10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 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 (State or other jurisdiction of incorporation or organization) 41-0907434 (I.R.S. Employer Identification No.) 1500 County Road B2 West, Suite 400, Saint Paul, Minnesota 55113-3105 (Address of principal executive offices) (Zip Code) (612) 636-7920 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: 1) Common Stock, Par Value $.16 per share 2) Rights (Title of Class) 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 Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. The aggregate market value of voting stock held by nonaffiliates of the Registrant on February 21, 1995 was $730 million. For purposes of this calculation, all shares held by officers and directors of the Registrant and by the trustees of employee stock ownership plans (ESOPs) and pension plans of the Registrant and subsidiaries were deemed to be shares held by affiliates. The number of shares outstanding of Registrant's only class of common stock on February 21, 1995 was 18,316,470. DOCUMENTS INCORPORATED BY REFERENCE The following portions of the Annual Report to Shareholders for the year ended December 31, 1994 and Proxy Statement for the 1995 Annual Meeting of Shareholders are incorporated by reference as the Item of this Form 10-K indicated. Part of Form 10-K Portion of Annual Report Part I, Item 1. Business - Pages 29 and 53: Financial information Business Segment about industry segments, Information; foreign operations, research Page 41: Research and and development and Development; environmental matters. Page 33: Environmental Matters and Page 44: Commitments and Contingencies-(Note 9) Part II, Item 5. Market for Page 54: Pentair Stock Registrant's Common Equity Data, Price Range and and Related Stockholder Dividends of Matters. Common Stock. Part II, Item 6. Selected Page 55: Selected Financial Data. Financial Data - 10 Year Summary. Part II, Item 7. Management's Pages 26-33: Discussion and Analysis of Management's Financial Condition and Discussion and Analysis. Results of Operations. Part II, Item 8. Pages 34-53: Financial Consolidated Statement Statements and of Income, Balance Supplementary Data. Sheet and Statement of Cash Flows, related Notes, Report of Independent Auditors and Quarterly Financial Data. Portion of Proxy Statement Part III, Item 10. Directors Pages 2-5: Security and Executive Officers Ownership of of the Registrant. Management and Beneficial Ownership; Pages 5-7; Directors Standing for Election. Part III, Item 11. Pages 15-23: Executive Executive Compensation. Compensation. Part III, Item 12. Security Pages 2-5: Security Ownership of Certain Beneficial Ownership of Management and Owners and Management. Beneficial Ownership. PART I Item 1. Business (a) General Development of the Business. The Registrant was incorporated in 1966 under the laws of Minnesota. In the past year, the Registrant has not changed its form of organization or mode of conducting business. The Registrant grows through internal development and acquisitions. As in the past, periodic dispositions of assets or business units are possible when they no longer fit with the long-term strategies of the Registrant. Effective January 1, 1994, the Registrant acquired the net assets and the subsidiaries of Schroff GmbH (Schroff) from Fried. Krupp AG Hoesch-Krupp for a cash purchase price of approximately $140 million net of cash acquired. Schroff manufactures and sells enclosures, cases, subracks and accessories for commercial electronic and instrumentation applications, with world-wide 1993 sales of approximately $160 million. While Schroff faces significant competition in each of its markets, it is the largest manufacturer of electronic enclosures and 19 inch subracks in the European market, in which the majority of Schroff sales are made. The Registrant views Schroff as complementary to the electrical enclosure business of Hoffman Engineering and intends to develop these businesses using their respective strengths in technology, manufacturing, marketing and market position. In September 1994, Pentair announced that it was exploring strategic alternatives for its paper businesses, including their possible sale. That course of action was chosen to achieve several objectives. First, to permit Pentair to focus its commitment and resources in the industrial products sector, continuing the strong growth and leading market positions these businesses have achieved. Second, to permit the paper businesses to seek their own opportunities and long-term goals. Third, to make Pentair a more understandable company to the investment community and its shareholders. That process is ongoing. In February 1995, Pentair announced the sale of its uncoated paper business, Cross Pointe Paper, to Noranda Forest for approximately $200 million. The sale is expected to close at the beginning of April 1995. Efforts continue toward completing the strategic alternatives for Niagara of Wisconsin and for the joint venture interest in Lake Superior Paper Industries, the company's other paper businesses. Pentair expects that its strategic refocusing will be completed in the course of 1995. Whatever the eventual outcome, Pentair is poised to aggressively expand into its chosen industrial markets. (b) Financial Information about Industry Segments. The Registrant's business is conducted in three industry segments. The Specialty Products segment manufactures woodworking machinery; portable power tools; and pumps and pumping systems. The General Industrial Equipment segment manufactures electrical and electronic enclosures and wireways; industrial lubricating systems and material dispensing equipment; automotive service equipment; and sporting ammunition. The Paper Products segment manufactures printing papers in a variety of types and grades. Business segment financial information is found on page 29 and pages 52-53 (Note 18) of the 1994 Annual Report to Shareholders. Narrative Description of Business. Description of the Specialty Products Segment: Products and marketing. The following table sets forth, for each of the last three years, the Specialty Products segment product class net sales in excess of 10 percent of the Registrant's consolidated net sales .
1994 1993 1992 Stationary and Portable Power Tools 22% 24% 24% Total Segment 28% 31% 31%
Woodworking Machinery. The Registrant, through its subsidiary Delta International Machinery Corp. (Delta), manufactures, markets, and services a line of general-purpose woodworking machinery, such as saws, planers, joiners, grinders, drill presses, shapers, lathes, and other quality machines. Delta sells its products in the United States, Canada, and other foreign countries under its "Delta" brand name through a network of independent and mail order distributors, hardware stores and home centers. Portable Electric Tools. The Registrant, through its subsidiary Porter-Cable Corporation (Porter-Cable), manufactures and markets a variety of portable electric tools, such as saws, sanders, drills and routers, used in woodworking, industrial maintenance, and construction trades. Porter-Cable markets its products under the brand name "Porter-Cable" through a network of independent, specialty tool, and mail order distributors, hardware stores and home centers. Pumps and Pumping Systems. The Registrant, through its F.E. Myers Co. Division of McNeil (Ohio) Corporation (Myers), manufactures and markets a wide variety of pumps for residential, environmental engineering, and industrial use. Products are distributed through a network of distributors, wholesalers, dealers, and installers. In addition, Myers distributes products to the do-it-yourself market for retail sale through home centers and hardware stores under the names "Water Ace" and "Shur Dri". Competitive conditions. Delta participates in the middle range of the overall market for general purpose woodworking machinery. The addressed market is focused on high quality, feature oriented products and value added services for the home shop, contractor, and small shop markets. Delta markets the industry's broadest line of products for its addressed market. Delta's numerous competitors do have individual products which compete with certain of Delta's products. Competition in this market focuses on quality, features, service and price. Porter-Cable competes in the professional portable electric tool market which is highly competitive. Porter-Cable faces several major competitors across its addressed market. Product innovation, features, performance, quality, service, delivery and price are all competitive factors. Myers addresses the water pump and system market. Myers faces many competitors across its product lines. Price, delivery, and quality are competitive factors. Description of the General Industrial Equipment Segment: Products and marketing. The following table sets forth, for each of the last three years, the General Industrial Equipment segment product class net sales in excess of 10 percent of consolidated net sales.
1994 1993 1992 Electrical and Electronic Enclosures 28% 18% 17% Sporting Ammunition 9 10 10 Total Segment 48% 40% 39%
Electrical Enclosures. Through the Hoffman Engineering Company division of Federal-Hoffman, Inc. (Hoffman Engineering), the Registrant manufactures enclosures and wireways for electrical and industrial instrumentation applications and markets these products primarily through independent manufacturer's representatives and electrical and electronic equipment distributors throughout North America and the United Kingdom. Electronic Enclosures. Through Schroff GmbH and its international subsidiaries (Schroff), the Registrant manufactures enclosures and wireways for electronic instrumentation applications. Schroff is a large European manufacturer of cabinets, cases, subracks, microcomputer packaging systems and accessories. Schroff serves the worldwide industrial electronics industry including key segments such as computers, test & measurement, private LANs/data communication, industrial control and factory automation, medical and telecommunications. Sporting Ammunition. Through the Federal Cartridge Company division of Federal-Hoffman, Inc. (Federal Cartridge), the Registrant manufactures and markets sporting and law enforcement ammunition, and components. These products are distributed throughout the United States through a network of distributors; directly to large retail chains; and directly to law enforcement agencies (governmental). Industrial Lubricating Systems and Material Dispensing Equipment. The Registrant, through its Lincoln Industrial division of McNeil (Ohio) Corporation (Lincoln Industrial), manufactures components and designs systems for manual and automatic delivery of measured quantities of lubricants for industrial applications. Lincoln Industrial also manufactures components and designs, fabricates, and installs high-volume liquid and semi-solid dispensing systems. Both segments serve original equipment and retrofit markets. Lubricating and materials dispensing systems are marketed in the United States by approximately 100 specially qualified systems distributors with design, installation, and service capability. Basic lubricating equipment and accessories are marketed through industrial supply and specialty distributors. A special direct sales group markets a wide variety of Lincoln Industrial products to original equipment manufacturers in a variety of industries. Lincoln Industrial also manufactures lubricating components and systems at its facility in Walldorf, Germany for distribution to European, Middle East, Far East and African markets, and to a lesser extent to the United States. The remainder of the world market, including the Pacific Rim, is served from Lincoln Industrial's St. Louis, Missouri manufacturing facility. Automotive Service Equipment. The Registrant, through its Lincoln Automotive division of McNeil (Ohio) Corporation (Lincoln Automotive), manufactures and markets lubrication, repair, and service equipment for a broad range of vehicles. Products are sold through a key group of approximately 600 aftermarket wholesalers. Certain products are sold to large auto parts chain stores. Certain lubricating equipment, tools, and jacks and lifting equipment are sold under private label programs. Garage, service station, car dealership service department, and fast oil change lubricating systems are marketed through petroleum equipment and service distributors with design and installation capability. Competitive conditions. Hoffman Engineering is the largest North American manufacturer of electrical enclosures and wireways, having a market share estimated to be about 25%. It is currently the only manufacturer with national distribution and its competitors are generally smaller, regional manufacturers. Hoffman Engineering also participates in the North American electronic enclosures market, facing competition from a large number of firms, with three or four established firms leading the market. In both markets, the most significant competitive factors are price, product innovation, service, quality, breadth of product line, and delivery. Schroff is a large manufacturer in Europe's electronic enclosure market and a technical leader. Schroff, like Hoffman, has a comprehensive product range. Schroff faces competition from a large number of firms, some very large and some smaller. Significant competitive factors are product innovation and quality. Federal Cartridge and its two primary competitors, Winchester and Remington, have a combined market share of approximately 90% in the U.S. sporting ammunition market, with the balance coming from smaller domestic competitors and foreign ammunition manufacturers. Quality, delivery, price and terms are significant competitive factors. Lincoln Industrial and Lincoln Automotive face three to five major competitors and several smaller competitors across their product lines. Competition involving industrial lubricating systems and material dispensing equipment tends to center around quality, systems capability, and application knowledge. Price becomes a more significant competitive factor for vehicle servicing equipment. Description of the Paper Products and Joint Venture Segments: Products and marketing. The following table sets forth, for each of the last three years, the Registrant's net sales ($ millions), percent of consolidated net sales and tons shipped (thousands) for each paper product class.
Years Ended December 31, 1994 1993 1992 $ % Tons $ % Tons $ % Tons Coated 150.8 9 236 147.8 11 227 143.7 11 237 Uncoated 236.7 15 234 233.8 18 227 231.0 19 223 Consolidated 387.5 24 470 381.6 29 454 374.7 30 460 Supercalendered1 76.1 121 71.5 116 75.1 111 Total 463.6 591 453.1 570 449.8 571
fn1 Lake Superior Paper Industries is a joint venture in Duluth, Minnesota; only 50% of the joint venture's sales and tonnage are included. Since this joint venture is accounted for on the equity method, its sales are not included in consolidated sales. Coated Paper. The Registrant, through its subsidiary Niagara of Wisconsin Paper Corporation (Niagara), manufactures coated groundwood publication-grade paper (nos. 4 and 5) used for applications requiring high-resolution printing and reproduction of color pictures, such as magazines, periodicals, catalogs, and general commercial printing. Uncoated Papers. Cross Pointe Paper Corporation (Cross Pointe), a subsidiary of the Registrant, through its subsidiaries, Miami Paper Corporation, Dayton Paper Corp. and Flambeau Paper Corp., manufactures a variety of uncoated papers, primarily for commercial printing, text and cover, and book publishing markets, and operates a centralized converting and distribution operation (IDC) in West Chicago, Illinois. Supercalendered (SCA) Printing and Publication Grade Papers. The Registrant has a 50% interest in a joint venture, Lake Superior Paper Industries (Lake Superior), which produces supercalendered paper known as SCA. End use markets include magazine publication, catalogues and advertising inserts. SCA is sold directly to printers and end users through Lake Superior's own sales and marketing personnel. Adjacent to Lake Superior, is a recycled pulp mill facility, of which 24% is owned by LSPI Fiber Co. Registrant owns 50% of LSPI Fiber Co. and accounts for it on the equity method. LSPI Fiber Co. sells recycled pulp to LSPI and other paper mills. Competitive conditions. The Paper Products segment output of Niagara and Cross Pointe is sold in highly competitive markets with between 10 to 15 competitors in each. Many competitors have greater production capacity and, in many cases, captive sources of raw materials. Lake Superior is the largest North American producer of SCA, but is subject to substantial competition from European manufacturers, and makers of other grades of printing and publication paper. Price, quality, innovation and service are significant competitive factors in the markets served by the Paper Products segment. Raw materials. The raw materials used in the manufacture of paper are bleached kraft pulps, pulp substitutes, pulpwood, groundwood pulp, waste paper, certain chemicals, clays, starches, and additives. The Registrant does not own its own timberlands or manufacture its own kraft pulp. Purchases of kraft pulp and waste paper are significant components of the Registrant's fiber needs. The raw materials are supplied by several manufacturers, some under long-term contracts. The balance of fiber needs, comprised primarily of groundwood pulp, sulphite pulp and secondary fiber (pulp recovered by recycling waste paper), is produced at the various mills. The Registrant has recently installed or expanded its recycled fiber capacity at its Cross Pointe mills and has invested in a joint venture recycled pulp facility in Duluth, Minnesota. The Registrant also purchases chemicals, clays, logs for pulp, waste paper, and other paper-making components from various sources. Adequate supplies of these materials are expected to be available to meet the Registrant's needs. Backlog. The following table shows backlog (in days) and approximate sales value (at average selling price) at December 31:
1994 1993 1992 Days ($000) Days ($000) Days ($000) Coated Paper 30 $14,308 8 $ 3,175 17 $ 6,808 Uncoated Paper 40 27,666 8 5,442 5 3,210 Supercalendered Paper 44 19,457 32 12,494 35 15,066
A substantial portion of paper sales are produced to meet specific customer orders. Although the level of backlogs provides some indication of the strength of the paper markets, other factors such as the trend of retail sales and customer and printer inventory levels must be considered. The current backlog is considered adequate. All backlogs are expected to be filled within the current year. Information Regarding All Segments: Working capital items. Federal Cartridge's working capital builds from January through September as inventories are increased to meet third quarter shipping schedules and receivables increase due to fall dating for early order programs used in the sporting ammunition business. Management continues to focus on reducing working capital requirements through management of receivable and inventory levels. Status of new products. The industries in which the segments participate are essentially mature and do not experience the introduction of many products that materially change the nature of the industry. Individual manufacturers generally make improvements or apply new technologies to existing products. Raw materials. The raw materials used in the manufacturing process include steel(bar and sheet) various metals including brass and lead, gunpowder and plastic. Selected motors, castings, plastic parts and components are also purchased. The supply of all raw materials and components is currently adequate. Delta and Porter-Cable import select tools in their product offerings. Design and engineering of these products is performed primarily by Delta. The manufacturing process is controlled and monitored for most of these products in factories dedicated to Delta production. Supply of these products is currently adequate and timely. Patents, trademarks, licenses, franchises and concessions. The businesses own a number of U.S. and foreign patents and trademarks. They were acquired over many years and relate to many products and improvements. No one patent or trademark is of material importance to the company as a whole. Seasonal aspects. For the Registrant as a whole there is no strongly seasonal aspect. Backlog. The Specialty Products and General Industrial Equipment segments normally do not experience backlogs for substantial periods of time. The nature of the businesses emphasizes maintaining inventories sufficient to satisfy customer needs on a timely basis, and production and sourcing is geared towards providing adequate inventories in order to minimize customer back orders. Accordingly, backlogs are not material to understanding the sales trends or manufacturing fluctuations of the segment. Dependence on limited number of customers. The Registrant as a whole is not dependent on a single customer or on a few customers. The loss of a limited number of customers would not have a material adverse impact on the Registrant. Government contracts. The Registrant has no material portion of sales under government contracts that may be subject to renegotiation of profits or termination of contracts at the election of the government. Employees. As of December 31, 1994, the Registrant and its subsidiaries employed approximately 10,300 persons, of which 2,475 were represented by unions having collective bargaining agreements. Labor contracts negotiated in 1994 were: Molders and Allied Workers Local 45 - Ashland, Ohio (extended to May 1, 1997), 49 employees; Clerical Workers Local 47 - Niagara, Wisconsin (extended to May 14, 1997), 25 employees; and Molders and Allied Workers Local 19 - Guelph, Ontario, Canada (extended to July 1, 1997) 7 employees. Contracts expiring in 1995: International Association of Machinists Local 59 - Ashland, Ohio (expires April 6, 1995); United Paperworkers International Union Local 1166 - Niagara, Wisconsin (was extended from January 31, 1995 and now expires April 30, 1995); International Association of Machinists Local 9 - St. Louis, Missouri (expires April 30, 1995); United Steel Workers of America Local 8630 - Tupelo, Mississippi (expires May 1, 1995); Patternworkers League - Ashland, Ohio (expires September 1, 1995); and Teamsters Local 984 - Memphis, Tennessee (expires December 15, 1995). The Registrant considers its employee relations to be good and feels future contracts can be negotiated for the benefit of the business and the employees. (d) Financial Information about Foreign Operations. The Registrant operates primarily in North America and Europe. See discussion of foreign operations incorporated by reference. Item 2. Properties The Registrant's corporate offices, located at 1500 County Road B2 West, St. Paul, Minnesota 55113-3105, are leased and consist of approximately 22,000 square feet; the lease expires in December 1999. The Registrant also has an option to terminate the lease during the period December 1994 to June 1995. Information about the Registrant's principal manufacturing facilities and other properties is presented below by industry segment. These facilities are adequate and suitable for the purposes they serve. Unless noted all facilities are owned. Specialty Products Segment
SUBSIDIARY/ APPROXIMATE DIVISION LOCATION PRIMARY USE SQUARE FEET Porter-Cable Jackson, Manufacturing, 357,000 Tennessee(1) Distribution, and Office Delta Pittsburgh, Office and 34,000 Pennsylvania(2) Product Development Tupelo, Manufacturing 333,000 Mississippi and Office Memphis, Distribution 245,000 Tennessee(3) and Office Guelph, Distribution 57,000 Ontario(4) and Office Taichung, Office and 1,000 Taiwan Product Development F.E. Myers Ashland, Manufacturing, 412,000 Ohio Distribution, and Office Kitchener, Distribution 26,000 Ontario and Office NOTES: (1) Leased for a five-year term expiring in 1998. (2) Currently leased under a month-to-month lease while a longer term lease is negotiated. (3) Leased for a five-year term expiring in 1996. (4) Leased under a three-year lease which expired in 1991, which is being renewed under one-year options (limited to seven one-year periods). General Industrial Equipment Segment SUBSIDIARY/ APPROXIMATE DIVISION LOCATION PRIMARY USE SQUARE FEET Hoffman Anoka, Manufacturing 814,000 Engineering Minnesota and Office Brooklyn Center, Manufacturing 128,000 Minnesota(1) and Office Reynosa, Mexico Manufacturing 90,000 Hoffman U.K. Hemel , Manufacturing 37,000 Hempstead, England(8) Hoffman U.K. Hemel Manufacturing 22,000 Hempstead, England(6)(8) Federal Anoka, Manufacturing 679,000 Cartridge Minnesota and Office Richmond, Manufacturing 41,000 Indiana and Office Lincoln Industrial St. Louis, Manufacturing 565,000 Missouri and Office Walldorf, Manufacturing 117,000 Germany and Office Lincoln Automotive Jonesboro, Manufacturing 426,000 Arkansas(2) and Office Nogales, Sonora Manufacturing 35,000 Mexico(3) Mississauga, Distribution 30,000 Ontario and Office Schroff GmbH Straubenhardt, Manufacturing 523,000 Germany(4) Schroff S.A. Betschdorf, Manufacturing 210,000 France(5) and Warehouse Schroff U.K. Hemel Manufacturing 37,000 Hempstead, England(8) Schroff U.K. Hemel Manufacturing 22,000 Hempstead, England(6)(8) Schroff, Inc. Warwick, Manufacturing 80,000 Rhode Island and Office Warwick, Office and 18,000 Rhode Island(7) Assembly Schroff K.K. Meiwa-Cho, Manufacturing 23,500 Japan NOTES: (1) Leased for a 25-year term expiring in 1996, with options to renew for two ten-year terms. (2) Includes approximately 51,000 sq. ft. warehouse and 3,000 sq. ft. office leased for a three-year term which expires in 1995. (3) Leased for a six-year term expiring in 1999. (4) A small portion of this total facility has been leased for a 30-year term expiring in 2011. (5) Leased under two lease agreements expiring in 2002 and 2005. Both leases include a purchase option. (6) Leased for a twenty-year term expiring in 2011. (7) Leased for a ten-year term expiring in 2000. This lease includes a purchase option. (8) Facilities are shared by Schroff U.K. & Hoffman U.K. Total area is 59,000 square feet. Paper Products Segment ANNUAL CAPACITY SUBSIDIARY/ OF MILL DIVISION LOCATION PRIMARY USE IN NET TONS Niagara Niagara, Manufacturing 235,000 Wisconsin(1) and Office Cross Pointe St. Paul, Office Minnesota(2) West Chicago, Distribution and Illinois(3) Paper Converting West Carrollton, Manufacturing 110,000 Ohio and Office Park Falls, Manufacturing 125,000 Wisconsin(4) and Office Dayton, Manufacturing 45,000 Ohio and Office Lake Duluth, Manufacturing 240,000 Superior Minnesota(5) and Office
