-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, lZZgMr3L7FVUz2T8KZuwGNJ3uuElf8vAe8XYy7NqI4TWgLM2N2Be9D9HDenHAmMX L+zZwzj+XybbCgvEB+l0Bg== 0000077360-94-000069.txt : 19940520 0000077360-94-000069.hdr.sgml : 19940520 ACCESSION NUMBER: 0000077360-94-000069 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTAIR INC CENTRAL INDEX KEY: 0000077360 STANDARD INDUSTRIAL CLASSIFICATION: 3560 IRS NUMBER: 410907434 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04689 FILM NUMBER: 94528213 BUSINESS ADDRESS: STREET 1: 1500 COUNTY RD - B2 WEST STREET 2: SUITE 400 CITY: ST PAUL STATE: MN ZIP: 55113-3105 BUSINESS PHONE: 6126367920 FORMER COMPANY: FORMER CONFORMED NAME: PENTAIR INDUSTRIES INC DATE OF NAME CHANGE: 19790327 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1994 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission File No. 0-4689 PENTAIR, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-0907434 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1500 County B2 West, Suite 400 St. Paul, Minnesota 55113-3105 (Address of principal executive offices) (Zip Code) (612) 636-7920 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of Registrant's only class of common stock on March 31, 1994 was 18,181,570. PENTAIR, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Management's Discussion and Analysis of Results of Operations and Financial Condition PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 4. Results of Votes of Security Holders Item 6. Exhibits and Reports on Form 8-K Signature Page Exhibit Index PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS
PENTAIR, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited) ($ expressed in thousands except per share amounts) Three Months Ended March 31 1994 1993 Net sales $389,252 $321,829 Operating costs Cost of goods sold 290,752 244,909 Selling, general and administrative 72,143 54,960 Total operating costs 362,895 299,869 26,357 21,960 Equity in joint venture income (loss) 378 (817) Operating income 26,735 21,143 Interest expense 8,424 5,591 Interest income 589 448 Income before income taxes 18,900 16,000 Provision for income taxes 7,800 6,500 Net income 11,100 9,500 Preferred dividend requirements 1,366 2,000 Earnings applicable to common stock $9,734 $7,500 Earnings per share: Primary $.53 $.45 Diluted $.52 $.44 Weighted average common and common equivalent shares: Primary 18,372 16,572 Diluted 21,006 20,895
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
March 31, December 31, ASSETS 1994 1993 Current assets Cash and cash equivalents $27,444 $10,327 Accounts receivable - net 245,718 200,425 Inventories Finished goods 141,959 122,712 Work in process 49,264 35,315 Raw materials 44,296 35,108 Supplies 5,734 5,691 Total inventory 241,253 198,826 Deferred income taxes 21,892 21,575 Other current assets 12,122 7,627 Total current assets 548,429 438,780 Property, plant and equipment 696,552 621,617 Less accumulated depreciation 322,237 305,751 Property, plant and equipment - net 374,315 315,866 Marketable securities - insurance subsidiary 17,865 18,594 Investment in joint ventures 75,238 72,867 Goodwill - net 169,129 88,970 Other assets 24,759 23,724 TOTAL ASSETS $1,209,735 $958,801 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $97,619 $93,820 Compensation and other benefits accruals 55,840 42,737 Income taxes 14,321 8,787 Accrued product claims and warranties 23,351 22,256 Accrued expenses and other liabilities 70,079 50,075 Current maturities of long-term debt 4,647 803 Total current liabilities 265,857 218,478 Long-term debt 420,926 238,856 Other liabilities 23,072 18,911 Deferred income taxes 7,731 7,518 Pensions and other retirement compensation 36,082 29,687 Postretirement medical and other benefits 60,837 60,637 Reserves - insurance subsidiary 15,684 13,865 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding: 1994 - 1,973,135 69,224 69,380 1993 - 1,976,443 Unearned compensation relating to ESOP (34,343) (35,453) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding: 1994 - 18,181,570 3,030 3,022 1993 - 18,134,638 Additional paid-in capital 164,740 163,460 Foreign currency translation adjustment (550) (287) Other - net (6,760) (6,760) Retained earnings 184,205 177,487 Total shareholders' equity 379,546 370,849 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,209,735 $958,801
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Three Months Ended March 31 March 31 1994 1993 Cash provided by (used for) Operating activities Net income $11,100 $9,500 Adjustments to reconcile to cash flow Depreciation 16,335 12,163 Amortization 1,384 620 Deferred income taxes (104) 86 Undistributed loss (earnings) from joint venture (378) 817 Changes in assets and liabilities, net of effects of acquisition Accounts receivable (22,332) (19,357) Inventories (15,419) (3,218) Accounts payable (1,995) (16,557) Income taxes 4,258 (880) Pensions and other retirement compensation 6,395 3,248 Reserves - insurance subsidiary 1,819 2,068 Other assets/liabilities - net 5,118 4,349 Net cash from (used for) operating activities 6,181 (7,161) Investing activities Capital expenditures (14,963) (12,841) Cash investment in joint venture - net (1,993) (1,500) Purchase of marketable securities - net 729 (2,069) Acquisition - net of cash acquired (140,116) 0 Net cash (used) for investing activities (156,343) (16,410) Financing activities Borrowings 175,384 24,853 Debt payments (5,951) (563) Unearned ESOP compensation decrease 1,110 1,125 Employee stock plans and other 1,373 1,359 Dividends paid (4,637) (4,706) Net cash provided for financing activities 167,279 22,068 Increase (decrease) in cash and cash equivalents 17,117 (1,503) Cash and cash equivalents - beginning of period 10,327 8,392 - end of period $27,444 $6,889
