þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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) | ||
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) | ||||||
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. | ||
Three months ended | Six months ended | ||||||||||||
In millions, except per-share data | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Net sales | $ | 1,963.7 | $ | 941.5 | $ | 3,738.2 | $ | 1,799.7 | |||||
Cost of goods sold | 1,296.3 | 629.4 | 2,547.0 | 1,206.9 | |||||||||
Gross profit | 667.4 | 312.1 | 1,191.2 | 592.8 | |||||||||
Selling, general and administrative | 409.4 | 172.0 | 825.4 | 345.4 | |||||||||
Research and development | 32.1 | 20.8 | 65.6 | 41.6 | |||||||||
Operating income | 225.9 | 119.3 | 300.2 | 205.8 | |||||||||
Other (income) expense: | |||||||||||||
Equity income of unconsolidated subsidiaries | (0.9 | ) | (0.6 | ) | (1.1 | ) | (1.7 | ) | |||||
Gain on sale of business | — | — | (16.7 | ) | — | ||||||||
Net interest expense | 18.4 | 16.1 | 35.4 | 30.9 | |||||||||
Income before income taxes and noncontrolling interest | 208.4 | 103.8 | 282.6 | 176.6 | |||||||||
Provision for income taxes | 53.0 | 29.4 | 73.9 | 39.1 | |||||||||
Net income before noncontrolling interest | 155.4 | 74.4 | 208.7 | 137.5 | |||||||||
Noncontrolling interest | 1.3 | 1.7 | 2.9 | 3.0 | |||||||||
Net income attributable to Pentair Ltd. | $ | 154.1 | $ | 72.7 | $ | 205.8 | $ | 134.5 | |||||
Comprehensive income (loss), net of tax | |||||||||||||
Net income before noncontrolling interest | $ | 155.4 | $ | 74.4 | $ | 208.7 | $ | 137.5 | |||||
Changes in cumulative translation adjustment | (41.2 | ) | (85.3 | ) | (118.2 | ) | (45.0 | ) | |||||
Changes in market value of derivative financial instruments | (0.4 | ) | 1.3 | 0.3 | 3.1 | ||||||||
Total comprehensive income (loss) | 113.8 | (9.6 | ) | 90.8 | 95.6 | ||||||||
Less: Comprehensive income (loss) attributable to noncontrolling interest | 1.8 | (0.2 | ) | 2.4 | 2.0 | ||||||||
Comprehensive income (loss) attributable to Pentair Ltd. | $ | 112.0 | $ | (9.4 | ) | $ | 88.4 | $ | 93.6 | ||||
Earnings per common share attributable to Pentair Ltd. | |||||||||||||
Basic | $ | 0.76 | $ | 0.73 | $ | 1.01 | $ | 1.36 | |||||
Diluted | $ | 0.75 | $ | 0.72 | $ | 0.99 | $ | 1.33 | |||||
Weighted average common shares outstanding | |||||||||||||
Basic | 202.1 | 99.0 | 203.5 | 98.9 | |||||||||
Diluted | 205.5 | 101.2 | 206.9 | 100.8 | |||||||||
Cash dividends paid per common share | $ | 0.23 | $ | 0.22 | $ | 0.46 | $ | 0.44 | |||||
June 29, 2013 | December 31, 2012 | |||||
In millions, except per-share data | ||||||
Assets | ||||||
Current assets | ||||||
Cash and cash equivalents | $ | 253.1 | $ | 261.3 | ||
Accounts and notes receivable, net of allowances of $46.9 and $37.5, respectively | 1,305.5 | 1,293.9 | ||||
Inventories | 1,318.3 | 1,379.0 | ||||
Other current assets | 339.6 | 325.5 | ||||
Total current assets | 3,216.5 | 3,259.7 | ||||
Property, plant and equipment, net | 1,186.1 | 1,209.8 | ||||
Other assets | ||||||
Goodwill | 4,964.6 | 4,983.5 | ||||
Intangibles, net | 1,836.6 | 1,926.9 | ||||
Other non-current assets | 462.8 | 489.3 | ||||
Total other assets | 7,264.0 | 7,399.7 | ||||
Total assets | $ | 11,666.6 | $ | 11,869.2 | ||
Liabilities and Equity | ||||||
Current liabilities | ||||||
Current maturities of long-term debt and short-term borrowings | $ | 2.9 | $ | 3.1 | ||
Accounts payable | 593.9 | 568.2 | ||||
Employee compensation and benefits | 292.6 | 295.5 | ||||
Other current liabilities | 797.4 | 758.9 | ||||
Total current liabilities | 1,686.8 | 1,625.7 | ||||
Other liabilities | ||||||
Long-term debt | 2,737.4 | 2,454.3 | ||||
Pension and other post-retirement compensation and benefits | 374.5 | 378.1 | ||||
Deferred tax liabilities | 498.0 | 490.3 | ||||
Other non-current liabilities | 427.0 | 441.6 | ||||
Total liabilities | 5,723.7 | 5,390.0 | ||||
Equity | ||||||
Common shares CHF 0.50 par value, 213.0 authorized and issued at June 29, 2013 and December 31, 2012, respectively | 113.5 | 113.5 | ||||
Common shares held in treasury, 13.8 and 6.9 shares at June 29, 2013 and December 31, 2012, respectively | (721.1 | ) | (315.5 | ) | ||
Capital contribution reserve | 5,064.3 | 5,283.8 | ||||
Retained earnings | 1,498.3 | 1,292.5 | ||||
Accumulated other comprehensive income (loss) | (129.0 | ) | (11.6 | ) | ||
Shareholders’ equity attributable to Pentair Ltd. | 5,826.0 | 6,362.7 | ||||
Noncontrolling interest | 116.9 | 116.5 | ||||
Total equity | 5,942.9 | 6,479.2 | ||||
Total liabilities and equity | $ | 11,666.6 | $ | 11,869.2 | ||
Six months ended | ||||||
In millions | June 29, 2013 | June 30, 2012 | ||||
Operating activities | ||||||
Net income before noncontrolling interest | $ | 208.7 | $ | 137.5 | ||
Adjustments to reconcile net income before noncontrolling interest to net cash provided by (used for) operating activities | ||||||
Equity income of unconsolidated subsidiaries | (1.1 | ) | (1.7 | ) | ||
Depreciation | 73.7 | 32.7 | ||||
Amortization | 80.7 | 19.7 | ||||
Deferred income taxes | 17.3 | 3.7 | ||||
Gain on sale of business | (16.7 | ) | — | |||
Share-based compensation | 18.1 | 10.1 | ||||
Excess tax benefits from share-based compensation | (6.2 | ) | (1.7 | ) | ||
(Gain) loss on sale of assets | 1.2 | (3.1 | ) | |||
Changes in assets and liabilities, net of effects of business acquisitions | ||||||
Accounts and notes receivable | (55.0 | ) | (5.5 | ) | ||
Inventories | 22.4 | (12.3 | ) | |||
Other current assets | (1.3 | ) | (1.0 | ) | ||
Accounts payable | 35.1 | (4.3 | ) | |||
Employee compensation and benefits | 6.6 | (18.7 | ) | |||
Other current liabilities | 2.8 | 31.6 | ||||
Other non-current assets and liabilities | (0.2 | ) | (20.2 | ) | ||
Net cash provided by (used for) operating activities | 386.1 | 166.8 | ||||
Investing activities | ||||||
Capital expenditures | (88.0 | ) | (31.3 | ) | ||
Proceeds from sale of property and equipment | 3.6 | 4.9 | ||||
Proceeds from sale of business, net | 30.0 | — | ||||
Acquisitions, net of cash acquired | (84.4 | ) | (19.9 | ) | ||
Other | (0.6 | ) | (3.1 | ) | ||
Net cash provided by (used for) investing activities | (139.4 | ) | (49.4 | ) | ||
Financing activities | ||||||
Net receipts (repayments) of short-term borrowings | — | (3.5 | ) | |||
Net receipts (repayments) of commercial paper and revolving long-term debt | 289.6 | 41.6 | ||||
Proceeds from long-term debt | — | 34.8 | ||||
Repayments of long-term debt | (5.8 | ) | (144.7 | ) | ||
Debt issuance costs | (1.4 | ) | — | |||
Excess tax benefits from share-based compensation | 6.2 | 1.7 | ||||
Shares issued to employees, net of shares withheld | 40.1 | 16.3 | ||||
Repurchases of common shares | (483.6 | ) | — | |||
Dividends paid | (94.0 | ) | (44.3 | ) | ||
Distribution to noncontrolling interest | (2.0 | ) | — | |||
Net cash provided by (used for) financing activities | (250.9 | ) | (98.1 | ) | ||
Effect of exchange rate changes on cash and cash equivalents | (4.0 | ) | (8.8 | ) | ||
Change in cash and cash equivalents | (8.2 | ) | 10.5 | |||
Cash and cash equivalents, beginning of period | 261.3 | 50.1 | ||||
Cash and cash equivalents, end of period | $ | 253.1 | $ | 60.6 | ||
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 | ) | $ | 5,283.8 | $ | 1,292.5 | $ | (11.6 | ) | $ | 6,362.7 | $ | 116.5 | $ | 6,479.2 | ||||||||
Net income | — | — | — | — | — | 205.8 | — | 205.8 | 2.9 | 208.7 | |||||||||||||||||||
Change in cumulative translation adjustment | — | — | — | — | — | — | (117.7 | ) | (117.7 | ) | (0.5 | ) | (118.2 | ) | |||||||||||||||
Changes in market value of derivative financial instruments, net of $0.1 tax | — | — | — | — | — | — | 0.3 | 0.3 | — | 0.3 | |||||||||||||||||||
Tax benefits of share-based compensation | — | — | — | — | 6.2 | — | — | 6.2 | — | 6.2 | |||||||||||||||||||
Dividends declared | — | — | — | — | (199.2 | ) | — | — | (199.2 | ) | — | (199.2 | ) | ||||||||||||||||
Distribution to noncontrolling interest | — | — | — | — | — | — | — | — | (2.0 | ) | (2.0 | ) | |||||||||||||||||
Share repurchase | — | — | (9.0 | ) | (490.3 | ) | — | — | — | (490.3 | ) | — | (490.3 | ) | |||||||||||||||
Exercise of options, net of shares tendered for payment | — | — | 1.6 | 68.6 | (17.9 | ) | — | — | 50.7 | — | 50.7 | ||||||||||||||||||
Issuance of restricted shares, net of cancellations | — | — | 0.7 | 24.8 | (24.8 | ) | — | — | — | — | — | ||||||||||||||||||
Shares surrendered by employees to pay taxes | — | — | (0.2 | ) | (8.7 | ) | (1.9 | ) | — | — | (10.6 | ) | — | (10.6 | ) | ||||||||||||||
Share-based compensation | — | — | — | — | 18.1 | — | — | 18.1 | — | 18.1 | |||||||||||||||||||
Balance - June 29, 2013 | 213.0 | $ | 113.5 | (13.8 | ) | $ | (721.1 | ) | $ | 5,064.3 | $ | 1,498.3 | $ | (129.0 | ) | $ | 5,826.0 | $ | 116.9 | $ | 5,942.9 | ||||||||
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, 2011 | 98.6 | $ | 47.5 | — | $ | — | $ | 457.7 | $ | 1,465.8 | $ | (37.7 | ) | $ | 1,933.3 | $ | 114.1 | $ | 2,047.4 | ||||||||||
Net income | — | — | — | — | — | 134.5 | — | 134.5 | 3.0 | 137.5 | |||||||||||||||||||
Change in cumulative translation adjustment | — | — | — | — | — | — | (44.0 | ) | (44.0 | ) | (1.0 | ) | (45.0 | ) | |||||||||||||||
Changes in market value of derivative financial instruments, net of $1.2 tax | — | — | — | — | — | — | 3.1 | 3.1 | — | 3.1 | |||||||||||||||||||
Dividends declared | — | — | — | — | — | (44.1 | ) | — | (44.1 | ) | — | (44.1 | ) | ||||||||||||||||
Exercise of options, net of shares tendered for payment | 0.5 | 0.2 | — | — | 14.9 | — | — | 15.1 | — | 15.1 | |||||||||||||||||||
Issuance of restricted shares, net of cancellations | 0.2 | 0.1 | — | — | 3.6 | — | — | 3.7 | — | 3.7 | |||||||||||||||||||
Shares surrendered by employees to pay taxes | (0.1 | ) | — | — | — | (2.5 | ) | — | — | (2.5 | ) | — | (2.5 | ) | |||||||||||||||
Share-based compensation | — | — | — | — | 4.6 | — | — | 4.6 | — | 4.6 | |||||||||||||||||||
Balance - June 30, 2012 | 99.2 | $ | 47.8 | — | $ | — | $ | 478.3 | $ | 1,556.2 | $ | (78.6 | ) | $ | 2,003.7 | $ | 116.1 | $ | 2,119.8 | ||||||||||
2. | Acquisitions and Divestitures |
In millions | |||
Value of common shares issued to Tyco shareholders (1) | $ | 4,811.4 | |
Value of replacement equity-based awards to holders of Tyco equity-based awards (2) | 111.2 | ||
Cash paid to Tyco in settlement of the working capital and net indebtedness adjustment | 84.4 | ||
Cash paid to Tyco shareholders in lieu of fractional common shares (3) | 0.5 | ||
$ | 5,007.5 | ||
(1) | Equals 110.9 million Pentair Ltd. shares distributed to Tyco shareholders multiplied by the Merger date share price of $43.39. |
(2) | In accordance with applicable accounting guidance, the fair value of replacement equity-based awards attributable to pre-combination service is recorded as part of the consideration transferred in the Merger, while the fair value of replacement equity-based awards attributable to post-combination service is recorded separately from the business combination and recognized as compensation cost in the post-acquisition period over the remaining service period. The fair value of our equivalent stock options was estimated using the Black-Scholes valuation model utilizing various assumptions. |
