16. Financial Statements of Subsidiary Guarantors

Certain of the domestic subsidiaries (the “Guarantor Subsidiaries”) of Pentair, Inc. (the “Parent Company”), each of which is directly or indirectly wholly-owned by the Parent Company, jointly and severally, and fully and unconditionally, guarantee the Parent Company’s indebtedness under the Notes and the Credit Facility. The following supplemental financial information sets forth the Condensed Consolidated Statements of Income, the Condensed Consolidated Balance Sheets, and the Condensed Consolidated Statements of Cash Flows for the Parent Company, the Guarantor Subsidiaries, the non-Guarantor Subsidiaries, and total consolidated Pentair and subsidiaries.

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the three months ended July 2, 2011


In thousands	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	586,395	$	398,634		$	(74,854	)	$	910,175
Cost of goods sold		—			399,270		297,830			(74,661	)		622,439

Gross profit		—			187,125		100,804			(193	)		287,736
Selling, general and administrative		6,664			83,632		68,329			(193	)		158,432
Research and development		435			10,509		8,938			—			19,882

Operating (loss) income		(7,099	)		92,984		23,537			—			109,422
Earnings from investment in subsidiaries		(53,988	)		—		—			53,988			—
Other (income) expense:
Equity income of unconsolidated subsidiaries		(607	)		—		(65	)		—			(672	)
Net interest (income) expense		(26,636	)		38,107		3,142			—			14,613

Income (loss) from continuing operations before income taxes and noncontrolling interest		74,132			54,877		20,460			(53,988	)		95,481
Provision for income taxes		7,420			18,301		1,623			—			27,344

Income from continuing operations		66,712			36,576		18,837			(53,988	)		68,137

Net income before noncontrolling interest		66,712			36,576		18,837			(53,988	)		68,137
Noncontrolling interest		—			—		1,425			—			1,425

Net income attributable to Pentair, Inc.	$	66,712		$	36,576	$	17,412		$	(53,988	)	$	66,712

Net income from continuing operations attributable to Pentair, Inc.	$	66,712		$	36,576	$	17,412		$	(53,988	)	$	66,712

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the six months ended July 2, 2011


In thousands	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,101,449	$	740,212		$	(141,213	)	$	1,700,448
Cost of goods sold		—			754,831		549,560			(140,738	)		1,163,653

Gross profit		—			346,618		190,652			(475	)		536,795
Selling, general and administrative		13,272			168,751		121,644			(475	)		303,192
Research and development		605			21,355		16,044			—			38,004

Operating (loss) income		(13,877	)		156,512		52,964			—			195,599
Earnings from investment in subsidiaries		(91,295	)		—		—			91,295			—
Other (income) expense:
Equity income of unconsolidated subsidiaries		(783	)		—		(124	)		—			(907	)
Net interest (income) expense		(54,016	)		76,593		1,361			—			23,938

Income (loss) from continuing operations before income taxes and noncontrolling interest		132,217			79,919		51,727			(91,295	)		172,568
Provision for income taxes		14,964			26,782		10,651			—			52,397

Income from continuing operations		117,253			53,137		41,076			(91,295	)		120,171

Net income before noncontrolling interest		117,253			53,137		41,076			(91,295	)		120,171
Noncontrolling interest		—			—		2,918			—			2,918

Net income attributable to Pentair, Inc.	$	117,253		$	53,137	$	38,158		$	(91,295	)	$	117,253

Net income from continuing operations attributable to Pentair, Inc.	$	117,253		$	53,137	$	38,158		$	(91,295	)	$	117,253

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

July 2, 2011


In thousands	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	4,836		$	4,651		$	59,485	$	—		$	68,972
Accounts and notes receivable, net		796			317,365			375,242		(97,996	)		595,407
Inventories		—			203,998			280,797		—			484,795
Deferred tax assets		113,205			40,363			13,247		(105,982	)		60,833
Prepaid expenses and other current assets		8,958			14,973			118,638		(17,937	)		124,632

Total current assets		127,795			581,350			847,409		(221,915	)		1,334,639
Property, plant and equipment, net		20,172			110,551			279,824		—			410,547
Other assets
Investments in/advances to subsidiaries		2,856,562			599,056			686,070		(4,141,688	)		—
Goodwill		—			1,471,582			1,101,848		—			2,573,430
Intangibles, net		—			217,311			437,597		—			654,908
Other		75,538			4,821			23,477		(25,048	)		78,788

