18. 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

For the year ended December 31, 2011


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,243,362		$	1,437,242		$	(223,918	)	$	3,456,686
Cost of goods sold		4,000			1,562,298			1,039,362			(222,696	)		2,382,964

Gross profit		(4,000	)		681,064			397,880			(1,222	)		1,073,722
Selling, general and administrative		18,967			338,830			269,952			(1,222	)		626,527
Research and development		1,032			41,860			35,266			—			78,158
Goodwill impairment		—			—			200,520			—			200,520

Operating (loss) income		(23,999	)		300,374			(107,858	)		—			168,517
Loss (earnings) from investment in subsidiaries		18,792			(27,419	)		(1,321	)		9,948			—
Other (income) expense:
Equity income of unconsolidated subsidiaries		—			(1,654	)		(244	)		—			(1,898	)
Net interest (income) expense		(107,743	)		152,264			14,314			—			58,835

Income (loss) from continuing operations before income taxes and noncontrolling interest		64,952			177,183			(120,607	)		(9,948	)		111,580
Provision for income taxes		30,730			45,156			(2,827	)		—			73,059

Net income before noncontrolling interest		34,222			132,027			(117,780	)		(9,948	)		38,521

Noncontrolling interest		—			—			4,299			—			4,299


Net income attributable to Pentair, Inc.	$	34,222		$	132,027		$	(122,079	)	$	(9,948	)	$	34,222

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For the year ended December 31, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	2,092,487		$	1,189,597		$	(251,311	)	$	3,030,773
Cost of goods sold		3,167			1,453,786			893,570			(250,390	)		2,100,133

Gross profit		(3,167	)		638,701			296,027			(921	)		930,640
Selling, general and administrative		(3,713	)		337,408			196,555			(921	)		529,329
Research and development		393			42,386			24,377			—			67,156

Operating income		153			258,907			75,095			—			334,155
Earnings from investment in subsidiaries		(129,872	)		—			—			129,872			—
Other (income) expense:
Equity income of unconsolidated subsidiaries		—			(1,551	)		(557	)		—			(2,108	)
Net interest (income) expense		(111,034	)		153,904			(6,754	)		—			36,116

Income (loss) from continuing operations before income taxes and noncontrolling interest		241,059			106,554			82,406			(129,872	)		300,147
Provision for income taxes		42,605			36,447			18,148			—			97,200

Income from continuing operations		198,454			70,107			64,258			(129,872	)		202,947
Loss on disposal of discontinued operations, net of tax		(626	)		—			—			—			(626	)

Net income before noncontrolling interest		197,828			70,107			64,258			(129,872	)		202,321
Noncontrolling interest		—			—			4,493			—			4,493

Net income attributable to Pentair, Inc.	$	197,828		$	70,107		$	59,765		$	(129,872	)	$	197,828


Net income from continuing operations attributable to Pentair, Inc.	$	198,454		$	70,107		$	59,765		$	(129,872	)	$	198,454

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For the year ended December 31, 2009


In thousands	Parent Company			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,827,463	$	1,050,381		$	(185,376	)	$	2,692,468
Cost of goods sold		7,024			1,310,011		775,116			(184,818	)		1,907,333

Gross profit		(7,024	)		517,452		275,265			(558	)		785,135
Selling, general and administrative		10,074			312,079		185,708			(558	)		507,303
Research and development		306			34,844		22,734			—			57,884

Operating (loss) income		(17,404	)		170,529		66,823			—			219,948
Earnings from investment in subsidiaries		(60,528	)		—		—			60,528			—
Other (income) expense:
Equity losses of unconsolidated subsidiaries		—			1,379		—			—			1,379
Loss on early extinguishment of debt		4,804			—		—			—			4,804
Net interest (income) expense		(106,586	)		153,672		(5,968	)		—			41,118

Income (loss) from continuing operations before income taxes and noncontrolling interest		144,906			15,478		72,791			(60,528	)		172,647
Provision for income taxes		29,270			6,063		21,095			—			56,428

Income from continuing operations		115,636			9,415		51,696			(60,528	)		116,219
(Loss) gain on disposal of discontinued operations, net of tax		(143	)		551		(427	)		—			(19	)

Net income before noncontrolling interest		115,493			9,966		51,269			(60,528	)		116,200
Noncontrolling interest		—			—		707			—			707

Net income attributable to Pentair, Inc.	$	115,493		$	9,966	$	50,562		$	(60,528	)	$	115,493


