-----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, TeRaalhGRUQZ04rTGZn/kxM8c+vNfgHZlYJ53M5InhQWfuA1LX4sArbL/HgQaIrZ 2cHuYcyawv5ehn86yvs22g== 0000077360-97-000013.txt : 19970813 0000077360-97-000013.hdr.sgml : 19970813 ACCESSION NUMBER: 0000077360-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 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: 97656621 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, 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 June 30, 1997 was 37,982,011. 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 2. Acquisition or Disposition of Assets 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 1997 1996 1997 1996 Net sales $833,444 $729,190 $422,305 $362,900 Operating costs Cost of goods sold 578,542 507,968 293,354 256,414 Selling, general and administrative 178,855 155,745 90,383 73,634 Total operating costs 757,397 663,713 383,737 330,048 Operating income 76,047 65,477 38,568 32,852 Interest expense 10,316 10,136 5,028 4,798 Interest income 221 862 51 149 Income before income taxes 65,952 56,203 33,591 28,203 Provision for income taxes 26,051 22,594 13,107 11,094 Net income 39,901 33,609 20,484 17,109 Preferred dividend requirements 2,434 2,548 1,216 1,273 Earnings applicable to common stock $37,467 $31,061 $19,268 $15,836 Earnings per share: Primary $0.98 $0.82 $0.50 $0.42 Diluted $0.92 $0.78 $0.47 $0.40 Weighted average common and common equivalent shares: Primary 38,309 37,855 38,371 37,981 Diluted 42,977 42,722 43,015 42,791
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
June 30, December 31, 1997 1996 ASSETS Current assets Cash and cash equivalents $28,592 $22,973 Accounts receivable - net 332,768 299,055 Inventories Finished goods 161,189 159,617 Work in process 55,472 47,689 Raw materials and supplies 76,296 49,409 Total inventory 292,957 256,715 Deferred income taxes 23,494 23,084 Other current assets 14,360 12,428 Total current assets 692,171 614,255 Property, plant and equipment 565,709 525,918 Accumulated depreciation 251,519 227,069 PP & E - net 314,190 298,849 Marketable securities - insurance subsidiary 43,193 40,764 Goodwill - net 292,166 298,372 Deferred Income Taxes 4,373 2,381 Other assets 43,888 34,393 TOTAL ASSETS $1,389,981 $1,289,014 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $103,205 $98,146 Compensation and other benefits accruals 66,782 61,713 Income taxes 6,908 24,919 Accrued product claims and warranties 26,215 25,167 Accrued expenses and other liabilities 63,894 58,765 Current maturities of long-term debt 37,946 32,928 Total current liabilities 304,950 301,638 Long-term debt 348,506 279,889 Pensions and other retirement compensation 47,138 47,018 Postretirement medical and other benefits 47,162 47,045 Reserves - insurance subsidiary 34,664 32,322 Other liabilities 15,261 17,251 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding: 1997 - 1,736,718 60,935 62,058 1996 - 1,769,983 Unearned compensation relating to ESOP (12,460) (14,440) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding: 1997 - 37,982,011 6,332 6,287 1996 - 37,717,022 Additional paid-in capital 183,275 179,143 Currency translation, marketable security and pension adjustments 4,005 8,053 Retained earnings 350,213 322,750 Total shareholders' equity 592,300 563,851 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,389,981 $1,289,014
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Six Months Ended June 30 June 30 1997 1996 Cash provided by (used for) Operating activities Net income $39,901 $33,609 Adjustments to reconcile to cash flow: Depreciation 28,630 23,892 Amortization 6,191 5,601 Deferred income taxes (118) 503 Changes in assets and liabilities, net of effects of acquisition Accounts receivable (28,924) (17,917) Inventories (40,662) (53,873) Accounts payable 4,384 6,401 Compensation and benefits 4,334 (1,416) Income taxes (17,457) 539 Pensions and other retirement compensation 2,735 2,821 Reserves - insurance subsidiary 2,342 2,371 Other assets/liabilities - net (7,687) (8,090) Cash used for operating activities (6,331) (5,559) Investing activities Capital expenditures (46,146) (22,483) Construction funds in escrow (5,225) (10,262) Net proceeds (purchases) of marketable securities (2,429) (3,172) Acquisitions - net of cash acquired (16,419) (47,977) Cash used for investing activities (70,219) (83,894) Financing activities Borrowings 92,267 81,350 Debt payments (7,590) (2,546) Unearned ESOP compensation decrease 1,980 2,070 Employee stock plans and other 3,279 4,147 Dividends paid (12,663) (11,877) Cash provided by (used for) financing activities 77,273 73,144 Effects of currency exchange rate changes 4,896 2,703 Increase (decrease) in cash and cash equivalents 5,619 (13,606) Cash and cash equivalents - beginning of period 22,973 36,648 - end of period $28,592 $23,042