Total other assets		2,932,100			2,292,770			2,248,992		(4,166,736	)		3,307,126

Total assets	$	3,080,067		$	2,984,671		$	3,376,225	$	(4,388,651	)	$	5,052,312

Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	21,451	$	—		$	21,451
Current maturities of long-term debt		2,905			—			29,220		(30,836	)		1,289
Accounts payable		5,781			160,537			247,182		(98,097	)		315,403
Employee compensation and benefits		32,294			22,791			53,751		—			108,836
Current pension and post-retirement benefits		8,733			—			—		—			8,733
Accrued product claims and warranties		12,248			22,574			12,437		—			47,259
Income taxes		9,106			5,720			6,672		—			21,498
Accrued rebates and sales incentives		—			32,219			10,348		—			42,567
Other current liabilities		14,874			37,558			110,149		(18,215	)		144,366

Total current liabilities		85,941			281,399			491,210		(147,148	)		711,402
Other liabilities
Long-term debt		1,265,400			2,417,890			1,033,600		(3,332,723	)		1,384,167
Pension and other retirement compensation		136,901			38			80,082		—			217,021
Post-retirement medical and other benefits		17,679			35,323			—		(25,048	)		27,954
Long-term income taxes payable		23,832			—			—		—			23,832
Deferred tax liabilities		10			213,201			128,192		(105,981	)		235,422
Due to/ (from) affiliates		(743,661	)		(261,361	)		1,024,935		(19,913	)		—
Other non-current liabilities		44,611			1,701			39,348		—			85,660

Total liabilities		830,713			2,688,191			2,797,367		(3,630,813	)		2,685,458
Noncontrolling interest		—			—			117,500		—			117,500
Shareholders’ equity attributable to Pentair, Inc.		2,249,354			296,480			461,358		(757,838	)		2,249,354

Total liabilities and shareholders’ equity	$	3,080,067		$	2,984,671		$	3,376,225	$	(4,388,651	)	$	5,052,312

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the six months ended July 2, 2011


In thousands	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	117,253		$	53,137		$	41,076		$	(91,295	)	$	120,171
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Equity (income) losses of unconsolidated subsidiaries		(783	)		—			(124	)		—			(907	)
Depreciation		2,527			13,919			16,239			—			32,685
Amortization		(24	)		7,747			9,457			—			17,180
Earnings from investments in subsidiaries		(91,295	)		—			—			91,295			—
Deferred income taxes		4,807			(334	)		(1,461	)		—			3,012
Stock compensation		10,527			—			—			—			10,527
Excess tax benefits from stock-based compensation		(1,465	)		—			—			—			(1,465	)
Loss on sale of assets		229			—			—			—			229
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		(67,732	)		45,404			(12,957	)		34,174			(1,111	)
Inventories		—			35,209			(32,784	)		—			2,425
Prepaid expenses and other current assets		44,133			(4,716	)		(34,808	)		(7,305	)		(2,696	)
Accounts payable		68,734			(18,837	)		(38,493	)		(34,282	)		(22,878	)
Employee compensation and benefits		(11,566	)		(10,631	)		(478	)		—			(22,675	)
Accrued product claims and warranties		—			894			2,007			—			2,901
Income taxes		14,705			886			(2,811	)		—			12,780
Other current liabilities		(43,090	)		11,449			49,709			7,413			25,481
Pension and post-retirement benefits		(557	)		(1,998	)		1,702			—			(853	)
Other assets and liabilities		(58,657	)		58,032			(21,570	)		—			(22,195	)

Net cash provided by (used for) operating activities		(12,254	)		190,161			(25,296	)		—			152,611
Investing activities
Capital expenditures		(5,368	)		(13,584	)		(16,269	)		—			(35,221	)
Proceeds from sale of property and equipment		—			42			47			—			89
Acquisitions, net of cash acquired		—			—			(733,105	)		—			(733,105	)
Other		902			(783	)		—			—			119

