-----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, DQb189w+BWRV9NJmpN7LeAfERFtQUeyEGbmRr5FLWniqOVRuaew9Gu32rxjIqdnl rMcUjUGvadnauONvEvImHQ== 0000077360-97-000020.txt : 19971113 0000077360-97-000020.hdr.sgml : 19971113 ACCESSION NUMBER: 0000077360-97-000020 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971113 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: SEC FILE NUMBER: 001-11625 FILM NUMBER: 97717052 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, 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 September 30, 1997 was 38,080,709. 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)
Nine Months Ended Quarter Ended September 30 September 30 1997 1996 1997 1996 Net sales $1,315,533 $1,140,160 $482,089 $410,970 Operating costs Cost of goods sold 918,341 802,950 339,799 294,982 Selling, general and administrative 278,388 236,110 99,533 80,365 Total operating costs 1,196,729 1,039,060 439,332 375,347 Operating income 118,804 101,100 42,757 35,623 Interest net 16,146 13,829 6,051 4,555 Income before income taxes 102,658 87,271 36,706 31,068 Provision for income taxes 40,550 35,084 14,499 12,490 Net income 62,108 52,187 22,207 18,578 Preferred dividend requirements 3,646 3,816 1,212 1,268 Earnings applicable to common stock $58,462 $48,371 $20,995 $17,310 Earnings per share: Primary $1.52 $1.28 $0.54 $0.46 Diluted $1.43 $1.21 $0.51 $0.43 Weighted average common and common equivalent shares: Primary 38,380 37,915 38,523 38,037 Diluted 43,027 42,745 43,126 42,793
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED BALANCE SHEET (Unaudited) ($ expressed in thousands)
September 30, December 31, 1997 1996 ASSETS Current assets Cash and cash equivalents $25,042 $22,973 Accounts receivable - net 397,193 299,055 Inventories Finished goods 174,721 159,617 Work in process 66,429 47,689 Raw materials and supplies 90,341 49,409 Total inventory 331,491 256,715 Deferred income taxes 26,786 23,084 Other current assets 11,746 12,428 Total current assets 792,258 614,255 Property, plant and equipment 589,709 525,918 Accumulated depreciation 262,496 227,069 PP & E - net 327,213 298,849 Marketable securities - insurance subsidiary 0 40,764 Goodwill - net 456,015 298,372 Deferred Income Taxes 1,940 2,381 Other assets 31,931 34,393 TOTAL ASSETS $1,609,357 $1,289,014 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $132,795 $98,146 Compensation and other benefits accruals 75,836 61,713 Income taxes 6,896 24,919 Accrued product claims and warranties 31,620 25,167 Accrued expenses and other liabilities 82,532 58,765 Current maturities of long-term debt 34,346 32,928 Total current liabilities 364,025 301,638 Long-term debt 468,098 279,889 Pensions and other retirement compensation 48,343 47,018 Postretirement medical and other benefits 50,078 47,045 Reserves - insurance subsidiary 35,710 32,322 Other liabilities 39,972 17,251 Commitments and contingencies Shareholders' equity Preferred stock - at liquidation value Authorized: 2,500,000 shares Outstanding: 1997 - 1,721,506 60,323 62,058 1996 - 1,769,983 Unearned compensation relating to ESOP (11,470) (14,440) Common stock - par value, $.16 2/3 Authorized: 72,500,000 shares Outstanding: 1997 - 38,080,709 6,348 6,287 1996 - 37,717,022 Additional paid-in capital 183,232 179,143 Currency translation, marketable security and pension adjustments (1,482) 8,053 Retained earnings 366,180 322,750 Total shareholders' equity 603,131 563,851 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,609,357 $1,289,014
See Notes to Consolidated Financial Statements. PENTAIR, INC. CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) ($ expressed in thousands)
Nine Months Ended September 30 1997 1996 Cash provided by (used for) Operating activities Net income $62,108 $52,187 Adjustments to reconcile to cash flow: Depreciation 41,769 35,802 Amortization 9,589 8,566 Gain on sale of securities (5,932) 0 Deferred income taxes (854) 3,230 Changes in assets and liabilities, net of effects of acquisition Accounts receivable (60,754) (39,935) Inventories (50,451) (39,453) Accounts payable 19,901 2,506 Compensation and benefits 11,930 (5,949) Income taxes (17,434) 3,130 Pensions and other retirement compensation 4,343 5,917 Reserves - insurance subsidiary 3,388 3,745 Other assets/liabilities - net 11,039 (2,983) Cash used for operating activities 28,642 26,763 Investing activities Capital expenditures (55,873) (39,497) Construction funds in escrow 886 (9,748) Net proceeds (purchases) of marketable securities 46,696 (5,774) Acquisitions - net of cash acquired (210,651) (48,151) Cash used for investing activities (218,942) (103,170) Financing activities Borrowings 215,626 80,350 Debt payments (11,398) (1,227) Unearned ESOP compensation decrease 2,970 3,105 Employee stock plans and other 2,754 4,410 Dividends paid (19,012) (17,844) Cash provided by (used for) financing activities 190,940 68,794 Effects of currency exchange rate changes 1,429 5,594 Increase (decrease) in cash and cash equivalents 2,069 (2,019) Cash and cash equivalents - beginning of period 22,973 36,648 - end of period $25,042 $34,629
