 2013.

• Sales in the Energy vertical, which accounted for roughly 60 percent of Valves & Controls revenue in the quarter, increased 22 percent. Sales to the oil & gas industry were up 35 percent while sales to the mining industry decreased 2 percent. Sales to the power industry increased 21 percent.
• Sales in the Industrial vertical, which accounted for nearly 40 percent of Valves & Controls revenue in the quarter, grew 15 percent.

Valves & Controls delivered fourth quarter adjusted operating income of $79 million, up 88 percent compared to $42 million in the same quarter last year. Fourth quarter 2013 adjusted operating margins increased 450 basis points to 12.2 percent. Price and productivity more than offset inflation during the quarter. Including repositioning and other charges, Valves & Controls reported a GAAP operating income of $47 million in the fourth quarter.

Technical Solutions delivered fourth quarter 2013 sales of $450 million, up 6 percent versus the prior year quarter.

• Sales in the Industrial vertical, which accounted for roughly 45 percent of Technical Solutions revenue in the quarter, grew 2 percent.
• Sales in the Energy vertical, which accounted for nearly 25 percent of Technical Solutions revenue in the quarter, increased 4 percent.
• Sales in the Residential & Commercial vertical, which accounted for roughly 15 percent of Technical Solutions revenue in the quarter, grew 14 percent.

Technical Solutions delivered fourth quarter adjusted operating income of $99 million, up 28 percent compared to $78 million in the same quarter last year. Fourth quarter 2013 adjusted operating margins increased 380 basis points to 22.0 percent. Pricing and productivity gains driven by a better mix of standard products offset material and labor inflation. Including impairments, repositioning and other charges, Technical Solutions fourth quarter reported GAAP operating income was $84 million.

Outlook

The company affirmed its full year 2014 EPS outlook of $3.85 - $4.00. On an adjusted basis, this would represent an increase of 22 percent over 2013 adjusted EPS of $3.21. The company anticipates full year 2014 sales of $7.7 billion, or up approximately 3 to 5 percent over 2013 sales. The company expects to generate free cash flow in excess of 105 percent of net income in 2014.

"Our performance this year, including our ability to over deliver on integration synergies, increases our confidence in delivering on our $5.00 EPS goal in 2015," said Hogan.

In addition, the company introduced first quarter 2014 EPS guidance of $0.70 - $0.73, up approximately 23 percent on an adjusted basis versus the same quarter last year s adjusted EPS. The company expects first quarter revenue to be approximately $1.8 billion, which is up slightly compared to first quarter 2013 revenue.

Beginning with the first quarter 2014 earnings release, the company will report results in four segments: Valves & Controls, Process Technologies, Flow Technologies and Technical Solutions.