-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IUs7O899io60XXIik1EaK/yiHdU1ixhhyvzOU9Favc46Na47qfB1T8v9wBpCokV0 6WzKCj6ZEx5Rn5uGuchadA== 0000077360-95-000039.txt : 19951119 0000077360-95-000039.hdr.sgml : 19951119 ACCESSION NUMBER: 0000077360-95-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTAIR INC CENTRAL INDEX KEY: 0000077360 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 410907434 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-04689 FILM NUMBER: 95590029 BUSINESS ADDRESS: STREET 1: 1500 COUNTY RD - B2 WEST STREET 2: SUITE 400 CITY: ST PAUL STATE: MN ZIP: 55113-3105 BUSINESS PHONE: 6126367920 FORMER COMPANY: FORMER CONFORMED NAME: PENTAIR INDUSTRIES INC DATE OF NAME CHANGE: 19790327 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ________ to _______ Commission File No. 0-4689 PENTAIR, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-0907434 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 1500 County B2 West, Suite 400 St. Paul, Minnesota 55113-3105 (Address of principal executive offices) (Zip Code) (612) 636-7920 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of Registrant's only class of common stock on September 30, 1995 was 18,460,138. PENTAIR, INC. AND SUBSIDIARIES FORM 10-Q TABLE OF CONTENTS PART I - FINANCIAL INFORMATION Consolidated Statement of Income Consolidated Balance Sheet Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Management's Discussion and Analysis of Results of Operations and Financial Condition PART II - OTHER INFORMATION Item 1. Legal Proceedings Item 6. Exhibits and Reports on Form 8-K Signature Page Exhibit Index PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PENTAIR, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited) ($ expressed in thousands except per share amounts)
Nine Months Ended Quarter Ended September 30 September 30 1995 1994 1995 1994 Net sales $1,025,377 $ 922,157 $ 353,338 $ 324,864 Operating costs: Cost of goods sold 727,288 652,186 255,389 231,499 Selling, general and administrative 214,047 194,954 69,750 65,718 Total operating costs 941,335 847,140 325,139 297,217 Operating income 84,042 75,017 28,199 27,647 Interest expense - net (12,530) (16,235) (2,687) (5,391) Income from continuing operations before income taxes 71,512 58,782 25,512 22,256 Provision for income taxes 29,012 23,281 10,212 8,618 Income from continuing operations 42,500 35,501 15,300 13,638 Discontinued operations: Income from operations of discontinued Paper Products and Joint Venture segments (net of applicable income taxes of $2,740 and $719, and $0 and $82, respectively) 4,566 1,199 0 137 Gain on sale of discontinued operations (less applicable income taxes of $7,734) 12,134 0 0 0 Net income 59,200 36,700 15,300 13,775 Preferred dividend requirements 3,981 4,094 1,324 1,363 Earnings applicable to common stock $55,219 $32,606 $13,976 $12,412 Earnings per share: Primary - Income from: continuing operations $2.07 $1.70 $.75 $.66 discontinued operations .90 .07 .00 .01 Net Income $2.97 $1.77 $.75 $.67 Diluted - Income from: continuing operations $1.98 $1.66 $.71 $.63 discontinued operations .79 .06 .00 .01 Net Income $2.77 $1.72 $.71 $.64 Weighted average common and common equivalent shares: Primary 18,619 18,400 18,689 18,446 Diluted 21,173 21,023 21,199 21,059
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
September 30, December 31, ASSETS 1995 1994 Current assets Cash and cash equivalents $26,623 $32,677 Accounts receivable - net 262,903 219,527 Notes receivable 101,526 0 Inventories Finished goods 149,370 114,875 Work in process 40,843 41,283 Raw materials and supplies 35,819 36,929 Total inventory 226,032 193,087 Deferred income taxes 27,835 23,087 Other current assets 8,079 8,701 Net assets of discontinued operations 0 240,136 Total current assets 652,998 717,215 Property, plant and equipment 416,260 378,732 Less accumulated depreciation 176,324 147,581 Property, plant and equipment - net 239,936 231,151 Marketable securities - insurance subsidiary 29,130 23,655 Goodwill - net 173,517 170,965 Other assets 17,535 18,156 TOTAL ASSETS $1,113,116 $1,161,142 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $76,322 $78,065 Compensation and other benefits accruals 55,509 48,657 Income taxes 9,647 2,708 Accrued product claims and warranties 26,521 24,324 Accrued expenses and other liabilities 77,597 61,277 Current maturities of debt 2,447 3,566 Total current liabilities 248,043 218,597 Long-term debt 242,398 408,503 Other liabilities 16,233 17,944 Deferred income taxes 8,600 366 Pensions and other retirement compensation 35,072 21,796 Postretirement medical and other benefits 46,268 40,878 Reserves - insurance subsidiary 25,772 21,084 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding: 1995 - 1,882,236 66,014 68,444 1994 - 1,953,243 Unearned compensation relating to ESOP (21,288) (27,528) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding: 1995 - 18,460,138 3,077 3,041 1994 - 18,248,155 Additional paid-in capital 171,183 166,314 Cumulative translation and pension adjustments 13,760 8,033 Retained earnings 257,984 213,670 Total shareholders' equity 490,730 431,974 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,113,116 $1,161,142
