-----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, Alq/MSfVJ8zf4yYsT7qqt7UGT2JaSNXn/tg0XgseuzNB2oNQUK5BTSLbmqOSKZ7m FOe9cf9sAy85Yq+a+Y1phg== 0000077360-96-000033.txt : 19960812 0000077360-96-000033.hdr.sgml : 19960812 ACCESSION NUMBER: 0000077360-96-000033 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960809 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PENTAIR INC CENTRAL INDEX KEY: 0000077360 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY (NO METALWORKING MACHINERY) [3550] IRS NUMBER: 410907434 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11625 FILM NUMBER: 96606616 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 June 30, 1996 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. 001-11625 PENTAIR, INC. (Exact name of Registrant as specified in its charter) Minnesota 41-0907434 (State or other (IRS Employer jurisdiction of 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 June 30, 1996 was 37,516,011. 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)
Six Months Ended Quarter Ended June 30 June 30 1996 1995 1996 1995 Net sales $ 729,190 $ 672,039 $ 362,900 $ 338,216 Operating costs: Cost of goods sold 507,968 471,899 256,414 239,275 Selling, general and administrative 155,745 144,297 73,634 72,326 Total operating costs 663,713 616,196 330,048 311,601 Operating income 65,477 55,843 32,852 26,615 Interest expense - net (9,274) (9,843) (4,649) (4,077) Income from continuing operations before income taxes 56,203 46,000 28,203 22,538 Provision for income taxes 22,594 18,800 11,094 9,189 Income from continuing operations 33,609 27,200 17,109 13,349 Discontinued operations: Income from operations of discontinued Paper Products and Joint Venture segments (net of applicable income taxes of $0 and $2,740, and $0 and $1,841, respectively) 0 4,566 0 3,067 Gain on sale of discontinued operations (less applicable income taxes of $7,734) 0 12,134 0 12,134 Net income 33,609 43,900 17,109 28,550 Preferred dividend requirements 2,548 2,657 1,273 1,327 Earnings applicable to common stock $31,061 $41,243 $15,836 $27,223 Earnings per share: Primary - Income from: continuing operations $.82 $.66 $.42 $.32 discontinued operations .00 .45 .00 .41 Net Income $.82 $1.11 $.42 $.73 Diluted - Income from: continuing operations $.78 $.63 $.40 $.31 discontinued operations .00 .40 .00 .36 Net Income $.78 $1.03 $.40 $.67 Weighted average common and common equivalent shares: Primary 37,855 37,168 37,981 37,232 Diluted 42,722 42,320 42,791 42,352
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
June 30, December 31, ASSETS 1996 1995 Current assets Cash and cash equivalents $23,042 $36,648 Accounts receivable - net 283,247 262,503 Note receivable 0 100,000 Inventories Finished goods 188,837 134,456 Work in process 49,340 40,801 Raw materials and supplies 42,980 37,428 Total inventory 281,157 212,685 Deferred income taxes 26,743 26,017 Other current assets 15,375 9,391 Total current assets 629,564 647,244 Property, plant and equipment 476,278 452,108 Accumulated depreciation 207,490 185,381 PP & E - net 268,788 266,727 Marketable securities - insurance subsidiary 36,208 33,036 Goodwill - net 283,770 282,376 Other assets 33,017 23,110 TOTAL ASSETS $1,251,347 $1,252,493 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $98,613 $90,846 Notes payable 0 120,732 Compensation and other benefits accruals 66,209 68,414 Income taxes 18,139 17,812 Accrued product claims and warranties 23,581 21,684 Accrued expenses and other liabilities 65,402 58,363 Current maturities of long-term debt 12,495 18,950 Total current liabilities 284,439 396,801 Long-term debt 297,591 219,896 Deferred income taxes 1,081 68 Pensions and other retirement compensation 41,443 38,220 Postretirement medical and other benefits 46,267 46,158 Reserves - insurance subsidiary 29,725 27,354 Other liabilities 21,745 21,141 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding:1996 - 1,795,376 63,152 65,656 1995 - 1,873,051 Unearned compensation relating to ESOP (19,001) (21,074) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding:1996 - 37,516,011 6,253 6,172 1995 - 37,035,082 Additional paid-in capital 176,402 169,832 Currency translation and pension adjustments 8,819 11,020 Retained earnings 293,431 271,249 Total shareholders' equity 529,056 502,855 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,251,347 $1,252,493
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Six Months Ended June 30 June 30 1996 1995 Cash provided by (used for) Operating activities Net income $33,609 $43,900 Adjustment for discontinued operations 0 (16,700) Adjustments to reconcile net income to cash provided from operating activities Depreciation 23,892 20,508 Amortization 5,601 3,166 Deferred income taxes 503 (619) Changes in assets and liabilities, net of effects of acquisitions and dispositions Accounts receivable (17,917) (33,516) Inventories (53,873) (51,654) Accounts payable 6,401 (1,936) Accrued compensation and benefits (1,416) 4,819 Income taxes 539 (1,619) Pensions and other retirement compensation 2,821 10,770 Reserves - insurance subsidiary 2,371 3,360 Other assets/liabilities - net (8,090) 9,139 Cash from continuing operations (5,559) (10,382) Cash from discontinued operations 0 (525) Cash from operating activities (5,559) (10,907) Cash flows from investing activities Capital expenditures (22,483) (22,571) Purchase of marketable securities - net (3,172) (711) Construction funds in escrow (10,262) 0 Proceeds from sale of discontinued operations 0 206,459 Acquisitions - net of cash acquired (47,977) 0 Cash (used for) provided by investing activities (83,894) 183,177 Cash flows from financing activities Borrowings 81,350 24,621 Debt payments (2,546) (196,863) Unearned ESOP compensation decrease 2,070 4,160 Employee stock plans and other 4,147 2,817 Dividends paid (11,877) (9,989) Cash provided by (used for) financing activities 73,144 (175,254) Effect of currency exchange rate changes 2,703 2,578 Increase (decrease) in cash and cash equivalents (13,606) (406) Cash and cash equivalents - beginning of period 36,648 32,677 - end of period $23,042 $32,271