NOTES: (1) Certain pulp and paper production equipment is leased. One lease expires in 1996 with options to renew for two terms of three years each. Another lease expires in 1999 with options to renew for three terms of two years each. The third lease expires in 2006 with an option to purchase after seven years and options to renew for up to eight years . Under each lease, Niagara has the option to purchase the equipment at the then-current market value at the end of the initial term or at the end of each renewal term. (2) Consists of 10,700 square feet of space under a lease expiring in 1997. (3) Consists of 202,000 square feet under a lease expiring in 1998 and 253,000 square feet under a lease expiring in 2001. (4) The Flambeau mill power plant is leased until 2007 with options to renew for three terms of five years each. (5) The production equipment is leased under 25-year leases through 2012 with options to renew for periods of five to seven years and options to purchase the equipment in 1997, and at the expiration of the lease term and of any renewal term. Item 3. Legal Proceedings. The Registrant or its subsidiaries have been made parties to actions filed, or have been given notice of potential claims, relating to the conduct of its business, including those pertaining to product liability, environmental and employment matters. Major matters which may have an impact on the Registrant are discussed below. The Registrant believes that it is remote that the outcome of such matters will have a material adverse effect on the Registrant's financial position or future results of operations, based on current circumstances known to the Registrant. Federal-Hoffman, Inc. Federal Cartridge, a division of Federal-Hoffman, has been named by the EPA as a Potentially Responsible Party (PRP) in connection with a waste disposal site in Greer, South Carolina. The EPA issued an administrative order effective April 29, 1992 to Federal-Hoffman and 96 other entities to compel the cleanup of the Aqua-Tech Environmental, Inc. site. Federal-Hoffman is working with a group of other PRPs to negotiate with the EPA regarding the cleanup of the site. A surface cleanup of the site is complete. Under interim allocations by the PRP group, Federal Cartridge paid $442,000 toward the cost of the surface cleanup. Under current final allocation proposals, Federal-Hoffman anticipates no additional payout for the surface cleanup. On March 16, 1995, the EPA notified Federal Cartridge that it is a PRP related to the subsurface of the site. The PRP group anticipates beginning a study of the soil and groundwater to determine the extent of subsurface contamination. The cost of such study, any necessary remediation and the size of allocation, if any, to Federal-Hoffman is unknown to the Registrant at this time. Federal-Hoffman however, anticipates its allocation in the subsurface action to be positively impacted by the nature of its waste and the fact that virtually all of its waste was accounted for and removed during the surface remediation. In October 1992, Hoffman Engineering, a division of Federal-Hoffman was also named as a PRP in connection with the Aqua-Tech site. Hoffman settled out of the surface removal as a de minimis party, and anticipates doing the same for the subsurface remediation. Based on current information available to it, the Registrant believes that this matter is unlikely to result in material future liability. Porter-Cable Corporation. In November 1993, the Tennessee Department of Environment and Conservation (TDEC) issued to Porter-Cable Corporation (Porter-Cable) and Rockwell International Corporation (Rockwell) an administrative order requiring them to investigate, and if necessary, clean up alleged groundwater contamination at a manufacturing facility located in Madison County, Tennessee. The facility was acquired by Porter Cable from Rockwell in 1981. Porter Cable is currently engaged in discussions with Rockwell to reach an agreement regarding indemnification from or cost sharing with Rockwell, based upon Tennessee and Federal law, for costs and expenses related to investigation of the site. The Registrant believes that this matter is unlikely to result in material liability or material changes in operations. No estimate of the projected response cost liability can be made based on information currently known to the Company. Cross Pointe Paper Corporation. In February 1994, the Miami mill (Miami) of Cross Pointe Paper Corporation was named a PRP in connection with the IWD/Cardington landfill in Moraine, Ohio. Waste haulers with whom Miami contracted to transport its flyash and paper and wood waste allegedly took it to this landfill for some time prior to its closure in 1980. The EPA has identified 22 other PRPs at this time. The cost of remediation of the site is estimated to be approximately $12 to $15 million. Miami is investigating its alleged involvement at this site. Niagara of Wisconsin Paper Corporation. In March 1994, Niagara of Wisconsin Paper Corporation (Niagara) was notified by the Michigan Department of Natural Resources (MDNR) that Niagara's sludge lagoons violate MDNR regulations. Niagara is discussing with the MDNR the closure schedule of the lagoons and the need for expanded groundwater monitoring at the site. Monitoring done to date indicates some groundwater contamination, but at this time the extent is unknown. It is likely that some remediation will be required; but the Registrant does not anticipate that the cost of any such remediation will have a material impact on Registrant's financial condition or operations. California Proposition 65 Notice. Two divisions of Registrant's subsidiaries have received notices pursuant to California Health and Safety Code Section 25249 (Proposition 65). In February 1994, F.E. Myers (Myers), a division of McNeil (Ohio) Corporation, received a notice regarding alleged violations arising from discharge of lead from submersible water pumps into drinking water since February 27, 1988. Two private environmental groups sent the notice to and subsequently filed suit against Myers and three other pump manufacturers and one pump distributor. Under Proposition 65, the penalty for each violation is $2,500 per day. Myers is responding to the claims raised in the lawsuit. In light of a recent settlement proposal by plaintiffs, Registrant believes that it is unlikely that this matter will result in material liability. In October 1994, Federal Cartridge (Federal), a division of Federal-Hoffman, Inc. received a notice regarding alleged violations of Proposition 65 arising from exposure of firearm users to lead from ammunition. A private environmental group sent the notice to Federal and 75 other ammunition and firearms manufacturers and sellers. Federal is currently investigating the claims set forth in this notice. Product Liability Claims. As of March 4, 1995, the Registrant or its subsidiaries are defendants in approximately 177 product liability lawsuits and have been notified of approximately 100 additional claims. The Registrant has had and currently has in place insurance coverage it deems adequate for its needs. A substantial number of these lawsuits and claims are insured by Penwald, a regulated insurance company wholly owned by Registrant. See discussion in Item 7 (MD&A - Insurance Subsidiary) and Item 8 (Note 1 to the Financial Statements). Accounting reserves covering the deductible portion of liability claims not covered by Penwald have been established and are reviewed on a regular basis. The Registrant has not experienced unfavorable trends in either the severity or frequency of product liability claims. Item 4. Submission of Matters to a Vote of Security Holders. During the fourth quarter, no matter was submitted to a vote of security holders. PART II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. Item 6. Selected Financial Data. Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operation. Item 8. Financial Statements and Supplementary Data. For information required under Items 5 through 8, see the Registrant's Annual Report to Shareholders for the year ended December 31, 1994, as referenced on page 2 of this report. Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. No changes in accountants or disagreements between the Registrant and its accountants regarding accounting principles or financial statement disclosures have occurred within the 24 months prior to the date of the Registrant's most recent financial statements. PART III Item 10. Directors and Executive Officers of the Registrant. EXECUTIVE OFFICERS OF THE REGISTRANT The following are the executive officers of the Registrant. Their term of office extends until the next annual meeting of the Board of Directors, scheduled for April 19, 1995, or until their successors are elected and have qualified. Winslow H. Buxton 55 Chairman since January 15, 1993; President and Chief Executive Officer since August 1992; Chief Operating Officer, August 1990 - August 1992; Vice President - Paper Group, January 1989 - August 1990. Wilson Blackburn 42 Vice President, Paper Operations since September 1994; President, Cross Pointe Paper Corporation (subsidiary of Registrant) since September 1994; President, Lake Superior Paper (joint venture of Registrant), April 1993 - September 1994; President and CEO of PWA Rolland Decor Inc., 1990-1993; Vice President, Operations, Rolland Inc., 1989-1990. (In connection with the sale of Cross Pointe Paper Corporation to Noranda Forest, Mr. Blackburn has resigned effective April 1, 1995.) Richard J. Cathcart 50 Executive Vice President, Corporate Development since March 6, 1995; Vice President, Business Development of Honeywell, Inc. 1994 - March 1995; Vice President and General Manager of Honeywell's Worldwide Building Control Division 1992 - 1994; Vice President and General Manager, Honeywell's U.S. Operations of Building Control Division, 1988-1991. Joseph R. Collins 53 Senior Vice President - Specialty Products since August 1991; Acting Chief Financial Officer, June 1993 - March 1994; President, Delta International Machinery Corporation (subsidiary of the Registrant), October 1984 - August 1991. David D. Harrison 47 Senior Vice President and Chief Financial Officer since March 1994; Vice-President, Finance and Information Technology of the GE Canada Appliance Component subsidiary of General Electric, August 1992 - March 1994; and Vice President, Finance and Deputy Executive Officer of the GE Europe Lighting Component subsidiary of General Electric, January 1990 - July 1992. Ronald V. Kelly 58 Senior Vice President - Long Range Planning since September 1994; Senior Vice President - Paper Products, August 1991 - September 1994; Vice President - Specialty Products, March 1989 - August 1991. Gerald C. Kitch 57 Senior Vice President - General Industrial Equipment since August 1991; Vice President - General Industrial Equipment, March 1989 - August 1991. Debby S. Knutson 40 Vice President, Human Resources since September 1994; Assistant Vice President, Human Resources , August 1993 - September 1994; Vice President, Human Resources of Hoffman Engineering (division of Registrant) July 1990 - August 1993; Director of Human Resources at Hoffman, December 1988 - July 1990. Allan J. Kolles 63 Senior Vice President and Assistant to the Chief Executive Officer since August 1994; Vice President, Human Resources, March 1985 - August 1994. Roy T. Rueb 54 Vice President, Treasurer since October 1986 and Secretary since June 1994. Mark T. Schroepfer 48 Vice President Finance and MIS since June 1994; Vice President, Controller, January 1990 - June 1994. There is no family relationship between any of the executive officers or directors. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. For information required under Items 11 and 12, see the Registrant's Proxy Statement for the 1995 Annual Meeting of Shareholders referenced on page 2 of this report. Item 13. Certain Relationships and Related Transactions. No relationships or transactions existed that require disclosure under Item 13. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) Financial Statements and Exhibits. 1. The following consolidated financial statements of Pentair, Inc. and subsidiaries, together with the Report of Independent Certified Public Accountants, found on pages 34 to 53 of the Registrant's Annual Report to Shareholders for the year ended December 31, 1994, are hereby incorporated by reference in this Form 10-K. Page of Annual Report Report of Independent Certified Public Accountants34 Consolidated Statements of Income for Years Ended December 31, 1994, 1993 and 1992 35 Consolidated Balance Sheets as of December 31, 1994 and 1993 36 - 37 Consolidated Statements of Cash Flows for Years Ended December 31, 1994, 1993 and 1992 39 Notes to Consolidated Financial Statements 40 - 53 2. The additional financial data listed below is included as exhibits to this Form 10-K Report and should be read in conjunction with the consolidated financial statements presented in the 1994 Annual Report to Shareholders. Report of Independent Certified Public Accountants Schedule for the years ended December 31, 1994, 1993 and 1992: VIII- Valuation and Qualifying Accounts 3. The following exhibits are included with this Report on Form 10-K (or incorporated by reference) as required by Item 601 of Regulation S-K. Exhibit Number Description (3.1) Restated Articles of Incorporation as amended through April 25, 1989. (3.2) Resolution Establishing and Designating $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988, as a series of Preferred Stock of Pentair, Inc. (3.3) Resolution Establishing and Designating 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990, as a series of Preferred Stock of Pentair, Inc. (3.4) Second Amended and Superseding By-Laws as amended through January 19, 1993. (4.1) Restated Articles of Incorporation, as amended, and Second Amended and Superseding By-Laws, as amended (see Exhibits 3.1 - 3.4 above). (4.2) Rights Agreement dated December 26, 1986 between the Company and First Trust Company, Inc. (4.3) Amendment to Rights Agreement dated July 22, 1988 between the Company and Norwest Bank Minnesota, National Association, as successor Rights Agent (Amending Exhibit 4.2). (4.4) Second Amendment to Rights Agreement dated December 15, 1989 between the Company and Norwest Bank Minnesota, National Association, as successor Rights Agent (Amending Exhibit 4.2). (4.5) Bid Loan Agreement dated December 14, 1988 between the Company, Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York, Morgan Bank (Delaware), First Bank National Association, Norwest Bank Minnesota, N.A., and Mellon Bank, N.A. (4.6) First Amendment to Bid Loan Agreement dated January 1, 1991 between the Company, Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York, Morgan Bank (Delaware), First Bank National Association, Norwest Bank Minnesota, N.A., and NBD Bank, N.A. (Amending Exhibit 4.5). (4.7) Second Amendment to Bid Loan Agreement dated as of February 11, 1994 between Pentair, Inc., Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York, J.P. Morgan Delaware, First Bank National Assocation, Norwest Bank Minnesota, N.A., and NBD Bank, N.A. (Amending Exhibit 4.5). (4.8) $125,000,000 Facility Agreement dated as of February 11, 1994 between Pentair, Inc., Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York for itself and as Agent, NBD Bank, N.A., and J. P. Morgan Delaware. (4.9) Amendment Number One to Facility Agreement dated as of November 1, 1994 between Pentair, Inc., Bank of America Illinois (formerly known as Continental Bank N.A.) for itself and as Agent, Morgan Guaranty Trust Company of New York for itself and as Agent, NBD Bank, N.A., and J. P. Morgan Delaware. (Amending Exhibit 4.8) (4.10) $45,000,000 Facility Agreement dated as of February 11, 1994 between Pentair, Inc., First Bank National Association, for itself and as Agent, and Norwest Bank Minnesota N.A. (4.11) Amendment Number One to Facility Agreement dated as of November 1, 1994 between Pentair, Inc., First Bank National Association, for itself and as Agent, and Norwest Bank Minnesota N.A.(Amending Exhibit 4.10) (4.12) DM 115,000,000 Facility Agreement dated as of February 11, 1994 between EuroPentair, GmbH as Borrower, Pentair, Inc., as Guarantor, Morgan Guaranty Trust Company of New York for itself and as Agent, Continental Bank N.A., for itself and as Agent, NBD Bank, N.A. and Dresdner Bank. (4.13) Amendment Number One to Facility Agreement dated as of November 1, 1994 between EuroPentair, GmbH as Borrower, Pentair, Inc., as Guarantor, Morgan Guaranty Trust Company of New York for itself and as Agent, Bank of America Illinois(formerly known as Continental Bank N.A.), for itself and as Agent, NBD Bank, N.A. and Dresdner Bank. (Amending Exhibit 4.12) (4.14) Amendment Number Two to Facility Agreement dated as of February 15, 1995 between EuroPentair, GmbH as Borrower, Pentair, Inc., as Guarantor, Morgan Guaranty Trust Company of New York for itself and as Agent, Bank of America Illinois(formerly known as Continental Bank N.A.), for itself and as Agent, NBD Bank, N.A. and Dresdner Bank . (Amending Exhibit 4.12) (4.15) Restatement of Credit Agreement dated July 11, 1989 between Federal-Hoffman, Inc. and First Bank National Association. (4.16) Second Amendment to Restatement of Credit Agreement dated as of January 19, 1993 between Federal-Hoffman, Inc., Pentair, Inc., and First Bank National Association (Amending Exhibit 4.15) . (4.17) Third Amendment to Restatement of Credit Agreement dated as of December 31, 1994 between Federal-Hoffman, Inc., Pentair, Inc., and First Bank National Association (Amending Exhibit 4.15) (4.18) $35,000,000 Note Purchase Agreement dated March 25, 1991 between Pentair, Inc. and Nationwide Life Insurance Company. (4.19) $25,000,000 Note Purchase Agreement dated December 13, 1991 between Pentair, Inc. and Principal Mutual Life Insurance Company. (4.20) $15,000,000 Note Purchase Agreement dated November 1, 1992 between Pentair, Inc. and Nationwide Life Insurance Company. (4.21) $15,000,000 Note Purchase Agreement dated January 15, 1993 between Pentair, Inc. and Principal Mutual Life Insurance Company. (4.22) $70,000,000 Senior Notes Purchase Agreement dated as of April 30, 1993 between Pentair, Inc. and United of Omaha Life Insurance Company, Companion Life Insurance Company, Principal Mutual Life Insurance Company, Nippon Life Insurance Company of America, Lutheran Brotherhood, American United Life Insurance Company, Modern Woodmen of America, The Franklin Life Insurance Company and Ameritas Life Insurance Corp. (10.1) Agreements dated February 8, 1978 and February 9, 1982 between the Company and D. Eugene Nugent. (10.2) Agreement dated February 8, 1984 (Amending Exhibit 10.1). (10.3) Agreement dated December 17, 1985 (Amending Exhibit 10.1). (10.4) Agreement dated May 7, 1990 (Amending Exhibit 10.1). (10.5) Company's Supplemental Employee Retirement Plan effective June 16, 1988. (10.6) Company's 1986 Nonqualified Stock Option Plan. (10.7) Company's 1990 Omnibus Stock Incentive Plan. (10.8) Company's Management Incentive Plan as amended to January 12, 1990. (10.9) Employee Stock Purchase and Bonus Plan as amended and restated effective January 1, 1992. (10.10) Company's Flexible Perquisite Program as amended to January 1, 1989. (10.11) Form of 1986 Management Assurance Agreement (Revised 1990) between the Company and certain executive officers. (10.12) Company's Third Amended and Restated Compensation Plan for Non-Employee Directors as amended to January 1, 1992. (10.13) Company's Outside Directors Nonqualified Stock Option Plan dated January 22, 1988. (10.14) First Amendment to Outside Directors Nonqualified Stock Option Plan (Amending Exhibit 10.13). (10.15) Second Amendment to Outside Directors Nonqualified Stock Option Plan (Amending Exhibit 10.13). (10.16) Pentair, Inc. Deferred Compensation Plan effective January 1, 1993. (10.17) Lake Superior Paper Industries Venture Council By-Laws and Management Protocol. (10.18) Second Amended and Restated Joint Venture Agreement dated December 31, 1987 between Pentair Duluth Corp. and Minnesota Paper, Incorporated. (10.19) First Amendment to Second Restated Joint Venture Agreement, First Amendment to Venture Council By-Laws, and First Amendment to Management Protocol, all dated May 30, 1989, between Pentair Duluth Corp. and Minnesota Paper, Incorporated (Amending Exhibits 10.17 and 10.18). (10.20) Cash Deficiency Agreement dated December 31, 1987 among Pentair Duluth Corp., as Joint Venturer, Associated Southern Investment Company, as Owner Participant, The Connecticut Bank and Trust Company, National Association, as Indenture Trustee, and First National Bank of Minneapolis, as Owner Trustee. Cash Deficiency Agreements also were entered into with respect to each of the other four Owner Participants: Dana Lease Finance Corporation, NYNEX Credit Company, Public Service Resources Corporation, and Southern Indiana Properties, Inc. (10.21) Keepwell Agreement and Assignment dated December 31, 1987 among Pentair, Inc., as Sponsor, Pentair Duluth Corp., as Joint Venturer, and First National Bank of Minneapolis, as Owner Trustee; although First Minneapolis executed this filed document as Owner Trustee for Associated Southern Investment Company, additional Keepwell Agreements and Assignments were entered into by First Minneapolis as Owner Trustee for the other four Owner Participants listed in the description of Exhibit 10.20 above. (10.22) Definition of Terms for Financing Agreement dated December 31, 1987 and the Transaction Documents Referred to Therein: Sale and Leaseback of Undivided Interest in Lake Superior Paper Industries' Supercalendered Paper Mill; although this filed document supplies the definitions applicable to the agreements filed as Exhibits 10.20 and 10.2 above, there were four additional sets of definitions that supply the definitions for the other sets of agreements referred to in the descriptions of those Exhibits with respect to the various Owner Participants. (10.23) Loan and Stock Purchase Agreement dated March 7, 1990 between the Company and the Pentair, Inc. Employee Stock Ownership Plan Trust, acting through State Street Bank and Trust Company, as Trustee. (10.24) $56,499,982 Promissory Note dated March 7, 1990 of the Pentair, Inc. Employee Stock Ownership Plan Trust, acting through State Street Bank and Trust Company, as Trustee, to the Company. (11) Statement regarding computation of earnings per share. (13) Annual Report to Shareholders for period ended December 31, 1994. (21) Subsidiaries of Registrant. (24) Consent of Deloitte & Touche. (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PENTAIR, INC. By /s/ David D. Harrison David D. Harrison Senior Vice President and Chief Financial Officer Dated: March 29, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has also been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. By /s/ Winslow H. Buxton Dated: March 29, 1995 Winslow H. Buxton, Chairman, President and Chief Executive Officer, Director By /s/ George N. Butzow Dated: March 29, 1995 George N. Butzow, Director By /s/ Charles A. Haggerty Dated: March 29, 1995 Charles A. Haggerty, Director By /s/ Harold V. Haverty Dated: March 29, 1995 Harold V. Haverty, Director By /s/ Quentin J. Hietpas Dated: March 29, 1995 Quentin J. Hietpas, Director By /s/ B. Kristine Johnson Dated: March 29, 1995 B. Kristine Johnson, Director By /s/ Walter Kissling Dated: March 29, 1995 Walter Kissling, Director By /s/ D. Eugene Nugent Dated: March 29, 1995 D. Eugene Nugent, Director By /s/ Richard M. Schulze Dated: March 29, 1995 Richard M. Schulze, Director REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Pentair, Inc.: We have audited the consolidated financial statements of Pentair, Inc. and subsidiaries as of December 31, 1994 and 1993, and for each of the three years in the period ended December 31, 1994, and have issued our report thereon dated February 10, 1995, except for Note 4, as to which the date is February 21, 1995; such financial statements and report are included in your 1994 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedule of Pentair, Inc. and subsidiaries listed in Item 14. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE Minneapolis, Minnesota February 10, 1995, except for Note 4, as to which the date is February 21, 1995 SCHEDULE VIII PENTAIR, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E ADDITIONS BALANCE AT CHARGED TO BALANCE BEGINNING COSTS AND DEDUCTIONS- AT END OF OF PERIOD EXPENSES WRITE-OFFS PERIOD ($THOUSANDS) Allowance for doubtful accounts and notes receivables 1992 $5,626 $2,549 $(2,635) $5,540 1993 5,540 1,514 (857) 6,197 1994 6,197 2,366 (883) 7,680