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Nine Months Ended September 30 September 30 1995 1994 Cash flows from operating activities Net income $59,200 $36,700 Adjustment for discontinued operations (16,700) (1,199) Adjustments to reconcile net income to cash provided from operating activities Depreciation 30,895 28,638 Amortization 4,914 4,379 Deferred income taxes 295 1,855 Changes in assets and liabilities, net of effects of acquisitions and dispositions Accounts receivable (46,976) (32,501) Inventories (32,945) (26,392) Accounts payable (1,743) (1,841) Accrued compensation and benefits 5,288 9,466 Income taxes (2,798) 10,696 Pensions and other retirement 13,276 9,428 Reserves - insurance subsidiary 4,688 5,522 Other assets/liabilities - net 8,714 12,298 Cash from operations: Continuing operations 26,108 43,274 Payments related to discontinued operations (21,812) (13,526) Total cash from operations 4,296 29,748 Cash flows from investing activities Capital expenditures (35,853) (35,008) Purchase of marketable securities - net (5,475) (3,115) Proceeds from sale of discontinued operations 212,760 0 Acquisition - net of cash acquired 0 (140,116) Cash provided by (used for) investing activities 171,432 (178,239) Cash flows from financing activities Borrowings 24,762 167,832 Debt payments (198,364) (8,091) Unearned ESOP compensation decrease 6,240 6,330 Employee stock plans and other 3,150 2,253 Dividends paid (15,561) (13,916) Cash (used for) provided by financing activities (179,773) 154,408 Effect of currency rate changes (2,009) 4,298 Increase (decrease) in cash and cash equivalents (6,054) 10,215 Cash and cash equivalents - beginning of period 32,677 10,327 - end of period $26,623 $20,542
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1. Accounting Policies. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six month period ended September 30,1995 are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1994, previously filed with the Commission. Certain reclassifications have been made to prior year's financial statements to conform to the current year presentation. Note 2. Discontinued Operations. On April 1, 1995 the company sold its Cross Pointe Paper Corporation subsidiary for $203.3 million, of which $100 million was received in cash and a promissory note due January 2, 1996 was given for the remainder. Effective May 1, 1995 the company decided to report its Paper Products and Joint Venture segments as discontinued operations. On June 30, 1995 the company sold its Niagara of Wisconsin Paper Corporation, its 50% share of Lake Superior Paper Industries (LSPI) joint venture and its 12% share of Superior Recycled Fiber Industries (SRFI) for approximately $103 million cash. The gain on the sale was $12.1 million after income tax expense of $7.7 million. The transaction added 57 cents to earnings per share. The prior year has been restated to include the company's former paper businesses (Paper Products and Joint Venture segments) as discontinued operations. Summarized results of operations and financial position data of discontinued operations were as follows: Results of Operations
Year-to-date through September 30 1995 1994 Net Sales $187.1 $285.1 Operating Income 27.2 23.7 Net Earnings 4.6 1.2 Gain on Sale 12.1 0.0
Financial Position
December 31, 1994 Current assets $92.1 Net property, plant and equipment 179.8 Other assets 88.5 Current liabilities (67.1) Other liabilities (53.2) Net assets of discontinued operations $240.1
Note 3. Long-Term Debt. The long-term debt is summarized as follows ($ millions):
9/30/95 12/31/94 Revolving credit facilities: US $ revolvers $12 $157 DM revolvers 93 74 Private placement debt 125 160 Other 15 23 TOTAL 245 414 Current maturities (3) (6) Total long-term debt $242 $408
Debt agreements contain various restrictive covenants, including a limitation on the payment of dividends and certain other restricted payments. Under the most restrictive covenants, $150 million of the September 30, 1995 retained earnings were unrestricted for such purposes. Note 4. Statement of Cash Flows - supplemental information. The following is supplemental information relating to the Statement of Cash Flows ($000's):
Nine Months Ended September 30 1995 1994 Interest paid (net of capitalized interest) $21,304 $23,624 Income tax payments 50,183 17,892
Non-cash Items: Gross amounts to be realized from the sale of the Paper Products and Joint Venture segments are approximately $316 million. Of this amount $213 million was received in cash, a promissory note was received for $100 million which is due January 2, 1996 and the remainder is recorded as a miscellaneous account receivable. Note 5. Acquisition of Assets/Subsequent Event On November 1, 1995, the company acquired all of the outstanding stock of Fleck Controls, Inc. ("Fleck") for a purchase price of approximately $130 million. Fleck designs, manufactures and markets control valves which are major components in residential water softeners, and commercial and industrial water conditioning systems. Fleck employs approximately 260 people at its main manufacturing facility near Milwaukee, Wisconsin, and about 50 at its facility near Paris, France. Revolving borrowings and notes due in January 1996 were used to fund the acquisition. The remining proceeds from the disposition of the paper businesses, which are due in early January 1996, and revolving borrowings will be used to pay the notes at maturity. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the nine months ended September 30, 1995 and 1994 follows ($ millions):