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1993, previously filed with the Commission. 2. The results of operations for the three months ended March 31, 1994 are not necessarily indicative of the operating results to be expected for the full year. 3. Income tax provisions for interim periods are based on the current best estimate of the effective federal, state and foreign income tax rates. 4. Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each period. The tax benefits applicable to preferred dividends paid to ESOPs are: for allocated shares, credited to income tax expense; and for unallocated shares, credited to retained earnings and are not considered earnings applicable to common stock. Fully diluted computations assume full conversion of each series of preferred stock into common stock, the elimination of preferred dividend requirements, and the recognition of the tax benefit on deductible ESOP dividends applicable to allocated shares payable based on the converted common dividend rate. Conversion was assumed during the portion of each period that the securities were outstanding. 5. The long-term debt is summarized as follows ($ millions):
March 31, December 31, 1994 1993 Revolving credit loans $174 $65 Private placement debt 160 160 Other 92 15 TOTAL 426 240 Current maturities (5) (1) Total long-term debt $421 $239
Debt agreements contain various restrictive covenants, including a limitation on the payment of dividends and certain other restricted payments. Under the most restrictive covenants, $69 million of the March 31, 1994 retained earnings were unrestricted for such purposes. 6. The Company uses the equity method of accounting for its Joint Ventures, Lake Superior Paper Industries (LSPI) and LSPI Fiber. First quarter operations are summarized as follows ($ millions):
1994 1993 Net Sales $39.1 $34.2 Operating Income (Loss) 1.8 (.9) Pre-Tax Income (Loss) .8 (1.6)
7. Statement of Cash Flows The following is supplemental information relating to the Statement of Cash Flows ($000's):
Three Months Ended March 31 1994 1993 Interest paid (net of capitalized interest) $8,992 $4,258 Income tax payments 3,241 6,396
All outstanding shares of the Pentair, Inc. $1.50 Cumulative Convertible Preferred Stock, Series 1987 were called for redemption on March 15, 1993. In lieu of redemption, substantially all of the preferred shares were converted into approximately 1,450,780 shares of common stock. This conversion is treated as a non-cash transaction. 8. Acquisition On February 28, 1994, the Registrant completed the purchase from Fried. Krupp Hoesch-Krupp of all of the net assets and business of the Schroff Group (Schroff), including the stock of its international subsidiaries, for $154 million paid in cash at closing, which includes $1.7 million in interest accrued from January 1, 1994, the economic transfer date. The operating assets of the Schroff manufacturing facilities in Germany were acquired by a new indirect German subsidiary of the Registrant, Schroff GmbH, subject to normal payables and accruals of the business. These assets were used by Schroff in the manufacture of cabinets, cases, subracks and accessories for the electronics industry. Schroff GmbH is continuing its predecessor's business and will use the assets in the same manner as before. The outstanding stock of all of the European subsidiaries of Schroff was acquired by a new wholly-owned subsidiary of the Registrant, EuroPentair GmbH, which also owns the stock of the new Schroff GmbH. The outstanding stock of the non-European subsidiaries of Schroff, which includes its U.S. subsidiary Schroff, Inc., was acquired by FC Holdings Inc., a wholly-owned U.S. subsidiary of the Registrant. Pro Forma Financial Information The Schroff operating results are included in the company's consolidated results from January 1, 1994. The following pro forma financial information assumes the acquisition occurred at the beginning of 1993. These results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisition been made at the beginning of 1993, or of the results which may occur in the future. (Unaudited)
Year Ended December 31, 1993 Net Sales $1,480.2 million Net Income $46.8 million Earnings Per Share Primary $2.27 Diluted $2.21
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the three months ended March 31, 1994 and 1993 follows ($ millions):
General Specialty Industrial Paper Joint General Products Equipment Products Ventures Corporate Total 1994 Net Sales $109.9 $187.1 $ 92.3 $0.0 $0.0 $389.3 Operating Income 11.4 16.7 4.2 0.4 (6.0) 26.7 Identifiable Assets 216.3 597.4 261.1 73.6 61.3 1,209.7 Depreciation 2.2 7.6 6.5 0.0 0.0 16.3 Capital Expenditures 2.4 6.2 6.4 0.0 0.0 15.0 1993 Net Sales $ 95.9 $128.2 $ 97.7 $0.0 $0.0 $321.8 Operating Income 9.6 9.5 6.7 (0.8) (3.9) 21.1 Identifiable Assets 192.1 379.7 235.3 59.0 29.9 896.0 Depreciation 1.9 4.1 6.1 0.0 0.1 12.2 Capital Expenditures 1.1 2.4 9.3 0.0 0.0 12.8