EXHIBIT INDEX Exhibit Number Description (3.1) Restated Articles of Incorporation as amended through April 25, 1989 (Incorporated by reference to Exhibit 3.1 to the Company's Form 10-Q for the quarter ended March 31, 1989). (3.2) Resolution Establishing and Designating $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988, as a series of Preferred Stock of Pentair, Inc. (Incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Company's Current Report on Form 8-K filed December 30, 1988). (3.3) Resolution Establishing and Designating 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990, as a series of Preferred Stock of Pentair, Inc. (Incorporated by reference to Exhibit 4 to the Company's Current Report on Form 8-K filed March 21, 1990). (3.4) Second Amended and Superseding By-Laws as amended through January 19, 1993 (Incorporated by reference to Exhibit 3.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1992). (4.1) Restated Articles of Incorporation, as amended, and Second Amended and Superseding By-Laws, as amended (see Exhibits 3.1 - 3.4 above). (4.2) Rights Agreement dated December 26, 1986 between the Company and First Trust Company, Inc. (Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed December 26, 1986). (4.3) Amendment to Rights Agreement dated July 22, 1988 between the Company and Norwest Bank Minnesota, National Association, as successor Rights Agent (Amending Exhibit 4.2) (Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed August 2, 1988). (4.4) Second Amendment to Rights Agreement dated December 15, 1989 between the Company and Norwest Bank Minnesota, National Association, as successor Rights Agent (Amending Exhibit 4.2) (Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed December 28, 1989). (4.5) Bid Loan Agreement dated December 14, 1988 between the Company, Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York, Morgan Bank (Delaware), First Bank National Association, Norwest Bank Minnesota, N.A., and Mellon Bank, N.A. (Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to the Company's Current Report on Form 8-K filed December 30, 1988). (4.6) First Amendment to Bid Loan Agreement dated January 1, 1991 between the Company, Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York, Morgan Bank (Delaware), First Bank National Association, Norwest Bank Minnesota, N.A., and NBD Bank, N.A. (Amending Exhibit 4.5) (Incorporated by reference to Exhibit 4.9 to the Company's Annual Report on Form 10K for the year ended December 31, 1990). (4.7) Second Amendment to Bid Loan Agreement dated as of February 11, 1994 between Pentair, Inc., Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York, J.P. Morgan Delaware, First Bank National Assocation, Norwest Bank Minnesota, N.A., and NBD Bank, N.A. (Amending Exhibit 4.5) (Incorporated by reference to Exhibit 4.3 to the Company's Current Report on Form 8-K filed March 14, 1994). (4.8) $125,000,000 Facility Agreement dated as of February 11, 1994 between Pentair, Inc., Continental Bank N.A. for itself and as Agent, Morgan Guaranty Trust Company of New York for itself and as Agent, NBD Bank, N.A., and J. P. Morgan Delaware (Incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K filed March 14, 1994). (4.9) Amendment Number One to Facility Agreement dated as of November 1, 1994 between Pentair, Inc., Bank of America Illinois (formerly known as Continental Bank N.A.) for itself and as Agent, Morgan Guaranty Trust Company of New York for itself and as Agent, NBD Bank, N.A., and J. P. Morgan Delaware. (Amending Exhibit 4.8) (4.10) $45,000,000 Facility Agreement dated as of February 11, 1994 between Pentair, Inc., First Bank National Association, for itself and as Agent, and Norwest Bank Minnesota N.A. (Incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K filed March 14, 1994). (4.11) Amendment Number One to Facility Agreement dated as of November 1, 1994 between Pentair, Inc., First Bank National Association, for itself and as Agent, and Norwest Bank Minnesota N.A.(Amending Exhibit 4.10) (4.12) DM 115,000,000 Facility Agreement dated as of February 11, 1994 between EuroPentair, GmbH as Borrower, Pentair, Inc., as Guarantor, Morgan Guaranty Trust Company of New York for itself and as Agent, Continental Bank N.A., for itself and as Agent, NBD Bank, N.A. and Dresdner Bank (Incorporated by reference to Exhibit 4.4 to the Company's Current Report on Form 8-K filed March 14, 1994). (4.13) Amendment Number One to Facility Agreement dated as of November 1, 1994 between EuroPentair, GmbH as Borrower, Pentair, Inc., as Guarantor, Morgan Guaranty Trust Company of New York for itself and as Agent, Bank of America Illinois(formerly known as Continental Bank N.A.), for itself and as Agent, NBD Bank, N.A. and Dresdner Bank. (Amending Exhibit 4.12) (4.14) Amendment Number Two to Facility Agreement dated as of February 15, 1995 between EuroPentair, GmbH as Borrower, Pentair, Inc., as Guarantor, Morgan Guaranty Trust Company of New York for itself and as Agent, Bank of America Illinois(formerly known as Continental Bank N.A.), for itself and as Agent, NBD Bank, N.A. and Dresdner Bank . (Amending Exhibit 4.12) (4.15) Restatement of Credit Agreement dated July 11, 1989 between Federal-Hoffman, Inc. and First Bank National Association (Incorporated by reference to Exhibit 4.10 to the Company's Form 10-K for the year ended December 31, 1989). (4.16) Second Amendment to Restatement of Credit Agreement dated as of January 19, 1993 between Federal-Hoffman, Inc., Pentair, Inc., and First Bank National Association (Amending Exhibit 4.15) (Incorporated by reference to Exhibit 4.13 to the Company's Form 10-K for the year ended December 31, 1992). (4.17) Third Amendment to Restatement of Credit Agreement dated as of December 31, 1994 between Federal-Hoffman, Inc., Pentair, Inc., and First Bank National Association (Amending Exhibit 4.15). (4.18) $35,000,000 Note Purchase Agreement dated March 25, 1991 between Pentair, Inc. and Nationwide Life Insurance Company. (Incorporated by reference to Exhibit 4.14 to the Company's Registration Statement on Form S-8 filed August 6, 1991). (4.19) $25,000,000 Note Purchase Agreement dated December 13, 1991 between Pentair, Inc. and Principal Mutual Life Insurance Company. (Incorporated by reference to Exhibit 4.15 to the Company's Registration Statement on Form S-8 filed January 13, 1992). (4.20) $15,000,000 Note Purchase Agreement dated November 1, 1992 between Pentair, Inc. and Nationwide Life Insurance Company (Incorporated by reference to Exhibit 4.16 to the Company's Form 10-K for the year ended December 31, 1992). (4.21) $15,000,000 Note Purchase Agreement dated January 15, 1993 between Pentair, Inc. and Principal Mutual Life Insurance Company (Incorporated by reference to Exhibit 4.17 to the Company's Form 10-K for the year ended December 31, 1992). (4.22) $70,000,000 Senior Notes Purchase Agreement dated as of April 30, 1993 between Pentair, Inc. and United of Omaha Life Insurance Company, Companion Life Insurance Company, Principal Mutual Life Insurance Company, Nippon Life Insurance Company of America, Lutheran Brotherhood, American United Life Insurance Company, Modern Woodmen of America, The Franklin Life Insurance Company and Ameritas Life Insurance Corp (Incorporated by reference to Exhibit 4.17 to the Company's Form 10-K for the year ended December 31, 1993). (10.1) Agreements dated February 8, 1978 and February 9, 1982 between the Company and D. Eugene Nugent (Incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-2 filed June 24, 1983). (10.2) Agreement dated February 8, 1984 (Amending Exhibit 10.1) (Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983). (10.3) Agreement dated December 17, 1985 (Amending Exhibit 10.1) (Incorporated by reference to Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ended December 31, 1985). (10.4) Agreement dated May 7, 1990 (Amending Exhibit 10.1). (Incorporated by reference to Exhibit 10.4 to the Company's Annual Report on Form 10K for the year ended December 31, 1990). (10.5) Company's Supplemental Employee Retirement Plan effective June 16, 1988 (Incorporated by reference to Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). (10.6) Company's 1986 Nonqualified Stock Option Plan (Incorporated by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ended December 31, 1986). (10.7) Company's 1990 Omnibus Stock Incentive Plan (Incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). (10.8) Company's Management Incentive Plan as amended to January 12, 1990 (Incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). (10.9) Employee Stock Purchase and Bonus Plan as amended and restated effective January 1, 1992 (Incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991). (10.10) Company's Flexible Perquisite Program as amended to January 1, 1989 (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). (10.11) Form of 1986 Management Assurance Agreement (Revised 1990) between the Company and certain executive officers (Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). (10.12) Company's Third Amended and Restated Compensation Plan for Non-Employee Directors as amended to January 1, 1992. (Incorporated by reference to Exhibit 10.1 to the Company's Registration Statement on Form S-8 filed January 13, 1992). (10.13) Company's Outside Directors Nonqualified Stock Option Plan dated January 22, 1988 (Incorporated by reference to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987). (10.14) First Amendment to Outside Directors Nonqualified Stock Option Plan (Amending Exhibit 10.13) (Incorporated by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991). (10.15) Second Amendment to Outside Directors Nonqualified Stock Option Plan (Amending Exhibit 10.13) (Incorporated by reference to Exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991). (10.16) Pentair, Inc. Deferred Compensation Plan effective January 1, 1993 (Incorporated by reference to Exhibit 10.21 to the Company's Form 10-K for the year ended December 31, 1992). (10.17) Lake Superior Paper Industries Venture Council By-Laws and Management Protocol (Incorporated by reference to Exhibit 10.16 to the Company's Annual Report on Form 10-K for the year ended December 31, 1985). (10.18) Second Amended and Restated Joint Venture Agreement dated December 31, 1987 between Pentair Duluth Corp. and Minnesota Paper, Incorporated (Incorporated by reference to Exhibit 10.25 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987). (10.19) First Amendment to Second Restated Joint Venture Agreement, First Amendment to Venture Council By-Laws, and First Amendment to Management Protocol, all dated May 30, 1989, between Pentair Duluth Corp. and Minnesota Paper, Incorporated (Amending Exhibits 10.17 and 10.18) (Incorporated by reference to Exhibit 10.28 to the Company's Annual Report on Form 10-K for the year ended December 31, 1989). (10.20) Cash Deficiency Agreement dated December 31, 1987 among Pentair Duluth Corp., as Joint Venturer, Associated Southern Investment Company, as Owner Participant, The Connecticut Bank and Trust Company, National Association, as Indenture Trustee, and First National Bank of Minneapolis, as Owner Trustee. Cash Deficiency Agreements also were entered into with respect to each of the other four Owner Participants: Dana Lease Finance Corporation, NYNEX Credit Company, Public Service Resources Corporation, and Southern Indiana Properties, Inc. (Incorporated by reference to Exhibit 10.1 to Amendment No. 1 to the Company's Current Report on Form 8-K filed April 26, 1988). (10.21) Keepwell Agreement and Assignment dated December 31, 1987 among Pentair, Inc., as Sponsor, Pentair Duluth Corp., as Joint Venturer, and First National Bank of Minneapolis, as Owner Trustee; although First Minneapolis executed this filed document as Owner Trustee for Associated Southern Investment Company, additional Keepwell Agreements and Assignments were entered into by First Minneapolis as Owner Trustee for the other four Owner Participants listed in the description of Exhibit 10.20 above (Incorporated by reference to Exhibit 10.2 to Amendment No. 1 to the Company's Current Report on Form 8-K filed April 26, 1988). (10.22) Definition of Terms for Financing Agreement dated December 31, 1987 and the Transaction Documents Referred to Therein: Sale and Leaseback of Undivided Interest in Lake Superior Paper Industries' Supercalendered Paper Mill; although this filed document supplies the definitions applicable to the agreements filed as Exhibits 10.20 and 10.21 above, there were four additional sets of definitions that supply the definitions for the other sets of agreements referred to in the descriptions of those Exhibits with respect to the various Owner Participants (Incorporated by reference to Exhibit 10.3 to Amendment No. 1 to the Company's Current Report on Form 8-K filed April 26, 1988). (10.23) Loan and Stock Purchase Agreement dated March 7, 1990 between the Company and the Pentair, Inc. Employee Stock Ownership Plan Trust, acting through State Street Bank and Trust Company, as Trustee (Incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 21, 1990). (10.24) $56,499,982 Promissory Note dated March 7, 1990 of the Pentair, Inc. Employee Stock Ownership Plan Trust, acting through State Street Bank and Trust Company, as Trustee, to the Company (Incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed March 21, 1990). (11) Statement regarding computation of earnings per share. (13) Annual Report to Shareholders for period ended December 31, 1994. (21) Subsidiaries of Registrant. (24) Consent of Deloitte & Touche. EX-11 2 EXHIBIT 11 PENTAIR, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
YEARS ENDED DECEMBER 31 1990 1991 1992 1993 1994 INCOME ($ THOUSANDS)1 Income before cumulative effects of accounting changes $33,012 $41,100 $42,800 $46,600 $53,600 Cumulative effects of accounting - - (41,625) - - changes Net Income 33,012 41,100 1,175 46,600 53,600 Preferred Dividend Requirements 2 5,914 6,358 8,545 6,114 5,416 Earnings Available to Common and Common Equivalent Shares - Primary 27,098 34,742 (7,370) 40,486 48,184 Preferred dividends assuming conversion of Preferred Stock: Series 1987 3,000 3,000 3,000 620 0 Series 1988 2 685 658 1,065 1,044 1,016 Series 1990 2 2,229 2,700 4,480 4,450 4,440 Tax benefit on preferred ESOP dividend eliminated due to conversion into common - - (700) (833) (1,046) Tax benefit on ESOP dividend assuming conversion to common - at common dividend rate 547 690 215 276 366 Earnings available to Common and Common Equivalent shares - Diluted $33,559 $41,790 $690 $46,043 $52,920 SHARES (thousands)1 Weighted average number of shares outstanding during the period 16,044 15,651 15,792 17,678 18,204 Shares issuable on exercise of stock options less shares repurchaseable from the proceeds 26 128 144 213 218 Common and Common Equivalent Shares - Primary 16,070 15,779 15,936 17,891 18,422 Shares issuable on conversion of: $1.50 Cumulative Convertible Preferred Stock Series 1987 2,178 2,178 2,178 415 0 $7.50 Callable Cumulative Convertible Preferred Stock Series 1988 718 660 561 522 508 8% Callable Cumulative Voting Convertible Preferred Stock Series 1990 1,761 2,151 2,142 2,127 2,110 Common and Common Equivalent Shares - Diluted 20,727 20,768 20,817 20,955 21,040 EARNINGS PER SHARE1 PRIMARY Earnings before cumulative effects of accounting changes $1.69 $2.20 $2.15 $2.26 $2.62 Cumulative effects of accounting changes - - (2.61) - - Net income (loss) $1.69 $2.20 $(.46) $2.26 $2.62 DILUTED Earnings before cumulative effects of accounting changes $1.62 $2.01 $2.03 $2.20 $2.52
NOTES: 1 Adjusted for stock dividend of 50% in June 1993. 2 Net of tax benefit on shares held by an ESOP in 1991. EX-13 3 EXHIBIT 13 PENTAIR ANNUAL REPORT FOR 1994 The Essential Facts 11 YESTERDAY, TODAY AND TOMORROW 12 Focus for the Future 15 STRATEGIC INSIGHTS 17 The Complete Financial Details 25 PENTAIR -- FOCUSED ON WHAT CAN BE TAKING GREAT PRIDE IN AN ACCOMPLISHMENT-RICH PAST, PENTAIR AND PENTAIR PEOPLE ARE FOCUSED ON MEETING THE CHALLENGES OF AN OPPORTUNITY-RICH FUTURE. 1 ---- PNTA PENTAIR -- 1994 THROUGH A CAREFULLY BALANCED COMBINATION OF CREATIVE, DISCIPLINED MANAGEMENT, HIGH-QUALITY PRODUCTS AND DEDICATED EMPLOYEES, PENTAIR INC. HAS ENHANCED VALUE FOR ALL OF ITS STAKEHOLDERS. 10 ---- PNTA FINANCIAL HIGHLIGHTS 1994
IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES 1994 1993 Change --------------------------------------------------------------------------------------------------------- NET SALES $1,649,170 $1,328,180 24.2% EARNINGS $ 53,600 $ 46,600 15.0% --------------------------------------------------------------------------------------------------------- Earnings per Share PRIMARY $ 2.62 $ 2.26 15.9% DILUTED $ 2.52 $ 2.20 14.5% --------------------------------------------------------------------------------------------------------- CASH DIVIDENDS PER COMMON SHARE $ .72 $ .68 5.9% COMMON SHAREHOLDERS' EQUITY PER SHARE $ 21.43 $ 18.58 15.3% --------------------------------------------------------------------------------------------------------- PREFERRED SHAREHOLDERS' EQUITY $ 40,916 $ 33,927 -- COMMON SHAREHOLDERS' EQUITY $ 391,058 $ 336,922 -- RETURN ON AVERAGE COMMON SHAREHOLDERS' EQUITY 13.2% 13.6% -- --------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES $ 92,745 $ 73,421 26.3% TOTAL ASSETS $1,281,496 $ 958,801 33.7% LONG-TERM DEBT TO TOTAL CAPITAL 49% 39% -- --------------------------------------------------------------------------------------------------------- COMMON SHARES OUTSTANDING AT YEAR-END 18,248 18,135 -- AVERAGE COMMON AND COMMON EQUIVALENT SHARES 18,422 17,891 -- --------------------------------------------------------------------------------------------------------- NUMBER OF EMPLOYEES 10,300 8,300 -- ---------------------------------------------------------------------------------------------------------
SHARE AND PER SHARE DATA HAS BEEN RESTATED TO REFLECT A STOCK DIVIDEND IN JUNE 1993. [GRAPH] II ---- PNTA A LETTER TO OUR SHAREHOLDERS: YESTERDAY, TODAY & TOMORROW AS YOU READ THIS, LOOK AT OUR PAST AND FUTURE. AND AT OUR PRESENT: * NET SALES FOR 1994 WERE $1.6 BILLION, VERSUS $1.3 BILLION IN 1993. NET INCOME WAS $53.6 MILLION OR $2.52 PER FULLY DILUTED SHARE; A 15% INCREASE. * OUR SPECIALTY PRODUCTS GROUP ACHIEVED AN OPERATING RETURN ON SALES OF 10.6% AND OPERATING INCOME WAS UP 18%. SALES INCREASED 13.1% IN MARKETS WHOSE GROWTH RATES AVERAGED 3 TO 5%. * OUR GENERAL INDUSTRIAL EQUIPMENT GROUP ACHIEVED AN OPERATING RETURN ON SALES OF 9.5%. GROUP SALES, INCLUDING THE NEWLY ACQUIRED SCHROFF, INCREASED 48.8% AND OPERATING INCOME WAS UP 80.2%. * 1994 SHAREHOLDER VALUE INCREASED BY 32%; DIVIDENDS GREW FOR THE 18TH CONSECUTIVE YEAR. As pleased as we are with our past, we are even more excited about our future. Building on our strengths, we will accelerate our industrial growth strategies. A single fact lies at the heart of these strategies: The promise of Pentair is our industrial businesses. Pentair 1994 industrial sales grew 33.3% and operating income increased 49%. The industrial businesses accounted for about 77% of sales and 90% of operating income with the balance coming from our paper businesses, which performed well in difficult markets. Pentair ranked 301st in sales in the 1993 Fortune 500 and 181st in ten-year return to shareholders. Our goals of 10% earnings per share growth on a ten-year trend and a 15% return on equity on a five-year average are supported by a growth strategy composed of three essential parts: * BUILD THE STRENGTHS OF OUR ESTABLISHED INDUSTRIAL BUSINESSES. * CULTIVATE AND NURTURE OUR EMERGING INDUSTRIAL SUBSIDIARIES. * ACQUIRE BUSINESSES THAT COMPLEMENT OUR SUBSIDIARIES OR PROVIDE NEW OPPORTUNITIES. 12 ---- PNTA Historically, growth has come from acquiring companies that we invigorated through aggressive investment, improved productivity, new product development, enhanced marketing and distribution, and subsidiary autonomy. As a result, our premier businesses -- Porter-Cable, Delta, Hoffman, Schroff and Federal Cartridge -- have become industry leaders with the strength to enter new markets with new products. We will capitalize on these opportunities through investment in product development and synergistic acquisitions. In parallel, we will continue to build the strengths of our emerging businesses -- Lincoln Industrial, Lincoln Automotive and Myers -- by applying our proven renewal philosophy internally. Externally, we will acquire product, manufacturing and distribution strengths that will help them succeed. To achieve these strategies, we will focus and concentrate our financial and management resources on our industrial businesses, with the ultimate goal of securing a leadership position in each of our respective markets. And, finally, we will continue to consider alternatives for our paper businesses, including sale. Through these strategies, Pentair will become a synergistic organization, focused on high-opportunity businesses and, as stated in our Code of Business Conduct, "operated so that we are respected for our actions by shareholders, employees, plant communities, customers, suppliers, investors and all other stakeholders." /s/ Winslow H. Buxton ----------------------------------------------- WINSLOW H. BUXTON CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER 13 ---- PNTA COMMITMENT TO LEADERSHIP PENTAIR IS COMMITTED TO BUILDING A VIGOROUS AND HIGHLY FOCUSED INDUSTRIAL ORGANIZATION UPON A STRONG FOUNDATION OF PROFITABLE, INNOVATIVE COMPANIES; EACH THE QUALITY LEADER IN ITS INDUSTRY SEGMENT. 14 ---- PNTA FOCUS FOR THE FUTURE Build the strengths of mature businesses. Nurture emerging subsidiaries. Acquire businesses that complement existing subsidiaries or provide new opportunities. Three major initiatives that will transform Pentair. Exciting, but curiously, not new. Each is time-tested. All have been essential to Pentair's history of steady growth and profitability. What is new is how we will focus and concentrate these strategies on building Pentair into a distinctly industrial organization. Until now, we applied these management principles to build the individual strengths of each Pentair company. It mattered little whether we were dealing with power tools or paper, automotive products or sporting ammunition. Now we will augment these concepts with four highly targeted industrial strategies: * PRODUCTS AND MARKETS * SYNERGIES * EMERGING BUSINESSES * INDUSTRIAL ACQUISITIONS Each is discussed in detail on the following pages. Importantly, however, none of the four can be effective if applied in isolation. Indeed, it is the very essence of the synergies strategy to integrate our individual efforts and energies to invigorate and amplify the efforts of the whole. Thus, as our established industrial companies explore new markets with new products, they will seek needed technologies, distribution channels and manufacturing power with access to all Pentair resources. And, as we nurture emerging businesses, we will adopt product and market strategies proven effective by our established companies. Our goal is clear: transform Pentair from a company known for its paper operations into one of the world's leading industrial companies. And, the method is simple: accelerate growth and build market share for all industrial subsidiaries by capitalizing on the strengths of the Pentair family of companies. 15 ---- PNTA PENTAIR COMPANIES WILL GROW AND PROSPER THROUGH A DYNAMIC STRATEGY OF EXPLOITING THE GROWTH POTENTIAL OF NEW INDUSTRIAL MARKETS WITH INNOVATIVE NEW PRODUCTS. 16 ---- PNTA STRATEGIC INSIGHTS: PRODUCTS AND MARKETS One key to Pentair's success has been finding new opportunities by looking at our businesses from new perspectives. Delta and Porter-Cable, for example, sensed contractors and professional woodworkers were changing their buying habits. Lured by discount pricing and new service capabilities, they were shifting their purchases away from traditional distribution to home-improvement centers. We preserved traditional markets and tapped the potential of a new segment -- serious woodworking hobbyists and do-it-yourselfers -- by adding home-center distribution. The result has been explosive growth. Porter-Cable alone added more than 2,500 outlets, which include seven out of the top ten home centers. Equally important, we have reinforced and broadened appeal to both segments through aggressive product development. In 1994, more than 50% of Porter-Cable and Delta sales came from products introduced in the past five years. To broaden its already substantial market base, Hoffman Engineering has adopted an aggressive new product strategy. The company introduced more new products in 1994 alone than it launched in the five years prior to acquisition, setting a pattern that will allow growth well into the future. A new product strategy also invigorated Federal Cartridge. Through a tightly focused strategy of creating precisely accurate competition loads for the U.S. Shooting Team, Federal, which once competed primarily on price, has taken the industry technical lead and repositioned its products as quality leaders. The strategy yielded two 1992 Olympic medals and consistent competitive success ever since, providing Federal with the opportunity to build a premium position for its products. Even more important, Federal sales -- 34% of which are derived from products introduced over the past five years -- have increased 50% since acquisition. 17 ---- PNTA SYNERGISTIC STRENGTH OUR COMPANIES ARE FINDING NEW EFFICIENCIES AND IMPRESSIVE MARKET STRENGTHS BY HARNESSING THE POTENTIAL OF SYNERGISTIC COOPERATION THROUGHOUT PENTAIR, THROUGHOUT THE WORLD. 18 ---- PNTA STRATEGIC INSIGHTS: SYNERGY Pentair is a family of companies on constant lookout for ways to help each other. This synergistic orientation is at work throughout Pentair, throughout the world. Hoffman Engineering and Schroff serve the electrical and electronic segments of the enclosure market, respectively. Hoffman, however, primarily serves the North American market, while Schroff markets to the rest of the world. Separately, neither had made a significant penetration of the other's geography. Now they have combined forces. The two companies have efficiently consolidated their U.K. operations into a single facility. And, the catalogs of both now feature the products of both companies. Even more exciting, Hoffman and Schroff offer the enclosures market the most complete line of products anywhere in the world. A joint Singapore-based venture to penetrate the exploding Asian market is a significant first step in broadening both companies' markets. European-North American market strength is also working in favor of Lincoln Industrial U.S. and Lincoln Industrial GmbH. Lincoln GmbH, in Walldorf, Germany, has pioneered an economical, virtually unbreakable and easy-to-install resin-cast pump. Recognizing the product's universal appeal, Lincoln Industrial U.S. added the pump to its line, giving it instantaneous international presence. Taking advantage of the fact that they share a market, Porter-Cable and Delta co-sponsor THE NEW YANKEE WORKSHOP and AMERICAN WOODSHOP on PBS, and expose a weekly audience of seven million to their high-quality products. [GRAPH] 19 ---- PNTA PENTAIR WILL CONTINUE ITS HISTORY OF PROFITABLE GROWTH THROUGH A PROVEN STRATEGY OF NURTURING BUSINESSES WITH MANAGEMENT EXPERTISE, INVESTMENT AND PRODUCT DEVELOPMENT. 20 ---- PNTA STRATEGIC INSIGHTS: EMERGING BUSINESSES Essential to reaching our corporate objectives is nurturing our emerging businesses through various combinations of manufacturing refinements, marketing, investment, product development and acquisition strategies. At first, we focus on the internal, building consistent product quality, reorganizing manufacturing flow for more efficiency, and investing in the most up-to-date manufacturing processes and equipment. We then work on dominating traditional distribution channels. As these fundamental strategies prove out, we move toward our new markets. By 1992, for example, Lincoln Automotive had maximized its traditional channels of distribution. To ignite the company's growth potential, we acquired the Automotive Service Equipment Division of Hein-Werner, augmenting Lincoln's product offerings with a number of established branded products including the solid line of Marquette -TM- welding products. Subsequently, Lincoln has developed a retail point-of-sale display that has revitalized the Marquette brand in the consumer market. The results have been very satisfying. In less than six months, Lincoln added 59 new points of distribution, helping boost 1994 sales of this line 35% over the previous year. F.E. Myers pump company has added market share in its established markets while entering new distribution channels and tapping developing markets with innovative products. These strategies, in combination, have helped Myers achieve rates of growth significantly greater than those of its industry segment, surpassing its previous sales and operating income records. 