Net income from continuing operations attributable to Pentair, Inc.	$	115,636		$	9,415	$	50,989		$	(60,528	)	$	115,512

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

December 31, 2011


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets
Cash and cash equivalents	$	3,097		$	3,332		$	43,648	$	—		$	50,077
Accounts and notes receivable, net		828			360,027			263,201		(54,852	)		569,204
Inventories		—			227,472			222,391		—			449,863
Deferred tax assets		134,240			40,698			13,382		(127,421	)		60,899
Prepaid expenses and other current assets		28,937			(6,886	)		107,121		(21,380	)		107,792

Total current assets		167,102			624,643			649,743		(203,653	)		1,237,835
Property, plant and equipment, net		19,693			136,102			231,730		—			387,525
Other assets
Investments in/advances to subsidiaries		2,910,927			1,447,522			92,396		(4,450,845	)		—
Goodwill		—			1,330,265			943,653		—			2,273,918
Intangibles, net		—			250,792			341,493		—			592,285
Other		63,508			27,337			23,045		(19,140	)		94,750

Total other assets		2,974,435			3,055,916			1,400,587		(4,469,985	)		2,960,953

Total assets	$	3,161,230		$	3,816,661		$	2,282,060	$	(4,673,638	)	$	4,586,313


Liabilities and Shareholders’ Equity
Current liabilities
Short-term borrowings	$	—		$	—		$	3,694	$	—		$	3,694
Current maturities of long-term debt		2,585			—			1,168		(2,585	)		1,168
Accounts payable		5,036			189,355			152,065		(51,598	)		294,858
Employee compensation and benefits		24,466			30,015			54,880		—			109,361
Current pension and post-retirement benefits		9,052			—			—		—			9,052
Accrued product claims and warranties		165			22,037			20,428		—			42,630
Income taxes		40,999			(28,717	)		2,265		—			14,547
Accrued rebates and sales incentives		—			25,612			11,397		—			37,009
Other current liabilities		25,050			53,960			71,890		(21,378	)		129,522

Total current liabilities		107,353			292,262			317,787		(75,561	)		641,841
Other liabilities
Long-term debt		1,312,053			2,417,922			542,411		(2,968,161	)		1,304,225
Pension and other retirement compensation		182,556			(7,701	)		73,760		—			248,615
Post-retirement medical and other benefits		17,024			33,890			—		(19,140	)		31,774
Long-term income taxes payable		26,470			—			—		—			26,470
Deferred tax liabilities		—			229,962			86,416		(127,421	)		188,957
Due to/ (from) affiliates		(479,943	)		751,145			711,705		(982,907	)		—
Other non-current liabilities		62,388			1,508			33,143		—			97,039

Total liabilities		1,227,901			3,718,988			1,765,222		(4,173,190	)		2,538,921
Noncontrolling interest		—			—			114,063		—			114,063
Shareholders’ equity attributable to Pentair, Inc.		1,933,329			97,673			402,775		(500,448	)		1,933,329

Total liabilities and shareholders’ equity	$	3,161,230		$	3,816,661		$	2,282,060	$	(4,673,638)		$	4,586,313

Pentair, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

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

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the year ended December 31, 2011


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	34,222		$	132,027		$	(117,780)		$	(9,948)		$	38,521
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Equity income of unconsolidated subsidiaries		—			(1,654	)		(244	)		—			(1,898	)
Depreciation		5,991			27,742			32,502			—			66,235
Amortization		—			15,195			26,702			—			41,897
Loss (earnings) from investments in subsidiaries		18,792			(27,419	)		(1,321	)		9,948			—
Deferred income taxes		6,889			18,084			(30,556	)		—			(5,583	)
Stock compensation		19,489			—			—			—			19,489
Goodwill impairment		—			—			200,520			—			200,520
Excess tax benefits from stock-based compensation		(3,310	)		—			—			—			(3,310	)
Loss on sale of assets		933			—			—			—			933
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		(53,661	)		20,574			32,870			1,565			1,348
Inventories		—			7,589			10,674			—			18,263
Prepaid expenses and other current assets		(19,728	)		17,041			(5,601	)		18,320			10,032
Accounts payable		60,209			5,320			(78,308	)		(11,551	)		(24,330	)
Employee compensation and benefits		(23,553	)		(2,193	)		5,260			—			(20,486	)
Accrued product claims and warranties		—			(1,533	)		(451	)		—			(1,984	)
Income taxes		48,947			(33,965	)		(4,898	)		—			10,084
Other current liabilities		10,539			22,568			(3,867	)		(18,319	)		10,921
Pension and post-retirement benefits		(17,662	)		(10,910	)		3,976			—			(24,596	)
Other assets and liabilities		502			(18,485	)		(7,832	)		9,985			(15,830	)