RESULTS OF OPERATIONS Pentair reported net income of $11.1 million, or 52 cents per fully diluted share, on consolidated net sales of $389.3 million for the three months ended March 31, 1994. This represented a 16.8 percent increase in net income and a 20.9 percent increase in sales over the first quarter of 1993. The first quarter 1993 net income was $9.5 million, or 44 cents per fully diluted share, on consolidated net sales of $321.8 million. Specialty Products Segment. Net sales increased $14.0 million and operating income increased $1.8 million with each company in the segment contributing to the improvement. The increases reflect new products and further expansion into major home center distribution channels. The poor Canadian economy and the effect of falling Canadian foreign exchange rates had a negative impact on Specialty Products results. General Industrial Equipment Segment. Sales increased $58.8 million and operating income increased $7.1 million. Schroff was a major contributor to the increased sales and operating income for the first three months of 1994. Electrical enclosure sales continued strong for the first quarter of 1994, assisted by the strength in durable goods spending in the U.S. Sporting ammunition sales were also higher and margins improved with lower raw material costs. Lubrication and material dispensing sales and profits were comparable to the prior year. The weakness of the European economy continues to impact the results of the Lincoln business. Paper Products Segment. Net sales decreased $5.4 million and operating income decreased $2.7 million. Coated groundwood paper volume was down 5.2% and prices were down 1.6% over the first quarter of 1993. Uncoated paper volume was down 3.9% and prices were down only .8%. Although prices in the market were down, lower raw material costs for the first two months of 1994 and operating efficiencies helped to offset the decrease. Joint Venture. Tons shipped were up 6.0% and prices were up 2.2%. This business continues to be influenced by worldwide industry overcapacity in both the lightweight coated and SCA markets. FINANCIAL CONDITION In 1994 as in 1993, net income adjusted for non-cash items provided much of the funds for seasonal working capital increases which consisted of accounts receivable dating programs and building of inventory levels. Borrowings financed some operating needs along with capital expenditures of $15.0 million in 1994 and $12.8 million in 1993. The percentage of long-term debt to total capital was 53% at March 31, 1994 compared to 39% at December 31, 1993, substantially all of which was due to the acquisition of Schroff during the first quarter of 1994. Revolving credit facilities were used to fund the acquisition of Schroff. The full year 1994 cash flow from operations is expected to be comparable to 1993. Working capital needs will grow as total sales increase. Capital expenditures are expected to be about $80-90 million in 1994 as compared to $73.4 million in 1993. Effective as of February 11, 1994, Pentair entered into revolving credit facilities with a group of six banks, Continental Bank N.A., Morgan Guaranty Trust Company of New York, J.P. Morgan Delaware, First Bank National Association, Norwest Bank Minnesota, N.A. and NBD Bank, N.A. Two parallel facility agreements provide for aggregate credit lines of $170 million divided among two bank groups. Pentair's outstanding Bid Loan Agreement with certain of these banks was amended in a related transaction. The facility agreements provide for revolving credits for a three-year period, unless extended, at the expiration of which period the outstanding loans are converted into a term loan having a four-year repayment period. The credit facilities are unsecured and include certain financial and other covenants on the part of Pentair. In addition, Pentair and its new subsidiary formed in connection with the Schroff acquisition, EuroPentair GmbH, entered into a 115 million Deutschmark (approximately US $65 million) facility agreement as of February 11, 1994 with Morgan Guaranty Trust Company of New York, Continental Bank N.A., NBD Bank N.A., and Dresdner Bank AG. EuroPentair's obligations under the Deutschmark agreement are guaranteed by the Registrant. This facility is similar to the two other domestic credit agreements, but provides for borrowings and repayments in German marks or certain other European currencies. This facility also provides for unsecured revolving loans for a three-year period with a similar term loan conversion and four-year repayment period. Substantially all of the available credit under this agreement was borrowed at the closing of the Schroff acquisition. The three revolving credit facilities discussed above replace previous credit agreements between Pentair and these banks for revolving credit in the aggregate amount of $225 million. Based upon current operating expectations, credit available under revolving credit facilities and private placements is adequate to cover seasonal working capital and long-term capital expenditure requirements. OUTLOOK In general, the Company is strong and well-positioned to continue its