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, previously filed with the Commission. 2. The results of operations for the six months ended June 30, 1997 are not necessarily indicative of the operating results to be expected for the full year. 3. Income tax provisions for interim periods are based on the current best estimate of the effective federal, state and foreign income tax rates. 4. Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each period. The tax benefits applicable to preferred dividends paid to ESOPs are: for allocated shares credited to income tax expense and for unallocated shares, credited to retained earnings and are not considered earnings applicable to common stock. Fully diluted computations assume full conversion of each series of preferred stock into common stock, the elimination of preferred dividend requirements, and the recognition of the tax benefit on deductible ESOP dividends applicable to allocated shares payable based on the converted common dividend rate. Conversion was assumed during the portion of each period that the securities were outstanding. 5. The long-term debt is summarized as follows ($ millions): June 30,December 31, 1997 1996 Revolving credit facilities $200 $168 Private placement debt 148 115 Other 39 30 TOTAL 387 313 Current maturities (38) (33) Total long-term debt $349 $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, $125 million of the June 30, 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): Six Months Ended June 30 1997 1996 Interest paid (net of capitalized interest in 1997) $7,130 $10,469 Income tax payments 39,773 15,630 7. Recent Accounting Standards In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, " Earnings Per Share," which is effective for financial statements issued for the periods ending after December 15, 1997, including interim periods; earlier application is not permitted. The Company has determined that adoption of the standard will not have a material effect on the Company's financial position or results of operations. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the six months ended June 30, 1997 and 1996 follows ($ millions):
General Specialty Industrial Products Equipment Corporate Total 1997 Net Sales $354.3 $479.1 $ 0.0 $833.4 Operating Income 40.1 48.4 (12.5) 76.0 Identifiable Assets 499.0 815.4 75.6 1,390.0 Depreciation and Amortization 11.1 23.6 0.1 34.8 Capital Expenditures 10.0 36.1 0.0 46.1 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
RESULTS OF OPERATIONS Consolidated Results. Consolidated net sales increased to $833.4 million in 1997, representing a 14.3% increase over 1996. The double digit growth rate is attributed to strength in professional power tool and North American enclosure markets as well as acquisitions (Flex, Century, SIATA, and Transrack). These factors more than offset reduced period sales in 1997 due to continuing economic weakness in Europe and adverse currency effects of the strong U.S. dollar. Operating income increased to $76.0 million in 1997, up 16.1% over 1996, and operating income as a percent of sales improved from 9.0% to 9.1%. Gross profit margins increased .3% in 1997 to 30.6% versus 30.3% in 1996 due primarily to product mix, and also improved profitability at Federal Cartridge. Selling, general and administrative expense (SG&A) as a percent of sales was 21.5% in 1997 as compared to 21.4% in 1996. Specialty Products Segment. Specialty Products sales increased $50.6 million or 16.7%, 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 into new distribution channels and new product introductions. Sales increased in the water products businesses: slow economic conditions in the European markets were more than offset by gains in the North American businesses. The SIATA acquisition (made in December 1996 by Fleck Controls) contributed to sales and income in 1997. Operating income as a percent of sales decreased to 11.3% in 1997 from 11.5% 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 $53.6 million or 12.6%. 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 half of 1997. Sales at Federal increased as a result of new product introductions and increased volume in the ammunition industry. The acquisition of Century Manufacturing in November 1996, contributed sales and income to the vehicle service equipment businesses. Operating income as a percent of sales increased to 10.1% in 1997 from 9.2% in 1996 primarily as a result of higher profitability at Federal. FINANCIAL CONDITION Cash flow from operating activities was negative $6.3 million in 1997 compared to negative $5.6 million in 1996. The Company had a negative free cash flow of $52.5 million in the first half of 1997 compared to negative $28.0 million in the first half of 1996. Free cash flow, a measure of the internal financing of operational cash needs, is defined as cash from operations less capital expenditures. Accounts receivable levels increased due to acquisitions and dating programs. Working Capital is somewhat seasonal and has increased to meet business needs. Inventory was built in anticipation of strong third and fourth quarter sales. Capital expenditures were $46.1 million in 1997 as compared to $22.5 million in 1996. The increase is primarily due to peak construction efforts at Hoffman's new Mt. Sterling facility. Borrowings in the first half of 1997 financed the small net operating need, acquisition payments and capital expenditures. The percentage of long-term debt to total capital was 37% at June 30, 