21 ---- PNTA PENTAIR IS ENTERING A NEW ERA OF GROWTH BASED ON A SOLID FOUNDATION OF PERFORMANCE AND FUELED BY AN AGGRESSIVE, HIGHLY TARGETED ACQUISITIONS STRATEGY. 22 ---- PNTA STRATEGIC INSIGHTS: ACQUISITIONS Many know Pentair as an acquisitions company. Historically, we have been just that. We have grown by acquiring basically sound but under-utilized companies that we have revitalized through a variety of strategies. The statistics demonstrate that it is an approach that has worked very well. As of 1994, Pentair industrial acquisitions as a group have experienced internal growth rates of 22%. They generated an 8% return on investment in the year following their acquisition and collectively delivered a 23% return on investment by the end of 1994. In the year after acquisition, these same companies averaged a 5% return on sales and have doubled that to 10%. In the future, acquisitions will become even more important to Pentair. In fact, we have mapped out an acquisitions plan for the next five years that is so aggressive it could rival Pentair's past record. We will continue our longstanding strategy of acquiring both under-utilized and growth-oriented companies that can become premier businesses, returning growth and building shareholder value through our management approach and capital resources. Pentair will also seek companies with products, manufacturing or distribution that will blend well and can accelerate or reinforce the growth and market strengths of existing companies. Finally, we seek to acquire substantial, established companies that can become significant new Pentair businesses and generate above-average returns to meet our goal of increasing shareholder value. [GRAPH] 23 ---- PNTA PENTAIR WILL BECOME A DYNAMIC, SYNERGISTIC ORGANIZATION THROUGH AGGRESSIVE ACQUISITION, CAPITALIZING ON INTERNAL STRENGTHS, EXPLORING NEW MARKETS WITH NEW PRODUCTS, AND NURTURING EMERGING BUSINESSES. 24 ---- PNTA Management's Discussion & Analysis 27 REPORT OF MANAGEMENT 34 Report of Independent Certified Public Accountants 34 FINANCIAL STATEMENTS 35 Notes to Consolidated Financial Statements 40 SELECTED FINANCIAL DATA -- TEN-YEAR SUMMARY 55 25 ---- PNTA FINANCIAL REVIEW PENTAIR, INC. AND SUBSIDIARIES OVERVIEW The Pentair vision is to be a top-performing, consistently growing, diversified industrial company composed of subsidiaries that are recognized as leaders in their markets and whose combined performance maximizes benefits to shareholders, employees, customers and other stakeholders. Pentair is guided by its Business Code of Conduct and respected for and by its people. Pentair, Inc. has strategic and financial objectives that guide management decision making in creating value for its shareholders. Pentair achieved solid financial results in 1994. Sales of $1.6 billion represented an increase of 24.2% (including the Schroff acquisition) over the previous year. Despite a falloff in earnings in the Paper Products segment, diluted earnings per share increased 14.5% to $2.52 per share in 1994. TOTAL RETURN TO SHAREHOLDERS Pentair seeks to maximize value with strategic planning for long-term performance. The company believes shareholder value is best measured by dividend returns and equity value growth, which are enhanced when EPS growth and ROE goals are achieved. The company continued its strong track record, attaining a 20% return per year and a 14% return per year in the five- and ten-year periods, respectively. Pentair achieved a 32% return for the year ended December 31, 1994. [GRAPH] FINANCIAL GOALS The financial goals are to achieve: a 10% EPS growth -- annual growth in earnings per share over any ten-year period; and a 15% ROE -- average return on common shareholders' equity over any five-year period. The company approached its ROE objective for 1994, achieving a 12.8% ROE for the five-year period ending with 1994. The company fell short of its EPS objective achieving a 5.3% EPS growth rate over the ten-year period. However, since 1990 the EPS growth has been approximately 12% per year. The company continues to view its financial goals as realistic. THE FOLLOWING CHART ILLUSTRATES THE PERFORMANCE OF PENTAIR STOCK COMPARED TO THE S & P 500 DURING 1994. [GRAPH] 26 ---- PNTA MANAGEMENT'S DISCUSSION & ANALYSIS RECENT DEVELOPMENTS In September 1994, Pentair announced that it was exploring strategic alternatives for its paper businesses, including their possible sale. That course of action was chosen to achieve many objectives. First, to permit Pentair to focus its commitment and resources in the industrial products sector, continuing the strong growth and leading market positions these businesses have achieved. Second, to permit the paper businesses to seek their own opportunities and long-term goals. Third, to make Pentair a more understandable company to the investment community and its shareholders. That process is ongoing. In February 1995, Pentair announced the sale of its uncoated paper business, Cross Pointe Paper, to Noranda Forest for approximately $200 million. The sale is expected to close at the beginning of April 1995. No determination has been made concerning potential strategic alternatives for Niagara of Wisconsin and for the joint venture interest in Lake Superior Paper Industries, the company's other paper businesses. Pentair expects that its strategic refocusing will be completed in the course of 1995. Whatever the eventual outcome, Pentair is poised to aggressively expand into its chosen industrial markets. FINANCIAL CONDITION Pentair's financial condition remained strong in 1994, including the recent Schroff acquisition. The announced sale of Cross Pointe in 1995 will improve the financial strength of the company. Cash from operations in 1994 was sufficient to fund strong internal business growth and the largest capital program in Pentair's history. In 1995, cash from operating activities generated by the industrial businesses alone is anticipated to cover Pentair's planned capital programs, dividends and small product line acquisitions. The company manages its financial resources to carry out its strategic plan, focusing on its industrial businesses. Careful attention to efficient use of its resources, e. g., close control over working capital, has resulted in maximizing cash flow from operations and minimizing external borrowing other than for large acquisitions. Cash from operating activities reached $111.1 million in 1994 compared to $91.7 million in 1993 and $87.4 million in 1992. The company attained a positive free cash flow of $6.8 million in 1994. This represents a significant improvement in free cash flow over 1993. Free cash flow, a measure of the internal financing of operational cash needs, is defined as cash from operations, less net operating investments, excluding acquisitions or dispositions of major business lines. Looking ahead to 1995, cash from operations is expected to be greater than capital expenditures and other investment activities. Pentair invests capital to maintain existing businesses, introduce new products and develop new businesses. In the last five years, $344 million has been reinvested in its eleven businesses. In 1994, capital expenditures reached $92.7 million, an increase of $19.3 million or 26.3% over 1993. Major 1994 projects included a wireway and enclosure manufacturing facility for Hoffman, a finished goods warehouse for Federal Cartridge, a new coating system at Niagara Paper and a variety of new product development programs. [GRAPH] 27 ---- PNTA Pentair invested $57.6 million, $28.0 million and $27.7 million in the businesses in the Specialty Products and General Industrial Equipment segments for the fiscal years 1994, 1993 and 1992, respectively. Investments in the Paper Products business segment were $34.9 million, $45.3 million and $39.2 million for the corresponding periods. In light of the announced sale of Cross Pointe and other potential strategic changes involving the Paper Products segment, 1995 capital plans are anticipated to reach $65 million for the industrial businesses. Future projects include reconfiguration and expansion of manufacturing facilities and distribution centers; upgrading of information technology systems; and new product development. Over the past few years, the company prepared for a major acquisition by reducing its overall debt obligations. Since the last major acquisition, the ratio of long-term debt to total capital decreased more than 10 percentage points, excluding the cumulative effects of accounting changes recorded in 1992. Private placement intermediate-term debt totaling $100 million was funded in June 1993, the proceeds of which were used to reduce revolving borrowings. In 1994, the company acquired Schroff GmbH for approximately $140 million net of cash acquired. Funds for the acquisition were provided by the company's revolving credit facilities, which were modified to include U.S.$220 million and DM 115 million. See a further discussion in Note 2 of Notes to the Consolidated Financial Statements. As of December 31, 1994, the long-term debt to total capital ratio was 49 percent, up from 39 percent at the end of 1993, due to borrowings to fund the Schroff acquisition. Upon completion of the sale of Cross Pointe, pending other acquisitions, the proceeds will be used to repay borrowings and fund other corporate activities. The company will be in a position to finance other acquisitions without significantly affecting its financial condition. Based upon current operating plans, credit available under the company's revolving facilities is considered adequate to cover working capital and other investments. In January 1995, the company raised its quarterly dividend to $.20 per share, or an estimated annual rate of $.80 per share, an 11% increase over 1994. Pentair has increased its dividend payment each year since 1976. Since this first cash dividend, dividends have increased on average 15.7% annually. [GRAPH] 28 ---- PNTA Year-end advances are made to the company's LSPI joint venture to fund January rent payments under its equipment leases; although these advances are partially repaid during the year, cash needs of LSPI have exceeded internally generated resources each year since inception. Net cash advances in 1994 amounted to $6.5 million, compared to $16.5 million in 1993. Net cash contributions are expected to be approximately $2.2 million in 1995. LSPI's cash rent payments are highest on the front end (through 1998) of its $382 million leveraged equipment leases.
RESULTS OF OPERATIONS General Specialty Industrial Paper Joint IN THOUSANDS Products Equipment Products Ventures Corporate Total ----------------------------------------------------------------------------------------------------------------------- Sales 1994 $465,573 $796,132 $387,465 -- -- $1,649,170 1993 411,570 534,994 381,616 -- -- 1,328,180 1992 377,535 486,456 374,733 -- -- 1,238,724 Operating Income 1994 $ 49,518 $ 76,003 $ 13,028 $ 1,779 $(21,079) $ 119,249 1993 41,973 42,181 32,980 (1,920) (17,021) 98,193 1992 40,166 38,600 31,456 1,682 (17,865) 94,039 ----------------------------------------------------------------------------------------------------------------------
CONSOLIDATED 1994 VERSUS 1993 Consolidated net sales increased to $1,649.2 million in 1994, or 24.2% including full-year results of the acquired Schroff businesses. The stronger than expected worldwide economy, combined with new products and new distribution channels, helped to drive sales and earnings in the industrial business segments. In the Paper Products segment, rising raw material prices throughout the year and pricing pressures on printing and publication paper in the first three quarters depressed earnings. Operating income increased to $119.3 million in 1994 compared to $98.2 million in 1993, a 21.4% increase. Net income increased 15% to $53.6 million in 1994 from $46.6 million in 1993. Gross profit margins improved to 24.8% of sales in 1994 as compared to 24.4% in 1993. A strong 1.5 percentage point improvement within the industrial segments was offset by dramatic decreases in gross profit margins for the Paper Products segment. Due to increased sales volume and productivity improvements, existing businesses reduced their selling, general and administrative (SG&A) costs, including research and development costs, as a percent of sales in 1994. The newly acquired Schroff businesses typically have a higher SG&A expense due to separate operations in several countries. Overall, SG&A expense increased as a percent of sales to 17.7% from 16.8% in 1993. Operating income as a percent of net sales for wholly-owned businesses was 7.1% in 1994 and 7.5% in 1993. Pentair industrial businesses increased their operating margins during the year by 1.1 percentage points through a combination of improved market conditions and greater operating efficiency. These improvements were offset by external factors affecting the paper businesses. 29 ---- PNTA Interest expense increased due to higher borrowings as a result of the Schroff acquisition and higher overall interest rates, although the impact of this was mitigated as a result of a favorable mix of borrowing rates. Effective tax rates remained at 39.8% for 1994. 1993 VERSUS 1992 Consolidated net sales increased to $1,328.2 million in 1993. Most of the $89.5 million or 7.2% sales increase resulted from general improvements in market demand and full-year benefit of acquired product lines (General Industrial Equipment segment) and from expansion into new markets (Specialty Products segment). Operating income as a percent of net sales for wholly-owned businesses was 7.5% in 1993 and 1992. Two subsidiaries increased operating margins as a result of improved market conditions and greater operating efficiency. These improvements were offset by economy-related volume and cost problems in Germany, some weakness in paper grades that had been more resilient in 1992 and the impact of a stronger dollar on various businesses. Joint venture income decreased $3.6 million because of the substantial oversupply of supercalendered (SCA) paper and light-weight coated (LWC) grades, leading to lower prices and upgrades to LWC by SCA users. Interest expense decreased slightly. The prior year included an additional provision for interest on tax settlements. Average borrowings increased to finance investments in joint ventures and working capital related to increased sales. Lower floating interest rates helped; however, much of the floating rate debt was fixed at higher rates with intermediate-term private placements. The effective income tax rate decreased from 41.1% to 39.8%. The U.S. statutory rate increased 1% and the foreign tax component increased because certain foreign operating losses were not fully deductible. Both years benefited from tax refunds on repatriated earnings. These increases were offset by the impact of the statutory rate change on net deferred tax assets and favorable settlements of prior-year tax examinations. [GRAPH] 30 ---- PNTA SEGMENT DISCUSSION SPECIALTY PRODUCTS Businesses in this group manufacture products designed and marketed for commercial, residential and municipal construction and a variety of professional craftsmen and do-it-yourself applications. The products include woodworking machinery (Delta), portable power tools (Porter-Cable), residential water systems, sump pumps, environmental pumps and grinders, and industrial pumps (Myers). 1994 VERSUS 1993 Specialty Products sales increased $54.0 million or 13.1%. Growth at Delta and Porter-Cable was driven by expanded distribution in the home center and hardware channels. Myers benefited from new channels of distribution and strong market demand in water systems. All businesses experienced growth due to new product improvements and strong market demand due to positive housing starts and construction trends. Operating income as a percent of sales increased to 10.6% from 10.2%, attributable to productivity gains and capacity efficiencies. 1993 VERSUS 1992 Specialty Products sales increased $34.1 million or 9.0%. Each business increased sales by $10 million or more, reflecting the benefits of pursuing new distribution channels and markets, new product introductions and new market penetration. Operating income as a percent of sales declined to 10.2% from 10.6% because 1992 included a gain from sale of operating assets. In addition, the Canadian operations of two subsidiaries felt the impact of the weak Canadian economy and unfavorable currency exchange in 1993. OUTLOOK Sales and operating income are anticipated to increase in 1995. The group will continue to aggressively advertise to build brand name awareness and continue its focus on broader distribution and market expansion, on developing new and differentiated products and on maintaining excellent customer service. GENERAL INDUSTRIAL EQUIPMENT The products of this group include electrical enclosures (Hoffman), electronic enclosures (Schroff) and lubrication systems and material dispensing equipment (Lincoln Industrial). These products are designed to facilitate industrial and commercial expansion and efficiencies. Other businesses in this group include automotive service equipment (Lincoln Automotive) and sporting and law enforcement ammunition (Federal). 1994 VERSUS 1993 General Industrial sales increased $261.1 million or 48.8% over 1993. The existing businesses grew 15% with the acquisition of Schroff contributing the balance. New products and strong market demand contributed to the increase in sales for existing businesses. Strong durable goods markets boosted orders at Hoffman (electrical enclosures) and Schroff (electronic enclosures). The positive change in the European economy helped drive sales at the German subsidiaries. Ammunition (Federal) orders were unusually strong in 1994 as customers stockpiled inventories, which the company believes was a reaction to pending legislation. Operating income as a percent of sales increased to 9.5% from 7.9%. Although margins of newly acquired businesses are often lower during the first year of operation, overall the segment's operating margins improved during 1994, resulting from volume efficiencies and productivity improvements. 1993 VERSUS 1992 General Industrial sales increased $48.5 million, or 10.0%. Electrical enclosure volume increased substantially from lower recessionary levels. The automotive service equipment sales increased more than 33%, primarily due to the full-year benefit of mid-1992 acquisition of product lines. Ammunition sales increased slightly. Increased sales of lubrication and material dispensing equipment were offset by a substantial decline (22.6%) of sales in [GRAPH] 28% SPECIALTY PRODUCTS % of Pentair Net Sales [GRAPH] 48% GENERAL INDUSTRIAL EQUIPMENT % of Pentair Net Sales 31 ---- PNTA [GRAPH] 24% PAPER PRODUCTS SEGMENT % of Pentair Net Sales Germany, which was in the midst of its worst recession in many decades. Operating income as a percent of net sales remained at 7.9%. The electrical enclosure margins increased substantially as a result of higher volumes and the resolution of a 1992 mid-year shipping problem. Automotive service equipment margins continued to increase as a result of productivity gains and capacity efficiencies. The sporting ammunition business benefited from lower raw material costs and improved operating efficiencies. A negative margin impact was felt from the substantial sales decline at Lincoln GmbH and related downsizing charges that were incurred late in 1993. OUTLOOK General Industrial Equipment sales and operating income are anticipated to increase again in 1995. A strong durable goods market, new products and productivity improvements should continue to enhance performance. In 1995 and 1996, synergies created by the partnership of Schroff and Hoffman product lines are anticipated to increase sales volume and earnings. 24% PAPER PRODUCTS SEGMENT % OF PENTAIR NET SALES PAPER PRODUCTS (EXCLUDING LSPI) Businesses in this group manufacture products sold to the publishing and printing markets. These products primarily include coated groundwood paper and uncoated printing and writing papers. 1994 VERSUS 1993 Paper sales increased $5.9 million or 1.5%. For the year, coated groundwood paper volume increased 4.3%, while prices decreased 2.3%. Uncoated printing and writing paper volume increased 3.3%, while prices decreased 2.0%. However, during the fourth quarter of 1994, prices improved dramatically, rising about 12% over third-quarter 1994 prices in the coated paper market and about 9% over third-quarter 1994 prices in the uncoated paper market. Operating income as a percent of sales fell to 3.4% from 8.6%. Rising raw material prices in the kraft pulp and waste paper markets squeezed margins. 1993 VERSUS 1992 Paper sales increased $6.9 million or 1.8%. Coated paper volume decreased 4.1%, while average coated publication paper prices increased 7.0%. Uncoated paper volume increased 1.5%, while average specialty paper prices showed a slight decline of 0.3%. Operating income as a percent of sales increased slightly to 8.6% from 8.4%. Coated paper margins improved substantially as selling prices increased and operating costs were reduced. Uncoated paper margins were squeezed by the higher cost of fiber and other raw materials needed to produce higher-priced paper. Downtime created by short backlogs also reduced margins. OUTLOOK Significant paper price increases are expected to continue in 1995 at a rate greater than the anticipated rate of increases in raw material prices, thereby improving margins. JOINT VENTURES The company's two joint ventures are: Lake Superior Paper Industries (LSPI), which sells supercalendered (SCA) paper and, since 1993, LSPI Fiber Co., which sells recycled pulp to LSPI and other paper mills. The company's equity in joint venture income (loss) was $1.8 million, ($1.9) million and $1.7 million in 1994, 1993 and 1992, respectively. 1994 VERSUS 1993 LSPI volume increased 3.5% and selling prices increased 2.9% over 1993. The equity in joint venture income increased by $3.7 million due to higher SCA prices in the last quarter of 1994, following price increases in light-weight coated papers. Production efficiencies on the paper machine throughout the year also contributed to improved operating margins. 32 ---- PNTA 1993 VERSUS 1992 The recession in Europe affected domestic paper markets. Late 1992 devaluations helped Scandinavian paper makers increase exports to the already over-supplied U.S. market. LSPI selling prices declined 9.9% while shipments increased 5.1%. The substantial price decline could not be fully offset by material cost reductions or operating efficiencies, and resulted in an operating loss. Outlook SCA paper prices should continue to increase in 1995 as increases in raw materials are passed on to customers. INFLATION The rate of inflation remains at reasonable levels in the United States and most of the foreign economies that affect Pentair results. INSURANCE SUBSIDIARY The company's captive insurance subsidiary provides a cost-effective means of obtaining insurance coverage for general and product liability, workers' compensation and auto liability. The insurance subsidiary insures directly and reinsures an admitted carrier. Loss reserves are established based on actuarial projections of ultimate loss. ENVIRONMENTAL MATTERS Pentair's Paper Products segment, like other paper producers, has ongoing programs designed to deal with various environmental operating issues such as water treatment, solid waste disposal and the cleanup of sites attributable to past industry practices that have resulted in impacts upon the environment. Pentair believes that under current laws and regulations the environmental problems are manageable in the ordinary course of the operations of the affected businesses. Other subsidiaries also face some remediation of soil and groundwater as a result of predecessors or their own previous disposal practices. In addition, Pentair subsidiaries have been named as potentially responsible parties at a small number of Superfund or other sites being studied or remediated. In all cases to date, the affected business has been deemed to be a DE MINIMIS defendant or the business's share of remediation costs has not been material to the company. For purposes of maintaining appropriate reserves against liabilities associated with environmental issues, whether involving on- or off-site locations, Pentair management reviews each individual site, taking into consideration the number of parties involved with the site, the joint and several liability imposed by certain environmental laws, the expected level of contributions of the other parties, the nature and quantities of wastes involved, the expected method and extent of remediation, the estimated professional expenses involved and the time period over which any costs would be incurred. Based on this evaluation, reserves are established when loss amounts are probable and reasonably estimable. Insurance recoveries are recorded only when claims for recovery are settled. The company also engages environmental professionals to perform periodic audits of its facilities to assist Pentair in complying with the various environmental laws and regulations faced by its businesses. Capital expenditures necessary for compliance with environmental regulations were not material for fiscal years 1994 or 1993, nor are they anticipated to be material in the foreseeable future. 33 ---- PNTA MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The consolidated financial statements of Pentair, Inc. have been prepared by company management which is responsible for their integrity and objectivity. These statements have been prepared in accordance with generally accepted accounting principles and, where appropriate, reflect estimates based on judgments of management. Pentair maintains a system of internal controls. Our systems provide reasonable assurance that assets are protected, that transactions are appropriately reported and established procedures are followed. The financial statements have been audited by Deloitte & Touche LLP, independent certified public accountants, whose report appears on this page. The Audit Committee of the Board of Directors, comprised of outside directors, meets periodically with the independent certified public accountants and management to monitor activities and to ensure that each is properly discharging its responsibilities. The independent certified public accountants have free access to the Audit Committee, without management present, to discuss the results of their audit, the adequacy of internal accounting controls, and the quality of financial reports. /s/ Winslow H. Buxton /s/ David D. Harrison --------------------------- ---------------------------------------- Winslow H. Buxton, CHAIRMAN, David D. Harrison, SENIOR VICE PRESIDENT PRESIDENT AND CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER TO THE DIRECTORS AND SHAREHOLDERS OF PENTAIR, INC.: We have audited the accompanying consolidated balance sheets of Pentair, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Pentair, Inc. and subsidiaries at December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 3 to the consolidated financial statements, effective January 1, 1992, the company changed its method of accounting for postretirement benefits other than pensions to conform with Statement of Financial Accounting Standards No. 106 and its method of accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109. /s/ Deloitte & Touche LLP Deloitte & Touche LLP MINNEAPOLIS, MINNESOTA FEBRUARY 10, 1995, EXCEPT NOTE 4, AS TO WHICH THE DATE IS FEBRUARY 21, 1995 34 ---- PNTA CONSOLIDATED STATEMENTS OF INCOME