See Notes to Consolidated Financial Statements. PENTAIR, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with instructions for Form 10-Q and, accordingly, do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair presentation have been included. These statements should be read in conjunction with the financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, previously filed with the Commission. 2. The results of operations for the nine months ended September 30, 1997 are not necessarily indicative of the operating results to be expected for the full year. 3. Income tax provisions for interim periods are based on the current best estimate of the annual effective federal, state and foreign income tax rates. 4. Earnings per common share are based on the weighted average number of common and common equivalent shares outstanding during each period. The tax benefits applicable to preferred dividends paid to ESOPs are: for allocated shares credited to income tax expense and for unallocated shares, credited to retained earnings and are not considered earnings applicable to common stock. Fully diluted computations assume full conversion of each series of preferred stock into common stock, the elimination of preferred dividend requirements, and the recognition of the tax benefit on deductible ESOP dividends applicable to allocated shares payable based on the converted common dividend rate. Conversion was assumed during the portion of each period that the securities were outstanding. 5. The long-term debt is summarized as follows ($ millions): September 30,December 31, 1997 1996 Revolving credit facilities $322 $168 Private placement debt 148 115 Other 32 30 TOTAL 502 313 Current maturities (34) (33) Total long-term debt $468 $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 September 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): Nine Months Ended September 30 1997 1996 Interest paid (net of capitalized interest in 1997) $13,348 $12,374 Income tax payments 52,045 21,863 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. 8. Acquisition Effective August 23, 1997 Pentair purchased the assets of the Pump Group of General Signal Corporation (GS Pump). Results of operations since that date are included in consolidated results. The purchase price was approximately $200 million. 9. Subsequent Event On November 4, 1997 Pentair announced that it had completed the sale of Federal Cartridge for approximately $112 million. ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION BUSINESS SEGMENT INFORMATION Selected information for business segments for the nine months ended September 30, 1997 and 1996 follows ($ millions):
General Specialty Industrial Products Equipment Corporate Total 1997 Net Sales $569.2 $746.3 $ 0.0 $1,315.5 Operating Income 65.2 73.6 (20.0) 118.8 Identifiable Assets 758.6 810.2 40.6 1,609.4 Depreciation and Amortization 17.8 33.4 0.2 51.4 Capital Expenditures 13.6 42.1 0.2 55.9 1996 Net Sales $476.4 $663.8 $0.0 $1,140.2 Operating Income 55.2 61.5 (15.6) 101.1 Identifiable Assets 468.3 734.8 77.8 1,280.9 Depreciation and Amortization 13.9 30.4 0.1 44.4 Capital Expenditures 12.5 26.9 0.1 39.5
RESULTS OF OPERATIONS Consolidated Results. Consolidated net sales increased to $1,315.5 million in 1997, representing a 15.4% 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, Transrack, and GS Pump). 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 $118.8 million in 1997, up 17.5% over 1996, and operating income as a percent of sales improved from 8.9% to 9.0%. Gross profit margins increased .6 points in 1997 to 30.2% versus 29.6% in 1996 due to product mix and improved profitability at Federal Cartridge. Selling, general and administrative expense (SG&A) as a percent of sales was 21.2% in 1997 as compared to 20.7% in 1996, due to implementation of new systems and costs associated with introductions of new products. Specialty Products Segment. Specialty Products sales increased $92.8 million or 19.5%, propelled by new product introductions, acquisitions, and expanded distribution in home center and hardware channels. The tool businesses grew as a result of acquisitions (Flex by Porter-Cable), 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) and the August 1997 acquisition of GS Pump contributed to sales and income in 1997. Operating income as a percent of sales decreased to 11.5% in 1997 from 11.6% 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 $82.5 million or 12.4%. The acquisitions of Century Manufacturing in November 1996 and Transrack effective January 1997 were major contributors to the increase in sales. 