Divestiture of Valves & Controls August 19, 2016 Divestiture of Valves & Controls
FORWARD-LOOKING STATEMENTS C AUTION C ONCERNING F ORWARD -L OOKING S TATEMENTS This communication contains statements that we believe to be " forward-looking statements " within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical fact are forward-looking statements. Without limitation, any statements preceded or followed by or that include the words " targets, " " plans, " " believes, " " expects, " " intends, " " will, " " likely, " " may, " " anticipates, " " estimates, " " projects, " " should, " " would, " " positioned, " " strategy, " " future “ or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, assumptions and other factors, some of which are beyond our control, which could cause actual results to differ materially from those expressed or implied by such forward-looking statements. These factors include the company’s ability to complete the sale of Valves & Controls on anticipated terms and timetable, overall global economic and business conditions, including worldwide demand for oil and gas; the ability to achieve the benefits of our restructuring plans; the ability to successfully identify, finance, complete and integrate acquisitions, including the ability to successfully integrate and achieve the expected benefits of the acquisition of ERICO Global Company; competition and pricing pressures in the markets we serve; the strength of housing and related markets; volatility in currency exchange rates and commodity prices; inability to generate savings from excellence in operations initiatives consisting of lean enterprise, supply management and cash flow practices; increased risks associated with operating foreign businesses; the ability to deliver backlog and win future project work; failure of markets to accept new product introductions and enhancements; the impact of changes in laws and regulations, including those that limit U.S. tax benefits; the outcome of litigation and governmental proceedings; and the ability to achieve our long-term strategic operating goals. Additional information concerning these and other factors is contained in our filings with the U.S. Securities and Exchange Commission ( " SEC " ), including in our 2015 Annual Report on Form 10-K. All forward-looking statements speak only as of the date of this report. We assume no obligation, and disclaim any obligation, to update the information contained in this report. 2 Divestiture of Valves & Controls
KEY DEFINITIONS • Except as Otherwise Noted All References to 2016 and 2015 Represent Our Results from Continuing Operations for the Period Indicated Presented on an Adjusted Basis and to Exclude Valves & Controls • "Core Sales" Refers to GAAP Revenue from Existing Operations Excluding (1) the Impact of Currency Translation and (2) the Impact of Revenue from Acquired Businesses Recorded Prior to the First Anniversary of the Acquisition Less the Amount of Sales Attributable to Divested Product Lines Not Considered Discontinued Operations • Segment Income Represents Equity Income of Unconsolidated Subsidiaries and Operating Income from Continuing Operations Exclusive of Non-Cash Intangible Amortization, Certain Acquisition Related Expenses, Costs of Restructuring Activities, "Mark-to-Market" Gain (Loss) for Pension and Other Post-Retirement Plans, Impairments, and Other Unusual Non-Operating Items • Return on Sales ("ROS") Equals Segment Income Divided by Sales • See Appendix for GAAP to Non-GAAP Reconciliations 3 Divestiture of Valves & Controls
DECISION TO EXIT VALVES & CONTROLS • Four Years Ago We Merged with Tyco Flow Control to Generate More Balance Sheet Scale, Strengthen Our Ability to Add to Our Water Quality Systems, Flow & Filtration Solutions, and Technical Solutions Businesses, Gain Exposure to a Fast Growing Energy Industry, and Gain an Advantaged Structure. • The Energy Markets have Weakened and Experienced a Significant Reset. We Believe that Partnering with Emerson is a Great Strategic Fit and the Combined Businesses will be Well Positioned for the Expected Energy Recovery. • Our Balance Sheet After the Sale Will Enable Us to Focus on Our Strategic Priorities in Water and Technical Solutions. Enhanced Focus on Our Core Water and Technical Solutions Businesses 4 Divestiture of Valves & Controls