Net cash provided by (used for) operating activities		88,599			169,981			61,646			—			320,226
Investing activities
Capital expenditures		(8,301	)		(27,625	)		(37,422	)		—			(73,348	)
Proceeds from sale of property and equipment		—			143			1,167			—			1,310
Acquisitions, net of cash acquired		—			—			(733,105	)		—			(733,105	)
Other		3,702			(4,604	)		(2,041	)		—			(2,943	)

Net cash provided by (used for) investing activities		(4,599	)		(32,086	)		(771,401	)		—			(808,086	)
Financing activities
Net short-term borrowings		(1,239	)		—			—			—			(1,239	)
Proceeds from long-term debt		1,421,602			—			—			—			1,421,602
Repayment of long-term debt		(832,147	)		—			—			—			(832,147	)
Debt issuance costs		(8,973	)		—			—			—			(8,973	)
Net change in advances to subsidiaries		(579,126	)		(137,767)			716,893			—			—
Excess tax benefits from stock-based compensation		3,310			—			—			—			3,310
Stock issued to employees, net of shares withheld		13,324			—			(2	)		—			13,322
Repurchases of common stock		(12,785	)		—			—			—			(12,785	)
Dividends paid		(78,351	)		(200	)		(986	)		—			(79,537	)

Net cash provided by (used for) financing activities		(74,385	)		(137,967	)		715,905			—			503,553
Effect of exchange rate changes on cash and cash equivalents		(9,719	)		—			(1,953	)		—			(11,672	)

Change in cash and cash equivalents		(104	)		(72	)		4,197			—			4,021
Cash and cash equivalents, beginning of period		3,201			3,404			39,451			—			46,056

Cash and cash equivalents, end of period	$	3,097		$	3,332		$	43,648		$	—		$	50,077

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the year ended December 31, 2010


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	197,828		$	70,107		$	64,258		$	(129,872)		$	202,321
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss on disposal of discontinued operations		626			—			—			—			626
Equity income of unconsolidated subsidiaries		—			(1,551	)		(557	)		—			(2,108	)
Depreciation		3,002			29,902			25,091			—			57,995
Amortization		593			15,597			9,994			—			26,184
Earnings from investments in subsidiaries		(129,872)			—			—			129,872			—
Deferred income taxes		18,075			9,679			1,699			—			29,453
Stock compensation		21,468			—			—			—			21,468
Excess tax benefits from stock-based compensation		(2,686	)		—			—			—			(2,686	)
Loss on sale of assets		466			—			—			—			466
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		1,759			(61,042	)		(14,222)			11,161			(62,344	)
Inventories		—			(10,683	)		(33,812	)		—			(44,495	)
Prepaid expenses and other current assets		(8,519	)		(3,035	)		6,993			7,338			2,777
Accounts payable		(1,431	)		43,578			24,248			(11,074	)		55,321
Employee compensation and benefits		14,630			4,840			7,782			—			27,252
Accrued product claims and warranties		12,245			5,695			(9,872	)		—			8,068
Income taxes		(13,267	)		15,813			(755	)		—			1,791
Other current liabilities		3,314			(5,258	)		9,921			(7,416	)		561
Pension and post-retirement benefits		(33,762	)		(11,798	)		2,536			—			(43,024	)
Other assets and liabilities		(2,191	)		(12,731	)		5,672			—			(9,250	)

Net cash provided by (used for) operating activities		82,278			89,113			98,976			9			270,376
Investing activities
Capital expenditures		(11,557	)		(22,954	)		(25,012	)		—			(59,523	)
Proceeds from sale of property and equipment		—			284			74			—			358
Other		525			—			(1,673	)		—			(1,148	)

Net cash provided by (used for) investing activities		(11,032	)		(22,670	)		(26,611	)		—			(60,313	)
Financing activities
Net short-term borrowings		2,728			31			(31	)		—			2,728
Proceeds from long-term debt		703,641			—			—			—			703,641
Repayment of long-term debt		(804,713	)		—			—			—			(804,713	)
Debt issuance costs		(50	)		—			—			—			(50	)
Net change in advances to subsidiaries		106,372			(59,269	)		(47,090	)		(13	)		—
Excess tax benefits from stock-based compensation		2,686			—			—			—			2,686
Stock issued to employees, net of shares withheld		9,941			—			—			—			9,941
Repurchases of common stock		(24,712	)		—			—			—			(24,712	)
Dividends paid		(73,014	)		142			(2,593	)		—			(75,465	)
Distribution to noncontrolling interest		—			—			(4,647	)		—			(4,647	)