PENTAIR, INC. AND SUBSIDIARIES ------------------------------ YEARS ENDED DECEMBER 31 IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1994 1993 1992 -------------------------------------------------------------------------------------------------------------- NET SALES $1,649,170 $1,328,180 $1,238,724 -------------------------------------------------------------------------------------------------------------- OPERATING COSTS COST OF GOODS SOLD 1,240,262 1,004,471 937,232 SELLING, GENERAL AND ADMINISTRATIVE 279,313 214,274 199,761 RESEARCH AND DEVELOPMENT 12,125 9,322 9,374 -------------------------------------------------------------------------------------------------------------- TOTAL OPERATING COSTS 1,531,700 1,228,067 1,146,367 -------------------------------------------------------------------------------------------------------------- 117,470 100,113 92,357 EQUITY IN JOINT VENTURE INCOME (LOSS) 1,779 (1,920) 1,682 -------------------------------------------------------------------------------------------------------------- OPERATING INCOME 119,249 98,193 94,039 INTEREST EXPENSE (33,367) (22,640) (22,771) INTEREST INCOME 3,218 1,847 1,432 -------------------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES AND CHANGES IN ACCOUNTING 89,100 77,400 72,700 PROVISION FOR INCOME TAXES 35,500 30,800 29,900 -------------------------------------------------------------------------------------------------------------- INCOME BEFORE CHANGES IN ACCOUNTING 53,600 46,600 42,800 CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING -- -- (41,625) -------------------------------------------------------------------------------------------------------------- NET INCOME 53,600 46,600 1,175 PREFERRED DIVIDEND REQUIREMENTS 5,416 6,114 8,545 -------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) APPLICABLE TO COMMON STOCK $ 48,184 $ 40,486 $ (7,370) -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- EARNINGS (LOSS) PER COMMON SHARE Primary: BEFORE CHANGES IN ACCOUNTING $ 2.62 $ 2.26 $ 2.15 CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING -- -- (2.61) -------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 2.62 $ 2.26 $ (0.46) -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- Fully Diluted: BEFORE CHANGES IN ACCOUNTING $ 2.52 $ 2.20 $ 2.03 -------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------- AVERAGE COMMON SHARES OUTSTANDING PRIMARY 18,422 17,891 15,936 DILUTED 21,040 20,955 20,817 --------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 35 ---- PNTA CONSOLIDATED BALANCE SHEETS
---------------------------------------------------------- PENTAIR, INC. AND SUBSIDIARIES DECEMBER 31 IN THOUSANDS 1994 1993 ------------------------------------------------------------------------------- ASSETS CURRENT ASSETS CASH AND CASH EQUIVALENTS $ 32,677 $ 10,327 ACCOUNTS RECEIVABLE -- TRADE (NET) 255,105 200,425 INVENTORIES 243,651 198,826 DEFERRED INCOME TAXES 27,749 21,575 OTHER CURRENT ASSETS 10,037 7,627 -------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 569,219 438,780 ------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT LAND AND LAND IMPROVEMENTS 25,261 14,857 BUILDINGS 124,491 74,074 MACHINERY AND EQUIPMENT 599,298 506,566 CONSTRUCTION IN PROGRESS 15,358 26,120 ------------------------------------------------------------------------------- TOTAL 764,408 621,617 LESS ACCUMULATED DEPRECIATION 353,422 305,751 ------------------------------------------------------------------------------- PROPERTY, PLANT AND EQUIPMENT 410,986 315,866 ------------------------------------------------------------------------------- MARKETABLE SECURITIES -- INSURANCE SUBSIDIARY 23,655 18,594 INVESTMENT IN JOINT VENTURES 81,102 72,867 GOODWILL -- NET 170,965 88,970 OTHER ASSETS 25,569 23,724 ------------------------------------------------------------------------------- TOTAL ASSETS $1,281,496 $958,801 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 36 ---- PNTA
DECEMBER 31 In Thousands 1994 1993 -------------------------------------------------------------------------------------------------------------- LIABILITIES CURRENT LIABILITIES Accounts Payable $ 115,962 $ 93,820 Compensation and Other Benefits Accruals 58,297 42,737 Income Taxes 7,570 8,787 Accrued Product Claims and Warranties 25,484 22,256 Accrued Expenses and Other Liabilities 72,612 50,075 Current Maturities of Long-term Debt 5,766 803 -------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 285,691 218,478 -------------------------------------------------------------------------------------------------------------- LONG-TERM DEBT 408,503 238,856 OTHER LIABILITIES 20,883 18,911 DEFERRED INCOME TAXES 22,706 7,518 PENSIONS AND OTHER RETIREMENT COMPENSATION 29,521 29,687 POSTRETIREMENT MEDICAL AND OTHER BENEFITS 61,134 60,637 RESERVES -- INSURANCE SUBSIDIARY 21,084 13,865 COMMITMENTS AND CONTINGENCIES (NOTE 9) SHAREHOLDERS' EQUITY Preferred Stock -- at Liquidation Value Outstanding: 1,953,243 Shares in 1994 and 1,976,443 in 1993 68,444 69,380 Unearned ESOP Compensation (27,528) (35,453) Common Stock -- Par Value, $.16 2/3 Outstanding: 18,248,155 Shares in 1994 and 18,134,638 in 1993 3,041 3,022 Additional Paid-in Capital 166,314 163,460 Currency Translation and Pension Adjustments 8,033 (7,047) Retained Earnings 213,670 177,487 -------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 431,974 370,849 -------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,281,496 $ 958,801 -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 37 ---- PNTA CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PENTAIR, INC. AND SUBSIDIARIES ------------------------------ YEARS ENDED DECEMBER 31 In Thousands 1994 1993 1992 -------------------------------------------------------------------------------------------------------------- PREFERRED STOCK Beginning Balance $ 69,380 $ 120,137 $ 120,868 Conversions into Common (936) (50,757) (731) -------------------------------------------------------------------------------------------------------------- Ending Balance 68,444 69,380 120,137 -------------------------------------------------------------------------------------------------------------- UNEARNED ESOP COMPENSATION (27,528) (35,453) (42,755) -------------------------------------------------------------------------------------------------------------- COMMON STOCK Beginning Balance 3,022 1,758 1,743 Employee Stock Plans -- Net 13 15 12 Stock Dividend -- 1,004 -- Conversions into Common 6 245 3 -------------------------------------------------------------------------------------------------------------- Ending Balance 3,041 3,022 1,758 -------------------------------------------------------------------------------------------------------------- ADDITIONAL PAID IN CAPITAL Beginning Balance 163,460 112,125 109,000 Employee Stock Plans -- Net 1,939 1,934 2,412 Stock Dividend -- (1,048) -- Conversions into Common 915 50,449 713 -------------------------------------------------------------------------------------------------------------- Ending Balance 166,314 163,460 112,125 -------------------------------------------------------------------------------------------------------------- CURRENCY TRANSLATION AND PENSION ADJUSTMENTS Beginning Balance (7,047) (1,483) 1,131 Currency Translation 11,414 (709) (1,369) Pension Adjustments 3,666 (4,855) (1,245) -------------------------------------------------------------------------------------------------------------- Ending Balance 8,033 (7,047) (1,483) -------------------------------------------------------------------------------------------------------------- RETAINED EARNINGS Beginning Balance 177,487 147,612 163,837 Net Income 53,600 46,600 1,175 Dividends: Common (13,105) (11,931) (10,318) Preferred (5,416) (6,114) (8,545) Tax Benefit of Preferred Dividends 1,104 1,320 1,463 -------------------------------------------------------------------------------------------------------------- Ending Balance 213,670 177,487 147,612 -------------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 431,974 $ 370,849 $ 337,394 -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements 38 ---- PNTA CONSOLIDATED STATEMENTS OF CASH FLOWS
PENTAIR, INC. AND SUBSIDIARIES ------------------------------ YEARS ENDED DECEMBER 31 In Thousands 1994 1993 1992 -------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES Net Income $ 53,600 $ 46,600 $ 1,175 Adjustments to Reconcile to Cash Flow: Depreciation 58,322 47,657 45,454 Amortization of Intangible Assets 5,815 2,469 2,447 Deferred Income Taxes 9,026 3,357 (614) Undistributed Loss (Earnings) from Joint Ventures (1,779) 1,920 (1,682) Cumulative Effects of Changes in Accounting -- -- 41,625 Changes in Assets and Liabilities, Net of Effects of Acquisition: Receivables (31,734) (16,339) (15,454) Inventories (19,685) (15,940) (10,393) Other Assets (5,930) (5,486) (3,568) Accounts Payable 16,352 5,410 21,201 Income Taxes (2,493) (1,157) (831) Pensions and Other Retirement Compensation (10,249) 7,968 105 Reserves -- Insurance Subsidiary 7,219 8,279 5,586 Other Liabilities 32,633 6,972 2,309 -------------------------------------------------------------------------------------------------------------- Cash Provided by Operating Activities 111,097 91,710 87,360 -------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Capital Expenditures (92,745) (73,421) (67,235) Cash Investment in Joint Ventures -- Net (6,456) (16,522) (9,000) Acquisition of Business -- Net of Cash Acquired (139,750) -- -- Purchase of Operating Assets -- -- (9,419) Sale of Operating Assets -- -- 4,000 Purchase of Marketable Securities (9,598) (13,513) (8,076) Proceeds from Sale of Marketable Securities 4,537 2,976 19 -------------------------------------------------------------------------------------------------------------- Cash Used for Investing Activities (244,012) (100,480) (89,711) -------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Long-term Borrowings 171,528 128,853 21,524 Payments of Long-term Debt (19,231) (109,741) (4,369) Unearned ESOP Compensation Decrease 7,925 7,302 4,047 Employee Stock Plans and Other 3,041 3,164 3,872 Dividends (18,521) (18,045) (18,863) -------------------------------------------------------------------------------------------------------------- Cash Provided by Financing Activities 144,742 11,533 6,211 -------------------------------------------------------------------------------------------------------------- EFFECTS OF CURRENCY EXCHANGE RATE CHANGES 10,523 (828) (1,595) INCREASE IN CASH AND CASH EQUIVALENTS 22,350 1,935 2,265 CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD 10,327 8,392 6,127 -------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS -- END OF PERIOD $ 32,677 $ 10,327 $ 8,392 -------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash Payments for: Interest, Net of Amount Capitalized $ 31,638 $ 20,907 $ 18,926 Income Taxes $ 29,250 $ 31,016 $ 32,700 --------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements. 39 ---- PNTA NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The consolidated financial statements include Pentair, Inc. and its wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. The equity method of accounting is used for the joint ventures (See Note 16). CASH EQUIVALENTS The company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost. Depreciation is computed using the straight-line method. Estimated useful lives are: Land Improvements: 5 years Buildings: 6 to 33 years Machinery and Equipment: 3 to 16 years INSURANCE SUBSIDIARY The company's wholly-owned insurance subsidiary, established in June 1992, insures general and product liability, workers' compensation, and auto liability risks. The insurance subsidiary invests in marketable securities including debt and equity securities classified, effective January 1, 1994, as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Debt and equity securities are carried at fair value on the balance sheet with unrealized gains and losses reported in a component of shareholders' equity. The adoption of this Statement did not have a material effect on the company's financial position or results of operations. These investments are treated as operating assets of the insurance subsidiary and the related earnings ($1,108,000, $775,000 and $163,000 in 1994, 1993 and 1992, respectively) are recorded as a reduction of the insurance component of cost of sales. Reserves for policy claims ($26,355,000 in 1994 and $17,332,000 in 1993) are established based on actuarial projections of ultimate loss. THE COST AND MARKET VALUE OF DEBT AND EQUITY SECURITIES OF THE INSURANCE SUBSIDIARY AT DECEMBER 31, BY CONTRACTUAL MATURITY, ARE SHOWN BELOW:
IN THOUSANDS 1994 1993 --------------------------------------------------------------------------------------------------------------- Debt Securities: Cost Market Cost Market ------------------------------------------------------ DUE DURING THE NEXT YEAR $ 1,828 $ 1,839 $ 75 $ 75 DUE AFTER ONE YEAR THROUGH FIVE YEARS 17,458 16,532 11,727 11,853 DUE AFTER FIVE YEARS THROUGH TEN YEARS 1,625 1,538 4,593 4,642 -------------------------------------------------------------------------------------------------------------- 20,911 19,909 16,395 16,570 -------------------------------------------------------------------------------------------------------------- EQUITY SECURITIES: 3,640 3,746 2,139 2,024 -------------------------------------------------------------------------------------------------------------- TOTAL $ 24,551 $ 23,655 $ 18,534 $ 18,594 -------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------
GOODWILL The excess purchase price paid over net assets of businesses acquired is amortized on a straight-line basis over periods ranging from 25 to 40 years. The amortization recorded for 1994, 1993 and 1992 was $5,895,000, $2,542,000 and $2,543,000, respectively. Accumulated amortization was $18,607,000 and $12,712,000 at December 31, 1994 and 1993, respectively. The company periodically reviews goodwill to assess recoverability, based on projected income and related cash flow. Impairments would be recognized in operating results if a permanent diminution in value were to occur. 40 ---- PNTA FOREIGN CURRENCY TRANSLATION Translation gains or losses resulting from translating foreign currency financial statements are reported in a separate component of shareholders' equity. Foreign currency transaction gains and losses are included in earnings as incurred. REVENUE RECOGNITION Revenue from sales is recognized at the time the product is shipped. PRODUCT WARRANTY COSTS Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted to reflect actual experience. RESEARCH AND DEVELOPMENT Research and development expenditures are expensed as incurred. EARNINGS PER COMMON SHARE 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. No fully dilutive data is shown for the cumulative effects of accounting changes and 1992 net income because conversion of preferred shares would be anti-dilutive. On April 21, 1993 the board of directors approved a three-for-two stock split in the form of a 50% stock dividend. The dividend was payable June 11, 1993 to shareholders of record at the close of business on May 14, 1993. All references in the financial statements to average number of shares outstanding and related prices, per share amounts, and the stock plan data have been restated to reflect this split. INTEREST CAPITALIZATION The following implied interest costs applicable to capital projects have been excluded from interest expense: 1994, $1,066,000; 1993, $735,000; and 1992, $788,000. RECENT ACCOUNTING STANDARDS Effective January 1, 1994, the company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits." The adoption of this statement did not have a material effect on the company's financial position or results of operations. RECLASSIFICATIONS Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. 2. ACQUISITION Effective January 1, 1994, the company acquired Schroff GmbH and its international subsidiaries, manufacturers of cabinets, cases, subracks and accessories for the electronics industry, for $139.8 million. The acquisition was accounted for by the purchase method. Accordingly, the purchase price was allocated to the assets acquired based on their estimated fair values as follows: working capital, $20.9 million; property, plant and equipment, $57.8 million; other non-current liabilities, $17.9 million; and goodwill, $79.0 million. Goodwill will be amortized on a straight-line basis over 25 years. The Schroff operating results are included in the company's consolidated results from January 1, 1994. Had the acquisition occurred at January 1, 1993, unaudited pro forma results for 1993 are: net sales $1,480.2 million; net income, $46.8 million and primary and diluted earnings per share, $2.27 and $2.21, respectively. 41 ---- PNTA 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. 3. CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING Effective January 1, 1992, Pentair adopted Financial Accounting Standard (FAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" and Financial Accounting Standard (FAS) No. 109, "Accounting for Income Taxes." The combined effect of these accounting changes was to decrease 1992 net income by $42,237,000 ($41,625,000 cumulative effect and $612,000 operations) or $2.78 per share. As to FAS 106, the cumulative effect recorded as of January 1, 1992 was $36,891,000 or $2.32 per primary share. This represents the January 1, 1992 projected benefit obligation for prior service cost ($59,504,000) less taxes (a $22,613,000 reduction in net deferred taxes). As to FAS 109, the cumulative effect recorded as of January 1, 1992 was to decrease net income by $4,734,000, or $.29 per primary share. 4. PENDING DIVESTITURE In February 1995, an agreement was signed for the sale of Cross Pointe Paper, to be completed in April 1995, subject to certain conditions. The aggregate sales price of $200 million exceeds its book value. Cross Pointe's operations had revenues of $249.3 million, $233.8 million and $231.0 million for the years ending December 31, 1994, 1993 and 1992, respectively. 5. BALANCE SHEET INFORMATION Accounts receivable are stated net of allowances for doubtful accounts of $7,680,000 in 1994 and $6,197,000 in 1993. Inventories are stated at the lower of cost or market. The Paper segment and all foreign companies use the first-in, first-out (FIFO) and moving average cost basis. The domestic Specialty Products and General Industrial segments use the last-in, first-out (LIFO) cost basis. INVENTORIES ARE SUMMARIZED AS FOLLOWS:
IN THOUSANDS 1994 1993 ---------------------------------------------------------------------- FINISHED GOODS $ 139,066 $ 122,712 WORK IN PROCESS 42,502 35,315 RAW MATERIALS AND SUPPLIES 62,083 40,799 ---------------------------------------------------------------------- TOTAL $ 243,651 $ 198,826 ---------------------------------------------------------------------- ----------------------------------------------------------------------
If all LIFO inventories were valued at FIFO, aggregate inventory would have been $250,020,000 and $204,108,000 at December 31, 1994 and 1993, respectively. 6. LONG-TERM DEBT AND CREDIT FACILITIES Revolving credit agreements are with six banks providing credit facilities of U.S.$220 million and Deutsche Mark (DM) 115 million. The company pays a commitment fee at the rate of .150 of 1% per annum on the total amount of the credit facility. The revolving credit facilities are committed through January 1, 1997 (term-out date). If not renewed prior to that date, outstanding loans at the term-out date are payable in 16 quarterly installments through January, 2001. In the past, the company has consistently renewed its revolving credit agreements prior to the term-out date. 42 ---- PNTA DEBT IS SUMMARIZED AS FOLLOWS:
IN THOUSANDS 1994 1993 ------------------------------------------------------------------------------------------------------------------- REVOLVING CREDIT FACILITIES: U.S.$ REVOLVERS $ 157,000 $ 65,000 DM REVOLVER 74,242 0 PRIVATE PLACEMENT DEBT, DUE 1996 TO 2003, AVERAGE INTEREST RATE 7.64% 160,000 160,000 OTHER, DUE PERIODICALLY TO 2005, AVERAGE INTEREST RATE 7.1% 23,027 14,659 ------------------------------------------------------------------------------------------------------------------- TOTAL 414,269 239,659 ------------------------------------------------------------------------------------------------------------------- CURRENT MATURITIES 5,766 803 ------------------------------------------------------------------------------------------------------------------- TOTAL LONG-TERM DEBT $ 408,503 $ 238,856 ------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------
At December 31, 1994, the company had U.S.$157 million and DM 115 million (U.S.$ 74.2 million) borrowed under the credit facilities at an average interest rate of 6.05%. The average credit facilities borrowing rates were 5.2% in 1994 and 3.7% in 1993. See also interest rate swap agreements at Note 7. Various debt agreements require the company to maintain minimum levels of earnings, tangible net worth and certain financial ratios. The agreements also contain various restrictive limitations on the payment of dividends and certain other restricted payments. Under the most restrictive covenants, $135,000,000 of the December 31, 1994 retained earnings were unrestricted for such purposes. The company has remained in compliance with these covenants. Total long-term debt maturities, excluding revolving credit facilities, are $5,766,000, $51,844,000, $16,377,000, $15,811,000 and $38,406,000 for the years 1995 through 1999, respectively. If revolving credit facilities are not renewed, the payouts would be $43,296,000 in 1997, $57,810,000 in 1998 through 2000, and $14,516,000 in 2001. 7. FINANCIAL INSTRUMENTS The company has interest rate swap agreements with major financial institutions. In order to manage interest rate exposures, swaps are used to change variable rate interest obligations under revolving credit facilities to fixed-rate obligations without the exchange of the underlying principal amounts. Net payments or receipts under the agreements are recorded as adjustments to interest expense and credit risk is considered remote. As of December 31, 1994, the company had swap agreements outstanding with an aggregate notional amount of $100,000,000. The swap agreements have maturities of $20,000,000 and $80,000,000 in 1995 and 1996, respectively. The average interest rate fixed under the swap agreements is 9.35%. Under the interest rate environment existing as of December 31, 1994, the net fair value of the company's swap agreements, based on market prices quoted by dealers, was a net liability of $2,570,000. Long-term debt, including current maturities, has a carrying value of $414,269,000 and a fair value of $406,123,000. The estimated fair value represents the present value of debt service at rates currently available to the company for issuance of debt with similar terms. Except for the above, all financial instruments are carried at amounts that approximate estimated fair value. 43 ---- PNTA 8. LEASE COMMITMENTS At December 31, 1994, major operating lease commitments include: paper production equipment (expiring in 1996, 1999 and 2006) and a power plant (expiring in 2007). FUTURE MINIMUM RENTAL PAYMENTS UNDER ALL OPERATING LEASES ARE:
IN THOUSANDS -------------------------------------------------------- YEAR 1995 $ 23,471 1996 15,727 1997 13,266 1998 10,956 1999 9,498 THEREAFTER 41,082 -------------------------------------------------------- TOTAL $ 114,000 -------------------------------------------------------- --------------------------------------------------------
Rent expense related to operating leases amounted to $25,417,000, $20,542,000 and $19,638,000 in 1994, 1993 and 1992, respectively. 9. COMMITMENTS AND CONTINGENCIES Various lawsuits, claims and proceedings have been or may be instituted or asserted against the company relating to the conduct of its businesses, including those pertaining to product liability, environmental, safety and health, and employment matters. The company records liabilities when loss amounts are determined to be probable and reasonably estimable. Insurance recoveries are recorded only when claims for recovery are settled. Although the outcome of litigation cannot be predicted with certainty and some lawsuits, claims or proceedings may be disposed of unfavorably to the company, management believes, based on facts presently known, that the outcome of such legal proceedings and claims will not have a material adverse effect on the company's financial position or future results of operations. Under a $382,000,000 LSPI leveraged-lease financing, the company is committed to provide up to $90,000,000 additional cash to LSPI if needed to meet its lease obligation. Advances represented by subordinated notes have been made to fund prepaid rent payments made at year end. 10. CAPITAL STOCK PREFERRED STOCK The two classes of preferred stock (par value -- $0.10) are: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988; and 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990. Both issues are held by ESOPs (see Note 12). The preferred shares are convertible into common stock and are redeemable, in whole or in part, at the option of the company on or after the dates indicated below, and at redemption prices declining to the original price per share after ten years.