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995, previously filed with the Commission. 2. The results of operations for the three months ended June 30, 1996 are not necessarily indicative of the operating results to be expected for the full year. 3. Income tax provisions for interim periods are based on the current best estimate of the effective federal, state and foreign income tax rates. 4. Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each period. The tax benefits applicable to preferred dividends paid to ESOPs are: for allocated shares credited to income tax expense and for unallocated shares, credited to retained earnings and are not considered earnings applicable to common stock. Fully diluted computations assume full conversion of each series of preferred stock into common stock, the elimination of preferred dividend requirements, and the recognition of the tax benefit on deductible ESOP dividends applicable to allocated shares payable based on the converted common dividend rate. Conversion was assumed during the portion of each period that the securities were outstanding. 5. The long-term debt is summarized as follows ($ millions):
June 30,December 31, 1996 1995 Revolving credit facilities $165 $93 Private placement debt 125 125 Other 20 21 TOTAL 310 239 Current maturities (12) (19) Total long-term debt $298 $220
Debt agreements contain various restrictive covenants, including a limitation on the payment of dividends and certain other restricted payments. Under the most restrictive covenants, $56 million of the June 30, 1996 retained earnings were unrestricted for such purposes. 6.Statement of Cash Flows The following is supplemental information relating to the Statement of Cash Flows ($000's):
Six Months Ended June 30 1996 1995 Interest paid (net of capitalized interest) $10,469 $16,615 Income tax payments 15,630 24,382
7. Stock Split On January 22, 1996 the board of directors approved a two-for-one stock split in the form of a 100% stock dividend. The dividend was payable February 16, 1996 to shareholders of record at the close of business on February 2, 1996. All references in the financial statements to shares outstanding and per share amounts have been restated to reflect this split. 8. Reclassifications Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the six months ended June 30, 1996 and 1995 follows ($ millions):
General Specialty Industrial Products Equipment Corporate Total 1996 Net Sales $303.7 $425.5 $0.0 $729.2 Operating Income 34.9 39.2 (8.6) 65.5 Identifiable Assets 453.4 732.0 65.9 1,251.3 Depreciation and Amortization 9.5 20.0 0.0 29.5 Capital Expenditures 7.5 15.0 0.0 22.5 1995 Net Sales $228.3 $443.7 $ 0.0 $672.0 Operating Income 22.5 43.2 (9.9) 55.8 Identifiable Assets 237.0 703.4 188.2 1,128.6 Depreciation and Amortization 6.2 17.5 0.0 23.7 Capital Expenditures 6.5 16.0 0.1 22.6
RESULTS OF OPERATIONS Pentair reported net income of $33.6 million, or 78 cents per fully diluted share, on consolidated net sales of $729.2 million for the six months ended June 30, 1996. This represented a 23.5% increase in net income and an 8.5% increase in sales over the first half of 1995. The six month 1995 income from continuing operations was $27.2 million, or 63 cents per fully diluted share, on consolidated net sales of $672.0 million. Specialty Products Segment. Net sales increased $75.4 million or 33% and operating income increased $12.3 million or 55%. The increases are attributable to Fleck Controls, an acquisition made in November 1995, and double digit sales growth over last year at Delta, Myers and Porter Cable. The improvements reflect new product sales, contributions from smaller acquisitions, and continued expansion into national distribution channels. Results from the newly acquired Flex business will be included effective July 1, 1996. General Industrial Equipment Segment. Sales decreased $18.2 million or 4% and operating income decreased $3.9 million or 9%. Combined, Hoffman and Schroff posted modest sales and earnings increases as compared to very good 1995 results. Both Lincoln Industrial and Lincoln Automotive profits increased due to cost reductions and improved productivity. Sales at Federal Cartridge continued weak into the second quarter. The sales shortfall is attributed to two factors: a shift in buying patterns by distributors who are delaying purchases as a result of the elimination of pre-season, quantity discounts, and high distributor inventories that were built in response to proposed firearms legislation. Federal expects fall stocking orders to be placed in the third quarter as the hunting season approaches. FINANCIAL CONDITION In 1996 as in 1995, net income adjusted for non-cash items provided the funds