-----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, GBL4UtPCKE0OlP3aBQUTvo7ljMun/CCZ9s/yxgQT7EmaYMzNhyL0QYSd9lAaGHKZ v/cxdb743i7OzvNTTK2y3A== 0000077360-97-000009.txt : 19970515 0000077360-97-000009.hdr.sgml : 19970515 ACCESSION NUMBER: 0000077360-97-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970514 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: 97603741 BUSINESS ADDRESS: STREET 1: 1500 COUNTY RD - B2 WEST STREET 2: SUITE 400 CITY: ST PAUL STATE: MN ZIP: 55113-3105 BUSINESS PHONE: 6126367920 FORMER COMPANY: FORMER CONFORMED NAME: PENTAIR INDUSTRIES INC DATE OF NAME CHANGE: 19790327 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1997 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 jurisdiction (IRS Employer of incorporation or Identification No.) 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 March 31, 1997 was 37,910,960. 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 4. Results of Votes of Security Holders Item 6. Exhibits and Reports on Form 8-K Signature Page Exhibit Index PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS PENTAIR, INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited) ($ expressed in thousands except per share amounts)
Three Months Ended March 31 1997 1996 Net sales $411,139 $366,290 Operating costs Cost of goods sold 285,188 251,554 Selling, general and administrative 88,472 82,111 Total operating costs 373,660 333,665 Operating income 37,479 32,625 Interest expense 5,288 5,337 Interest income 170 712 Income before income taxes 32,361 28,000 Provision for income taxes 12,944 11,500 Net income 19,417 16,500 Preferred dividend requirements 1,218 1,275 Earnings applicable to common stock $18,199 $15,225 Earnings per share: Primary $0.48 $0.40 Diluted $0.45 $0.38 Weighted average common and common equivalent shares: Primary 38,247 37,728 Diluted 42,940 42,652
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
March 31, December 31, 1997 1996 ASSETS Current assets Cash and cash equivalents $17,270 $22,973 Accounts receivable - net 332,085 299,055 Inventories Finished goods 146,430 159,617 Work in process 55,295 47,689 Raw materials and supplies 67,153 49,409 Total inventory 268,878 256,715 Deferred income taxes 23,589 23,084 Other current assets 13,905 12,428 Total current assets 655,727 614,255 Property, plant and equipment 543,914 525,918 Accumulated depreciation 238,932 227,069 PP & E - net 304,982 298,849 Marketable securities - insurance subsidiary 40,745 40,764 Goodwill - net 298,083 298,372 Deferred Income Taxes 3,106 2,381 Other assets 37,058 34,393 TOTAL ASSETS $1,339,701 $1,289,014 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $102,693 $98,146 Compensation and other benefits accruals 59,168 61,713 Income taxes 22,400 24,919 Accrued product claims and warranties 25,272 25,167 Accrued expenses and other liabilities 64,477 58,765 Current maturities of long-term debt 44,948 32,928 Total current liabilities 318,958 301,638 Long-term debt 301,419 279,889 Pensions and other retirement compensation 47,214 47,018 Postretirement medical and other benefits 47,192 47,045 Reserves - insurance subsidiary 33,256 32,322 Other liabilities 17,063 17,251 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding: 1997 - 1,751,191 61,451 62,058 1996 - 1,769,983 Unearned compensation relating to ESOP (13,450) (14,440) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding: 1997 - 37,910,960 6,319 6,287 1996 - 37,717,022 Additional paid-in capital 182,429 179,143 Currency translation, marketable security and pension adjustments 1,895 8,053 Retained earnings 335,955 322,750 Total shareholders' equity 574,599 563,851 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,339,701 $1,289,014
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Three Months Ended March 31 1997 1996 Cash provided by (used for) Operating activities Net income $19,417 $16,500 Adjustments to reconcile to cash flow: Depreciation 14,194 11,891 Amortization 3,141 2,722 Deferred income taxes 680 (378) Changes in assets and liabilities, net of effects of acquisition Accounts receivable (25,869) (25,600) Inventories (14,090) (35,011) Accounts payable 3,102 13,853 Compensation and benefits (3,674) (2,961) Income taxes (2,088) 4,307 Pensions and other retirement compensation 1,884 108 Reserves - insurance subsidiary 1,167 1,172 Other assets/liabilities - net (2,538) (2,487) Cash used for operating activities (4,674) (15,884) Investing activities Capital expenditures (21,540) (9,415) Construction funds in escrow (1,453) 0 Net proceeds (purchases) of marketable securities 19 (1,471) Proceeds from sale of discontinued Operations 0 100,000 Acquisitions - net of cash acquired (16,391) (126,883) Cash used for investing activities (39,365) (37,769) Financing activities Borrowings 42,252 47,245 Debt payments (3,959) (1,985) Unearned ESOP compensation decrease 990 1,035 Employee stock plans and other 2,825 3,891 Dividends paid (6,325) (5,920) Cash provided by (used for) financing activities 35,783 44,266 Effects of currency exchange rate changes 2,553 776 Increase (decrease) in cash and cash equivalents (5,703) (8,611) Cash and cash equivalents - beginning of period 22,973 36,648 - end of period $17,270 $28,037