General Specialty Industrial General Products Equipment Corporate Total 1995 Net Sales $353.4 $671.9 $0.0 $1,025.3 Operating Income 35.2 63.2 (14.4) 84.0 Identifiable Assets 241.7 692.1 179.3 1,113.1 Depreciation 7.3 23.6 0.0 30.9 Capital Expenditures 8.3 27.5 0.1 35.9 1994 Net Sales $327.2 $595.0 $0.0 $922.2 Operating Income 32.2 57.1 (14.3) 75.0 Identifiable Assets 219.6 635.9 297.0 1,152.5 Depreciation 6.6 21.9 0.1 28.6 Capital Expenditures 7.5 27.3 0.2 35.0
RESULTS OF OPERATIONS Consolidated Continuing Operations. Pentair reported income from continuing operations of $42.5 million, or $1.98 per fully diluted share, on consolidated net sales from continuing operations of $1,025.4 million for the nine months ended September 30, 1995. This represented a 12 percent increase in income from continuing operations and an 11 percent increase in sales from continuing operations over the corresponding period in 1994. The nine month 1994 income from continuing operations was $35.5 million, or $1.66 per fully diluted share, on consolidated net sales from continuing operations of $922.2 million. Specialty Products Segment. Net sales increased $26.2 million or 8% and operating income increased $3.1 million or 9 percent. The increases reflect successful new product introductions and continued growth in home center distribution channels. Order rates, supported by new product introductions, remain strong in this segment. General Industrial Equipment Segment. Sales increased $77.0 million or 13% and operating income increased $6.1 million or 11%. Hoffman, Schroff and Lincoln Industrial continued to be major contributors to the increased sales and operating income. Strong international durable goods markets continue to boost sales volume and earnings at these companies. Sporting ammunition sales and margins were down due to high dealer inventories resulting from a build-up in 1994, a less favorable product mix, competitive pricing pressures, and higher raw material costs for copper and lead. Discontinued Operations. Results from the Paper Products and Joint Venture segments have been restated as discontinued operations. See Note 2 to the financial statements for details of these discontinued operations. Interest Expense. Interest expense for continuing operations was $3.7 million lower than the same period in the prior year. The reduction in interest expense was primarily the result of less outstanding borrowings due to paying down debt with the proceeds from the disposition of the Paper Products segment companies. FINANCIAL CONDITION Cash from continuing operations was $26.1 million, compared to cash from continuing operations of $43.3 million in the same period of the prior year. Strong earnings more than offset working capital usage in 1995. Throughout 1995, accounts receivable increased due to increased sales volume, and inventories increased due to seasonal and temporary build-ups of finished goods. However, inventory levels were reduced in the third quarter as compared to the second quarter as sales volume increased. As a result, accounts receivable levels increased substantially in the third quarter. Capital expenditures of continuing operations for nine months were $35.9 million in 1995 and $35.0 million in 1994. The percentage of long-term debt to total capital was reduced to 33% at September 30, 1995 compared to 49% at December 31, 1994, largely due to the use of proceeds from the disposition of the paper businesses to pay down outstanding debt. As a result, substantially all of the US$ revolving credit facilities and the $35 million portion of the private placement debt that was to mature in June 1996 was paid. The average interest rate on the redeemed debt was 8.81%. A make-whole premium of approximately $950,000 was required to be paid to redeem the private placement debt. The average interest rate on the remaining private placement debt of $125 million is 7.31%. Management believes that cash flows from continuing operations will remain positive throughout the remainder of 1995. The company's continuing operations should generate sufficient cash from operations to provide its their recurring capital investment needs. Capital expenditures for continuing operations are expected to be about $60 million in 1995 as compared to $57.8 million in 1994. Credit available under revolving credit facilities is adequate to provide for working capital, capital expenditure, and acquisition requirements. ACQUISISTIONS AND DIVESTITURES On April 3, 1995, the company sold its Cross Pointe