for seasonal working capital increases. Accounts receivable levels increased due to dating programs and strong sales in the latter part of the current quarter. Inventory levels have been built up in anticipation of higher third and fourth quarter sales. Borrowings in the first half of 1996 financed some operating needs, acquisition payments and capital expenditures. The proceeds from the $100 million note receivable from the sale of Cross Pointe Paper offset much of the $120 million notes payable for the purchase of Fleck Controls. Capital expenditures were $22.5 million in 1996 as compared to $22.6 million in 1995. The percentage of long-term debt to total capital was 36% at June 30, 1996 compared to 31% at December 31, 1995. Based upon current operating expectations, credit available under revolving credit facilities is expected to be adequate to cover seasonal working capital, long-term capital expenditure requirements and acquisitions. OUTLOOK In general, the Company is well-positioned to continue its internal growth. Recent acquisitions are expected to continue to contribute to sales and earnings growth. The strong emphasis on product development and aggressive efforts to expand distribution channels that helped during 1995 are expected to generate growth in market share, sales and profits. Sales will continue to grow as a result of new products and enhanced customer service. Pentair continues to search for strategic or synergistic industrial acquisitions. The full year 1996 cash flow from operations is expected to increase with additional net income contributions as compared to last year. Working capital needs are somewhat seasonal during the year and tend to grow over time as sales increase. Capital expenditures are expected to be in the range of $90 to $110 million in 1996 as compared to $63.8 million in 1995. This increase is due primarily to the addition of a Hoffman manufacturing facility in Mount Sterling, Kentucky and new product development activities. Except for historical information contained herein, certain statements are forward-looking statements that involve risks and uncertainties, including, but no limited to, product demand and market acceptance risks, the effect of economic conditions, the impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraints or difficulties, the results of financing efforts, actual purchases under agreements, the effect of the Company's accounting policies, and other risks detailed in other SEC filings. PART II - OTHER INFORMATION Item 1. Legal Proceedings. Delta International Machinery. In July 1996, Rockwell International notified Pentair that it would claim indemnification under a 1984 purchase agreement with respect to property located in Guelph, Ontario, the former site of operations for Rockwell Canada and a former subsidiary of Pentair, Beaver- Delta Machinery Corp. The Ontario Ministry of Environment and Energy identified the site as contaminated by TCE from operations of Rockwell Canada. This site is the same as that involved in an earlier suit by a subsequent owner against Beaver-Delta which had been dismissed; for basic information about the site, see the discussion in Pentair's Form 10-K for the year ending December 31, 1993. Pentair believes that it has no liability to Rockwell under the purchase agreement or otherwise. No estimate of the projected response cost liability at this site can be made based on information currently known to Pentair. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description Number 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule (b) Reports on Form 8-K. None 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/ Richard W. Ingman Executive Vice President and Chief Financial Officer August 9, 1996 EXHIBIT INDEX Exhibit Number 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
Six Months Quarter Ended June 30 June 30 1996 1995 1996 1995 INCOME ($ thousands) Net income $33,609 $43,900 $17,109 $28,550 Preferred dividend requirements 2,548 2,657 1,273 1,327 Earnings available to common and common equivalent shares - Primary 31,061 41,243 15,836 27,223 Preferred dividends assuming conversion of Preferred Stock: Series 1988 478 497 238 247 Series 1990 2,070 2,160 1,035 1,080 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (683) (646) (333) (314) Tax benefit on ESOP dividend assuming con- version to common, at common dividend rate 330 250 161 122 Earnings available for common and common equivalent shares - Diluted $33,256 $43,504 $16,937 $28,358 SHARES (thousands) Weighted average number of shares outstanding during the period 37,364 36,680 37,471 36,754 Shares issuable on exercise of stock options less shares repurchaseable from proceed 491 488 510 478 Common and Common Equivalent Shares - Primary 37,855 37,168 37,981 37,232 Shares issuable on conversion of: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 956 992 950 988 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 3,911 4,160 3,860 4,132 Common and Common Equivalent Shares - Diluted 42,722 42,320 42,791 42,352 Earnings per Share: Primary Income from continuing operations $.82 $.66 $.42 $.32 Income from discontinued operations .00 .45 .00 .41 Net income $.82 $1.11 $.42 $.73 Diluted Income from continuing operations $.78 $.63 $.40 $.31 Income from discontinued operations .00 .40 .00 .36 Net income $.78 $1.03 $.40 $.67
EX-27 3
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