Net cash provided by (used for) investing activities		(4,466	)		(14,325	)		(749,327	)		—			(768,118	)
Financing activities
Net short-term borrowings		16,518			(29	)		29			—			16,518
Proceeds from long-term debt		1,320,957			—			—			—			1,320,957
Repayment of long-term debt		(661,422	)		—			—			—			(661,422	)
Debt issuance costs		(8,721	)		—			—			—			(8,721	)
Net change in advances to subsidiaries		(588,170	)		(256,912	)		845,082			—			—
Excess tax benefits from stock-based compensation		1,465			—			—			—			1,465
Stock issued to employees, net of shares withheld		9,551			—			—			—			9,551
Repurchases of common stock		(287	)		—			—			—			(287	)
Dividends paid		(39,730	)		—			(9	)		—			(39,739	)

Net cash provided by (used for) financing activities		50,161			(256,941	)		845,102			—			638,322
Effect of exchange rate changes on cash and cash equivalents		(31,806	)		82,352			(50,445	)		—			101

Change in cash and cash equivalents		1,635			1,247			20,034			—			22,916
Cash and cash equivalents, beginning of period		3,201			3,404			39,451			—			46,056

Cash and cash equivalents, end of period	$	4,836		$	4,651		$	59,485		$	—		$	68,972

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the three months ended July 3, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	567,505		$	295,232		$	(66,570	)	$	796,167
Cost of goods sold		—			391,677			222,775			(66,453	)		547,999

Gross profit		—			175,828			72,457			(117	)		248,168
Selling, general and administrative		1,243			84,171			45,746			(117	)		131,043
Research and development		136			10,874			5,989			—			16,999

Operating income		(1,379	)		80,783			20,722			—			100,126
Earnings from investment in subsidiaries		(43,799	)		—			—			43,799			—
Other (income) expense:
Equity income of unconsolidated subsidiaries		—			(938	)		(437	)		—			(1,375	)
Net interest (income) expense		(28,227	)		38,484			(1,688	)		—			8,569

Income (loss) from continuing operations before income taxes and noncontrolling interest		70,647			43,237			22,847			(43,799	)		92,932
Provision for income taxes		10,159			16,155			5,006			—			31,320

Income from continuing operations		60,488			27,082			17,841			(43,799	)		61,612
Gain on disposal of discontinued operations, net of tax		593			—			—			—			593

Net income before noncontrolling interest		61,081			27,082			17,841			(43,799	)		62,205
Noncontrolling interest		—			—			1,124			—			1,124

Net income attributable to Pentair, Inc.	$	61,081		$	27,082		$	16,717		$	(43,799	)	$	61,081

Net income from continuing operations attributable to Pentair, Inc.	$	60,488		$	27,082		$	16,717		$	(43,799	)	$	60,488

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income (Unaudited)

For the six months ended July 3, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,043,860		$	585,662		$	(126,342	)	$	1,503,180
Cost of goods sold		—			723,400			443,924			(126,014	)		1,041,310

Gross profit		—			320,460			141,738			(328	)		461,870
Selling, general and administrative		251			164,699			99,311			(328	)		263,933
Research and development		272			21,718			12,220			—			34,210

Operating income		(523	)		134,043			30,207			—			163,727
Earnings from investment in subsidiaries		(60,959	)		—			—			60,959			—
Other (income) expense:
Equity income of unconsolidated subsidiaries		—			(1,022	)		(437	)		—			(1,459	)
Net interest (income) expense		(55,508	)		76,978			(3,374	)		—			18,096

Income (loss) from continuing operations before income taxes and noncontrolling interest		115,944			58,087			34,018			(60,959	)		147,090
Provision for income taxes		20,659			21,419			7,371			—			49,449

Income from continuing operations		95,285			36,688			26,647			(60,959	)		97,641
Gain on disposal of discontinued operations, net of tax		1,117			—			—			—			1,117

Net income before noncontrolling interest		96,402			36,668			26,647			(60,959	)		98,758
Noncontrolling interest		—			—			2,356			—			2,356

Net income attributable to Pentair, Inc.	$	96,402		$	36,668		$	24,291		$	(60,959	)	$	96,402

Net income from continuing operations attributable to Pentair, Inc.	$	95,285		$	36,668		$	24,291		$	(60,959	)	$	95,285