Paper Corporation subsidiary to Noranda Forest, Inc. for approximately $200 million. On June 30, 1995, the company sold its remaining paper businesses, Niagara of Wisconsin Paper Corporation, its 50 percent interest in Lake Superior Paper Industries and its 12 percent share in Superior Recycled Fiber Industries to Consolidated Papers, Inc. for approximately $109 million. On November 1, 1995, the company acquired all of the outstanding stock of Fleck Controls, Inc. ("Fleck") for a purchase price of approximately $130 million. Fleck designs, manufactures and markets control valves which are major components in residential water softeners, and commercial and industrial water conditioning systems. Fleck employs approximately 260 people at its main manufacturing facility near Milwaukee, Wisconsin, and about 50 at its facility near Paris, France. Revolving borrowings and notes due in January 1996 were used to fund the acquisition. The remining proceeds from the disposition of the paper businesses, which are due in early January 1996, and revolving borrowings will be used to pay the notes at maturity. OUTLOOK In general, Pentair is strong and well-positioned to continue its growth. Given a continued steady GNP growth in the United States and Europe, the company expects to continue to grow sales and earnings of its continuing businesses in 1996. With the completion of the paper business sales on June 30, 1995, the company became entirely a diversified manufacturer of industrial products. Management expects that the performance of the company will be less influenced by economic cycles, and capable of returning consistent shareholder value in both the near and long term. With its strengthened capital structure, the company has sufficient resources to pursue both internal and external expansion into profitable industrial business segment opportunities. With the acquisition of Fleck Controls, Inc. on November 1, 1995 the company continues to focus on industrial concerns and growth opportunities. PART II - OTHER INFORMATION ITEM 1 - Legal Proceedings McNeil (Ohio) Corporation. F.E. Myers (Myers) a division of McNeil (Ohio) Corporation, and three other pump manufacturers and one distributor were sued in April 1994 by a private environmental group pursuant to California Health and Safety Code Section 25249 (Proposition 65) and the Business and Professions Code Section 17200. Basic information concerning this matter was previously reported in the Company's Form 10-K for the year ended December 31, 1994. Myers settled this matter for a payment of $26,000. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description No. 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedules (b) Reports on Form 8-K. No reports on Form 8-K were filed during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. /s/ David D. Harrison Executive Vice President and Chief Financial Officer November 10, 1995 EXHIBIT INDEX 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule EX-11 2 EXHIBIT 11 PENTAIR, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Nine Months Ended Quarter Ended September 30 September 30 1995 1994 1995 1994 INCOME ($ thousands) Net income $59,200 $36,700 $15,300 $13,775 Preferred dividend requirements 3,981 4,094 1,324 1,363 Earnings available to common and common equivalent shares - Primary 55,219 32,606 13,976 12,412 Preferred dividends assuming conversion of Preferred Stock: Series 1988 741 764 244 253 Series 1990 3,240 3,330 1,080 1,110 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (947) (787) (301) (260) Tax benefit on ESOP dividend assuming conversion to common, at common dividend rate 366 276 116 92 Earnings for fully diluted computation $58,619 $36,188 $15,115 $13,607 SHARES (thousands) Weighted average number of shares outstanding during the period 18,377 18,193 18,451 18,214 Shares issuable on exercise of stock options less shares repurchaseable from proceeds 242 207 238 232 Common and Common Equivalent Shares - Primary 18,619 18,400 18,689 18,446 Shares issuable on conversion of: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 494 510 488 507 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 2,060 2,113 2,022 2,106 Common and Common Equivalent Shares - Fully Diluted 21,173 21,023 21,199 21,059 Earnings per share: Primary - Income from continuing operations $2.07 $1.70 $.75 $.66 discontinued operations .90 .07 .00 .01 Net Income $2.97 $1.77 $.75 $.67 Diluted - Income from continuing operations $1.98 $1.66 $.71 $.63 discontinued operations .79 .06 .00 .01 Net Income $2.77 $1.72 $.71 $.64
EX-27 3 WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 9-MOS QTR-3 DEC-31-1995 DEC-31-1995 SEP-30-1995 SEP-30-1995 26623000 0 0 0 364429000 0 0 0 226032000 0 652998000 0 416260000 0 176324000 0 1113116000 0 248043000 0 0 0 446004000 0 0 0 44726000 0 0 0 1113116000 0 1025377000 353338000 1025377000 353338000 727288000 255389000 941335000 325139000 0 0 0 0 12530000 2687000 71512000 25512000 29012000 10212000 42500000 15300000 16700000 0 0 0 0 0 59200000 15300000 2.07 .75 1.98 .71
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