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, previously filed with the Commission. 2. The results of operations for the three months ended March 31, 1997 are not necessarily indicative of the operating results to be expected for the full year. 3. Income tax provisions for interim periods are based on the current best estimate of the effective federal, state and foreign income tax rates. 4. Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each period. The tax benefits applicable to preferred dividends paid to ESOPs are: for allocated shares credited to income tax expense and for unallocated shares, credited to retained earnings and are not considered earnings applicable to common stock. Fully diluted computations assume full conversion of each series of preferred stock into common stock, the elimination of preferred dividend requirements, and the recognition of the tax benefit on deductible ESOP dividends applicable to allocated shares payable based on the converted common dividend rate. Conversion was assumed during the portion of each period that the securities were outstanding. 5. The long-term debt is summarized as follows ($ millions):
March 31, December 31, 1997 1996 Revolving credit facilities $189 $168 Private placement debt 125 115 Other 32 30 TOTAL 346 313 Current maturities (45) (33) Total long-term debt $301 $280
Debt agreements contain various restrictive covenants, including a limitation on the payment of dividends and certain other restricted payments. Under the most restrictive covenants, $118 million of the March 31, 1997 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):
Three Months Ended March 31 1997 1996 Interest paid (net of capitalized interest in 1997) $2,538 $6,187 Income tax payments 10,981 3,310
7. Recent Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share," which is effective for financial statements issued for the periods ending after December 15, 1997, including interim periods; earlier application is not permitted. The Company has determined that adoption of the standard will not have a material effect on the Company's financial position or results of operations. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the three months ended March 31, 1997 and 1996 follows ($ millions):
General Specialty Industrial Products Equipment Corporate Total 1997 Net Sales $175.5 $235.7 $ 0.0 $411.1 Operating Income 20.7 22.4 (5.6) 37.5 Identifiable Assets 497.9 765.5 76.3 1,339.7 Depreciation and Amortization 5.6 11.7 0.0 17.3 Capital Expenditures 5.9 15.6 0.0 21.5 1996 Net Sales $153.4 $212.9 $0.0 $366.3 Operating Income 18.9 19.2 (5.5) 32.6 Identifiable Assets 417.5 708.6 75.3 1,201.4 Depreciation and Amortization 4.6 10.0 0.0 14.6 Capital Expenditures 3.6 5.8 0.0 9.4
RESULTS OF OPERATIONS Consolidated Results. Consolidated net sales increased to $411.1 million in 1997, representing a 12.2% increase over 1996. The double digit growth rate is attributed to strength in power tools, North American enclosures and pumps, as well as acquisitions (Flex, Century, SIATA, and Transrack). These more than offset continuing economic weakness in Europe and adverse currency effects of the strong U.S. dollar. Operating income increased to $37.5 million in 1997, up 14.9% over 1996, and operating income as a percent of sales improved from 8.9% to 9.1%. Gross profit margins declined .7% in 1997 to 30.6% versus 31.3% in 1996. This is primarily due to product mix. Selling, general and administrative expense (SG&A) as a percent of sales was 21.5% in 1997 as compared to 22.4% in 1996, thus offsetting the change in the gross profit margin. Specialty Products Segment. Specialty Products sales increased $22.1 million or 14.4%, propelled by new product introductions, expanded distribution in home center and hardware channels, and acquisitions. The Tool businesses grew from acquisitions (Flex by Porter-Cable) and continued expansion new channels, including Sears, and new product introductions. In the Water products businesses, slow economic conditions in the European markets of Fleck Controls were balanced by gains at the Myers pump business. Myers' excellent operating performance was supplemented by demand for pumps resulting from flood conditions in the U.S. The SIATA acquisition (by Fleck Controls) contributed to sales and income in 1997. Operating income as a percent of sales decreased to 11.8% in 1997 from 12.3% in 1996 due to product mix and the continued economic softness in Europe that affected both Flex and Fleck Controls. General Industrial Equipment Segment. General Industrial Equipment sales increased $22.8 million or 10.7%. North American sales growth was strong enough to overcome weaker European sales (especially as measured in a stronger U.S. Dollar) in the enclosure and lubrication systems businesses in the first quarter of 1997. Sales at Federal increased as a result of introduction of new products and a reduction in ammunition industry discounting. The acquisition of Century Manufacturing contributed sales and income to the vehicle service equipment businesses in 1997. Operating income as a percent of sales increased to 9.5% in 1997 from 9.0% in 1996 primarily as a result of higher profitability at Federal. FINANCIAL CONDITION Cash flow from operating activities was negative $4.7 million in 1997 compared to negative $15.9 million in 1996. The improvement in reducing cash used by operating activities in 1997 as compared to 1996 was a result of continued focus on managing working capital, principally by controlling the increase in inventories in relation to sales growth. Accounts receivable levels increased due to dating programs and the addition of acquisition sales. Capital expenditures were $21.5 million in 1997 as compared to $9.4 million in 1996. The increase is primarily due to peak construction efforts at Hoffman's new Mt. Sterling facility. The Company had a negative free cash flow of $26.2 million in 1997 compared to negative $25.3 million in 1996. Free cash flow, a measure of the internal financing of operational cash needs, is defined as cash from operations less capital expenditures. One of