(3) | Equals cash paid to Tyco shareholders in lieu of less than 0.1 million Pentair Ltd. fractional shares multiplied by the Merger date share price of $43.39. |
Preliminary purchase price allocation as of acquisition date | |||||||
In millions | December 31, 2012 | June 29, 2013 | |||||
Cash and cash equivalents | $ | 691.7 | $ | 691.7 | |||
Accounts and notes receivable | 771.6 | 772.8 | |||||
Inventories | 1,046.2 | 1,044.8 | |||||
Other current assets | 98.2 | 98.2 | |||||
Property, plant and equipment | 822.0 | 807.3 | |||||
Goodwill | 2,520.1 | 2,614.1 | |||||
Intangibles | 1,425.1 | 1,441.9 | |||||
Other non-current assets | 275.1 | 275.1 | |||||
Current liabilities | (856.3 | ) | (867.3 | ) | |||
Long-term debt | (914.5 | ) | (914.5 | ) | |||
Income taxes, including current and deferred | (364.6 | ) | (360.3 | ) | |||
Other liabilities and redeemable noncontrolling interest | (591.5 | ) | (596.3 | ) | |||
Total purchase price | $ | 4,923.1 | $ | 5,007.5 | |||
Three months ended | Six months ended | |||||
In millions, except per-share data | June 30, 2012 | June 30, 2012 | ||||
Pro forma net sales | $ | 1,924.8 | $ | 3,781.3 | ||
Pro forma net income attributable to Pentair Ltd. | 108.7 | 215.9 | ||||
Diluted earnings per common share attributable to Pentair Ltd. | 0.51 | 1.02 | ||||
3. | Share Plans |
Three months ended | Six months ended | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Restricted stock units | $ | 4.9 | $ | 2.8 | $ | 11.8 | $ | 5.8 | |||||
Stock options | 2.7 | 2.0 | 6.3 | 4.3 | |||||||||
Total share-based compensation expense | $ | 7.6 | $ | 4.8 | $ | 18.1 | $ | 10.1 | |||||
Three months ended | ||||
June 29, 2013 | June 30, 2012 | |||
Risk-free interest rate | 0.82 | % | 0.90 | % |
Expected dividend yield | 1.78 | % | 2.29 | % |
Expected share price volatility | 36.0 | % | 36.5 | % |
Expected term (years) | 5.7 | 5.7 | ||
4. | Restructuring |
Three months ended | Six months ended | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Severance and related costs | $ | 19.8 | $ | 9.7 | $ | 39.8 | $ | 9.7 | |||||
Other | 6.9 | 0.7 | 8.5 | 0.7 | |||||||||
Total restructuring costs | $ | 26.7 | $ | 10.4 | $ | 48.3 | $ | 10.4 | |||||
In millions | June 29, 2013 | ||
Beginning balance | $ | 59.6 | |
Costs incurred | 39.8 | ||
Cash payments and other | (46.5 | ) | |
Ending balance | $ | 52.9 | |
5. | Earnings Per Share |
Three months ended | Six months ended | ||||||||||||
In millions, except per-share data | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Net income attributable to Pentair Ltd. | $ | 154.1 | $ | 72.7 | $ | 205.8 | $ | 134.5 | |||||
Weighted average common shares outstanding | |||||||||||||
Basic | 202.1 | 99.0 | 203.5 | 98.9 | |||||||||
Dilutive impact of stock options and restricted stock units | 3.4 | 2.2 | 3.4 | 1.9 | |||||||||
Diluted | 205.5 | 101.2 | 206.9 | 100.8 | |||||||||
Earnings per common share attributable to Pentair Ltd. | |||||||||||||
Basic earnings per common share | $ | 0.76 | $ | 0.73 | $ | 1.01 | $ | 1.36 | |||||
Diluted earnings per common share | $ | 0.75 | $ | 0.72 | $ | 0.99 | $ | 1.33 | |||||
Anti-dilutive stock options excluded from the calculation of diluted earnings per share | 0.9 | 0.4 | 1.0 | 2.0 | |||||||||
6. | Supplemental Balance Sheet Information |
In millions | June 29, 2013 | December 31, 2012 | ||||
Inventories | ||||||
Raw materials and supplies | $ | 610.1 | $ | 615.8 | ||
Work-in-process | 196.7 | 207.8 | ||||
Finished goods | 511.5 | 555.4 | ||||
Total inventories | $ | 1,318.3 | $ | 1,379.0 | ||
Other current assets | ||||||
Cost in excess of billings | $ | 134.4 | $ | 124.4 | ||
Prepaid expenses | 102.7 | 95.0 | ||||
Deferred income taxes | 81.2 | 72.9 | ||||
Other current assets | 21.3 | 33.2 | ||||
Total other current assets | $ | 339.6 | $ | 325.5 | ||
Property, plant and equipment, net | ||||||
Land and land improvements | $ | 238.3 | $ | 247.9 | ||
Buildings and leasehold improvements | 481.8 | 481.3 | ||||
Machinery and equipment | 1,125.2 | 1,083.5 | ||||
Construction in progress | 130.3 | 108.0 | ||||
Total property, plant and equipment | 1,975.6 | 1,920.7 | ||||
Accumulated depreciation and amortization | 789.5 | 710.9 | ||||
Total property, plant and equipment, net | $ | 1,186.1 | $ | 1,209.8 | ||
Other non-current assets | ||||||
Asbestos-related insurance receivable | $ | 156.5 | $ | 157.4 | ||
Deferred income taxes | 102.1 | 90.9 | ||||
Other non-current assets | 204.2 | 241.0 | ||||
Total other non-current assets | $ | 462.8 | $ | 489.3 | ||
Other current liabilities | ||||||
Deferred revenue and customer deposits | $ | 120.2 | $ | 127.2 | ||
Dividends payable | 199.2 | 95.0 | ||||
Billings in excess of cost | 83.7 | 61.1 | ||||
Accrued warranty | 55.6 | 54.0 | ||||
Other current liabilities | 338.7 | 421.6 | ||||
Total other current liabilities | $ | 797.4 | $ | 758.9 | ||
Other non-current liabilities | ||||||
Asbestos-related liabilities | $ | 227.9 | $ | 235.5 | ||
Taxes payable | 49.9 | 49.3 | ||||
Other non-current liabilities | 149.2 | 156.8 | ||||
Total other non-current liabilities | $ | 427.0 | $ | 441.6 | ||
7. | Goodwill and Other Identifiable Intangible Assets |
In millions | December 31, 2012 | Acquisitions/ divestitures | Foreign currency translation/other | June 29, 2013 | ||||||||
Water & Fluid Solutions | $ | 2,425.4 | $ | — | $ | (12.2 | ) | $ | 2,413.2 | |||
Valves & Controls | 1,389.9 | — | — | 1,389.9 | ||||||||
Technical Solutions | 1,168.2 | (5.3 | ) | (1.4 | ) | 1,161.5 | ||||||
Total goodwill | $ | 4,983.5 | $ | (5.3 | ) | $ | (13.6 | ) | $ | 4,964.6 | ||
June 29, 2013 | December 31, 2012 | ||||||||||||||||||
In millions | Cost | Accumulated amortization | Net | Cost | Accumulated amortization | Net | |||||||||||||
Finite-life intangibles | |||||||||||||||||||
Customer relationships | $ | 1,281.5 | $ | (195.6 | ) | $ | 1,085.9 | $ | 1,291.5 | $ | (152.7 | ) | $ | 1,138.8 | |||||
Trade names | 2.1 | (0.8 | ) | 1.3 | 1.5 | (0.7 | ) | 0.8 | |||||||||||
Proprietary technology | 262.4 | (68.4 | ) | 194.0 | 263.7 | (57.8 | ) | 205.9 | |||||||||||
Backlog | 43.7 | (41.7 | ) | 2.0 | 43.7 | (18.2 | ) | 25.5 | |||||||||||
Total finite-life intangibles | $ | 1,589.7 | $ | (306.5 | ) | $ | 1,283.2 | $ | 1,600.4 | $ | (229.4 | ) | $ | 1,371.0 | |||||
Indefinite-life intangibles | |||||||||||||||||||
Trade names | 553.4 | — | 553.4 | 555.9 | — | 555.9 | |||||||||||||
Total intangibles, net | $ | 2,143.1 | $ | (306.5 | ) | $ | 1,836.6 | $ | 2,156.3 | $ | (229.4 | ) | $ | 1,926.9 | |||||
Q3-Q4 | ||||||||||||||||||
In millions | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | ||||||||||||
Estimated amortization expense | $ | 57.8 | $ | 115.2 | $ | 114.6 | $ | 113.8 | $ | 112.2 | $ | 109.7 | ||||||
8. | Debt |
In millions | Average interest rate at June 29, 2013 | Maturity Year | June 29, 2013 | December 31, 2012 | ||||
Commercial paper | 0.540% | 2017 | $ | 690.6 | $ | 424.7 | ||
Revolving credit facilities | 1.445% | 2017 | 22.8 | — | ||||
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 | 0.044% | 2015-2030 | 5.0 | 8.9 | ||||
Capital lease obligations | 4.209% | 2013-2025 | 21.9 | 23.8 | ||||
Total debt | 2,740.3 | 2,457.4 | ||||||
Less: Current maturities and short-term borrowings | (2.9 | ) | (3.1 | ) | ||||
Long-term debt | $ | 2,737.4 | $ | 2,454.3 | ||||
Q3 - Q4 | ||||||||||||||||||||||||
In millions | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | Thereafter | Total | ||||||||||||||||
Contractual debt obligation maturities | $ | — | $ | — | $ | 350.0 | $ | — | $ | 1,063.4 | $ | — | $ | 1,305.0 | $ | 2,718.4 | ||||||||
Capital lease obligations | 1.6 | 2.8 | 6.1 | 1.3 | 1.3 | 1.3 | 7.5 | 21.9 | ||||||||||||||||
Total maturities | $ | 1.6 | $ | 2.8 | $ | 356.1 | $ | 1.3 | $ | 1,064.7 | $ | 1.3 | $ | 1,312.5 | $ | 2,740.3 | ||||||||
9. | Derivatives and Financial Instruments |
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. | |
• | 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 |
• | interest rate swaps 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. |
June 29, 2013 | December 31, 2012 | ||||||||||||
In millions | Recorded Amount | Fair Value | Recorded Amount | Fair Value | |||||||||
Variable rate debt | $ | 713.4 | $ | 713.4 | $ | 427.7 | $ | 427.7 | |||||
Fixed rate debt | 2,026.9 | 1,995.3 | 2,029.7 | 2,081.3 | |||||||||
Total debt | $ | 2,740.3 | $ | 2,708.7 | $ | 2,457.4 | $ | 2,509.0 | |||||
June 29, 2013 | ||||||||||||
In millions | Level 1 | Level 2 | Level 3 | Total | ||||||||
Recurring fair value measurements | ||||||||||||
Foreign currency contract assets | $ | — | $ | 2.2 | $ | — | $ | 2.2 | ||||
Foreign currency contract liabilities | — | (0.5 | ) | — | (0.5 | ) | ||||||
Deferred compensation plan (1) | 28.4 | — | — | 28.4 | ||||||||
Total recurring fair value measurements | $ | 28.4 | $ | 1.7 | $ | — | $ | 30.1 | ||||
December 31, 2012 | ||||||||||||
In millions | Level 1 | Level 2 | Level 3 | Total | ||||||||
Recurring fair value measurements | ||||||||||||
Foreign currency contract assets | $ | — | $ | 2.9 | $ | — | $ | 2.9 | ||||
Foreign currency contract liabilities | — | (0.5 | ) | — | (0.5 | ) | ||||||
Deferred compensation plan (1) | 22.4 | — | — | 22.4 | ||||||||
Total recurring fair value measurements | $ | 22.4 | $ | 2.4 | $ | — | $ | 24.8 | ||||
Nonrecurring fair value measurements | ||||||||||||
Trade name intangibles (2) | $ | — | $ | — | $ | 63.7 | $ | 63.7 | ||||
Total nonrecurring fair value measurement | $ | — | $ | — | $ | 63.7 | $ | 63.7 | ||||
(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 2012, we completed our annual intangible assets impairment review. As a result, we recorded a pre-tax non-cash impairment charge of $60.7 million for trade names intangibles. 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 |
11. | Benefit Plans |
U.S. pension plans | |||||||||||||
Three months ended | Six months ended | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Service cost | $ | 3.9 | $ | 3.2 | $ | 7.8 | $ | 6.4 | |||||
Interest cost | 3.6 | 7.1 | 7.2 | 14.2 | |||||||||
Expected return on plan assets | (2.4 | ) | (7.3 | ) | (4.8 | ) | (14.6 | ) | |||||
Net periodic benefit cost | $ | 5.1 | $ | 3.0 | $ | 10.2 | $ | 6.0 | |||||
Non-U.S. pension plans | |||||||||||||
Three months ended | Six months ended | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Service cost | $ | 2.4 | $ | 0.6 | $ | 4.8 | $ | 1.2 | |||||
Interest cost | 4.4 | 1.1 | 8.8 | 2.2 | |||||||||
Expected return on plan assets | (3.8 | ) | (0.1 | ) | (7.6 | ) | (0.2 | ) | |||||
Net periodic benefit cost | $ | 3.0 | $ | 1.6 | $ | 6.0 | $ | 3.2 | |||||
12. | Shareholders’ Equity |
13. | Segment information |
Three months ended | Six months ended | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Net sales | |||||||||||||
Water & Fluid Solutions | $ | 949.8 | $ | 675.4 | $ | 1,731.8 | $ | 1,262.5 | |||||
Valves & Controls | 619.9 | — | 1,205.7 | — | |||||||||
Technical Solutions | 397.4 | 267.5 | 807.4 | 540.1 | |||||||||
Other | (3.4 | ) | (1.4 | ) | (6.7 | ) | (2.9 | ) | |||||
Consolidated | $ | 1,963.7 | $ | 941.5 | $ | 3,738.2 | $ | 1,799.7 | |||||
Operating income (loss) | |||||||||||||
Water & Fluid Solutions | $ | 136.1 | $ | 92.0 | $ | 210.9 | $ | 155.7 | |||||
Valves & Controls | 56.9 | — | 38.3 | — | |||||||||
Technical Solutions | 65.1 | 50.6 | 118.4 | 101.1 | |||||||||
Other | (32.2 | ) | (23.3 | ) | (67.4 | ) | (51.0 | ) | |||||