PREFERRED STOCK SERIES 1988 SERIES 1990 ----------------------------------------------------------------------------- Shares AUTHORIZED 300,000 2,500,000 ISSUED AND OUTSTANDING 134,165 1,819,078 Liquidation Value $100.00 $ 30.25 Conversion PRICE OF COMMON $ 21.33 to 26.67 $ 26.217 SHARES OF COMMON 4.6875 to 3.75 1.1538 Early Redemption Date JANUARY 1991 MARCH 1994 -----------------------------------------------------------------------------
44 ---- PNTA Upon the retirement or other termination of an ESOP participant, the shares of preferred stock (Series 1988 and 1990) in which he or she is vested are automatically converted into common shares and distributed in that form, with fractional shares paid in cash. All outstanding shares of its $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 1,450,780 shares of common stock. COMMON STOCK The authorized stock of the company also consists of 72,200,000 shares of common stock with a par value of $0.16 2/3. On April 21, 1993 the board of directors approved a three-for-two stock split in the form of a 50% stock dividend. The dividend was payable June 11, 1993 to shareholders of record at the close of business on May 14, 1993. CHANGES IN OUTSTANDING COMMON SHARES ARE SUMMARIZED AS FOLLOWS:
IN THOUSANDS 1994 1993 1992 ----------------------------------------------------------------------------------- BEGINNING BALANCE 18,135 10,548 10,456 EMPLOYEE STOCK PLANS -- NET 78 87 73 CONVERSION OF PREFERRED STOCK 35 1,474 19 STOCK DIVIDEND 0 6,026 0 ----------------------------------------------------------------------------------- ENDING BALANCE 18,248 18,135 10,548 ----------------------------------------------------------------------------------- -----------------------------------------------------------------------------------
11. OMNIBUS STOCK INCENTIVE PLAN In April 1990, shareholders approved the 1990 Omnibus Stock Incentive Plan (the Plan), which authorizes the issuance of up to 1,634,176 shares of the company's common stock. The Plan extends to January 11, 2000. At December 31, 1994, there were 471,537 shares available for grant under the Plan. The Plan allows for the granting of non-qualified stock options, incentive stock options, restricted stock and incentive compensation units (ICUs). Although none has been issued, the Plan also allows for granting of stock appreciation rights, performance shares and performance units. RESTRICTED SHARES AND ICUS Restrictions on the restricted shares and ICUs generally expire in the third, fourth and fifth years after issuance. Beginning with 1993 grants, ICU restrictions will expire at the end of three years. The value of each ICU is based on the increase in book value of common stock during the restriction period and is payable when the restrictions lift. Compensation expense consists of (a) amortization of the market value of the stock on the date of award over the period in which the restrictions lapse, and (b) the annual increase in ICU value. Compensation expense was $3,050,000 in 1994, $2,491,000 in 1993 and $2,800,000 in 1992. The company records incremental tax benefits resulting from the program as additional paid-in capital. OPTIONS Options are granted to purchase shares at not less than fair market value of shares on date of grant. Options generally expire after five years but may expire up to ten years from date of grant. 45 ---- PNTA DETAILS OF OPTIONS ARE AS FOLLOWS:
NUMBER OF SHARES OPTION PRICE ------------------------------------------------------------------------------- 1992 GRANTED 224,977 $24.55 -- $29.4167 EXERCISED (98,719) $13.6365 -- $21.3333 FORFEITED (14,064) $16.3333 -- $29.4167 --------- OUTSTANDING, END OF YEAR 601,158 $13.6365 -- $29.4167 --------- EXERCISABLE, END OF YEAR 187,707 $13.6365 -- $21.3333 --------- 1993 GRANTED 196,499 $27.00 EXERCISED (158,652) $13.6365 -- $29.4167 FORFEITED (11,134) $16.3333 -- $29.4167 --------- OUTSTANDING, END OF YEAR 627,871 $16.3333 -- $29.4167 --------- EXERCISABLE, END OF YEAR 245,577 $16.3333 -- $29.4167 --------- 1994 GRANTED 197,948 $35.50 EXERCISED (81,151) $16.3333 -- $29.4167 FORFEITED (8,206) $21.3333 -- $35.50 --------- OUTSTANDING, END OF YEAR 736,462 $16.3333 -- $35.50 --------- EXERCISABLE, END OF YEAR 354,785 $16.3333 -- $29.4167 ---------
12. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) The company has an Employee Stock Ownership Plan (ESOP) covering some U.S. employees. The employees receive Series 1990 Preferred Stock in lieu of cash 401(k) matching contributions and other cash compensation. To finance the plan, the ESOP borrowed $56,500,000 from the company and exchanged it for 1,867,768 shares of Callable Cumulative Voting Convertible Preferred Stock, Series 1990 at $30.25 per share. The unpaid balance of the twenty-year, 8.75% loan with interest only for the first four years is included in the company's balance sheet as unearned ESOP compensation. Gross compensation expense (i.e. the value of shares allocated to participant accounts) was $6,894,000, $6,512,000, and $4,745,000 in 1994, 1993 and 1992, respectively. The stock held by the ESOP is released for allocation to the participants' accounts as principal and interest is paid from dividends on unallocated shares ($2,831,000, $3,418,000, and $3,848,000 in 1994, 1993 and 1992, respectively) and company contributions. Through December 31, 1994, the loan has been reduced by $40,777,000; of this, $28,972,000 (958,000 shares) has been allocated to participants' accounts as compensation and dividends; and the difference is included in unearned compensation. A separate frozen ESOP holds the Series 1988 Preferred Stock. 46 ---- PNTA 13. PROVISION FOR INCOME TAXES The components of earnings before income taxes were as follows:
IN THOUSANDS 1994 1993 1992 --------------------------------------------------------------------------- DOMESTIC $ 76,831 $ 79,251 $ 66,840 FOREIGN 12,269 (1,851) 5,860 --------------------------------------------------------------------------- $ 89,100 $ 77,400 $ 72,700 ------------------------------------------------- -------------------------------------------------
THE PROVISIONS FOR INCOME TAXES, EXCLUDING TAX BENEFITS CREDITED DIRECTLY TO SHAREHOLDERS' EQUITY, WERE AS FOLLOWS:
IN THOUSANDS 1994 1993 1992 ------------------------------------------------------------------------------ CURRENT FEDERAL (LESS FOREIGN TAX CREDITS) $ 21,445 $ 23,396 $ 24,239 STATE 4,196 4,075 4,206 FOREIGN 833 (28) 2,069 ------------------------------------------------------------------------------ CURRENT PROVISION 26,474 27,443 30,514 DEFERRED PROVISION 9,026 3,357 (614) ------------------------------------------------------------------------------ TOTAL PROVISION $ 35,500 $ 30,800 $ 29,900 ------------------------------------------------------------------------------ ------------------------------------------------------------------------------
A RECONCILIATION OF THE STATUTORY FEDERAL TAX RATE TO THE EFFECTIVE RATE FOLLOWS:
1994 1993 1992 ------------------------------------------------------------------------------ STATUTORY FEDERAL INCOME TAX RATE 35.0% 35.0% 34.0% STATE AND LOCAL INCOME TAXES, NET OF FEDERAL INCOME TAX BENEFIT 3.1 3.5 3.8 ESOP DIVIDEND BENEFIT (1.1) (1.0) (.9) INCREMENTAL FOREIGN TAX RATE 2.0 0.9 0.1 GOODWILL 1.1 1.3 1.3 PRIOR YEAR ADJUSTMENT -- (1.0) -- OTHER (0.3) 1.1 2.8 ------------------------------------------------------------------------------ EFFECTIVE TAX RATE 39.8% 39.8% 41.1% ------------------------------------------------------------------------------ ------------------------------------------------------------------------------
47 ---- PNTA THE TAX EFFECT OF THE PRIMARY TEMPORARY DIFFERENCES GIVING RISE TO THE COMPANY'S DEFERRED TAX ASSETS AND LIABILITIES AT DECEMBER 31, 1994 AND 1993 IS AS FOLLOWS:
Current Long-term IN THOUSANDS, December 31, 1994 Asset (Liability) Liability (Asset) -------------------------------------------------------------------------------- ACCOUNTS RECEIVABLE ALLOWANCES $ 4,576 -- INVENTORY ALLOWANCES (7,286) -- RETIREE MEDICAL LIABILITY 1,338 $ (23,841) ACCELERATED DEPRECIATION -- 50,646 WARRANTY/PRODUCT LIABILITY ACCRUALS 11,613 (1,386) EMPLOYEE BENEFIT ACCRUALS 8,904 (10,690) OTHER 8,604 7,977 ------------------------------------------------------------------------------- TOTAL DEFERRED INCOME TAXES $ 27,749 $ 22,706 ------------------------------------------------------------------------------- -----------------------------------------------------------------------------
Current Long-term IN THOUSANDS, December 31, 1993 Asset (Liability) Liability (Asset) ------------------------------------------------------------------------------- ACCOUNTS RECEIVABLE ALLOWANCES $ 4,692 -- INVENTORY ALLOWANCES (9,124) -- RETIREE MEDICAL LIABILITY 1,170 $ (24,820) ACCELERATED DEPRECIATION -- 45,475 WARRANTY/PRODUCT LIABILITY ACCRUALS 11,471 (2,196) EMPLOYEE BENEFIT ACCRUALS 8,089 (11,111) OTHER 5,277 170 ------------------------------------------------------------------------------- TOTAL DEFERRED INCOME TAXES $ 21,575 $ 7,518 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
14. RETIREMENT PLANS The company has several non-contributory defined benefit employee pension plans covering substantially all employees of its U.S. and certain non-U.S. subsidiaries. Employees covered under the bargaining plans are eligible to participate at the time of employment and the benefits are based on a fixed amount for each year of service. Employees covered under the non-bargaining pension plans are eligible to participate upon the attainment of age 21 and the completion of one year of service; and benefits are based upon final average salary and years of service. All employees are fully vested in the plans after 5-7 years of service. The company's funding policy is to make quarterly contributions as required by applicable regulations. ASSUMPTIONS USED TO DEVELOP PENSION DATA WERE:
1994 1993 1992 ---------------------------------------------------------------------------- EXPENSE: DISCOUNT RATE 7.0% 8.0% 8.5% LONG-TERM RATE OF RETURN ON ASSETS 8.5% 9.0% 9.0% RATE OF INCREASE IN COMPENSATION 5.0% 6.0% 6.0% ---------------------------------------------------------------------------- PBO Discount Rate Year-End 8.5% 7.0% 8.0% ----------------------------------------------------------------------------
48 ---- PNTA THE FUNDED STATUS AND ACCRUED PENSION COST AT DECEMBER 31 ARE AS FOLLOWS:
PLANS WHOSE PLANS WHOSE ASSETS EXCEED ACCUMULATED BENEFITS ACCUMULATED BENEFITS EXCEED ASSETS ----------------------------------------------------------------------------------------------------------------------- IN THOUSANDS 1994 1993 1994 1993 ----------------------------------------------------------------------------------------------------------------------- Plan Assets at Fair Value $ 201,553 $ 182,528 $ 19,915 $ 30,965 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- Accumulated Benefit Obligation (ABO): VESTED BENEFITS $ 142,928 $ 147,665 $ 37,752 $ 47,303 NON-VESTED BENEFITS 2,527 2,316 6,977 3,666 ----------------------------------------------------------------------------------------------------------------------- TOTAL ABO 145,455 149,981 44,729 50,969 PROVISION FOR SALARY INCREASES 49,348 41,898 2,603 615 ----------------------------------------------------------------------------------------------------------------------- PROJECTED BENEFIT OBLIGATION (PBO) $ 194,803 $ 191,879 $ 47,332 $ 51,584 ----------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------------------- PLAN ASSETS (IN EXCESS OF) LESS THAN PBO $ (6,750) $ 9,351 $ 27,417 $ 20,619 NET TRANSITION (LIABILITY) ASSET 1,033 729 (3,056) (3,028) UNRECOGNIZED PRIOR SERVICE COST (3,426) (3,420) (1,526) (2,555) UNRECOGNIZED NET GAINS (LOSSES) 10,263 (1,828) (2,952) (12,030) MINIMUM LIABILITY ADJUSTMENT -- -- 9,453 16,998 ----------------------------------------------------------------------------------------------------------------------- ACCRUED PENSION LIABILITY $ 1,120 $ 4,832 $ 29,336 $ 20,004 ----------------------------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------------------------
IN GERMAN PRACTICE, IT IS UNCOMM0N TO FUND PENSION PLANS. APPROXIMATELY $12 MILLION OF THE $27.4 MILLION UNDERFUNDING SHOWN ABOVE (PLAN ASSETS LESS THAN PBO) RELATES TO THE GERMAN PENSION PLANS. THE COMPONENTS OF PENSION COST ARE AS FOLLOWS:
In Thousands 1994 1993 1992 --------------------------------------------------------------------------------------------------------- SERVICE COST $ 11,712 $ 8,582 $ 7,707 INTEREST COST ON PROJECTED BENEFIT OBLIGATION 17,433 15,295 14,469 ACTUAL RETURN ON ASSETS (7,450) (23,150) (13,706) NET AMORTIZATION AND DEFERRAL (8,522) 7,475 (2,106) ---------------------------------------------------------------------------------------------------------- NET PERIODIC PENSION COST $ 13,173 $ 8,202 $ 6,364 ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
At December 31, 1994, approximately 78% of the plan assets are invested in listed stocks and bonds or cash and short-term investments. The rest of the plan assets are invested primarily in fixed-rate guaranteed investment type contracts purchased from insurance companies. The company's own common stock accounted for 10% of plan assets. 49 ---- PNTA 15. POSTRETIREMENT MEDICAL AND OTHER BENEFITS The company provides certain health care and life insurance benefits for retired employees. Employees become eligible for these benefits if they meet minimum age and service requirements and are eligible for retirement benefits. THE ACCRUED POSTRETIREMENT MEDICAL AND OTHER BENEFITS COST THAT ARE NOT FUNDED WERE AS FOLLOWS AT DECEMBER 31:
IN THOUSANDS 1994 1993 ------------------------------------------------------------------------------- ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO): RETIREES $ 35,843 $ 36,566 FULLY ELIGIBLE ACTIVE PLAN PARTICIPANTS 10,498 11,660 OTHER ACTIVE PLAN PARTICIPANTS 10,964 12,221 ------------------------------------------------------------------------------- TOTAL APBO $ 57,305 $ 60,447 UNRECOGNIZED PRIOR SERVICE COST 6,739 7,454 UNRECOGNIZED NET GAINS (LOSSES) 556 (4,264) ------------------------------------------------------------------------------- ACCRUED POSTRETIREMENT MEDICAL AND OTHER BENEFITS LIABILITY $ 64,600 $ 63,637 -------------------------------------------------------------------------------- ------------------------------------------------------------------------------ -------------------------------------------------------------------------------
THE COMPONENTS OF THE NET PERIODIC COST ARE AS FOLLOWS:
IN THOUSANDS 1994 1993 1992 ---------------------------------------------------------------------------------------------------- SERVICE COST $ 878 $ 754 $ 1,013 INTEREST COST ON PROJECTED BENEFIT OBLIGATION 4,111 4,039 4,375 AMORTIZATION OF PLAN AMENDMENT (716) (789) (395) ---------------------------------------------------------------------------------------------------- NET PERIODIC POSTRETIREMENT COST $ 4,273 $ 4,004 $ 4,993 ---------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------
The discount rate used in determining actuarial present value of the benefit obligations was 8.5% and 7.0% in 1994 and 1993, respectively. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 10.8% in 1994, declining to 6.5% by the year 2016. If the health care cost trend rate assumptions were increased by 1%, the accumulated postretirement benefit obligation as of December 31, 1994 would be increased by 11.0%. The effect of this change on the sum of the service cost and interest cost would be an increase of 13.9%. 50 ---- PNTA 16. JOINT VENTURES Lake Superior Paper Industries (LSPI) is a 50/50 joint venture that manufactures paper in Duluth, Minnesota. LSPI Fiber Co. is a 50/50 joint venture that owns 24% of a recycled pulp mill adjacent to the LSPI facility. For federal income tax purposes, one-half of LSPI and LSPI Fiber Co. taxable income and tax credits are included in the company's consolidated tax return. THE COMBINED FINANCIAL DATA IS SUMMARIZED AS FOLLOWS:
IN THOUSANDS, YEARS ENDED DECEMBER 31 1994 1993 1992 ------------------------------------------------------------------------------ OPERATIONS NET SALES $ 164,356 $ 143,837 $ 150,251 OPERATING INCOME 7,346 (892) 5,434 PRETAX INCOME 3,639 (3,837) 3,363 ------------------------------------------------------------------------------- IN THOUSANDS, DECEMBER 31 1994 1993 ------------------------------------------------------------------------------- BALANCE SHEET CURRENT ASSETS $ 53,144 $ 54,765 PROPERTY -- NET 81,393 81,855 OTHER ASSETS 91,605 78,191 ------------------------------------------------------------------------------- TOTAL ASSETS $ 226,142 $ 214,811 ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- LIABILITIES $ 33,165 $ 36,594 DEFERRED GAIN 30,776 32,486 JOINT VENTURE INVESTMENT SUBORDINATED NOTES 69,237 61,000 CAPITAL CONTRIBUTION 49,719 45,042 UNDISTRIBUTED EARNINGS 43,245 39,689 ------------------------------------------------------------------------------- TOTAL LIABILITIES AND EQUITY $ 226,142 $ 214,811 ------------------------------------------------------------------------------- -------------------------------------------------------------------------------
51 ---- PNTA 17. QUARTERLY FINANCIAL DATA (UNAUDITED)
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1994 1st 2nd 3rd 4th Total ----------------------------------------------------------------------------------------------------------------------------- NET SALES $389,252 $391,937 $426,070 $441,911 $1,649,170 GROSS PROFIT 98,500 97,495 101,033 111,880 408,908 OPERATING INCOME 26,735 26,454 29,298 36,762 119,249 NET INCOME 11,100 11,825 13,775 16,900 53,600 EARNINGS PER SHARE: PRIMARY .53 .57 .67 .85 2.62 DILUTED .52 .56 .64 .80 2.52 ----------------------------------------------------------------------------------------------------------------------------- 1993 1ST 2ND 3RD 4TH TOTAL ----------------------------------------------------------------------------------------------------------------------------- NET SALES $321,829 $320,283 $345,506 $340,562 $1,328,180 GROSS PROFIT 76,920 76,205 85,754 84,830 323,709 OPERATING INCOME 21,143 21,261 27,470 28,319 98,193 NET INCOME 9,500 9,782 13,295 14,023 46,600 EARNINGS PER SHARE: PRIMARY .45 .46 .66 .69 2.26 DILUTED .44 .46 .63 .67 2.20 -----------------------------------------------------------------------------------------------------------------------------
ALL PER SHARE DATA HAS BEEN ADJUSTED FOR THE THREE-FOR-TWO STOCK SPLIT IN THE FORM OF A 50% STOCK DIVIDEND IN JUNE 1993. 18. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED) Businesses in the SPECIALTY PRODUCTS SEGMENT manufacture products designed and marketed for commercial, residential and municipal construction and a variety of professional craftsmen and do-it-yourself applications. The products include woodworking machinery (Delta), portable power tools (Porter-Cable), residential water systems, sump pumps, environmental pumps and grinders, and industrial pumps (Myers). Businesses in the GENERAL INDUSTRIAL EQUIPMENT SEGMENT manufacture products designed to facilitate industrial and commercial expansion and efficiencies. The products include electrical enclosures (Hoffman), electronic enclosures (Schroff) and lubrication systems and material dispensing equipment (Lincoln Industrial). Other businesses include automotive service equipment (Lincoln Automotive) and sporting and law enforcement ammunition (Federal). Businesses in the PAPER PRODUCTS SEGMENT manufacture products sold to the publishing and printing markets. These products primarily include coated groundwood paper and uncoated printing and writing papers. the JOINT VENTURES SEGMENT includes two 50/50 joint ventures accounted for on the equity method: Lake Superior Paper Industries (LSPI), a producer of supercalendered paper, and in 1993, LSPI Fiber Co., which owns 24% of an adjacent recycled pulp mill. Corporate expense includes administrative costs, charges that do not relate to current operations and captive insurance activities. Corporate assets include all cash and cash equivalents. 52 ---- PNTA SALES AND OPERATING INCOME BY BUSINESS SEGMENT ARE INCLUDED IN THE TABLE ON PAGE 29. THE FOLLOWING TABLES PROVIDE ADDITIONAL SEGMENT INFORMATION.