growth. The strong emphasis on product development and aggressive efforts at expanding distribution channels that helped during the recent weak economic cycle are expected to continue to grow market share and sales and profit growth. The company does not foresee a significant recovery in the European and Canadian economies in the short term. Such a recovery would have a favorable impact to some degree on future results. In all businesses, sales are expected to respond to new products and enhanced customer service. In particular, sales in the Specialty Products segment should benefit from a continued focus on market expansion through new distribution channels such as homecenter chains and lumberyards. Certain businesses have reduced product and operating costs over the last few years, so profitability should respond positively to increased sales. In the paper industry, some paper manufacturers have taken downtime to cut inventories. This may reduce domestic industry capacity, helping to correct the current supply-demand imbalance. In the premium paper industry, marketing and distribution strategies emphasizing high demand recycle specialty grades and prompt delivery of value-added product have been put in place and continue to contribute to profitability. Signs of price increases in Europe may help the SCA and LWC markets, if the European manufacturers withdraw tonnage from the U.S. markets and redirect it to their home markets. PART II - OTHER INFORMATION ITEM 1 -Legal Proceedings McNeil (Ohio) Corporation. F.E. Myers (Myers), a division of McNeil (Ohio) Corporation, three other pump manufacturers and a distributor were sued on April 18, 1994 by two environmental groups pursuant to California Health and Safety Code Section 25249 (Proposition 65) and the Unfair Practices Act, Business and Professions Code Section 17200. Basic information concerning this matter was previously reported in the Company's Form 10-K for the year ending December 31, 1993. The lawsuit alleges violations of California law arising from discharge of lead from submersible water pumps into drinking water. Claims have been made for injunctive relief, statutory penalties and damages. Myers was not sued in a separate Proposition 65 suit filed by the State of California against the three other pump manufacturers. Based on the information currently known, the Registrant believes that this matter is unlikely to result in material liability. ITEM 4 -Results of Votes of Security Holders (a)The annual meeting of shareholders was held on April 20, 1994. (c)The only matters voted upon at the annual meeting were the election of directors and the approval of auditors. The vote tallies are as follows: DIRECTORS: C. A. Haggerty H. V. Haverty D. E. Nugent FOR 17,674,305 17,676,382 17,652,285 WITHHELD 134,456 132,379 156,476 AUDITORS: Deloitte & Touche FOR 17,568,967 AGAINST 92,616 ABSTAIN 147,718 BROKER NON-VOTES 0 ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description Number 11 Calculation of Earnings per Common and Common Equivalent Share (b) Reports on Form 8-K. A report on Form 8K was filed on January 4, 1994 disclosing the definitive agreement to acquire the Schroff Group from Fried. Krupp AG Hoesch-Krupp of Germany. A Form 8K/A (Amendment to Form 8K which was filed on January 4, 1994) was filed on January 10, 1994 disclosing the purchase agreement for the transaction. A report on Form 8K was filed on March 14, 1994 reporting the completion of the acquisition. A Form 8K/A (Amendment to Form 8K which was filed on March 14, 1994) was filed on May 13, 1994 disclosing the financial statements of the business acquired (Schroff) and the pro forma financial information for Pentair and Schroff. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. /s/ David D. Harrison Senior Vice President and Chief Financial Officer May 13, 1994 EXHIBIT INDEX Exhibit Number 11 Calculation of Earnings per Common and Common Equivalent Share EX-11 2 EXHIBIT 11 PENTAIR, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Quarter Ended March 31 1994 1993 INCOME ($ thousands) Net income $11,100 $9,500 Preferred dividend requirements 1,366 2,000 Earnings available to common and common equivalent shares - Primary 9,734 7,500 Preferred dividends assuming conversion of Preferred Stock: Series 1987 0 620 Series 1988 256 255 Series 1990 1,110 1,125 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (264) (212) Tax benefit on ESOP dividend assuming con- version to common, at common dividend rate 92 71 Earnings available for common and common equivalent shares - Diluted $10,928 $9,359 SHARES (thousands) Weighted average number of shares outstanding during the period 18,169 16,394 Shares issuable on exercise of stock options less shares repurchaseable from proceeds 203 178 Common and Common Equivalent Shares - Primary 18,372 16,572 Shares issuable on conversion of: $1.50 Cumulative Convertible Preferred Stock, Series 1987 0 1,660 $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 513 530 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 2,121 2,133 Common and Common Equivalent Shares - Diluted 21,006 20,895 EARNINGS PER SHARE: PRIMARY $.53 $.45 DILUTED .52 .44
All share and per share data adjusted for 50% stock dividend in June 1993. -----END PRIVACY-ENHANCED MESSAGE-----