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

July 3, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	2,851		$	3,647		$	32,082	$	—		$	38,580
Accounts and notes receivable, net		1,430			319,943			218,654		(64,348	)		475,679
Inventories		—			239,255			150,173		—			389,428
Deferred tax assets		121,551			35,218			6,220		(113,931	)		49,058
Prepaid expenses and other current assets		4,937			12,048			35,213		(9,320	)		42,878

Total current assets		130,769			610,111			442,342		(187,599	)		995,623
Property, plant and equipment, net		14,504			146,412			157,208		—			318,124
Other assets
Investments in/advances to subsidiaries		2,330,701			89,758			662,849		(3,083,308	)		—
Goodwill		—			1,549,537			483,527		—			2,033,064
Intangibles, net		—			273,786			178,020		—			451,806
Other		59,385			3,857			18,686		(27,845	)		54,083

Total other assets		2,390,086			1,916,938			1,343,082		(3,111,153	)		2,538,953

Total assets	$	2,535,359		$	2,673,461		$	1,942,632	$	(3,298,752	)	$	3,852,700

Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	2,320	$	—		$	2,320
Current maturities of long-term debt		93,000			35			20,392		(113,264	)		163
Accounts payable		3,532			178,314			131,222		(64,389	)		248,679
Employee compensation and benefits		26,002			29,135			31,334		—			86,471
Current pension and post-retirement benefits		8,948			—			—		—			8,948
Accrued product claims and warranties		—			26,478			16,503		—			42,981
Income taxes		13,331			7,790			2,131		—			23,252
Accrued rebates and sales incentives		—			26,814			7,604		—			34,418
Other current liabilities		17,051			35,112			35,611		(9,278	)		78,496

Total current liabilities		161,864			303,678			247,117		(186,931	)		525,728
Other liabilities
Long-term debt		734,400			1,947,442			345,975		(2,293,345	)		734,472
Pension and other retirement compensation		141,190			6,293			65,659		—			213,142
Post-retirement medical and other benefits		19,029			38,635			—		(27,845	)		29,819
Long-term income taxes payable		24,821			—			—		—			24,821
Deferred tax liabilities		484			198,892			54,532		(113,931	)		139,977
Due to/ (from) affiliates		(571,185	)		(90,379	)		714,628		(53,064	)		—
Other non-current liabilities		44,251			4,205			44,470		—			92,926

Total liabilities		554,854			2,408,766			1,472,381		(2,675,116	)		1,760,885
Noncontrolling interest		—			—			111,310		—			111,310
Shareholders’ equity attributable to Pentair, Inc.		1,980,505			264,695			358,941		(623,636	)		1,980,505

Total liabilities and shareholders’ equity	$	2,535,359		$	2,673,461		$	1,942,632	$	(3,298,752	)	$	3,852,700

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the six months ended July 3, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	96,402		$	36,668		$	26,647		$	(60,959	)	$	98,758
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Gain on disposal of discontinued operations		(1,117	)		—			—			—			(1,117	)
Equity (income) losses of unconsolidated subsidiaries		—			(1,022	)		(437	)		—			(1,459	)
Depreciation		832			15,388			12,656			—			28,876
Amortization		582			7,798			4,977			—			13,357
Earnings from investments in subsidiaries		(60,959	)		—			—			60,959			—
Deferred income taxes		1,530			32			834			—			2,396
Stock compensation		12,365			—			—			—			12,365
Excess tax benefits from stock-based compensation		(1,322	)		—			—			—			(1,322	)
Gain on sale of assets		(57	)		—			—			—			(57	)
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		8,779			(23,252	)		(30,650	)		11,685			(33,438	)
Inventories		—			(17,568	)		(21,083	)		—			(38,651	)
Prepaid expenses and other current assets		34,528			(4,986	)		(19,081	)		(8,584	)		1,877
Accounts payable		(12,099	)		51,983			18,702			(11,648	)		46,938
Employee compensation and benefits		5,125			1,808			4,342			—			11,275
Accrued product claims and warranties		—			8,763			433			—			9,196
Income taxes		(4,444	)		26,669			(3,353	)		—			18,872
Other current liabilities		(24,383	)		(59	)		16,938			8,547			1,043
Pension and post-retirement benefits		(10,341	)		(3,968	)		1,366			—			(12,943	)
Other assets and liabilities		(1,400	)		(7,063	)		8,911			—			448