Net cash provided by (used for) financing activities		(77,121	)		(59,096)			(54,361	)		(13	)		(190,591)
Effect of exchange rate changes on cash and cash equivalents		7,044			(5,756	)		(8,104	)		4			(6,812	)

Change in cash and cash equivalents		1,169			1,591			9,900			—			12,660
Cash and cash equivalents, beginning of period		2,032			1,813			29,551			—			33,396

Cash and cash equivalents, end of period	$	3,201		$	3,404		$	39,451		$	—		$	46,056

Pentair, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For the year end December 31, 2009


In thousands	Parent Company			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Operating activities
Net income before noncontrolling interest	$	115,493		$	9,966		$	51,269		$	(60,528)		$	116,200
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Loss (gain) on disposal of discontinued operations		143			(551	)		427			—			19
Equity losses of unconsolidated subsidiaries		—			1,379			—			—			1,379
Depreciation		8,166			30,506			26,151			—			64,823
Amortization		14,332			15,752			10,573			—			40,657
Earnings from investments in subsidiaries		(60,528	)		—			—			60,528			—
Deferred income taxes		8,223			18,582			3,811			—			30,616
Stock compensation		17,324			—			—			—			17,324
Excess tax benefits from stock-based compensation		(1,746	)		—			—			—			(1,746	)
(Gain) loss on sale of assets		(1,389	)		—			2,374			—			985
Changes in assets and liabilities, net of effects of business acquisitions and dispositions
Accounts and notes receivable		(1,456	)		10,492			7,484			(5,213	)		11,307
Inventories		—			46,791			19,893			—			66,684
Prepaid expenses and other current assets		48,529			2,985			(37,221)			1,909			16,202
Accounts payable		5,615			(18,623	)		(5,209	)		4,395			(13,822	)
Employee compensation and benefits		(1,385	)		(13,968	)		(7,078	)		—			(22,431	)
Accrued product claims and warranties		—			(7,645	)		205			—			(7,440	)
Income taxes		(10,921	)		6,917			5,976			—			1,972
Other current liabilities		(29,030	)		(15,312	)		25,118			(1,857	)		(21,081	)
Pension and post-retirement benefits		(30,630	)		(11,716	)		2,739			—			(39,607	)
Other assets and liabilities		(19,117	)		39,226			(22,250	)		—			(2,141	)

Net cash provided by (used for) continuing operations		61,623			114,781			84,262			(766	)		259,900
Net cash provided by (used for) operating activities of discontinued operations		(30	)		(1,590	)		89			—			(1,531	)

Net cash provided by (used for) operating activities		61,593			113,191			84,351			(766	)		258,369
Investing activities
Capital expenditures		(2,237	)		(19,676	)		(32,224	)		—			(54,137	)
Proceeds from sale of property and equipment		—			446			762			—			1,208
Divestitures		404			1,002			161			—			1,567
Other		7			—			(3,231	)		—			(3,224	)

Net cash provided by (used for) investing activities		(1,826	)		(18,228	)		(34,532	)		—			(54,586	)
Financing activities
Net short-term borrowings		2,205			115			(115	)		—			2,205
Proceeds from long-term debt		580,000			—			—			—			580,000
Repayment of long-term debt		(730,304)			—			—			—			(730,304)
Debt issuance costs		(50	)		—			—			—			(50	)
Net change in advances to subsidiaries		152,482			(110,046)			(43,201	)		765			—
Excess tax benefits from stock-based compensation		1,746			—			—			—			1,746
Stock issued to employees, net of shares withheld		8,247			—			—			—			8,247
Dividends paid		(63,686	)		5,313			(12,554	)		—			(70,927	)

Net cash provided by (used for) financing activities		(49,360	)		(104,618	)		(55,870	)		765			(209,083	)
Effect of exchange rate changes on cash and cash equivalents		(11,095	)		8,123			2,323			1			(648	)

Change in cash and cash equivalents		(688	)		(1,532	)		(3,728	)		—			(5,948	)
Cash and cash equivalents, beginning of period		2,720			3,345			33,279			—			39,344

Cash and cash equivalents, end of period	$	2,032		$	1,813		$	29,551		$	—		$	33,396