DEAL HIGHLIGHTS • Headline Price: $3.15B, Subject to Customary Net Debt and Working Capital Adjustments • Expected Closing Timeline: Subject to Regulatory Approvals and Customary Closing Conditions … Expected to Close Late in 2016 or Early in 2017 • Expected Cash Proceeds to PNR of ~$2.6B After-Tax and Deal Costs • Company Expects to Use Proceeds to De-Lever and Anticipates a Debt to EBITDA Leverage of 2.9x on Existing Debt and ~1.6x Including Cash on Hand (Net Debt) Upon Closing • Deal Expected to be ($1.00) Dilutive to 2016 Forecasted EPS and ($0.82) Dilutive to 2016 on a Pro Forma Basis Balance Sheet Capacity Expected to Return After Deal Closes 5 Divestiture of Valves & Controls
GUIDANCE UPDATE – FULL YEAR 2016 ADJUSTED EPS PREVIOUS GUIDANCE CURRENT GUIDANCE $4.05 - $4.20 $3.07 to $3.17 • • Inclusive of Valves & Controls (~$1.00) Impact from Valves & Controls; (~$0.82) on a Pro Forma Basis • FY Revenue of $6.7B … Up ~4% YoY • FY Revenue of $5.0B … Up ~9% YoY • Cost Actions on Track • ERICO Integration and Performance at Expectations • ERICO Integration and Performance • +10% YoY Adj. EPS Growth at Expectations • • Strong Free Cash Flow (>100% of +5% YoY Adj. EPS Growth Adjusted Net Income) • Strong Cash Flow (>100% of Adjusted • Balance Sheet Flexibility (~$1.4B of Net Income) Capacity when Deal Closes) • Balance Sheet Fully Levered at 3.3x EBITDA V&C Impacts EPS but Creates Increased Capital Flexibility 6 Divestiture of Valves & Controls
FINANCIAL LOOK SALES SEGMENT INCOME $5.0B $4.7B $4.6B $4.6B ~$864M ~3% $755M 3 YR CAGR $705M $641M ~10% 3 YR CAGR ROS 14.1% 15.1% 16.4% 17.2% 2013 2014 2015 2016F 2013 2014 2015 2016F Depreciation: $77M $80M $81M $89M • $5.0B of 2016 Sales with a 3 year CAGR of ~3% (+9% Excluding FX) • 2016 Segment Income ROS of ~17.2% and ~$953M of EBITDA • Annual Free Cash Flow > 100% of Adjusted Net Income • Balance Sheet Flexibility Upon Closing of Transaction V&C Exit Expected to Improve Financial Strength 7 Divestiture of Valves & Controls
GLOBAL PENTAIR PORTFOLIO Diversified by segments … … opportunities outside North America … ROW ~4% W. Europe Flow & Filtration ~16% Technical Solutions Solutions ~28% ~43% Developing U.S. and ~16% Canada Water ~64% Quality Systems ~29% … not overly dependent on any one vertical… … and aligned around four common themes. Energy F&B Processing ~10% ~10% Industrial & Infrastructure Process Efficiency Water Quality ~12% Resi/Comm ~10% & Availability ~44% Food & ~45% Beverage Equip. & Building ~13% Protection ~35% Industrial ~21% Based on 2016 Forecasted Revenue The Portfolio Remains Narrowly Diversified 8 Divestiture of Valves & Controls
SEGMENT & STRATEGIC BUSINESS GROUP STRUCTURE External Reporting Segments Water Quality Systems Flow & Filtration Solutions Technical Solutions (Revenue ~$1.5B) (Revenue ~$1.4B) (Revenue ~$2.2B) Strategic Business Groups Aquatic & Environmental Systems Water Technologies Enclosures (Revenue ~$880M) (Revenue ~$810M) (Revenue ~$950M) Water Filtration Fluid Solutions Thermal Management (Revenue ~$590M) (Revenue ~$420M) (Revenue ~$700M) Process Filtration Engineered Fastening Solutions (Revenue ~$210M) (Revenue ~$530M) Based on 2016 Forecasted Revenue 8 Investable Businesses with Significant Opportunities 9 Divestiture of Valves & Controls
VALUE CREATION THROUGH FLOW CONTROL 13% Per Year Annual Return $2.6B $3.0B $5.3B $4.9B Cash Generated + Purchase Expected Value Value Created Value of Tax Value of Tyco from V&C From Tyco Structure Flow Control Transaction Flow Control + Value of Kept Businesses Value Creation Despite the Oil & Gas Downturn 10 Divestiture of Valves & Controls
ADJUSTED EPS IMPACT FROM V&C DIVESTITURE ~$4.12 $0.18 ~$3.30 ~$3.12 ($1.00) Performance = ($0.80) FY Impact of Stranded Interest = $0.14 Corp Costs = ($0.12) Other Adjusts = $0.04 Tax Rate = ($0.04) Other Adjusts = ($0.04) Previous: Guidance V&C Revised: Guidance Pro Forma Pro Forma: Mid-point Divestiture Mid-point Adjustments Mid-point New 2016 Guidance Mid-Point is $3.12 and $3.30 on a Pro Forma Basis 11 Divestiture of Valves & Controls
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