GENERAL SPECIALTY INDUSTRIAL PAPER JOINT IN THOUSANDS PRODUCTS EQUIPMENT PRODUCTS VENTURES CORPORATE TOTAL ----------------------------------------------------------------------------------------------------------------------------- IDENTIFIABLE ASSETS 1994 $ 227,764 $ 618,265 $ 279,388 $ 81,102 $ 74,977 $ 1,281,496 1993 205,737 384,656 254,042 72,867 41,499 958,801 1992 188,393 366,231 229,362 58,265 27,191 869,442 ----------------------------------------------------------------------------------------------------------------------------- DEPRECIATION AND AMORTIZATION 1994 $ 8,036 $ 32,667 $ 23,318 -- $ 116 $ 64,137 1993 7,565 18,870 23,595 -- 96 50,126 1992 8,136 17,489 22,134 -- 142 47,901 ----------------------------------------------------------------------------------------------------------------------------- CAPITAL EXPENDITURES 1994 $ 12,238 $ 45,400 $ 34,884 -- $ 223 $ 92,745 1993 9,860 18,158 45,347 -- 56 73,421 1992 6,712 20,964 39,240 -- 319 67,235 -----------------------------------------------------------------------------------------------------------------------------
INFORMATION BY GEOGRAPHIC AREA FOLLOWS: IN THOUSANDS UNITED STATES EUROPE OTHER TOTAL ---------------------------------------------------------------------------------------------- SALES 1994 $ 1,397,396 $ 180,464 $ 71,310 $ 1,649,170 1993 1,241,089 34,402 52,689 1,328,180 1992 1,138,479 44,190 56,055 1,238,724 ---------------------------------------------------------------------------------------------- OPERATING INCOME 1994 $ 101,126 $ 12,054 $ 6,069 $ 119,249 1993 98,641 (4,134) 3,686 98,193 1992 85,837 2,232 5,970 94,039 ---------------------------------------------------------------------------------------------- ASSETS 1994 $ 1,034,372 $ 205,559 $ 41,565 $ 1,281,496 1993 910,132 23,077 25,592 958,801 1992 815,863 27,284 26,295 869,442 ----------------------------------------------------------------------------------------------
THE COMPONENTS OF THIS TABLE ARE ACCUMULATED BASED UPON THE LOCATION OF THE SUBSIDIARY OR COMPANY. 53 ---- PNTA INVESTOR INFORMATION PENTAIR STOCK DATA The common stock of Pentair (Symbol: PNTA) is quoted on the NASDAQ National Market System. The price information below represents closing sale prices reported in the NASDAQ/NMS Monthly Statistical Report. There were 3,070 shareholder accounts on December 31, 1994. PRICE RANGE AND DIVIDENDS OF COMMON STOCK
DIVIDENDS LAST DIVIDENDS LAST 1994 HIGH LOW PAID PRICE 1993 HIGH LOW PAID PRICE -------------------------------------------------------- ----------------------------------------------------------- First Quarter $37 1/2 $32 3/4 $.18 $36 1/4 First Quarter $32 5/8 $26 1/2 $.17 $32 5/8 Second Quarter $38 1/4 $32 3/4 $.18 $35 3/4 Second Quarter $38 1/4 $32 1/2 $.17 $38 1/4 Third Quarter $42 3/4 $36 1/4 $.18 $39 1/2 Third Quarter $40 1/4 $34 1/4 $.17 $34 3/4 Fourth Quarter $44 1/2 $38 1/2 $.18 $42 3/4 Fourth Quarter $35 1/2 $31 $.17 $33 -------------------------------------------------------- -----------------------------------------------------------
SECURITIES MARKET MAKERS The following firms make markets for Pentair, Inc. stock: Dain Bosworth, Inc., Minneapolis, MN; Kirkpatrick, Pettis, Smith, Polian Inc., Omaha, NE; C.J. Lawrence/Deutsche Bank Securities Corp., New York, NY; Lehman Bros., New York, NY; Mayer & Schweitzer, Inc., Jersey City, NJ; Merrill Lynch Pierce Fenner & Smith, Inc., New York, NY; Piper Jaffray & Hopwood, Minneapolis, MN; Prudential Securities, New York, NY; Sherwood Securities Corp., New York, NY; Troster Singer CP, Jersey City, NJ; Weeden & Co., New York, NY COMMON DIVIDENDS In the first quarter of 1995, the board of directors increased the cash dividend to $.20 per share quarterly for an indicated annual rate of $.80 per share. Pentair has now paid 76 consecutive quarterly dividends. See Note (6) of Notes to Consolidated Financial Statements for certain dividend restrictions. ANNUAL MEETING The annual meeting of shareholders will be held at the Northland Inn, 7101 Northland Circle, Brooklyn Park, Minnesota, at 10:00 a.m. on April 19, 1995. Management and directors encourage all shareholders to attend the annual meeting. FORM 10-K AVAILABLE A copy of the company annual report on Form 10-K, as filed with the Securities and Exchange Commission, will be provided on request to shareholders. Written requests should be directed to Investor Relations, Pentair, Inc., Waters Edge Plaza, 1500 County Road B2 West, Suite 400, St. Paul, Minnesota 55113. DIVIDEND REINVESTMENT PLAN Pentair has established a Dividend Reinvestment Plan. This plan enables shareholders to automatically reinvest Pentair dividends and to invest up to an additional $3,000 per quarter in Pentair common stock, with any costs of purchasing the shares paid by the company. The plan brochure and enrollment cards are available from the company or Norwest Bank Minnesota, N.A. TAKEOVER DEFENSE Pentair is committed to protecting its stakeholders from harm by corporate raiders and unfriendly takeover actions. Information on our position may be obtained by writing to the Pentair, Inc. corporate secretary at the corporate office. REGISTRAR AND TRANSFER AGENT Norwest Bank Minnesota, N.A., South St. Paul, MN 55075 CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche LLP, Minneapolis, MN 55402 GENERAL COUNSEL Henson & Efron, P.A., Minneapolis, MN 55401 54 ---- PNTA SELECTED FINANCIAL DATA 10-YEAR SUMMARY PINTAIR, INC. AND SUBSIDIARIES
IN MILLIONS, EXCEPT PER SHARE DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 --------------------------------------------------------------------------------------------------------------------------------- INCOME STATEMENT DATA Net Sales SPECIALTY PRODUCTS 465.6 411.6 377.5 344.6 344.9 337.5 317.1 289.7 207.7 170.6 GENERAL INDUSTRIAL 796.1 535.0 486.5 458.3 460.3 460.9 127.9 112.5 38.4 -- PAPER PRODUCTS 387.5 381.6 374.7 366.2 370.7 365.2 378.3 387.0 377.8 363.6 --------------------------------------------------------------------------------------------------------------------------------- TOTAL 1,649.2 1,328.2 1,238.7 1,169.1 1,175.9 1,163.6 823.3 789.2 623.9 534.2 --------------------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------------------- Operating Income SPECIALTY PRODUCTS 49.5 42.0 40.2 33.6 28.1 29.5 30.6 31.2 20.1 16.9 GENERAL INDUSTRIAL 76.0 42.2 38.6 35.9 34.5 32.6 9.9 11.1 2.7 -- PAPER PRODUCTS* 14.8 31.0 33.1 43.0 33.7 36.0 50.5 9.0 18.4 22.8 CORPORATE (21.0) (17.0) (17.9) (17.4) (15.7) (11.0) (12.3) (8.7) (7.4) (5.9) ---------------------------------------------------------------------------------------------------------------------------------- Total 119.3 98.2 94.0 95.1 80.6 87.1 78.7 42.6 33.8 33.8 ---------------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------------- NET INCOME (A) 53.6 46.6 42.8 41.1 33.0 36.4 39.8 21.9 15.2 20.1 --------------------------------------------------------------------------------------------------------------------------------- COMMON SHARE DATA EPS -- DILUTED (A) 2.52 2.20 2.03 2.01 1.62 1.90 2.23 1.30 1.03 1.35 CASH DIVIDENDS .72 .68 .65 .61 .59 .53 .45 .42 .40 .37 STOCK DIVIDENDS -- 50 -- -- -- -- 10 -- 10 25 BOOK VALUE 21.43 18.58 16.43 17.58 15.94 14.85 13.35 11.06 10.19 9.49 STOCK PRICE 42 3/4 33 26 3/8 26 7/8 16 1/2 18 3/8 20 7/8 12 1/2 15 1/2 17 1/8 --------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA PREFERRED EQUITY (NET) 40.9 33.9 77.4 74.1 68.4 65.9 67.6 50.0 -- -- COMMON EQUITY 391.1 336.9 260.0 275.7 247.8 241.0 214.2 158.6 145.4 134.6 COMMON SHARES 18.2 18.1 15.9 15.7 15.6 16.2 16.1 13.1 12.9 11.7 ROE %(A) 13.2 13.6 12.8 13.3 11.1 14.1 19.8 12.9 10.9 15.8 OPERATING CASH 125.0 102.0 88.4 79.4 72.0 71.2 65.6 50.8 44.4 43.2 CAPITAL EXPENDITURES 92.7 73.4 67.2 49.4 61.3 83.4 45.7 53.9 45.1 61.6 TOTAL ASSETS 1,281.5 958.8 869.4 790.6 768.9 781.4 744.7 440.4 445.0 305.8 LONG--TERM DEBT 408.5 238.9 211.5 198.4 224.7 251.1 252.1 90.7 142.7 75.0 DEBT TO CAPITAL % 49 39 39 36 42 45 47 30 50 36 --------------------------------------------------------------------------------------------------------------------------------- * INCLUDES JOINT VENTURES ALL SHARE AND PER SHARE DATA ADJUSTED FOR STOCK DIVIDENDS. (A) 1992 NET INCOME AND EARNINGS PER SHARE ARE BEFORE THE CUMULATIVE EFFECTS OF ACCOUNTING CHANGES. SEE NOTE 3 OF NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. THIS DATA INCLUDES THE RESULTS OF OPERATIONS OF THE FOLLOWING BUSINESSES FROM THE DATE OF ACQUISITION OR TO THE DATE OF SALE: LINCOLN AND F.E. MYERS DIVISIONS OF MCNEIL (OHIO) CORPORATION, ACQUIRED AUGUST 1986; PORT HURON PAPER CORPORATION -- PORT HURON MILL, SOLD SEPTEMBER 1987, AND DETROIT MILL, SOLD IN EARLY 1988; THE FEDERAL CARTRIDGE AND HOFFMAN ENGINEERING BUSINESSES OF FC HOLDINGS, INC., ACQUIRED IN DECEMBER 1988, INCLUDED IN OPERATIONS COMMENCING JANUARY 1, 1989; AND SCHROFF GMBH AND ITS INTERNATIONAL SUBSIDIARIES, ACQUIRED JANUARY 1, 1994. FOR RECENT DEVELOPMENTS -- SEE MANAGEMENT'S DISCUSSION & ANALYSIS -- RECENT DEVELOPMENTS.
55 ---- PNTA PENTAIR, INC. & SUBSIDIARIES PENTAIR, INC. Pentair, Inc. is a diversified manufacturer that grows value for stakeholders by acquiring, renewing and developing manufacturing companies. Pentair businesses are organized into three segments: SPECIALTY PRODUCTS, GENERAL INDUSTRIAL EQUIPMENT AND PAPER. Our 10,300 employees provide construction, woodworking, recreation, electronics, law enforcement, automotive, industrial and printing markets with high-quality products. The eleven autonomously operated businesses have 32 locations worldwide. Pentair common shares are quoted on the NASDAQ National Market System under the symbol: PNTA. WATERS EDGE PLAZA, 1500 COUNTY ROAD B2 WEST, SUITE 400, ST. PAUL, MN 55113-3105, 612/636-7920 CROSS POINTE PAPER CORPORATION PRODUCTS Premium uncoated text and cover, commercial printing, writing, book publishing and technical papers. MARKETS General printing markets, including paper merchants, commercial printers, graphic design firms and paper converters. PRESIDENT Wilson Blackburn EMPLOYEES 1,200 LOCATIONS St. Paul, Minnesota; West Carrollton, Ohio; Dayton, Ohio; Park Falls, Wisconsin; and West Chicago, Illinois. 1295 BANDANA BOULEVARD NORTH, SUITE 335, ST. PAUL, MN 55108, 612/644-3644 DELTA INTERNATIONAL MACHINERY CORP. Products General-purpose woodworking machinery, including table saws, band saws, planers, jointers, grinders, drill presses, shapers, lathes, other tools, and accessories. MARKETS Do-it-yourself/homeshop craftsmen; commercial, residential and industrial construction; remodeling; and cabinet manufacturers, case goods, and furniture makers. PRESIDENT Nevin J. Craig EMPLOYEES 700 LOCATIONS Pittsburgh, Pennsylvania; Tupelo, Mississippi; Memphis, Tennessee; Guelph, Ontario, Canada; and Taichung, Taiwan. 246 ALPHA DRIVE, PITTSBURGH, PA 15238, 412/963-2400 FEDERAL CARTRIDGE COMPANY PRODUCTS Shotshell, centerfire and rimfire cartridges, ammunition components and clay targets. MARKETS Over 16 million licensed hunters; trap, skeet, sporting clay and target shooters; the U.S. government; and law enforcement agencies. PRESIDENT Ronald V. Mason EMPLOYEES 1,200 LOCATIONS Anoka, Minnesota; and Richmond, Indiana. 900 EHLEN DRIVE, ANOKA, MN 55303, 612/421-7100 HOFFMAN ENGINEERING COMPANY PRODUCTS Metal and composite enclosures for electrical and electronic controls, instruments and components. MARKETS Original equipment manufacturers; plant maintenance and repair; and construction. PRESIDENT Richard W. Ingman EMPLOYEES 2,250 LOCATIONS Anoka, Minnesota; Brooklyn Center, Minnesota; and Reynosa, Mexico. 900 EHLEN DRIVE, ANOKA, MN 55303, 612/421-2240 LAKE SUPERIOR PAPER INDUSTRIES PRODUCTS Supercalendered publication and printing papers. MARKETS General printing markets, especially catalogs, newspaper supplements, magazines, advertising inserts and other commercial printing. INTERIM PRESIDENT John Hosler EMPLOYEES 330 LOCATIONS Duluth, Minnesota. 100 NORTH CENTRAL AVENUE, DULUTH, MN 55807, 218/628-5100 56 ---- PNTA LINCOLN AUTOMOTIVE PRODUCTS Vehicle service equipment, including lubricating tools, hydraulic jacks and specialty products for the repair and service of automobiles, trucks, buses, and construction and agricultural equipment. MARKETS Products are marketed through a distributor network to professional mechanics and vehicle maintenance facilities. PRESIDENT Barry J. Wetzel EMPLOYEES 560 LOCATIONS St. Louis, Missouri; Jonesboro, Arkansas; Nogales, Mexico; and Mississauga, Ontario, Canada. ONE LINCOLN WAY, ST. LOUIS, MO 63120-1576, 314/679-4300 LINCOLN INDUSTRIAL PRODUCTS Automated and manual lubrication systems and equipment. Pumps and pump stations for thick fluids and viscous materials. MARKETS Manufacturers, process plants, mining, printers and general lubrication markets. PRESIDENT John Little, Lincoln Industrial USA; Werner Brauer, Lincoln Industrial GmbH EMPLOYEES 770 LOCATIONS St. Louis, Missouri; and Walldorf, Germany. ONE LINCOLN WAY, ST. LOUIS, MO 63120-1576, 314/679-4200 F.E.MYERS CO. PRODUCTS Pumps for domestic and commercial wells, residential and commercial sump and sewage systems, pumps and pumping systems for municipal and industrial services MARKETS Wholesale, retail and national catalog distribution to residential, commercial and industrial users; pump specialty distribution for municipal, government and OEM markets. PRESIDENT Fred C. Lavender EMPLOYEES 600 LOCATIONS Ashland, Ohio; and Kitchener, Ontario, Canada. 1101 MYERS PARKWAY, ASHLAND, OH 44805-2285, 419/289-1144 NIAGARA OF WISCONSIN PAPER CORPORATION PRODUCTS Coated groundwood publication grade papers. MARKETS General printing markets, especially magazines, catalogs, periodicals, advertising literature, trade books and general commercial printing. PRESIDENT G. Robert Gey EMPLOYEES 600 LOCATIONS Niagara, Wisconsin. 1101 MILL STREET, NIAGARA, WI 54151, 715/251-3151 PORTER-CABLE CORPORATION PRODUCTS Portable electric tools, including circular saws, reciprocating saws, band saws, sanders, drills and routers. MARKETS Woodworking, residential and industrial construction; industrial fabrication and maintenance; and home craftsmen. PRESIDENT James A. White EMPLOYEES 950 LOCATIONS Jackson, Tennessee. POST OFFICE BOX 2468, JACKSON, TN 38302-2468, 901/668-8600 SCHROFF PRODUCTS Schroff is the largest manufacturer in Europe's electronic enclosure market and a world technical leader. Schroff's comprehensive product range includes cabinets, cases, subracks, microcomputer packaging systems and a full line of accessories including backplanes, power supplies and technical workstations. MARKETS Schroff serves the worldwide industrial electronics industry including key segments such as computers, test & measurement, private LANs/data communication, industrial control and factory automation, medical and telecommunications. CO-PRESIDENTS James H. Frank, Benno Gengenbach EMPLOYEES 1,450 LOCATIONS Straubenhardt, Germany; Betschdorf, France; Hemel Hempstead, Hertfordshire, United Kingdom; Warwick, Rhode Island; Yokohama and Meiwa-Cho, Japan; Skarpneck, Sweden; and Gallarate (Varese), Italy. LANGENALBER STR. 96-100, D-75334 STRAUBENHARDT, GERMANY, (7082) 794-0 57 ---- PNTA BOARD OF DIRECTORS & PENTAIR OFFICERS (left to right) GEORGE N. BUTZOW (1,4,6), 65, is the former Chairman of MTS Systems Corporation. He has over 30 years of experience in purchasing, quality control, advertising, marketing and general management with MTS Systems and its predecessor company. CHARLES A. HAGGERTY (1,6), 52, Chairman, President and Chief Executive Officer of Western Digital. His 30 years of manufacturing experience include a variety of executive posts with IBM. B. KRISTINE JOHNSON (1,7), 43, is Vice President and General Manager of the Tachyarrhythmia Management Business of Medtronic, Inc. Harold V. Haverty (2,3,7), 64, is President and Chief Executive Officer of Deluxe Corporation. HAROLD V. HAVERTY (2,3,7), 64, is President and Chief Executive Officer of Deluxe Corporation. D. EUGENE NUGENT (2,3,4,5), 67, was Chairman and Chief Executive Officer of Pentair, Inc. until his retirement December 31, 1992. He joined the company in 1975. RICHARD M. SCHULZE (2,4), 54, is Founder, Chairman, and Chief Executive Officer of Best Buy Company Inc. His 34 years in consumer electronics includes distributor sales experience as a Vice President of Northern States Distributing. WINSLOW H. BUXTON (3,4,5,7), 55, is Chairman, President and Chief Executive Officer of Pentair, Inc. He joined the company in 1986 as President of Niagara of Wisconsin Paper Corporation. Previous experience includes operating and senior management positions at Willamette Industries, Boise Cascade and Publisher's Paper. WALTER KISSLING (3,6), 63, is President and Chief Operating Officer of H. B. Fuller Company, a manufacturer and marketer of specialty chemical products. He is a Director of H. B. Fuller Company and Chairman and Director of one of its subsidiaries, Kativo Chemical Industries, S.A. QUENTIN J. HIETPAS (2,5), 64, is Senior Vice President of External Affairs at the University of St. Thomas. An attorney, he has 30 years' experience in communications management with companies such as Control Data, Pillsbury and International Multifoods. (1) Audit Committee, (2) Compensation Committee, (3) Executive Committee, (4) Shareholder Affairs Committee, (5) Nominating Committee, (6) Share Rights Committee, (7) Public Policy Committee (left to right) MARK T. SCHROEPFER Vice President, Finance and MIS JOSEPH R. COLLINS Group President, Specialty Products DAVID D. HARRISON Senior Vice President and Chief Financial Officer GERALD C. KITCH Group President, General Industrial Equipment (left to right) WILSON BLACKBURN Vice President, Paper Operations DEB S. KNUTSON Vice President, Human Resources ROY T. RUEB Vice President, Treasurer and Corporate Secretary RONALD V. KELLY Senior Vice President, Long-Range Planning ALLAN J. KOLLES Senior Vice President and Assistant to the Chief Executive Officer 58 ---- PNTA PENTAIR'S SUCCESSES THROUGHOUT 1994 WERE THE RESULT OF THE COMBINED EFFORTS OF A TEAM OF HIGHLY SKILLED, DEDICATED PEOPLE AND INVESTORS WHO SHARE OUR BELIEF IN WHAT CAN BE. 60 ---- PNTA PENTAIR CODE OF BUSINESS CONDUCT Pentair, Inc. chooses to be an independent, publicly owned company, and this statement is to guide the development of its organization and the conduct of its business affairs. OUR BUSINESSES ARE TO BE MANAGED IN KEEPING WITH THE HIGHEST BUSINESS, ETHICAL, MORAL AND PATRIOTIC STANDARDS APPLICABLE TO A PUBLICLY OWNED CORPORATION. Our businesses are to be operated so that we are respected for our actions by shareholders, employees, plant communities, customers, suppliers, investors and all other stakeholders. OUR APPROACH TO BUSINESS IS INTENDED TO MAKE PENTAIR, INC. A TOP-PERFORMING COMPANY MANAGED AND OPERATED TO PROVIDE LONG-TERM BENEFITS TO ALL CONSTITUENTS. OPERATING GUIDELINES Balanced consideration will be given to the interests of shareholders and employees in managing the corporation. THE CORPORATE STAFF WILL BE KEPT TO MINIMUM SIZE, AND SUBSIDIARY OPERATIONS WILL BE AS AUTONOMOUS AS PRACTICABLE. A strong work ethic is expected of all constituents. Good performance will be freely recognized. Poor performance will not be condoned. WE WILL STRIVE TO: OPERATE WITH THE HIGHEST REGARD FOR THE ENVIRONMENT; ELIMINATE ENVIRONMENTAL RISKS FROM THE WORKPLACE; AND MINIMIZE EMISSIONS AND WASTE. The dignity and self-worth of all persons involved with the Company will be respected. SAFETY IN THE WORKPLACE AND IN WORK PRACTICES SHALL BE MAXIMIZED. We will encourage, aid and promote the physical and mental health, and wellness of employees and their families. QUALIFED EMPLOYEES WILL BE GIVEN PRIORITY FOR INTERNAL EMPLOYMENT OPPORTUNITIES. Standards of ethics, integrity and work practices shall apply equally to all employees. WE WILL HONOR AGREEMENTS, MEET OBLIGATIONS TIMELY, MAINTAIN THE SPIRIT AND INTENT OF OUR COMMITMENTS, AND VALUE GOOD RELATIONSHIPS. Hiring emphasis will recognize ability, compatibility and integrity, and will not discriminate on the basis of sex, religion, race or age. WE WILL PROMOTE OPEN AND CANDID COMMUNICATIONS WITH EMPHASIS ON INFORMALITY AND ON CONVERSATIONAL EXCHANGES. PENTAIR, INC. WATERS EDGE PLAZA 1500 County Road B2 West ST. PAUL, MN 55113-3105 612*636*7920 EX-21 4 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT As of December 31, 1994, the following are wholly-owned subsidiaries of the Registrant except as noted: State or Other Jurisdiction of Incorporation Subsidiary or Organization Specialty Products Delta International Machinery Corp. Minnesota Pentair Canada, Inc. 1 Ontario, Canada Porter-Cable Corporation Minnesota McNeil (Ohio) Corporation Minnesota F. E. Myers Co., Division of McNeil (Ohio) Corporation - Pentair Canada, Inc. 1 Ontario, Canada General Industrial Equipment McNeil (Ohio) Corporation Minnesota Lincoln Industrial, Division of McNeil (Ohio) Corporation - Lincoln Automotive, Division of McNeil (Ohio) Corporation - Pentair Canada, Inc. 1 Ontario, Canada APNO, S.A. de C.V. 2 Mexico Telestack Company 2 Ohio FC Holdings Inc. Delaware Federal-Hoffman, Inc. 3 Minnesota Federal Cartridge Company, Division of Federal-Hoffman, Inc. - Hoffman Engineering Company, Division of Federal-Hoffman, Inc. - Hoffman Engineering Company Limited 4 United Kingdom Hoffman Engineering, S.A. de C.V.4 Mexico Schroff Inc. 3 Rhode Island Schroff Co. Ltd. 3 Taiwan Schroff K.K. 3 Japan EuroPentair, GmbH Germany Schroff, GmbH 5 Germany Schroff U.K. Ltd. 5 United Kingdom Schroff S.A. 5 France Schroff S.r.L. 5 Italy Schroff Scandinavia AB 5 Sweden Lincoln GmbH 6 Germany Lincoln Belgium N.V. Belgium Paper Products Cross Pointe Paper Corporation Minnesota Flambeau Paper Corp. 7 Wisconsin Miami Paper Corporation 7 Minnesota Dayton Paper Corporation 7 Minnesota Niagara of Wisconsin Paper Corporation Wisconsin Pentair Duluth Corp. 8 Minnesota Pentair Duluth Pulp Corp.9 Minnesota Duluth Holdings (Paper) Corp. Minnesota General Corporate Federal-Hoffman International, Inc. 4 Guam Pentair FSC Corporation 2 U.S. Virgin Islands Penwald Insurance Company Vermont FOOTNOTES: 1 Wholly-owned by Delta International Machinery Corp. and McNeil (Ohio) Corporation, having the following divisions: Delta International Machinery, F. E. Myers Company, and Lincoln Canada. 2 A wholly-owned subsidiary of McNeil (Ohio) Corporation. 3 A wholly-owned subsidiary of FC Holdings Inc. 4 A wholly-owned subsidiary of Federal-Hoffman, Inc. 5 A wholly-owned subsidiary of EuroPentair, GmbH. 6 Wholly-owned by EuroPentair GmbH and Telestack Company, a subsidiary of McNeil (Ohio) Corporation. 7 A wholly-owned subsidiary of Cross Pointe Paper Corporation. 8 Pentair Duluth has a 50% interest in Lake Superior Paper Industries, a joint venture with Minnesota Paper Incorporated. 9 Pentair Duluth Pulp, a wholly-owned subsidiary of Duluth Holdings (Paper) Corp., has a 50% interest in LSPI Fiber Co., a joint venture with Minnesota Pulp Incorporated, which has a 24% interest in Superior Recycled Fiber Industries, a Minnesota joint venture of which the 76% owner is Superior Recycled Fiber Corporation. EX-23 5 EXHIBIT 23 INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS CONSENT We consent to the incorporation by reference in Registration Statements No. 2-83635, No. 2-88670, No. 33-36256, No. 33-38534, No. 33-42057, No. 33-42268, and No. 33-45012 of Pentair, Inc. on Form S-8 of our reports dated February 10, 1995, except Note 4, as to which the date is February 21, 1995, appearing in and incorporated by reference in this Annual Report on Form 10-K of Pentair, Inc. for the year ended December 31, 1994. DELOITTE & TOUCHE Saint Paul, Minnesota March 29, 1995 EX-4.9 6 EXHIBIT 4.9 AMENDMENT NUMBER ONE TO FACILITY AGREEMENT THIS FIRST AMENDMENT to Facility Agreement ("First Amendment") dated as of November 1, 1994, among PENTAIR, INC., BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.) AND MORGAN GUARANTY TRUST COMPANY OF NEW YORK, for themselves and as agents, and NBD BANK, N.A. and J. P. MORGAN DELAWARE. WHEREAS, the parties entered into a $125 Million Facility Agreement dated as of February 11, 1994 (the "Facility Agreement"); and WHEREAS, the parties desire to amend the Facility Agreement as set forth below; NOW, THEREFORE, The parties hereto agree as follows: 1. Definitions. The definition of "Sale of Receivables" set forth in Article I, Section 1.01 is hereby amended in its entirety to read as follows: "Sale of Receivables" means a sale by the Borrower or a Consolidated Subsidiary, with or without recourse or discount, of an interest in trade receivables (including certain rights related thereto and the proceeds thereof) of the Borrower or Consolidated Subsidiary pursuant to a receivables purchase program or a loan secured by such receivables, provided that the outstanding principal amount secured by such receivables or the outstanding investment in such receivables, as the case may be, shall not exceed $75,000,000 in the aggregate at any one time. 2. CD Loans. The third paragraph of Article II, Section 2.06 (b) is hereby amended in its entirety to read as follows: "CD Margin" means: Leverage Ratio: CD Margin: 0.8:1 or less .375 of 1% equal to or less than 1.2:1 but more than 0.8:1 .425 of 1% more than 1.2:1 .575 of 1% 3. Eurodollar Loans. The fifth paragraph of Article II, Section 2.06 (c) is hereby amended in its entirety to read as follows: The "Eurodollar Margin" means Eurodollar Leverage Ratio: Margin : 0.8:1 or less .250 of 1% equal to or less than 1.2:1 but more than 0.8:1 .300 of 1% more than 1.2:1 .450 of 1% 4. Facility Fees. Article II, Section 2.07(a) is hereby amended in its entirety to read as follows: During the Revolving Credit Period, the Borrower shall pay to the Agent for the account of each Bank in ratable shares a facility fee at the rate of .150 of 1% per annum on the Total Commitment. Such facility fees shall accrue from and including the date of this Agreement to but excluding the last day of the Revolving Credit Period and shall be payable quarterly in arrears on the last day of each calendar quarter during the Revolving Credit Period. 