Consolidated | $ | 225.9 | $ | 119.3 | $ | 300.2 | $ | 205.8 | |||||
14. | Commitments and Contingencies |
In millions | June 29, 2013 | ||
Beginning balance | $ | 54.0 | |
Service and product warranty provision | 28.1 | ||
Payments | (25.7 | ) | |
Foreign currency translation | (0.8 | ) | |
Ending balance | $ | 55.6 | |
15. | Financial Statements of Parent Company Guarantor |
• | 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. |
In millions | Parent Company Guarantor | Subsidiary Issuer | Non-guarantor Subsidiaries | Eliminations | Pentair Ltd. and Subsidiaries Consolidated | ||||||||||
Net sales | $ | — | $ | — | $ | 1,963.7 | $ | — | $ | 1,963.7 | |||||
Cost of goods sold | — | — | 1,296.3 | — | 1,296.3 | ||||||||||
Gross profit | — | — | 667.4 | — | 667.4 | ||||||||||
Selling, general and administrative | 0.3 | 3.4 | 405.7 | — | 409.4 | ||||||||||
Research and development | — | — | 32.1 | — | 32.1 | ||||||||||
Operating (loss) income | (0.3 | ) | (3.4 | ) | 229.6 | — | 225.9 | ||||||||
Loss (earnings) from investment in subsidiaries | (157.1 | ) | (164.1 | ) | — | 321.2 | — | ||||||||
Other (income) expense: | |||||||||||||||
Equity income of unconsolidated subsidiaries | — | — | (0.9 | ) | — | (0.9 | ) | ||||||||
Net interest expense | 2.7 | 3.5 | 12.2 | — | 18.4 | ||||||||||
Income (loss) before income taxes and noncontrolling interest | 154.1 | 157.2 | 218.3 | (321.2 | ) | 208.4 | |||||||||
Provision for income taxes | — | — | 53.0 | — | 53.0 | ||||||||||
Net income (loss) before noncontrolling interest | 154.1 | 157.2 | 165.3 | (321.2 | ) | 155.4 | |||||||||
Noncontrolling interest | — | — | 1.3 | — | 1.3 | ||||||||||
Net income (loss) attributable to Pentair Ltd. | $ | 154.1 | $ | 157.2 | $ | 164.0 | $ | (321.2 | ) | $ | 154.1 | ||||
Comprehensive income (loss), net of tax | |||||||||||||||
Net income (loss) before noncontrolling interest | $ | 154.1 | $ | 157.2 | $ | 165.3 | $ | (321.2 | ) | $ | 155.4 | ||||
Changes in cumulative translation adjustment | (41.7 | ) | (41.7 | ) | (41.2 | ) | 83.4 | (41.2 | ) | ||||||
Changes in market value of derivative financial instruments | (0.4 | ) | (0.4 | ) | (0.4 | ) | 0.8 | (0.4 | ) | ||||||
Total comprehensive income (loss) | 112.0 | 115.1 | 123.7 | (237.0 | ) | 113.8 | |||||||||
Less: Comprehensive income attributable to noncontrolling interest | — | — | 1.8 | — | 1.8 | ||||||||||
Comprehensive income (loss) attributable to Pentair Ltd. | $ | 112.0 | $ | 115.1 | $ | 121.9 | $ | (237.0 | ) | $ | 112.0 | ||||
In millions | Parent Company Guarantor | Subsidiary Issuer | Non-guarantor Subsidiaries | Eliminations | Pentair Ltd. and Subsidiaries Consolidated | ||||||||||
Net sales | $ | — | $ | — | $ | 3,738.2 | $ | — | $ | 3,738.2 | |||||
Cost of goods sold | — | — | 2,547.0 | — | 2,547.0 | ||||||||||
Gross profit | — | — | 1,191.2 | — | 1,191.2 | ||||||||||
Selling, general and administrative | (0.7 | ) | 7.0 | 819.1 | — | 825.4 | |||||||||
Research and development | — | — | 65.6 | — | 65.6 | ||||||||||
Operating (loss) income | 0.7 | (7.0 | ) | 306.5 | — | 300.2 | |||||||||
Loss (earnings) from investment in subsidiaries | (207.8 | ) | (219.0 | ) | — | 426.8 | — | ||||||||
Other (income) expense: | |||||||||||||||
Equity income of unconsolidated subsidiaries | — | — | (1.1 | ) | — | (1.1 | ) | ||||||||
Gain on sale of business | — | — | (16.7 | ) | — | (16.7 | ) | ||||||||
Net interest expense | 3.0 | 6.1 | 26.3 | — | 35.4 | ||||||||||
Income (loss) before income taxes and noncontrolling interest | 205.5 | 205.9 | 298.0 | (426.8 | ) | 282.6 | |||||||||
Provision for income taxes | (0.3 | ) | — | 74.2 | — | 73.9 | |||||||||
Net income (loss) before noncontrolling interest | 205.8 | 205.9 | 223.8 | (426.8 | ) | 208.7 | |||||||||
Noncontrolling interest | — | — | 2.9 | — | 2.9 | ||||||||||
Net income (loss) attributable to Pentair Ltd. | $ | 205.8 | 205.9 | $ | 220.9 | $ | (426.8 | ) | $ | 205.8 | |||||
Comprehensive income (loss), net of tax | |||||||||||||||
Net income (loss) before noncontrolling interest | $ | 205.8 | $ | 205.9 | $ | 223.8 | $ | (426.8 | ) | $ | 208.7 | ||||
Changes in cumulative translation adjustment | (117.7 | ) | (117.7 | ) | (118.2 | ) | 235.4 | (118.2 | ) | ||||||
Changes in market value of derivative financial instruments | 0.3 | 0.3 | 0.3 | (0.6 | ) | 0.3 | |||||||||
Total comprehensive income (loss) | 88.4 | 88.5 | 105.9 | (192.0 | ) | 90.8 | |||||||||
Less: Comprehensive income attributable to noncontrolling interest | — | — | 2.4 | — | 2.4 | ||||||||||
Comprehensive income (loss) attributable to Pentair Ltd. | $ | 88.4 | $ | 88.5 | $ | 103.5 | $ | (192.0 | ) | $ | 88.4 | ||||
In millions | Parent Company Guarantor | Subsidiary Issuer | Non-guarantor Subsidiaries | Eliminations | Pentair Ltd. and Subsidiaries Consolidated | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | — | $ | 3.5 | $ | 249.6 | $ | — | $ | 253.1 | |||||
Accounts and notes receivable, net | 0.2 | 16.3 | 1,525.6 | (236.6 | ) | 1,305.5 | |||||||||
Inventories | — | — | 1,318.3 | — | 1,318.3 | ||||||||||
Other current assets | 0.5 | — | 339.1 | — | 339.6 | ||||||||||
Total current assets | 0.7 | 19.8 | 3,432.6 | (236.6 | ) | 3,216.5 | |||||||||
Property, plant and equipment, net | — | — | 1,186.1 | — | 1,186.1 | ||||||||||
Other assets | |||||||||||||||
Investments in subsidiaries | 6,266.1 | 7,711.5 | — | (13,977.6 | ) | — | |||||||||
Goodwill | — | — | 4,964.6 | — | 4,964.6 | ||||||||||
Intangibles, net | — | — | 1,836.6 | — | 1,836.6 | ||||||||||
Other non-current assets | 31.0 | 1,690.3 | 455.1 | (1,713.6 | ) | 462.8 | |||||||||
Total other assets | 6,297.1 | 9,401.8 | 7,256.3 | (15,691.2 | ) | 7,264.0 | |||||||||
Total assets | $ | 6,297.8 | $ | 9,421.6 | $ | 11,875.0 | $ | (15,927.8 | ) | $ | 11,666.6 | ||||
Liabilities and Equity | |||||||||||||||
Current liabilities | |||||||||||||||
Current maturities of long-term debt and short-term borrowings | $ | — | — | 2.9 | — | $ | 2.9 | ||||||||
Accounts payable | 220.0 | — | 594.1 | (220.2 | ) | 593.9 | |||||||||
Employee compensation and benefits | — | — | 292.6 | — | 292.6 | ||||||||||
Other current liabilities | 220.8 | 13.6 | 563.0 | — | 797.4 | ||||||||||
Total current liabilities | 440.8 | 13.6 | 1,452.6 | (220.2 | ) | 1,686.8 | |||||||||
Other liabilities | |||||||||||||||
Long-term debt | — | 2,563.6 | 1,872.8 | (1,699.0 | ) | 2,737.4 | |||||||||
Pension and other post-retirement compensation and benefits | — | — | 374.5 | — | 374.5 | ||||||||||
Deferred tax liabilities | — | — | 498.0 | — | 498.0 | ||||||||||
Other non-current liabilities | 31.0 | — | 427.0 | (31.0 | ) | 427.0 | |||||||||
Total liabilities | 471.8 | 2,577.2 | 4,624.9 | (1,950.2 | ) | 5,723.7 | |||||||||
Equity | |||||||||||||||
Shareholders’ equity attributable to Pentair Ltd. and subsidiaries | 5,826.0 | 6,844.4 | 7,133.2 | (13,977.6 | ) | 5,826.0 | |||||||||
Noncontrolling interest | — | — | 116.9 | — | 116.9 | ||||||||||
Total equity | 5,826.0 | 6,844.4 | 7,250.1 | (13,977.6 | ) | 5,942.9 | |||||||||
Total liabilities and equity | $ | 6,297.8 | $ | 9,421.6 | $ | 11,875.0 | $ | (15,927.8 | ) | $ | 11,666.6 | ||||
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 | $ | 675.1 | $ | 208.0 | $ | (70.2 | ) | $ | (426.8 | ) | $ | 386.1 | |||
Investing activities | |||||||||||||||
Capital expenditures | — | — | (88.0 | ) | — | (88.0 | ) | ||||||||
Proceeds from sale of property and equipment | — | — | 3.6 | — | 3.6 | ||||||||||
Proceeds from sale of business, net | — | — | 30.0 | — | 30.0 | ||||||||||
Acquisitions, net of cash acquired | (84.4 | ) | — | — | — | (84.4 | ) | ||||||||
Other | — | — | (0.6 | ) | — | (0.6 | ) | ||||||||
Net cash provided by (used for) investing activities | (84.4 | ) | — | (55.0 | ) | — | (139.4 | ) | |||||||
Financing activities | |||||||||||||||
Net receipts (repayments) of commercial paper and revolving long-term debt | — | 265.9 | 23.7 | — | 289.6 | ||||||||||
Repayment of long-term debt | — | — | (5.8 | ) | — | (5.8 | ) | ||||||||
Debt issuance costs | — | (0.7 | ) | (0.7 | ) | — | (1.4 | ) | |||||||
Excess tax benefits from share-based compensation | — | — | 6.2 | 6.2 | |||||||||||
Net change in advances to subsidiaries | (496.7 | ) | (469.7 | ) | 539.6 | 426.8 | — | ||||||||
Shares issued to employees, net of shares withheld | — | — | 40.1 | — | 40.1 | ||||||||||
Repurchases of common shares | — | — | (483.6 | ) | — | (483.6 | ) | ||||||||
Dividends paid | (94.0 | ) | — | — | — | (94.0 | ) | ||||||||
Distributions to noncontrolling interest | — | — | (2.0 | ) | — | (2.0 | ) | ||||||||
Net cash provided by (used for) financing activities | (590.7 | ) | (204.5 | ) | 117.5 | 426.8 | (250.9 | ) | |||||||
Effect of exchange rate changes on cash and cash equivalents | — | — | (4.0 | ) | — | (4.0 | ) | ||||||||
Change in cash and cash equivalents | — | 3.5 | (11.7 | ) | — | (8.2 | ) | ||||||||
Cash and cash equivalents, beginning of period | — | — | 261.3 | — | 261.3 | ||||||||||
Cash and cash equivalents, end of period | $ | — | $ | 3.5 | $ | 249.6 | $ | — | $ | 253.1 | |||||
In millions | Parent Company Guarantor | Subsidiary Issuer | Non-guarantor Subsidiaries | Eliminations | Pentair Ltd. and Subsidiaries Consolidated | ||||||||||
Assets | |||||||||||||||
Current assets | |||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | 261.3 | $ | — | $ | 261.3 | |||||
Accounts and notes receivable, net | 20.2 | 1,458.3 | 1,350.0 | (1,534.6 | ) | 1,293.9 | |||||||||
Inventories | — | — | 1,379.0 | — | 1,379.0 | ||||||||||
Other current assets | 85.8 | — | 324.1 | (84.4 | ) | 325.5 | |||||||||
Total current assets | 106.0 | 1,458.3 | 3,314.4 | (1,619.0 | ) | 3,259.7 | |||||||||
Property, plant and equipment, net | — | — | 1,209.8 | — | 1,209.8 | ||||||||||
Other assets | |||||||||||||||
Investments in subsidiaries | 6,491.9 | 7,470.1 | — | (13,962.0 | ) | — | |||||||||
Goodwill | — | — | 4,983.5 | — | 4,983.5 | ||||||||||
Intangibles, net | — | — | 1,926.9 | — | 1,926.9 | ||||||||||
Other non-current assets | 31.0 | 6.9 | 482.4 | (31.0 | ) | 489.3 | |||||||||
Total other assets | 6,522.9 | 7,477.0 | 7,392.8 | (13,993.0 | ) | 7,399.7 | |||||||||
Total assets | $ | 6,628.9 | $ | 8,935.3 | $ | 11,917.0 | $ | (15,612.0 | ) | $ | 11,869.2 | ||||
Liabilities and Equity | |||||||||||||||
Current liabilities | |||||||||||||||
Current maturities of long-term debt and short-term borrowings | $ | — | $ | — | $ | 3.1 | $ | — | $ | 3.1 | |||||
Accounts payable | 54.2 | 1.8 | 588.5 | (76.3 | ) | 568.2 | |||||||||
Employee compensation and benefits | — | — | 295.5 | — | 295.5 | ||||||||||
Other current liabilities | 181.0 | 11.4 | 650.9 | (84.4 | ) | 758.9 | |||||||||
Total current liabilities | 235.2 | 13.2 | 1,538.0 | (160.7 | ) | 1,625.7 | |||||||||
Other liabilities | |||||||||||||||
Long-term debt | — | 2,297.7 | 1,614.9 | (1,458.3 | ) | 2,454.3 | |||||||||
Pension and other post-retirement compensation and benefits | — | — | 378.1 | — | 378.1 | ||||||||||
Deferred tax liabilities | — | — | 490.3 | — | 490.3 | ||||||||||
Other non-current liabilities | 31.0 | — | 441.6 | (31.0 | ) | 441.6 | |||||||||
Total liabilities | 266.2 | 2,310.9 | 4,462.9 | (1,650.0 | ) | 5,390.0 | |||||||||
Equity | |||||||||||||||
Shareholders’ equity attributable to Pentair Ltd. and subsidiaries | 6,362.7 | 6,624.4 | 7,337.6 | (13,962.0 | ) | 6,362.7 | |||||||||