Pentair's primary financial goals is to maximize free cash flow within the framework of supporting the operations of all of its businesses. Borrowings in the first quarter of 1997 financed some operating needs and acquisition payments, along with capital expenditures. The percentage of long-term debt to total capital was 34% at March 31, 1997 compared to 33% at December 31, 1996. OUTLOOK In general, the Company is well-positioned to continue its aggressive 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 1996 are expected to generate growth in market share, sales and profits. In all subsidiaries, sales are expected to grow as a result of new products and enhanced customer service. Pentair also continues to search for strategic or synergistic industrial acquisitions to complement its existing businesses. The diversification of the industrial businesses in Pentair's various markets has helped the company to maintain consistent growth over the past few years. Also diversity in geography has helped the company to weather the various economic patterns. Capital outlays in 1997 are expected to be in the $70 million range. Projects include completion of the manufacturing plant for Hoffman Engineering in Mount Sterling, Kentucky, reconfiguration and expansion of manufacturing facilities and new product development. The Company believes that these capital expenditures are expected to be financed out of its operating cash flows. Looking ahead in 1997, the Company expects that cash from operating activities should continue to provide the funds for capital investments, dividends and small acquisitions. The Company has the capacity to finance larger acquisitions while maintaining reasonable financial ratios. The Company's future results of operations and the other forward looking statements contained in the Outlook, in particular statements about acquisitions, capital spending and sales growth, involve a number of risks and uncertainties. In addition to the factors discussed specifically above, among the other factors that could cause actual results to differ materially include the following: business conditions and the general economy; competitive factors, such as market acceptance of new products, pricing, and the impact of competitive products; risk of nonpayment of accounts receivable; manufacturing capacity; risks associated with foreign operations; risks of inventory obsolescence due to shifts in market demand; timing of product introductions; and litigation regarding environmental issues. The actual results the Company achieves may differ materially from those anticipated as a result of these risks and uncertainties. Readers are encouraged to carefully review and consider disclosures made by the Company in this report and in the Company's Annual Report and other reports filed from time to time with the Securities and Exchange Commission. Future revenues, costs, margins, product mix and profits are all influenced by a number of factors, as discussed above, however Pentair believes that it has the products, facilities, personnel, competitive advantage, and financial resources for continued business success. PART II - OTHER INFORMATION ITEM 4 -Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of Pentair, Inc. was held on April 23, 1997, for the purpose of electing certain members to the board of directors and approving the appointment of auditors. Proxies for the meeting were solicited pursuant to Section 14(a) of the Securities Exchange Act of 1934. PROPOSAL 1 All of management's nominees for directors as listed in the proxy statement were elected with the following vote: Shares Shares Broker Voted "For" "Withheld" Non-Votes William J. Cadogan 32,361,635 366,624 0 Charles A. Haggerty 32,407,929 320,330 0 Harold V. Haverty 32,373,016 355,243 0 PROPOSAL 2 The appointment of Deloitte & Touche LLP as independent auditors of the Company for 1997 was ratified by the following vote: Shares Shares Voted Shares Broker Voted "For" "Against" "Abstaining" Non-Votes 32,598,122 52,361 77,776 0 ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description Number 11 Calculation of Earnings per Common and Common Equivalent Share 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 May 13, 1997 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
Quarter Ended March 31 1997 1996 INCOME ($ thousands) Net income $19,417 $16,500 Preferred dividend requirements 1,218 1,275 Earnings available to common and common equivalent shares - Primary 18,199 15,225 Preferred dividends assuming conversion of Preferred Stock: Series 1988 228 240 Series 1990 990 1,035 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (372) (350) Tax benefit on ESOP dividend assuming con- version to common, at common dividend rate 194 169 Earnings available for common and common equivalent shares - Diluted $19,239 $16,319 SHARES (thousands) Weighted average number of shares outstanding during the period 37,843 37,256 Shares issuable on exercise of stock options less shares repurchaseable from proceeds 404 472 Common and Common Equivalent Shares - Primary 38,247 37,728 Shares issuable on conversion of: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 912 962 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 3,781 3,962 Common and Common Equivalent Shares - Diluted 42,940 42,652 Earnings per Share: Primary $0.48 $0.40 Diluted $0.45 $0.38
EX-27 3
5 3-MOS DEC-31-1997 MAR-31-1997 17270000 0 332085000 0 268878000 655727000 543914000 238932000 1339701000 318958000 0 526598000 0 48001000 0 1339701000 411139000 411139000 285188000 373660000 0 0 5288000 32361000 12944000 19417000 0 0 0 19417000 0.48 0.45
-----END PRIVACY-ENHANCED MESSAGE-----