5. Effectiveness. The amendments set forth herein shall be effective with respect to all loans made under the Facility Agreement on or after November 1, 1994. 6. No Other Amendment. Except as specifically amended in this First Amendment, but all of the terms and provisions of the Facility Agreement shall remain in full force and effect. 7. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their respective authorized officers as of the date first above written. PENTAIR, INC. By________________________________ Title:________________________ Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Attention: Chief Financial Officer Telephone: (612) 636-7920 Telecopy: (612) 639-5209 BANK OF AMERICA ILLINOIS, (formerly known as Continental Bank N.A.) for itself and as Agent By_________________________________ Title:_________________________ 231 South LaSalle Street Chicago, Illinois 60697 Attn: Barry Watters Telephone: (312) 828-6307 Telecopy: (312) 987-1276 Person to whom Loan correspondence should be addressed: Angelina Monarrez 231 South LaSalle Street Chicago, Illinois 60697 Telephone: (312) 828-3879 Telecopy: (312) 974-9102 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, for itself and as Agent By_________________________________ Title:_________________________ 60 Wall Street New York, New York 10260 Attn: William J. Stevenson Telephone: (212) 648-6839 Telecopy: (212) 648-5336 J. P. MORGAN DELAWARE By_________________________________ Title:_________________________ 902 Market Street Wilmington, Delaware 19801 Attn: David J. Morris Telephone: (302) 651-3788 Telecopy: (302) 654-5336 NBD BANK, N.A. By_________________________________ Title:_________________________ 611 Woodward Avenue Detroit, Michigan 48226 Attn: Patrick P. Skiles Telephone: (313) 225-1798 Telecopy: (313) 225-1671 EX-4.11 7 EXHIBIT 4.11 AMENDMENT NUMBER ONE TO FACILITY AGREEMENT THIS FIRST AMENDMENT to Facility Agreement ("First Amendment") dated as of November 1, 1994, among PENTAIR, INC., and FIRST BANK NATIONAL ASSOCIATION, for itself and as Agent, and NORWEST BANK MINNESOTA, N.A.. WHEREAS, the parties entered into a $45 Million Facility Agreement dated as of February 11, 1994 (the "Facility Agreement"); and WHEREAS, the parties desire to amend the Facility Agreement as set forth below; NOW, THEREFORE, The parties hereto agree as follows: 1. Definitions. The definition of "Sale of Receivables" set forth in Article I, Section 1.01 is hereby amended in its entirety to read as follows: "Sale of Receivables" means a sale by the Borrower or a Consolidated Subsidiary, with or without recourse or discount, of an interest in trade receivables (including certain rights related thereto and the proceeds thereof) of the Borrower or Consolidated Subsidiary pursuant to a receivables purchase program or a loan secured by such receivables, provided that the outstanding principal amount secured by such receivables or the outstanding investment in such receivables, as the case may be, shall not exceed $75,000,000 in the aggregate at any one time. 2. CD Loans. The third paragraph of Article II, Section 2.06 (b) is hereby amended in its entirety to read as follows: "CD Margin" means: Leverage Ratio: CD Margin: 0.8:1 or less .375 of 1% equal to or less than 1.2:1 but more than 0.8:1 .425 of 1% more than 1.2:1 .575 of 1% 3. Eurodollar Loans. The fifth paragraph of Article II, Section 2.06 (c) is hereby amended in its entirety to read as follows: The "Eurodollar Margin" means Eurodollar Leverage Ratio: Margin : 0.8:1 or less .250 of 1% equal to or less than 1.2:1 but more than 0.8:1 .300 of 1% more than 1.2:1 .450 of 1% 4. Facility Fees. Article II, Section 2.07(a) is hereby amended in its entirety to read as follows: During the Revolving Credit Period, the Borrower shall pay to the Agent for the account of each Bank in ratable shares a facility fee at the rate of .150 of 1% per annum on the Total Commitment. Such facility fees shall accrue from and including the date of this Agreement to but excluding the last day of the Revolving Credit Period and shall be payable quarterly in arrears on the last day of each calendar quarter during the Revolving Credit Period. 5. Effectiveness. The amendments set forth herein shall be effective with respect to all loans made under the Facility Agreement on or after November 1, 1994. 6. No Other Amendment. Except as specifically amended in this First Amendment, but all of the terms and provisions of the Facility Agreement shall remain in full force and effect. 7. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their respective authorized officers as of the date first above written. PENTAIR, INC. By________________________________ Title:________________________ Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Attention: Chief Financial Officer Telephone: (612) 636-7920 Telecopy: (612) 639-5209 FIRST BANK NATIONAL ASSOCIATION, for itself and as Agent By_________________________________ Title:_________________________ First Bank Place 601 Second Avenue South Minneapolis, Minnesota 55402-4302 Attn: Deborah O. Hall Telephone: (612) 973-0543 Telecopy: (612) 973-0824 NORWEST BANK MINNESOTA, N.A. By_________________________________ Title:_________________________ Norwest Center 6th and Marquette Minneapolis, Minnesota 55479-0085 Attn: National Division Gloria J. Charley Telex Number: 290734 Answerback: NORWEST BK MPS Telephone: (612) 667-8219 Telecopy: (612) 667-4145 EX-4.13 8 EXHIBIT 4.13 AMENDMENT NUMBER ONE TO FACILITY AGREEMENT THIS FIRST AMENDMENT to Facility Agreement ("First Amendment") dated as of November 1, 1994, among EuroPentair GmbH, PENTAIR, INC., MORGAN GUARANTY TRUST COMPANY OF NEW YORK and BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.), for themselves and as agents, NBD BANK, N.A. and DRESDNER BANK AG. WHEREAS, the parties entered into a DM115 Million Facility Agreement dated as of February 11, 1994 (the "Facility Agreement"); and WHEREAS, the parties desire to amend the Facility Agreement as set forth below; NOW, THEREFORE, The parties hereto agree as follows: 1. Definitions. The definition of "Sale of Receivables" set forth in Article I, Section 1.01 is hereby amended in its entirety to read as follows: "Sale of Receivables" means a sale by the Guarantor or a Consolidated Subsidiary, with or without recourse or discount, of an interest in trade receivables (including certain rights related thereto and the proceeds thereof) of the Guarantor or Consolidated Subsidiary pursuant to a receivables purchase program or a loan secured by such receivables, provided that the outstanding principal amount secured by such receivables or the outstanding investment in such receivables, as the case may be, shall not exceed $75,000,000 in the aggregate at any one time. 2. Margin. The fifth paragraph of Article II, Section 2.06 is hereby amended in its entirety to read as follows: The "Margin" means: Leverage Ratio: Margin : 0.8:1 or less .250 of 1% equal to or less than 1.2:1 but more than 0.8:1 .300 of 1% more than 1.2:1 .450 of 1% 3. Facility Fees. Article II, Section 2.07(a) is hereby amended in its entirety to read as follows: During the Revolving Credit Period, the Borrower shall pay to the Agent for the account of each Bank in ratable shares a facility fee at the rate of .150 of 1% per annum on the Total Commitment. Such facility fees shall accrue from and including the date of this Agreement to but excluding the last day of the Revolving Credit Period and shall be payable quarterly in arrears on the last day of each calendar quarter during the Revolving Credit Period. 4. Effectiveness. The amendments set forth herein shall be effective with respect to all loans made under the Facility Agreement on or after November 1, 1994. 5. No Other Amendment. Except as specifically amended in this First Amendment, but all of the terms and provisions of the Facility Agreement shall remain in full force and effect. 6. Counterparts. This First Amendment may be executed in any number of counterparts, each of which shall be deemed an original, all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed by their respective authorized officers as of the date first above written. EUROPENTAIR GmbH By________________________________ Title:________________________ Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Attention: Chief Financial Officer Telephone: (612) 636-7920 Telecopy: (612) 639-5209 PENTAIR, Inc. By________________________________ Title:________________________ Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Attention: Chief Financial Officer Telephone: (612) 636-7920 Telecopy: (612) 639-5209 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, for itself and as Agent By_________________________________ Title:_________________________ 60 Victoria Embankment London EC4Y OJP Attn: Credit Operations Telex Number: 896631 MGT Telecopy: (071) 325-8114 Telephone: (071) 325-1484 with a copy to: 60 Wall Street New York, New York 10260 Attn: John M. Mikolay Telex number: 177615 MGT UT Telecopy: (212) 837-5022 Telephone: (212) 648-6988 BANK OF AMERICA ILLINOIS, (formerly known as Continental Bank N.A.), for itself and as Agent By_________________________________ Title:_________________________ 231 South LaSalle Street Chicago, Illinois 60697 Attn: Barry Watters Telephone: (312) 828-6307 Telecopy: (312) 987-1276 Person to whom Loan correspondence should be addressed: Beverly Boone 231 South LaSalle Street Chicago, Illinois 60697 Telephone: (312) 828-1295 Telecopy: (312) 765-2080 NBD BANK, N.A. By_________________________________ Title:_________________________ 611 Woodward Avenue Detroit, Michigan 48226 Attn: Patrick P. Skiles Telephone: (313) 225-1798 Telecopy: (313) 225-1671 DRESDNER BANK AG CHICAGO AND GRAND CAYMAN BRANCHES By_________________________________ Title:_________________________ By_________________________________ Title:_________________________ 190 South LaSalle Street Chicago, Illinois 60603 Attn: William J. Murray Telephone: (312) 444-1318 Telecopy: (312) 444-1305 Operations Contact: Ms. Feixiao Dai Dresdner Bank AG 75 Wall Street New York, New York 10005 Telephone: (212) 574-0269 Telecopy: (212) 574-0130 EX-4.14 9 EXHIBIT 4.14 AMENDMENT NUMBER TWO TO FACILITY AGREEMENT THIS SECOND AMENDMENT to Facility Agreement ("Second Amendment") dated as of February 15, 1995, among EUROPENTAIR GMBH, PENTAIR, INC., MORGAN GUARANTY TRUST COMPANY OF NEW YORK and BANK OF AMERICA ILLINOIS (formerly known as Continental Bank N.A.), for themselves and as agents, NBD BANK, N.A. and DRESDNER BANK AG. WHEREAS, the parties entered into a DM115 Million Facility Agreement dated as of February 11, 1994; which agreement was amended by Amendment Number One to Facility Agreement dated November 1, 1994 (as amended, the "Facility Agreement"); and WHEREAS, the parties desire to amend the Facility Agreement as set forth below; NOW, THEREFORE, The parties hereto agree as follows: 1. Commitment. The definition of "Commitment" set forth in Article I, Section 1.01 is hereby amended in its entirety to read as follows: "Commitment" means at any date, with respect to each Bank, the amount set forth below opposite such Bank's name, as such amount may be reduced from time to time pursuant to Section 2.09, or increased from time to time pursuant to Section 2.01(c)(iii): Morgan Guaranty Trust Company of New York DM40,000,000 Bank of America Illinois DM40,000,000 NBD Bank, N.A. DM17,500,000 Dresdner Bank AG DM35,000,000 Total Commitments = DM132,500,000 2. Effectiveness. The amendment set forth herein shall be effective with respect to all loans made under the Facility Agreement on or after February 15, 1995. 3. No Other Amendment. Except as specifically amended in this Second Amendment, all of the terms and provisions of the Facility Agreement shall remain in full force and effect. 4. Counterparts. This Second Amendment may be executed in any number of counterparts, each of which shall be deemed an original, all of which when taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to be duly executed by their respective authorized officers as of the date first above written. EUROPENTAIR GmbH By________________________________ Title:________________________ Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Attention: Chief Financial Officer Telephone: (612) 636-7920 Telecopy: (612) 639-5209 PENTAIR, Inc. By________________________________ Title:________________________ Waters Edge Plaza 1500 County Road B2 West St. Paul, Minnesota 55113 Attention: Chief Financial Officer Telephone: (612) 636-7920 Telecopy: (612) 639-5209 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, for itself and as Agent By_________________________________ Title:_________________________ 60 Victoria Embankment London EC4Y OJP Attn: Credit Operations Telex Number: 896631 MGT Telecopy: (071) 325-8114 Telephone: (071) 325-1484 with a copy to: 60 Wall Street New York, New York 10260 Attn: John M. Mikolay Telex number: 177615 MGT UT Telecopy: (212) 837-5022 Telephone: (212) 648-6988 BANK OF AMERICA ILLINOIS, (formerly known as Continental Bank N.A.), for itself and as Agent By_________________________________ Title:_________________________ 231 South LaSalle Street Chicago, Illinois 60697 Attn: Barry Watters Telephone: (312) 828-6307 Telecopy: (312) 987-1276 Person to whom Loan correspondence should be addressed: Beverly Boone 231 South LaSalle Street Chicago, Illinois 60697 Telephone: (312) 828-1295 Telecopy: (312) 765-2080 NBD BANK, N.A. By_________________________________ Title:_________________________ 611 Woodward Avenue Detroit, Michigan 48226 Attn: Thomas H. Gordy Telephone: (313) 225-1798 Telecopy: (313) 225-1671 DRESDNER BANK AG CHICAGO AND GRAND CAYMAN BRANCHES By_________________________________ Title:_________________________ By_________________________________ Title:_________________________ 190 South LaSalle Street Chicago, Illinois 60603 Attn: William J. Murray Telephone: (312) 444-1318 Telecopy: (312) 444-1305 Operations Contact: Ms. Feixiao Dai Dresdner Bank AG 75 Wall Street New York, New York 10005 Telephone: (212) 574-0269 Telecopy: (212) 574-0130 EX-4.17 10 EXHIBIT 4.17 THIRD AMENDMENT TO RESTATEMENT OF CREDIT AGREEMENT THIS THIRD AMENDMENT, dated as of December 31, 1994, amends and modifies a certain Restatement of Credit Agreement, dated as of July 11, 1989, as amended pursuant to a First Amendment to Restatement of Credit Agreement, dated as of September 1, 1991, and a Second Amendment to Restatement of Credit Agreement, dated as of January 19, 1993 (as so amended, the "Credit Agreement"), between PENTAIR, INC., a Minnesota corporation (the "Borrower") and FIRST BANK NATIONAL ASSOCIATION (the "Bank"). Capitalized terms not otherwise expressly defined herein shall have the meanings set forth in the Credit Agreement. PRELIMINARY STATEMENT The Borrower and the Bank desire to amend the Credit Agreement to extend the Commitment Termination Date and to amend other provisions of the Credit Agreement as hereinafter set forth. NOW, THEREFORE, for value received, the Borrower and the Bank agree as follows: ARTICLE 1 - AMENDMENTS TO THE CREDIT AGREEMENT 1.1 Definitions. The following definitions set forth in Article 1 of the Credit Agreement are hereby amended as of the date hereof: (a) Commitment Termination Date. The definition of the term "Commitment Termination Date" is hereby amended to read in its entirety as follows: " Commitment Termination Date' means January 1, 2001 (or if such date is not a Business Day, the next succeeding day which is a Business Day), as the same may be extended pursuant to Section 2.01(c) hereof." (b) Revolving Credit Period. The definition of the term "Revolving Credit Period" is hereby amended to read in its entirety as follows: " Revolving Credit Period' means the period from the date hereof to and including January 1, 1997 (or if such day is not a Business Day, the next succeeding day which is a Business Day), as such Period may be extended in accordance with Section 2.01(c) hereof." (c) Revolving Credit Termination Date. The definition of the term "Revolving Credit Termination Date" is hereby amended to read in its entirety as follows: " Revolving Credit Termination Date' means January 1, 1997, (or if such day is not a Business Day, the next succeeding day which is a Business Day), as such Date may be extended in accordance with Section 2.01(c) hereof." (d) Sale of Receivables. The definition of the term "Sale of Receivables" as added in the Second Amendment is hereby amended to read in its entirety as follows: " Sale of Receivables' means a sale by the Borrower or a Consolidated Subsidiary, with or without recourse or discount, of an interest in trade receivables (including certain rights related thereto and the proceeds thereof) of the Borrower or Consolidated Subsidiary pursuant to a receivables purchase program or a loan secured by such receivables, provided that the outstanding principal amount secured by such receivables or the outstanding investment in such receivables, as the case may be, shall not exceed $75,000,000 in the aggregate at any one time." 1.2 Section 2.01(c). Section 2.01(c) (Extension of Commitment Termination Date) of the Credit Agreement is hereby amended as of the date hereof to read in its entirety as follows: "(c) Extension of Commitment Termination Date. On or before October 1, 1995, and on or before October 1 of every second year thereafter, the Borrower may, by written notice to the Bank, request that both the Revolving Credit Termination Date and the Commitment Termination Date be extended for two years, effective as of the following January 1, provided, however, that no such request will be considered if the Revolving Credit Termination Date and the Commitment Termination Date were not extended upon any previous request. The Bank will indicate its acceptance or rejection of any requested extension within 30 days after its receipt of notice of a requested extension." 1.3 Section 2.06(b). The definition of "CD Margin" in Section 2.06(b) of the Credit Agreement is amended to read as follows: " CD Margin' means: Leverage Ratio: CD Margin: 0.8:1 or less .375 of 1% equal to or less than 1.2:1 but more than 0.8:1 .425 of 1% more than 1.2:1 .575 of 1%" 1.4 Section 2.06(c). The definition of "Eurodollar Margin" in Section 2.06(c) of the Credit Agreement is amended to read as follows: "The Eurodollar Margin' means: Leverage Ratio: CD Margin: 0.8:1 or less .250 of 1% equal to or less than 1.2:1 but more than 0.8:1 .300 of 1% more than 1.2:1 .450 of 1%" 1.5 Section 2.06(d). The first paragraph of Section 2.06(d) is retained, but the paragraphs following the first paragraph are hereby amended as of the date hereof to read in their entirety as follows: "The Daily Pricing Rate' means for any day a rate per annum (rounded upward, if necessary, to the nearest 1/16 of 1%) determined pursuant to the following formula, which rate shall continue in effect until the next succeeding Business Day: { LIBO Rate } Daily Pricing Rate = {-----------------------------------} plus 0.50% {1.00 - Eurocurrency Reserve} Percentage In such formula, (i) Eurocurrency Reserve Percentage' means the percentage (expressed as a decimal) for such day prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining reserve requirements applicable to Eurocurrency liabilities' pursuant to Regulation D or any other applicable regulation of the Board of Governors which prescribes such reserve requirements, and (ii) LIBO Rate' means the offered rate for deposits in United States Dollars (rounded upwards, if necessary, to the nearest 1/16 of 1%), for delivery of such deposits on such day, for an interest period of one month, which appears on the Reuters Screen LIBO Page as of the time selected by the Bank on such day. If at least two rates appear on the Reuters Screen LIBO Page, the rate shall be the arithmetic mean of such rates (rounded as provided above). If fewer than two rates appear, the rate may be determined by the Bank based on other services selected for such purpose by the Bank or based on rates offered to the Bank for United States Dollar deposits in the interbank Eurodollar market. Reuters Screen LIBO Page' means the display designated as page LIBO' on the Reuter Monitor Money Rates Service (or such other page as may replace the LIBO Page on that service for the purpose of displaying London interbank offered rates of major banks for United States Dollar deposits)." 1.6 Construction. All references in the Credit Agreement to "this Agreement," "herein" and similar references shall be deemed to refer to the Credit Agreement as amended by this Amendment. ARTICLE II - REPRESENTATIONS AND WARRANTIES To induce the Bank to enter into this Amendment and to make and maintain the Loans under the Credit Agreement as amended hereby, the Borrower hereby warrants and represents to the Bank that it is duly authorized to execute and deliver this Amendment, and to perform its obligations under the Credit Agreement as amended hereby, and that this Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms. ARTICLE III - CONDITIONS PRECEDENT This Amendment shall become effective on the date first set forth above; provided, however, that the effectiveness of this Amendment is subject to the satisfaction of each of the following conditions precedent: 3.1 Warranties. Before and after giving effect to this Amendment, the representations and warranties in Article IV of the Credit Agreement shall be true and correct as though made on the date hereof, except for changes that are permitted by the terms of the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.2 Defaults. Before and after giving effect to this Amendment, no Default and no Event of Default shall have occurred and be continuing under the Credit Agreement. The execution by the Borrower of this Amendment shall be deemed a representation that the Borrower has complied with the foregoing condition. 3.3 Documents. The following shall have been delivered to the Bank, each duly executed and dated, or certified, as of the date hereof, as the case may be: (a) Resolutions. Certified copies of resolutions of the Board of Directors of the Borrower authorizing or ratifying the execution, delivery and performance, respectively, of this Amendment and other documents provided for in this Amendment. (b) Incumbency and Signatures. A certificate of the Secretary or an Assistant Secretary of the Borrower certifying the names of the officer or officers of the Borrower authorized to sign this Amendment and other documents provided for in this Amendment, together with a sample of the true signature of each such officer. ARTICLE IV - GENERAL 4.1 Expenses. The Borrower agrees to reimburse the Bank upon demand for all reasonable expenses, including reasonable fees of attorneys (who may be employees of the Bank) and legal expenses, incurred by the Bank in enforcing the obligations of the Borrower hereunder, and to pay and save the Bank harmless from all liability for, any stamp or other taxes which may be payable with respect to the execution or delivery of this Amendment, which obligations of the Borrower shall survive any termination of the Credit Agreement. 4.2 Counterparts. This Amendment may be executed in as many counterparts as may be deemed necessary or convenient, and by the different parties hereto on separate counterparts, each of which, when so executed, shall be deemed an original but all such counterparts shall constitute but one and the same instrument. 4.3 Severability. Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provisions in any other jurisdiction. 4.4 Law. This Amendment shall be a contract made under the laws of the State of Minnesota, which laws shall govern all the rights and duties hereunder. 4.5 Successors; Enforceability. This Amendment shall be binding upon the Borrower and the Bank and their respective successors and assigns, and shall inure to the benefit of the Borrower and the Bank and the successors and assigns of the Bank. Except as hereby amended, the Credit Agreement shall remain in full force and effect and is hereby ratified and confirmed in all respects. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed at Minneapolis, Minnesota by their respective officers thereunto duly authorized as of the date first written above. PENTAIR, INC. By:__________________________________ Title: Chief Financial Officer FIRST BANK NATIONAL ASSOCIATION By:__________________________________ Title: Vice President EX-27 11
5 YEAR DEC-31-1994 DEC-31-1994 32677000 0 255105000 0 243651000 569219000 764408000 353422000 1281496000 285691000 0 391058000 0 40916000 0 1281496000 1649170000 1649170000 1240262000 1531700000 0 0 33367000 89100000 35500000 53600000 0 0 0 53600000 2.62 2.52