Noncontrolling interest | — | — | 116.5 | — | 116.5 | ||||||||||
Total equity | 6,362.7 | 6,624.4 | 7,454.1 | (13,962.0 | ) | 6,479.2 | |||||||||
Total liabilities and equity | $ | 6,628.9 | $ | 8,935.3 | $ | 11,917.0 | $ | (15,612.0 | ) | $ | 11,869.2 | ||||
• | The Water & Fluid Solutions segment designs, manufactures, markets and services innovative water management and fluid processing products and solutions. In select geographies, Water & Fluid Solutions offers a wide variety of pumps, valves and pipes for water transmission applications. The Flow Technologies, Filtration & Process, Aquatic Systems and Water & Environmental Systems global business units (“GBUs”) comprise this segment. |
• | The Valves & Controls segment designs, manufactures, markets and services valves, fittings, automation and controls, and actuators and operates as a stand-alone GBU. |
• | The Technical Solutions segment designs, manufactures and markets products that guard and protect some of the world’s most sensitive electronics and electronic equipment, as well as heat management solutions designed to provide thermal protection to temperature sensitive fluid applications. The Equipment Protection and Thermal Management GBUs comprise this segment. |
• | Since 2010, most markets we serve have shown signs of improvement since the global recession in 2008 and 2009. Because our businesses are significantly affected by general economic trends, a lack of continued improvement in our most important markets addressed below would likely have an adverse impact on our results of operations for the rest of 2013 and beyond. |
• | In September 2012, we completed the Merger. With an acquisition of this magnitude and complexity, there are uncertainties and risks associated with realizing the amount and timing of anticipated growth opportunities and cost and tax synergies as described in ITEM 1A – Risk Factors of our 2012 Annual Report on Form 10-K. |
• | We have identified specific market opportunities that we continue to pursue that we find attractive, both within and outside the United States. We are reinforcing our businesses to more effectively address these opportunities through research and development and additional sales and marketing resources. Unless we successfully penetrate these product and geographic markets, our organic growth would likely be limited. |
• | End markets for new home building and new pool starts are showing signs of rebound from their historically low levels in 2007 - 2011. New product introductions, expanded distribution, channel penetration and a recovering housing market have resulted in volume increases for 2012 and the first half of 2013. |
• | Despite the overall strength of our end-markets, some of them have exhibited differing levels of volatility and may continue to do so over the medium and longer term. While we believe the general trends are favorable, factors specific to each of our major end-markets may affect the capital spending plans of our customers. |
• | Through 2012 and the first half of 2013, we experienced material and other cost inflation. We strive for productivity improvements, and we may implement increases in selling prices to help mitigate this inflation. We expect the current economic environment will result in continuing price volatility for many of our raw materials. Commodity prices have begun to moderate, but we are uncertain as to the timing and impact of these market changes. |
• | We have a long-term goal to consistently generate free cash flow that equals or exceeds 100 percent of our net income. We define free cash flow as cash flow from operating activities less capital expenditures plus proceeds from sale of property and equipment. Our free cash flow for the full year 2012 was $(21.1) million. The negative free cash flow resulted primarily from accelerated pension funding of $193.0 million, acquisition-related payments of $126.0 million and repositioning payments of $20.0 million. We continue to expect to generate free cash flow in excess of 100 percent of our net income before noncontrolling interest in 2013. We are continuing to target reductions in working capital, particularly inventory as a percentage of sales. See the discussion of “Other financial measures” under “Liquidity and Capital Resources” in this report for a reconciliation of our free cash flow. |
• | Increasing our presence in fast growth regions and vertical focus to grow in those markets in which we have competitive advantages; |
• | Optimizing our technological capabilities to increasingly generate innovative new products; |
• | Driving operating excellence through lean enterprise initiatives, with specific focus on sourcing and supply management, cash flow management and lean operations; |
• | Focusing on developing global talent in light of our increased global presence; and |
• | Integrating Pentair, Inc. and the Flow Control business. |
Three months ended | Six months ended | ||||||||||||||||||||||
In millions | June 29, 2013 | June 30, 2012 | $ change | % change | June 29, 2013 | June 30, 2012 | $ change | % change | |||||||||||||||
Net sales | $ | 1,963.7 | $ | 941.5 | $ | 1,022.2 | 108.6 | % | $ | 3,738.2 | $ | 1,799.7 | $ | 1,938.5 | 107.7 | % | |||||||
Three months ended | Six months ended | ||||||||||||||||||||||
In millions | June 29, 2013 | June 30, 2012 | $ change | % change | June 29, 2013 | June 30, 2012 | $ change | % change | |||||||||||||||
Water & Fluid Solutions | $ | 949.8 | $ | 675.4 | $ | 274.4 | 40.6 | % | $ | 1,731.8 | $ | 1,262.5 | $ | 469.3 | 37.2 | % | |||||||
Valves & Controls | 619.9 | — | 619.9 | — | 1,205.7 | — | 1,205.7 | — | |||||||||||||||
Technical Solutions | 397.4 | 267.5 | 129.9 | 48.6 | % | 807.4 | 540.1 | 267.3 | 49.5 | % | |||||||||||||
Other | (3.4 | ) | (1.4 | ) | (2.0 | ) | — | (6.7 | ) | (2.9 | ) | (3.8 | ) | — | |||||||||
Net sales | $ | 1,963.7 | $ | 941.5 | $ | 1,022.2 | 108.6 | % | $ | 3,738.2 | $ | 1,799.7 | $ | 1,938.5 | 107.7 | % | |||||||
Three months ended June 29, 2013 | Six months ended June 29, 2013 | ||||||||||||||||
over the prior year period | over the prior year period | ||||||||||||||||
Percent change in net sales | Water & Fluid Solutions | Valves & Controls | Technical Solutions | Total | Water & Fluid Solutions | Valves & Controls | Technical Solutions | Total | |||||||||
Volume | 8.3 | % | — | % | (5.1 | )% | 4.4 | % | 8.0 | % | — | % | (7.7 | )% | 3.1 | % | |
Acquisition | 30.3 | 100.0 | 53.0 | 102.6 | 27.5 | 100.0 | 56.3 | 103.2 | |||||||||
Price | 1.9 | — | 0.9 | 1.6 | 1.8 | — | 1.6 | 1.7 | |||||||||
Currency | 0.1 | — | (0.2 | ) | — | (0.1 | ) | — | (0.7 | ) | (0.3 | ) | |||||
Total | 40.6 | % | 100.0 | % | 48.6 | % | 108.6 | % | 37.2 | % | 100.0 | % | 49.5 | % | 107.7 | % | |
• | sales volume of the Flow Control businesses subsequent to the Merger of $964.4 million and $1,852.5 million for the second quarter and first half of 2013, respectively; |
• | organic sales growth in Water & Fluid Solutions related to higher sales of certain pool products primarily serving the North American residential housing market and increased demand for agriculture products and global food & beverage solutions; |
• | continued growth in fast growth regions led by strength in the Middle East and Latin America; and |
• | selective increases in selling prices to mitigate inflationary cost increases. |
• | lower sales volume related to industrial and infrastructure related products. |
• | sales volume of the Flow Control businesses subsequent to the Merger of $204.4 million and $346.6 million, respectively, for the second quarter and first half of 2013; |
• | organic sales growth in Water & Fluid Solutions related to higher sales of certain pool products primarily serving the North American residential housing market and increased demand for agriculture products and global food & beverage solutions; |
• | continued growth in fast growth regions led by strength in the Middle East and Latin America; and |
• | selective increases in selling prices to mitigate inflationary cost increases. |
• | lower sales volume related to industrial related products. |
• | sales volume of the Flow Control businesses subsequent to the Merger of $619.9 million and $1,205.7 million, respectively, for the second quarter and first half of 2013. |
• | sales volume of the Flow Control businesses subsequent to the Merger of $141.7 million and $303.9 million respectively, for the second quarter and first half of 2013; and |
• | selective increases in selling prices to mitigate inflationary cost increases. |
• | lower sales volume related to infrastructure related products. |
Three months ended | Six months ended | ||||||||||||||||||||
In millions | June 29, 2013 | % of sales | June 30, 2012 | % of sales | June 29, 2013 | % of sales | June 30, 2012 | % of sales | |||||||||||||
Gross profit | $ | 667.4 | 34.0 | % | $ | 312.1 | 33.1 | % | $ | 1,191.2 | 31.9 | % | $ | 592.8 | 32.9 | % | |||||
Percentage point change | 0.9 pts | (1.0) pts | |||||||||||||||||||
• | higher margin percentage contribution associated with the Flow Control businesses in Valves & Controls and Technical Solutions; |
• | selective increases in selling prices across all business segments to mitigate inflationary cost increases; and |
• | savings generated from our Pentair Integrated Management System (“PIMS”) initiatives including lean and supply management practices. |
• | higher cost of goods sold of $10.1 million for the second quarter of 2013 from inventory fair market value step-up and customer backlog recorded as part of the Merger purchase accounting. |
• | higher cost of goods sold of $86.9 million for the first half of 2013 from inventory fair market value step-up and customer backlog recorded as part of the Merger purchase accounting; and |
• | inflationary increases related to raw materials and labor costs. |
Three months ended | Six months ended | ||||||||||||||||||||
In millions | June 29, 2013 | % of sales | June 30, 2012 | % of sales | June 29, 2013 | % of sales | June 30, 2012 | % of sales | |||||||||||||
SG&A | $ | 409.4 | 20.8 | % | $ | 172.0 | 18.3 | % | $ | 825.4 | 22.1 | % | $ | 345.4 | 19.2 | % | |||||
Percentage point change | 2.5 pts | 2.9 pts | |||||||||||||||||||
• | restructuring costs of $26.7 million and $48.3 million, respectively, for the second quarter and first half of 2013; |
• | intangible asset amortization associated with the Merger; |
• | higher costs related to the Merger, including integration and standardization; and |
• | certain increases for labor and related costs. |
• | sales volume of the Flow Control businesses subsequent to the Merger, which resulted in increased leverage on our fixed operating expenses. |
Three months ended | Six months ended | ||||||||||||||||||||
In millions | June 29, 2013 | % of sales | June 30, 2012 | % of sales | June 29, 2013 | % of sales | June 30, 2012 | % of sales | |||||||||||||
R&D | $ | 32.1 | 1.6 | % | $ | 20.8 | 2.2 | % | $ | 65.6 | 1.8 | % | $ | 41.6 | 2.3 | % | |||||
Percentage point change | (0.6) pts | (0.5) pts | |||||||||||||||||||
• | sales volume of the Flow Control businesses subsequent to the Merger, which resulted in increased leverage on the R&D spend. |
Three months ended | Six months ended | ||||||||||||||||||||