Net cash provided by (used for) operating activities		44,021			91,191			21,202			—			156,414
Investing activities
Capital expenditures		(6,141	)		(12,091	)		(10,705	)		—			(28,937	)
Proceeds from sale of property and equipment		—			193			50			—			243
Other		387			—			(1,673	)		—			(1,286	)

Net cash provided by (used for) investing activities		(5,754	)		(11,898	)		(12,328	)		—			(29,980	)
Financing activities
Net short-term borrowings		115			24			(24	)		—			115
Proceeds from long-term debt		335,021			—			—			—			335,021
Repayment of long-term debt		(403,742	)		—			—			—			(403,742	)
Debt issuance costs		(50	)		—			—			—			(50	)
Net change in advances to subsidiaries		66,259			(65,455	)		(804	)		—			—
Excess tax benefits from stock-based compensation		1,322			—			—			—			1,322
Stock issued to employees, net of shares withheld		(817	)		—			—			—			(817	)
Dividends paid		(37,699	)		142			(143	)		—			(37,700	)

Net cash provided by (used for) financing activities		(39,591	)		(65,289	)		(971	)		—			(105,851	)
Effect of exchange rate changes on cash and cash equivalents		2,143			(12,170	)		(5,372	)		—			(15,399	)

Change in cash and cash equivalents		819			1,834			2,531			—			5,184
Cash and cash equivalents, beginning of period		2,032			1,813			29,551			—			33,396

Cash and cash equivalents, end of period	$	2,851		$	3,647		$	32,082		$	—		$	38,580

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Unaudited)

December 31, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non- Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	3,201		$	3,404		$	39,451	$	—		$	46,056
Accounts and notes receivable, net		678			357,730			222,319		(63,822	)		516,905
Inventories		—			232,369			172,987		—			405,356
Deferred tax assets		115,722			40,064			7,928		(107,365	)		56,349
Prepaid expenses and other current assets		8,278			10,098			51,497		(25,242	)		44,631

Total current assets		127,879			643,665			494,182		(196,429	)		1,069,297
Property, plant and equipment, net		17,392			144,332			167,711		—			329,435
Other assets
Investments in/advances to subsidiaries		2,355,343			89,659			748,181		(3,193,183	)		—
Goodwill		—			1,549,537			516,507		—			2,066,044
Intangibles, net		—			265,987			187,583		—			453,570
Other		56,052			4,045			20,139		(25,049	)		55,187

Total other assets		2,411,395			1,909,228			1,472,410		(3,218,232	)		2,574,801

Total assets	$	2,556,666		$	2,697,225		$	2,134,303	$	(3,414,661	)	$	3,973,533

Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	4,933	$	—		$	4,933
Current maturities of long-term debt		135,678			—			18,154		(153,814	)		18
Accounts payable		4,908			170,747			150,517		(63,815	)		262,357
Employee compensation and benefits		38,513			32,167			37,315		—			107,995
Current pension and post-retirement benefits		8,733			—			—		—			8,733
Accrued product claims and warranties		12,245			23,410			6,640		—			42,295
Income taxes		4,788			633			543		—			5,964
Accrued rebates and sales incentives		—			23,500			10,059		—			33,559
Other current liabilities		9,772			33,227			63,185		(25,242	)		80,942

Total current liabilities		214,637			283,684			291,346		(242,871	)		546,796
Other liabilities
Long-term debt		702,500			1,947,400			377,539		(2,324,918	)		702,521
Pension and other retirement compensation		136,750			112			72,997		—			209,859
Post-retirement medical and other benefits		18,388			36,986			—		(25,049	)		30,325
Long-term income taxes payable		23,507			—			—		—			23,507
Deferred tax liabilities		5			213,385			63,173		(107,365	)		169,198
Due to/ (from) affiliates		(678,966	)		(80,779	)		810,652		(50,907	)		—
Other non-current liabilities		46,692			1,892			37,711		—			86,295

Total liabilities		463,513			2,402,680			1,653,418		(2,751,110	)		1,768,501
Noncontrolling interest		—			—			111,879		—			111,879
Shareholders’ equity attributable to Pentair, Inc.		2,093,153			294,545			369,006		(663,551	)		2,093,153

Total liabilities and shareholders’ equity	$	2,556,666		$	2,697,225		$	2,134,303	$	(3,414,661	)	$	3,973,533