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 contribute to sales and earnings growth. The strong emphasis on product development and aggressive efforts to expand distribution channels 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 (See Part II, Item 2). Continuing diversification of the industrial businesses in Pentair's various markets has helped the company to maintain consistent growth over the past few years. Geographic diversity has also helped the company to balance the impacts of various economic patterns in the U.S. and Europe. Capital outlays in 1997 are expected to be in the $75-80 million range. Projects include completion of the manufacturing plant for Hoffman Engineering in Mount Sterling, Kentucky, reconfiguration and expansion of other manufacturing facilities and new product development. These capital expenditures are expected to be financed out of its operating cash flows. The Company expects that cash from operating activities should continue to provide the funds for capital investments, dividends and small acquisitions. The Company increased its revolving credit facility effective from $300 million to $390 million effective August 1, 1997. Based upon current operating expectations, credit available is expected to be adequate. 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 2 - Acquisition or Disposition of Assets Disposition - On June 16, 1997 the Company announced that it has signed a letter of intent to sell its wholly owned subsidiary, Federal Cartridge Co. Of Anoka, Minnesota, to Blount International, Inc. of Montgomery, Alabama, for an amount in excess of Federal's book value. The transaction, which is subject to regulatory clearance, further due diligence, and completion of a definitive agreement, is expected to close in the third quarter of 1997. Proceeds from the sale of Federal will be applied to repayment of revolving indebtedness, which would become available for future acquisitions in Pentair's three chosen markets -- enclosures; professional power tools and equipment; and water products. Acquisition - On July 21, 1997 the Company announced it has entered into an agreement to acquire the Pump Group of General Signal Corporation. The transaction is expected to close by the end of the third quarter 1997. The purchase price is approximately $200 million, an amount slightly less than one times the Pump Group's annual revenues. General Signal's Pump Group (GSPG) designs, manufactures, and markets pumps for residential, commercial, and municipal applications. GSPG comprises four brand-name pump businesses: Aurora, Hydromatic, Fairbanks Morse, and Layne & Bowler. The Group employs approximately 1,000 people at three domestic manufacturing locations -- Ashland, Ohio; North Aurora, Illinois; and Kansas City, Kansas -- and at an assembly plant in Thomasville, Georgia. Pentair, which will finance the acquisition through existing lines of credit, anticipates that the acquisition will be slightly dilutive to the Company's 1997 earnings, but accretive to earnings within the first 12 months after acquisition. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description Number 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule (b) Reports on Form 8-K. None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. /s/ Richard W. Ingman Richard W. Ingman Executive Vice President and Chief Financial Officer August 12, 1997 EXHIBIT INDEX Exhibit Number 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule EX-11 2 EXHIBIT 11 PENTAIR, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Six Months Quarter Ended June 30 June 30 1997 1996 1997 1996 INCOME ($ thousands) Net income $39,901 $33,609 $20,484 $17,109 Preferred dividend requirements 2,434 2,548 1,216 1,273 Earnings available to common and common equivalent shares - Primary 37,467 31,061 19,268 15,836 Preferred dividends assuming conversion of Preferred Stock: Series 1988 454 478 226 238 Series 1990 1,980 2,070 990 1,035 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (743) (683) (371) (333) Tax benefit on ESOP dividend assuming con- version to common, at common dividend rate 387 330 193 161 Earnings available for common and common equivalent shares - Diluted $39,545 $33,256 $20,306 $16,937 SHARES (thousands) Weighted average number of shares outstanding during the period 37,896 37,364 37,950 37,471 Shares issuable on exercise of stock options less shares repurchaseable from proceeds 413 491 421 510 Common and Common Equivalent Shares - Primary 38,309 37,855 38,371 37,981 Shares issuable on conversion of: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 907 956 903 950 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 3,761 3,911 3,741 3,860 Common and Common Equivalent Shares - Diluted 42,977 42,722 43,015 42,791 Earnings per Share: Primary $.98 $.82 $.50 $.42 Diluted $.92 $.78 $.47 $.40
EX-27 3
5 6-MOS DEC-31-1997 JUN-30-1997 28592000 0 332768000 0 292957000 692171000 565709000 251519000 1389981000 304950000 0 546555000 0 48745000 0 1389981000 833444000 833444000 578542000 757397000 0 0 10316000 65952000 26051000 39901000 0 0 0 39901000 0.98 0.92
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