In millions | June 29, 2013 | % of sales | June 30, 2012 | % of sales | June 29, 2013 | % of sales | June 30, 2012 | % of sales | |||||||||||||
Operating income | $ | 136.1 | 14.3 | % | $ | 92.0 | 13.6 | % | $ | 210.9 | 12.2 | % | $ | 155.7 | 12.3 | % | |||||
Percentage point change | 0.7 pts | (0.1) pts | |||||||||||||||||||
• | higher sales volumes in Water & Fluid Solutions, which resulted in increased leverage on operating expenses; |
• | selective increases in selling prices to mitigate inflationary cost increases; and |
• | savings generated from our PIMS initiatives including lean and supply management practices. |
• | lower margin from higher costs related to the Merger, including integration, standardization, and restructuring costs; |
• | intangible asset amortization associated with the Merger; |
• | continued investments in future growth with emphasis on international markets, including personnel and business infrastructure investments; and |
• | higher cost of goods sold as a result of inventory fair market value step-up and customer backlog recorded as part of the Merger purchase accounting. |
• | lower margin from higher costs related to the Merger, including integration, standardization, and restructuring costs; and |
• | intangible asset amortization associated with the Merger. |
Three months ended | Six months ended | ||||||||||||||||||||
In millions | June 29, 2013 | % of sales | June 30, 2012 | % of sales | June 29, 2013 | % of sales | June 30, 2012 | % of sales | |||||||||||||
Operating income | $ | 56.9 | 9.2 | % | $ | — | — | % | $ | 38.3 | 3.2 | % | $ | — | — | % | |||||
Percentage point change | 9.2 pts | 3.2 pts | |||||||||||||||||||
• | Valves & Controls operations subsequent to the Merger. Valves & Controls is a new reporting segment effective with the Merger; |
• | higher cost of goods sold of $10.0 million and $80.6 million, respectively, for the second quarter and first half of 2013, as a result of inventory fair market value step-up and customer backlog recorded as part of the Merger purchase accounting; |
• | intangible asset amortization associated with the Merger; and |
• | higher costs related to the Merger including integration, standardization, and restructuring costs. |
Three months ended | Six months ended | ||||||||||||||||||||
In millions | June 29, 2013 | % of sales | June 30, 2012 | % of sales | June 29, 2013 | % of sales | June 30, 2012 | % of sales | |||||||||||||
Operating income | $ | 65.1 | 16.4 | % | $ | 50.6 | 18.9 | % | $ | 118.4 | 14.7 | % | $ | 101.1 | 18.7 | % | |||||
Percentage point change | (2.5) pts | (4.0) pts | |||||||||||||||||||
• | lower margin from higher costs related to the Merger, including integration, standardization and restructuring costs; |
• | intangible asset amortization associated with the Merger; |
• | higher cost of goods sold in the first quarter of 2013 as a result of customer backlog recorded as part of the Merger purchase accounting; |
• | continued investments in future growth with emphasis on international markets, including personnel and business infrastructure investments; and |
• | inflationary increases related to labor costs and certain raw materials. |
• | selective increases in selling prices to mitigate inflationary cost increases; and |
• | savings generated from our PIMS initiatives including lean and supply management practices. |
Three months ended | Six months ended | ||||||||||||||||||||||
In millions | June 29, 2013 | June 30, 2012 | $ change | % change | June 29, 2013 | June 30, 2012 | $ change | % change | |||||||||||||||
Net interest expense | $ | 18.4 | $ | 16.1 | $ | 2.3 | 14.3 | % | $ | 35.4 | $ | 30.9 | $ | 4.5 | 14.6 | % | |||||||
• | the impact of higher debt levels following the Merger; and |
• | interest expense of $2.1 million in the second quarter of 2013 for the working capital and net indebtedness adjustment related to the Merger. |
• | reduced overall interest rates in effect on our outstanding debt; and |
• | the impact of higher cash balances following the Merger. |
Three months ended | Six months ended | ||||||||||||
In millions | June 29, 2013 | June 30, 2012 | June 29, 2013 | June 30, 2012 | |||||||||
Income before income taxes and noncontrolling interest | $ | 208.4 | $ | 103.8 | $ | 282.6 | $ | 176.6 | |||||
Provision for income taxes | 53.0 | 29.4 | 73.9 | 39.1 | |||||||||
Effective tax rate | 25.4 | % | 28.3 | % | 26.2 | % | 22.1 | % | |||||
• | the mix of global earnings, including the impact of the Merger. |
• | the timing of losses in jurisdictions where we recognize no tax benefits. |
• | the favorable resolution of U.S. federal and state tax audits in 2012 that did not occur in 2013; and |
• | the timing of losses in jurisdictions where we recognize no tax benefits. |
• | the mix of global earnings, including the impact of the Merger. |
Six months ended | ||||||
In millions | June 29, 2013 | June 30, 2012 | ||||
Net cash provided by (used for) operating activities | $ | 386.1 | $ | 166.8 | ||
Capital expenditures | (88.0 | ) | (31.3 | ) | ||
Proceeds from sale of property and equipment | 3.6 | 4.9 | ||||
Free cash flow | $ | 301.7 | $ | 140.4 | ||
(a) | (b) | (c) | (d) | |||||
Period | Total number of shares purchased | Average price paid per share | Total number of shares purchased as part of publicly announced plans or programs | Dollar value of shares that may yet be purchased under the plans or programs | ||||
March 31 — April 27, 2013 | 1,142,533 | $ | 52.52 | 1,141,800 | $ | 665,603,803 | ||
April 28 — May 25, 2013 | 2,614,993 | $ | 56.12 | 2,611,023 | $ | 519,032,920 | ||
May 26 — June 29, 2013 | 2,471,895 | $ | 58.17 | 2,468,800 | $ | 375,546,139 | ||
Total | 6,229,421 | 6,221,623 | ||||||
(a) | The purchases in this column include 733 shares for the period March 31 — April 27, 2013, 3,970 shares for the period April 28 — May 25, 2013, and 3,095 shares for the period May 26 — June 29, 2013 deemed surrendered to us by participants in our 2012 Stock and Incentive Plan (the “2012 Plan”) and earlier stock incentive plans that are now outstanding under the 2012 Plan (collectively “the Plans”) to satisfy the exercise price or withholding of tax obligations related to the exercise of stock options and vesting of restricted shares. |
(b) | The average price paid in this column includes shares deemed surrendered to us by participants in the Plans to satisfy the exercise price for the exercise price of stock options and withholding tax obligations due upon stock option exercises and vesting of restricted shares. |
(c) | The number of shares in this column represents the number of shares repurchased as part of our publicly announced plans to repurchase shares of our common stock described below. |
(d) | 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 million following the closing of the Merger. As of June 29, 2013, there were no shares available to repurchase under this authorization. On October 1, 2012, our board of directors authorized the repurchase of our common shares with a maximum aggregate value of $800 million. This authorization expires on December 31, 2015 and is in addition to the $400 million share repurchase authorization. |
PENTAIR LTD. | ||
Registrant | ||
By | /s/ John L. Stauch | |
John L. Stauch | ||
Executive Vice President and Chief Financial Officer | ||
By | /s/ Mark C. Borin | |
Mark C. Borin | ||
Corporate Controller and Chief Accounting Officer | ||
2.1 | Merger Agreement, dated as of March 27, 2012, among Tyco International Ltd., Pentair Ltd., Panthro Acquisition Co., Panthro Merger Sub, Inc. and Pentair, Inc. (Incorporated by reference to Exhibit 2.1 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on March 30, 2012 (File No. 000-04689)). | |
2.2 | Amendment No. 1, dated as of July 25, 2012, to the Merger Agreement, dated as of March 27, 2012, among Tyco International Ltd., Pentair Ltd., Panthro Acquisition Co., Panthro Merger Sub, Inc. and Pentair, Inc. (Incorporated by reference to Exhibit 2.1 in the Current Report on Form 8-K of Pentair, Inc. filed with the Commission on July 31, 2012 (File No. 000-04689)). | |
2.3 | Amended and Restated Separation and Distribution Agreement, dated September 27, 2012 among Tyco International Ltd., Pentair Ltd. and The ADT Corporation (Incorporated by reference to Exhibit 2.3 in the Current Report on Form 8-K of Pentair Ltd. filed with the Commission on September 28, 2012 (File No. 001-11625)). | |
10.1 | Form of Key Executive Employment and Severance Agreement for Todd R. Gleason (Incorporated by reference to Exhibit 10.12 in the Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 2008 (File No. 000-04689)). | |
31.1 | Certification of Chief Executive Officer. | |
31.2 | Certification of Chief Financial Officer. | |
32.1 | Certification of Chief Executive Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Chief Financial Officer, Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following materials from Pentair Ltd.’s Quarterly Report on Form 10-Q for the quarter ended June 29, 2013 are filed herewith, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 29, 2013 and June 30, 2012, (ii) the Condensed Consolidated Balance Sheets as of June 29, 2013 and December 31, 2012, (iii) the Condensed Consolidated Statements of Cash Flows for the six months ended June 29, 2013 and June 30, 2012, (iv) the Condensed Consolidated Statements of Changes in Equity for the six months ended June 29, 2013 and June 30, 2012, and (v) Notes to Condensed Consolidated Financial Statements. | |
1. | I have reviewed this quarterly report on Form 10-Q of Pentair Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | July 23, 2013 | /s/ Randall J. Hogan |
Randall J. Hogan | ||
Chairman and Chief Executive Officer | ||
1. | I have reviewed this quarterly report on Form 10-Q of Pentair Ltd.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
5. | The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | July 23, 2013 | /s/ John L. Stauch |
John L. Stauch | ||
Executive Vice President and Chief Financial Officer | ||
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: | July 23, 2013 | /s/ Randall J. Hogan |
Randall J. Hogan | ||
Chairman and Chief Executive Officer | ||
(1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company. |
Date: | July 23, 2013 | /s/ John L. Stauch |
John L. Stauch | ||
Executive Vice President and Chief Financial Officer | ||
|
Income Taxes
|
6 Months Ended |
|---|---|
|
Jun. 29, 2013
|
|
| Income Taxes | 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 six months ended June 29, 2013 was 26.2% compared to 22.1% for the six months ended June 30, 2012. Our effective tax rate was higher due to the favorable resolution of U.S. federal and state tax audits during the six months ended June 30, 2012, which was not recurring during the six months ended June 29, 2013, and the timing of losses in jurisdictions where we recognize no tax benefits. The increases were partially offset by the mix of global earnings, including the impact of the Merger. 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 $55.0 million and $54.5 million at June 29, 2013 and December 31, 2012, 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. Tax sharing agreement and other income tax matters In connection with the Distribution, we entered into a tax sharing agreement (the “2012 Tax Sharing Agreement”) with Tyco and The ADT Corporation (“ADT”), which governs the rights and obligations of Tyco, ADT and us for certain pre-Distribution tax liabilities, including Tyco’s obligations under a separate tax sharing agreement (the “2007 Tax Sharing Agreement”) that Tyco, Covidien Ltd. (“Covidien”) and TE Connectivity Ltd. (“TE Connectivity”) entered into in connection with the 2007 distributions of Covidien and TE Connectivity by Tyco (the “2007 Separation”). The 2007 Tax Sharing Agreement governs the rights and obligations of Tyco, Covidien and TE Connectivity with respect to certain pre-2007 Separation tax liabilities and certain tax liabilities arising in connection with the 2007 Separation. More specifically, Tyco, Covidien and TE Connectivity share 27%, 42% and 31%, respectively, of income tax liabilities that arise from adjustments made by tax authorities to Tyco's, Covidien's and TE Connectivity's U.S. and certain non-U.S. 2007 and prior income tax returns. The 2012 Tax Sharing Agreement provides that we, Tyco and ADT will share (i) certain pre-Distribution income tax liabilities that arise from adjustments made by tax authorities to our, Tyco’s and ADT’s U.S. income tax returns, and (ii) payments required to be made by Tyco in respect to the 2007 Tax Sharing Agreement (collectively, “Shared Tax Liabilities”). Tyco is responsible for the first $500 million of Shared Tax Liabilities. We and ADT will share 42% and 58%, respectively, of the next $225 million of Shared Tax Liabilities. We, ADT and Tyco will share 20%, 27.5% and 52.5%, respectively, of Shared Tax Liabilities above $725 million. Under these tax sharing agreements, the amount ultimately assessed would have to be in excess of $1.85 billion before we would be required to pay any of the amounts assessed. In the event the Distribution, the spin-off of ADT, or certain internal transactions undertaken in connection therewith were determined to be taxable as a result of actions taken after the Distribution by us, ADT or Tyco, the party responsible for such failure would be responsible for all taxes imposed on us, ADT or Tyco as a result thereof. Taxes resulting from the determination that the Distribution, the spin-off of ADT, or any internal transaction is taxable are referred to herein as “Distribution Taxes.” If such failure is not the result of actions taken after the Distribution by us, ADT or Tyco, then we, ADT and Tyco would be responsible for any Distribution Taxes imposed on us, ADT or Tyco as a result of such determination in the same manner and in the same proportions as the Shared Tax Liabilities. ADT will have sole responsibility for any income tax liability arising as a result of Tyco’s acquisition of Brink’s Home Security Holdings, Inc. (“BHS”) in May 2010, including any liability of BHS under the tax sharing agreement between BHS and The Brink’s Company dated October 31, 2008 (collectively, the “BHS Tax Liabilities”). Costs and expenses associated with the management of Shared Tax Liabilities, Distribution Taxes and BHS Tax Liabilities will generally be shared 20% by us, 27.5% by ADT and 52.5% by Tyco. We are responsible for all of our own taxes that are not shared pursuant to the 2012 Tax Sharing Agreement’s sharing formulae. In addition, Tyco and ADT are responsible for their tax liabilities that are not subject to the 2012 Tax Sharing Agreement’s sharing formulae. The 2012 Tax Sharing Agreement also provides that, if any party were to default in its obligation to another party to pay its share of the distribution taxes that arise as a result of no party’s fault, each non-defaulting party would be required to pay, equally with any other non-defaulting party, the amounts in default. In addition, if another party to the 2012 Tax Sharing Agreement that is responsible for all or a portion of an income tax liability were to default in its payment of such liability to a taxing authority, we could be legally liable under applicable tax law for such liabilities and required to make additional tax payments. Accordingly, under certain circumstances, we may be obligated to pay amounts in excess of our agreed-upon share of our, Tyco’s and ADT’s tax liabilities. On July 1, 2013, Tyco announced that the Internal Revenue Service (“IRS”) issued Notices of Deficiency (“Tyco IRS Notices”) to Tyco asserting that several of Tyco's former U.S. subsidiaries collectively owe additional taxes in the aggregate amount of $883.3 million plus penalties of $154 million based on audits of the 1997 through 2000 tax years of Tyco and its subsidiaries as they existed at that time. These amounts exclude interest and do not reflect the impact on subsequent periods if the IRS challenge to Tyco's tax filings as described below is ultimately successful. If the IRS should successfully assert its position, our share of the collective liability, if any, would be determined pursuant to the 2007 Tax Sharing Agreement and the 2012 Tax Sharing Agreement. As we have previously disclosed, in connection with U.S. federal tax audits of Tyco and its subsidiaries, the IRS has previously raised issues and proposed tax adjustments for periods beginning with the 1997 tax year. The adjustments now asserted by the IRS under the Tyco IRS Notices primarily relate to the treatment of certain intercompany debt transactions. The IRS has asserted in the Tyco IRS Notices that substantially all of the intercompany debt originated during the 1997 - 2000 period should not be treated as debt for U.S. federal income tax purposes, and has therefore disallowed interest and related deductions recognized associated with that intercompany debt on the U.S. income tax returns for those periods totaling approximately $2.86 billion. If the IRS is successful in asserting its claim, it would have an adverse impact on interest deductions related to the same Tyco intercompany debt in subsequent time periods, totaling approximately $6.6 billion, which Tyco has advised us that it expects the IRS to disallow. Under the 2012 Tax Sharing Agreement, Tyco has the right to administer, control, and settle all U.S. income tax audits for periods prior to and including the Distribution. Tyco has advised us that it intends to petition the U.S. Tax Court to contest the IRS assessment. Tyco has further advised us that it strongly disagrees with the IRS position and believes (i) it has meritorious defenses for the respective tax filings, (ii) the IRS positions with regard to these matters are inconsistent with applicable tax laws and Treasury regulations, and (iii) the previously reported taxes for the years in question are appropriate. No payments with respect to these matters would be required until the dispute is resolved in the U.S. Tax Court, which Tyco has advised us, based on the experience of other companies, could take several years. However, the ultimate resolution of these matters is uncertain, and to the extent we are responsible for any Shared Tax Liability or Distribution Tax, including if the IRS were to prevail with respect to the matter set forth above, there could be a material adverse impact on our financial condition, results of operations, or cash flows in future reporting periods. |
|
Debt - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
6 Months Ended | 6 Months Ended | 6 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
Dec. 31, 2012
|
Jun. 29, 2013
Commercial Paper
|
Dec. 31, 2012
Commercial Paper
|
Jun. 29, 2013
Subsidiary Issuer
|
Jun. 29, 2013
Subsidiary Issuer
Senior Notes 1.350% Due in 2015
|
Jun. 29, 2013
Subsidiary Issuer
Senior Notes 1.875% Due 2017
|
Jun. 29, 2013
Subsidiary Issuer
Senior Notes 2.650% Due 2019
|
Jun. 29, 2013
Subsidiary Issuer
Senior Notes 5.000% Due 2021
|
Jun. 29, 2013
Subsidiary Issuer
Senior Notes 3.150% Due 2022
|
Jun. 29, 2013
Credit Facility
|
Sep. 29, 2012
Credit Facility
|
Jun. 29, 2013
Other Credit Facilities
|
Jun. 29, 2013
Maximum
|
Jun. 29, 2013
Minimum
|
|
| Debt Instrument [Line Items] | |||||||||||||||
| Debt, interest rate | 1.35% | 1.875% | 2.65% | 5.00% | 3.15% | ||||||||||
| Debt, maturity year | 2017 | 2015 | 2017 | 2019 | 2021 | 2022 | |||||||||
| Ownership percentage | 100.00% | ||||||||||||||
| Credit facility maximum borrowing capacity | $ 1,450.0 | $ 90.4 | |||||||||||||
| Debt, Long-term and Short-term, Combined Amount | 2,740.3 | 2,457.4 | 690.6 | 424.7 | |||||||||||
| Remaining availability under Credit Facility | 736.6 | ||||||||||||||
| Costs and expenses incurred in connection with acquisition excluded from computation of Net Income figure used in our debt covenant calculation | 40.0 | ||||||||||||||
| Debt agreement financial covenant, leverage ratio | 3.00 | 3.50 | |||||||||||||
| Compliance with debt agreement financial covenants | we were in compliance with all financial covenants in our debt agreements | ||||||||||||||
| Line of credit facility, amount outstanding | 0 | ||||||||||||||
| Future minimum lease payments | 23.9 | ||||||||||||||
| Imputed interest | 2.0 | ||||||||||||||
| Capital lease obligation cost | 39.8 | 35.5 | |||||||||||||
| Accumulated amortization related to assets under capital lease | $ 6.5 | $ 6.0 | |||||||||||||
|
Condensed Consolidated Balance Sheets (Parenthetical)
In Millions, except Per Share data, unless otherwise specified |
Jun. 29, 2013
USD ($)
|
Jun. 29, 2013
CHF
|
Dec. 31, 2012
USD ($)
|
Dec. 31, 2012
CHF
|
|---|---|---|---|---|
| Accounts and notes receivable, allowances | $ 46.9 | $ 37.5 | ||
| Common shares, par value | 0.50 | 0.50 | ||
| Common shares, authorized | 213.0 | 213.0 | 213.0 | 213.0 |
| Common shares, issued | 213.0 | 213.0 | 213.0 | 213.0 |
| Treasury stock, shares | 13.8 | 13.8 | 6.9 | 6.9 |
|
Share Plans
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
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| Share Plans | Share Plans In January 2013, 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 1.2 million, of which 0.9 million were stock options and 0.3 million were restricted stock units. The weighted-average grant date fair value of the stock options and restricted stock units issued was $13.89 and $50.60, respectively. Total share-based compensation expense for the three and six months ended June 29, 2013 was as follows:
We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:
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. |
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|
Acquisitions and Divestitures (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
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| Purchase Price Detail | Based on the price of Pentair, Inc. common stock and our common shares issued on the date of the Merger, the purchase price was composed of the following:
|
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| Estimated Fair Values of Assets Acquired and Liabilities Assumed | The following table summarizes our preliminary fair values of the assets acquired and liabilities assumed in the Merger as reported at December 31, 2012 and as adjusted at June 29, 2013:
|
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| Pro Forma Condensed Consolidated Financial Results of Operations | The following unaudited pro forma condensed consolidated financial results of operations are presented as if the Merger had been completed on January 1, 2011:
|
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|
Derivatives and Financial Instruments - Recorded Amounts and Estimated Fair Values of Long-term Debt and Derivative Financial Instruments (Detail) (USD $)
In Millions, unless otherwise specified |
Jun. 29, 2013
|
Dec. 31, 2012
|
|---|---|---|
| Derivative [Line Items] | ||
| Total debt | $ 2,740.3 | $ 2,457.4 |
|
Recorded Amount
|
||
| Derivative [Line Items] | ||
| Variable rate debt | 713.4 | 427.7 |
| Fixed rate debt | 2,026.9 | 2,029.7 |
| Total debt | 2,740.3 | 2,457.4 |
|
Fair Value
|
||
| Derivative [Line Items] | ||
| Variable rate debt | 713.4 | 427.7 |
| Fixed rate debt | 1,995.3 | 2,081.3 |
| Total debt | $ 2,708.7 | $ 2,509.0 |
|
Benefit Plans
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
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| Benefit Plans | Benefit Plans Components of net periodic benefit cost for our pension plans for the three and six months ended June 29, 2013 and June 30, 2012 were as follows:
Components of net periodic benefit cost for our other post-retirement plans for the three and six months ended June 29, 2013 and June 30, 2012 were not material. |
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|
Goodwill and Other Identifiable Intangible Assets - Changes in Carrying Amount of Goodwill by Segment (Detail) (USD $)
In Millions, unless otherwise specified |
6 Months Ended |
|---|---|
|
Jun. 29, 2013
|
|
| Goodwill [Roll Forward] | |
| Beginning Balance | $ 4,983.5 |
| Acquisitions/ divestitures | (5.3) |
| Foreign currency translation/other | (13.6) |
| Ending Balance | 4,964.6 |
|
Water & Fluid Solutions
|
|
| Goodwill [Roll Forward] | |
| Beginning Balance | 2,425.4 |
| Acquisitions/ divestitures | 0 |
| Foreign currency translation/other | (12.2) |
| Ending Balance | 2,413.2 |
|
Valves & Controls
|
|
| Goodwill [Roll Forward] | |
| Beginning Balance | 1,389.9 |
| Acquisitions/ divestitures | 0 |
| Foreign currency translation/other | 0 |
| Ending Balance | 1,389.9 |
|
Technical Solutions
|
|
| Goodwill [Roll Forward] | |
| Beginning Balance | 1,168.2 |
| Acquisitions/ divestitures | (5.3) |
| Foreign currency translation/other | (1.4) |
| Ending Balance | $ 1,161.5 |
|
Derivatives and Financial Instruments - Assets and Liabilities Measured at Fair Value (Detail) (USD $)
In Millions, unless otherwise specified |
Jun. 29, 2013
|
Dec. 31, 2012
|
||||||
|---|---|---|---|---|---|---|---|---|
|
Fair Value, Measurements, Recurring
|
||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Foreign currency contract assets | $ 2.2 | $ 2.9 | ||||||
| Foreign currency contract liabilities | (0.5) | (0.5) | ||||||
| Deferred compensation plan | 28.4 | [1] | 22.4 | [1] | ||||
| Total recurring fair value measurements | 30.1 | 24.8 | ||||||
|
Fair Value, Measurements, Nonrecurring
|
||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Trade name intangibles | 63.7 | [2] | ||||||
| Total nonrecurring fair value measurement | 63.7 | |||||||
|
Fair Value, Inputs, Level 1 | Fair Value, Measurements, Recurring
|
||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Deferred compensation plan | 28.4 | [1] | 22.4 | [1] | ||||
| Total recurring fair value measurements | 28.4 | 22.4 | ||||||
|
Fair Value, Inputs, Level 2 | Fair Value, Measurements, Recurring
|
||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Foreign currency contract assets | 2.2 | 2.9 | ||||||
| Foreign currency contract liabilities | (0.5) | (0.5) | ||||||
| Total recurring fair value measurements | 1.7 | 2.4 | ||||||
|
Fair Value, Inputs, Level 3 | Fair Value, Measurements, Nonrecurring
|
||||||||
| Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||||||||
| Trade name intangibles | 63.7 | [2] | ||||||
| Total nonrecurring fair value measurement | $ 63.7 | |||||||
|
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|
Earnings Per Share (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
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| Basic and Diluted Earnings Per Share | Basic and diluted earnings per share were calculated as follows:
|
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Restructuring (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
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Jun. 29, 2013
|
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| Restructuring Related Costs | 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:
|
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| Restructuring Accrual Activity Recorded on Consolidated Balance Sheets | 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 six months ended June 29, 2013:
|
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|
Earnings Per Share - Basic and Diluted Earnings Per Share (Detail) (USD $)
In Millions, except Per Share data, unless otherwise specified |
3 Months Ended | 6 Months Ended | ||
|---|---|---|---|---|
|
Jun. 29, 2013
|
Jun. 30, 2012
|
Jun. 29, 2013
|
Jun. 30, 2012
|
|
| Computation Of Earnings Per Share Line Items | ||||
| Net income attributable to Pentair Ltd. | $ 154.1 | $ 72.7 | $ 205.8 | $ 134.5 |
| Weighted average common shares outstanding | ||||
| Basic (shares) | 202.1 | 99.0 | 203.5 | 98.9 |
| Dilutive impact of stock options and restricted stock units (shares) | 3.4 | 2.2 | 3.4 | 1.9 |
| Diluted (shares) | 205.5 | 101.2 | 206.9 | 100.8 |
| Earnings per common share attributable to Pentair Ltd. | ||||
| Basic (USD per share) | $ 0.76 | $ 0.73 | $ 1.01 | $ 1.36 |
| Diluted (USD per share) | $ 0.75 | $ 0.72 | $ 0.99 | $ 1.33 |
| Anti-dilutive stock options excluded from the calculation of diluted earnings per share | 0.9 | 0.4 | 1.0 | 2.0 |
|
Commitments and Contingencies (Tables)
|
6 Months Ended | ||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
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| Changes in Carrying Amount of Service and Product Warranties | The changes in the carrying amount of service and product warranties for the six months ended June 29, 2013 were as follows:
|
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|
Share Plans - Additional Information (Detail) (2012 Stock and Incentive Plan, USD $)
In Millions, except Per Share data, unless otherwise specified |
1 Months Ended |
|---|---|
|
Jan. 31, 2013
|
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of stock options and restricted stock units issued under stock and incentive plan | 1.2 |
| Number of stock option issued under stock and incentive plan | 0.9 |
| Weighted-average fair value of options granted | $ 13.89 |
|
Restricted Stock Units (RSUs)
|
|
| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | |
| Number of restricted stock units issued under stock and incentive plan | 0.3 |
| Weighted-average fair value of restricted stock units granted | $ 50.60 |
|
Goodwill and Other Identifiable Intangible Assets - Detail of Identifiable Intangible Assets (Detail) (USD $)
In Millions, unless otherwise specified |
Jun. 29, 2013
|
Dec. 31, 2012
|
|---|---|---|
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | $ 2,143.1 | $ 2,156.3 |
| Accumulated amortization | (306.5) | (229.4) |
| Net | 1,836.6 | 1,926.9 |
| Net, indefinite-life intangibles | 553.4 | 555.9 |
|
Finite-life intangibles
|
||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 1,589.7 | 1,600.4 |
| Accumulated amortization | (306.5) | (229.4) |
| Net | 1,283.2 | 1,371.0 |
|
Finite-life intangibles | Customer relationships
|
||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 1,281.5 | 1,291.5 |
| Accumulated amortization | (195.6) | (152.7) |
| Net | 1,085.9 | 1,138.8 |
|
Finite-life intangibles | Trade names intangibles
|
||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 2.1 | 1.5 |
| Accumulated amortization | (0.8) | (0.7) |
| Net | 1.3 | 0.8 |
|
Finite-life intangibles | Proprietary technology
|
||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 262.4 | 263.7 |
| Accumulated amortization | (68.4) | (57.8) |
| Net | 194.0 | 205.9 |
|
Finite-life intangibles | Backlog
|
||
| Acquired Intangible Assets By Major Class [Line Items] | ||
| Cost | 43.7 | 43.7 |
| Accumulated amortization | (41.7) | (18.2) |
| Net | $ 2.0 | $ 25.5 |
|
Derivatives and Financial Instruments (Tables)
|
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Jun. 29, 2013
|
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| Recorded Amounts and Estimated Fair Values of Long-term Debt and Derivative Financial Instruments | The recorded amounts and estimated fair values of total debt, excluding the effects of derivative financial instruments, were as follows:
|
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| Financial Assets and Liabilities Measured at Fair Value on Recurring Basis | Financial assets and liabilities measured at fair value on a recurring and nonrecurring basis were as follows:
|
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|
Financial Statements of Parent Company Guarantor - Additional Information (Detail) (Subsidiary Issuer)
|
6 Months Ended |
|---|---|
|
Jun. 29, 2013
|
|
|
Subsidiary Issuer
|
|
| Condensed Financial Statements, Captions [Line Items] | |
| Ownership percentage | 100.00% |
|
Commitments and Contingencies - Changes in Carrying Amount of Service and Product Warranties (Detail) (USD $)
In Millions, unless otherwise specified |
6 Months Ended |
|---|---|
|
Jun. 29, 2013
|
|
| Movement in Standard Product Warranty Accrual [Roll Forward] | |
| Beginning balance | $ 54.0 |
| Service and product warranty provision | 28.1 |
| Payments | (25.7) |
| Foreign Currency Translation | (0.8) |
| Ending balance | $ 55.6 |
|
Restructuring - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
|
Jun. 29, 2013
|
Jun. 30, 2012
|
Jun. 29, 2013
Person
|
Jun. 30, 2012
|
Dec. 31, 2012
Person
|
|
| Restructuring Cost and Reserve [Line Items] | |||||
| Number of employees | 700 | 1,000 | |||
| Total restructuring costs | $ 26.7 | $ 10.4 | $ 48.3 | $ 10.4 | |
|
Water & Fluid Solutions
|
|||||
| Restructuring Cost and Reserve [Line Items] | |||||
| Number of employees | 200 | 500 | |||
| Total restructuring costs | 7.2 | 13.8 | |||
|
Valves & Controls
|
|||||
| Restructuring Cost and Reserve [Line Items] | |||||
| Number of employees | 200 | 300 | |||
| Total restructuring costs | 14.1 | 18.8 | |||
|
Technical Solutions
|
|||||
| Restructuring Cost and Reserve [Line Items] | |||||
| Number of employees | 300 | 200 | |||
| Total restructuring costs | $ 5.4 | $ 15.7 | |||
|
Share Plans (Tables)
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2013
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| Share-based Compensation Expense | Total share-based compensation expense for the three and six months ended June 29, 2013 was as follows:
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| Assumptions Used in Calculating Estimated Fair Value of Stock Option Award | We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:
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Basis of Presentation and Responsibility for Interim Financial Statements
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6 Months Ended |
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Jun. 29, 2013
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| Basis of Presentation and Responsibility for Interim Financial Statements | Basis of Presentation and Responsibility for Interim Financial Statements 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. 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, 2012. 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. New Accounting Standards In February 2013, the Financial Accounting Standards Board issued authoritative guidance surrounding the presentation of items reclassified from Accumulated other comprehensive income (loss) (“AOCI”) to net income. This guidance requires entities to disclose, either in the notes to the consolidated financial statements or parenthetically on the face of the statement that reports comprehensive income, items reclassified out of AOCI and into net income in their entirety and the effect of the reclassification on each affected net income line item. In addition, for AOCI reclassification items that are not reclassified in their entirety into net income, a cross reference to other required disclosures is required. This guidance was effective for fiscal years and interim periods beginning after December 15, 2012. The adoption of this guidance on January 1, 2013 did not impact our financial condition or results of operations. The reclassifications out of AOCI and into net income were not material for the three and six months ended June 29, 2013. |
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Restructuring
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 29, 2013
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| Restructuring | Restructuring During the six months ended June 29, 2013 and the year ended December 31, 2012, we initiated certain business restructuring initiatives aimed at reducing our fixed cost structure and realigning our business. The 2013 initiatives included the reduction in hourly and salaried headcount of approximately 700 employees, consisting of approximately 200 in Water & Fluid Solutions, 200 in Valves & Controls and 300 in Technical Solutions. The 2012 initiatives included the reduction in hourly and salaried headcount of approximately 1,000 employees, consisting of approximately 500 in Water & Fluid Solutions, 300 in Valves & Controls and 200 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:
Total restructuring costs related to Water & Fluid Solutions, Valves & Controls and Technical Solutions were $7.2 million, $14.1 million and $5.4 million, respectively, for the three months ended June 29, 2013, and $13.8 million, $18.8 million and $15.7 million, respectively, for the six months ended June 29, 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 six months ended June 29, 2013:
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Acquisitions and Divestitures
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Jun. 29, 2013
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| Acquisitions and Divestitures | Acquisitions and Divestitures Material acquisitions 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. Our business units comprising the legacy Flow Control business had net sales of $964.4 million and $1,852.5 million and net income of $68.8 million and $90.7 million for the three and six months ended June 29, 2013, respectively. Based on the price of Pentair, Inc. common stock and our common shares issued on the date of the Merger, the purchase price was composed of the following:
During the six months ended June 29, 2013, the Company recorded an increase of $84.4 million to its preliminary purchase price related to cash paid to Tyco in settlement of the working capital and net indebtedness adjustment. The purchase price has been preliminarily allocated based on the estimated fair value of net assets acquired and liabilities assumed at the date of the Merger. The preliminary purchase price allocation is subject to further refinement and may require significant adjustments to arrive at the final purchase price allocation. These adjustments will primarily relate to accounts receivable, inventories, certain contingent liabilities and income tax-related items. The purchase price allocation will be completed in the third quarter of 2013. There can be no assurance that such finalization will not result in material changes from the preliminary purchase price allocation. During the six months ended June 29, 2013, the Company recorded fair value adjustments to its preliminary allocation of purchase price. These adjustments were applied retrospectively back to the date of the Merger. The following table summarizes our preliminary fair values of the assets acquired and liabilities assumed in the Merger as reported at December 31, 2012 and as adjusted at June 29, 2013:
The excess of purchase price over tangible net assets and identified intangible assets acquired was allocated to goodwill in the amount of $2,614.1 million. Goodwill has been preliminarily allocated to our reporting segments as follows: $336.1 million to Water & Fluid Solutions, $1,389.9 million to Valves & Controls and $888.1 million to Technical Solutions. None of the goodwill recognized from the Merger is expected to be deductible for income tax purposes. Goodwill recognized from the Merger reflects the current value of the expected future income resulting from synergies of our combined operations. Identifiable intangible assets acquired as part of the Merger were $1,441.9 million and include $362.3 million of indefinite life trade name intangibles and the following definite-lived intangibles: $920.0 million of customer relationships with a weighted average useful life of 14.2 years, $115.9 million of proprietary technology with a weighted average useful life of 13.7 years and $43.7 million of customer backlog with a weighted average useful life of less than one year. Pro forma results of material acquisitions The following unaudited pro forma condensed consolidated financial results of operations are presented as if the Merger had been completed on January 1, 2011:
The 2012 unaudited pro forma net income excludes the impact of $6.6 million and $18.3 million, respectively, of transaction related costs associated with the Merger for the three and six months ended June 30, 2012. The pro forma consolidated financial information was prepared for comparative purposes only and includes certain adjustments, as noted above. The adjustments are estimates based on currently available information and actual amounts may have differed materially from these estimates. They do not reflect the effect of costs or synergies that would have been expected to result from the integration of Flow Control. The pro forma information does not purport to be indicative of the results of operations that actually would have resulted had the business combination occurred at the beginning of the period presented or of future results of the consolidated entities. Other acquisitions On October 4, 2012, we acquired, as part of Valves & Controls, the remaining 25% equity interest in Pentair Middle East Holding S.a.r.l. (“KEF”), a privately held company, for $100.0 million in cash. Prior to the acquisition, we held a 75% equity interest in KEF, a vertically integrated valve manufacturer in the Middle East. There was no pro forma impact from this acquisition as the results of KEF were consolidated into Flow Control’s financial statements prior to acquiring the remaining 25% interest in KEF. Additionally, during the year ended December 31, 2012, we completed other small acquisitions as part of Water & Fluid Solutions with purchase prices totaling $121.2 million in cash, net of cash acquired. Total goodwill recorded as part of the purchase price allocations was $80.9 million, $67.1 million of which is tax deductible. Divestitures During the first quarter of 2013, we sold a business that was part of Technical Solutions for cash 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 is subject to a working capital adjustment. |
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Share Plans - Assumptions Used in Calculating Estimated Fair Value of Stock Option Award (Detail)
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3 Months Ended | |
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Jun. 29, 2013
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Jun. 30, 2012
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| Share-based Compensation Arrangement by Share-based Payment Award [Line Items] | ||
| Risk-free interest rate | 0.82% | 0.90% |
| Expected dividend yield | 1.78% | 2.29% |
| Expected share price volatility | 36.00% | 36.50% |
| Expected term (years) | 5 years 8 months 12 days | 5 years 8 months 12 days |
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Supplemental Balance Sheet Information (Tables)
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Jun. 29, 2013
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| Supplemental Balance Sheet Information |
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Benefit Plans (Tables)
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Jun. 29, 2013
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| Schedule of Net Benefit Costs |
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Acquisitions and Divestitures - Purchase Price (Details) (Tyco Flow Control Business [Member], USD $)
In Millions, unless otherwise specified |
Sep. 28, 2012
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Tyco Flow Control Business [Member]
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| Business Acquisition [Line Items] | ||||||||
| Value of common shares issued to Tyco shareholders | $ 4,811.4 | [1] | ||||||
| Value of replacement equity-based awards to holders of Tyco equity-based awards | 111.2 | [2] | ||||||
| Cash paid to Tyco shareholders in lieu of fractional common shares | 0.5 | [3] | ||||||
| Cash paid to Tyco in settlement of the working capital and net indebtedness calculation | 84.4 | |||||||
| Total purchase price | $ 5,007.5 | |||||||
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Derivatives and Financial Instruments - Additional Information (Detail) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 6 Months Ended | 1 Months Ended | 6 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|---|---|
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Jun. 29, 2013
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Dec. 31, 2012
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Jun. 30, 2012
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Jun. 30, 2012
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Apr. 30, 2011
Interest Rate Swap
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Jun. 29, 2013
Interest Rate Swap
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Dec. 31, 2012
Interest Rate Swap
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| Derivative [Line Items] | |||||||
| Non-cash impairment charge of related to trade name intangibles | $ 60.7 | ||||||
| Location of the swap on the consolidated balance sheets | Derivative gains and losses included in AOCI | ||||||
| Incremental expense resulting from interest rate swaps | 1.7 | 3.9 | |||||
| Notional amount of interest rate swap contracts | 400.0 | ||||||
| Average swap interest rate | 3.65% | ||||||
| Cost of expiration (termination) | 11.0 | ||||||
| Derivative instrument contractual life | 10 years | ||||||
| Unrealized loss | 8.6 | 9.2 | |||||
| Outstanding foreign currency derivative contract | $ 135.6 | $ 163.7 | |||||