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 9 months of 1997. Sales at Federal increased as a result of new product introductions and increased volume. Operating income as a percent of sales increased to 9.9% in 1997 from 9.3% in 1996 primarily as a result of higher profitability at Federal. FINANCIAL CONDITION Cash flow from operating activities was $28.6 million in 1997 compared to $26.8 million in 1996. The Company had a negative free cash flow of $27.2 million in 1997 compared to negative $12.7 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. Gains from the sale of securities of the captive insurance company were substantially offset by increases in insurance reserves necessary to cover additional risks. Working capital is somewhat seasonal and has increased to meet business needs. Finished goods inventory was built in anticipation of strong fourth quarter sales. Accounts receivable levels increased due to acquisitions and dating programs. Capital expenditures were $55.9 million in 1997 as compared to $39.5 million in 1996. The increase is primarily due to completion of construction efforts at Hoffman's new Mt. Sterling facility. Borrowings in the first 9 months of 1997 financed acquisition payments and a portion of capital expenditures, with cash from operations providing the remainder. The percentage of long-term debt to total capital was 44% at September 30, 1997 compared to 33% at December 31, 1996. Proceeds from the sale of Federal Cartridge received in the fourth quarter are being used to pay down debt and fund future growth in Pentair's chosen markets. OUTLOOK In general, the Company is well-positioned to continue its recent growth with acquisitions contributing to sales and operating growth. Strong emphasis on product development and aggressive efforts to expand distribution channels in all businesses are expected to generate growth in market share, sales and profits. Pentair also continues to search for strategic or synergistic industrial acquisitions to complement its existing businesses. 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 $75-85 million range. Projects include the completion of the manufacturing plant for Hoffman 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 product and 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. PART II - OTHER INFORMATION ITEM 2 - Acquisition or Disposition of Assets Disposition - On November 4, 1997 the Company announced that it had completed the sale of its wholly owned subsidiary, Federal Cartridge Co. of Anoka, Minnesota, to Blount Inc. of Montgomery, Alabama. The transaction, an all-cash sale for approximately $112 million, was effective as of October 31, 1997. Proceeds from the sale will be used to pay down debt and fund future growth in Pentair's three chosen markets: enclosures; professional tools and equipment; and water products. ITEM 6 - Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are included with this Form 10-Q Report as required by Item 601 of Regulation S-K. Exhibit Description Number 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule (b) Reports on Form 8-K. Form 8-K dated July 21, 1997 regarding the purchase of the General Signal Pump Group. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. /s/ Richard W. Ingman Richard W. Ingman Executive Vice President and Chief Financial Officer November 13, 1997 EXHIBIT INDEX Exhibit Number 11 Calculation of Earnings per Common and Common Equivalent Share 27 Financial Data Schedule EX-11 2 EXHIBIT 11 PENTAIR, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Nine Months Quarter Ended September 30 September 30 1997 1996 1997 1996 INCOME ($ thousands) Net income $62,108 $52,187 $22,207 $18,578 Preferred dividend requirements 3,646 3,816 1,212 1,268 Earnings available to common and common equivalent shares - Primary 58,462 48,371 20,995 17,310 Preferred dividends assuming conversion of Preferred Stock: Series 1988 676 711 222 233 Series 1990 2,970 3,105 990 1,035 Tax benefit on preferred ESOP dividend eliminated due to conversion into common (1,114) (1,010) (371) (327) Tax benefit on ESOP dividend assuming con- version to common, at common dividend rate 581 488 194 158 Earnings available for common and common equivalent shares - Diluted $61,575 $51,665 $22,030 $18,409 SHARES (thousands) Weighted average number of shares outstanding during the period 37,943 37,433 38,037 37,573 Shares issuable on exercise of stock options less shares repurchaseable from proceeds 437 482 486 464 Common and Common Equivalent Shares - Primary 38,380 37,915 38,523 38,037 Shares issuable on conversion of: $7.50 Callable Cumulative Convertible Preferred Stock, Series 1988 902 948 890 931 8% Callable Cumulative Voting Convertible Preferred Stock, Series 1990 3,745 3,882 3,713 3,825 Common and Common Equivalent Shares - Diluted 43,027 42,745 43,126 42,793 Earnings per Share: Primary $1.52 $1.28 $.54 $.46 Diluted $1.43 $1.21 $.51 $.43
EX-27 3
5 9-MOS DEC-31-1997 SEP-30-1997 25042000 0 397193000 0 331491000 792258000 589709000 262496000 1609357000 364025000 0 554278000 0 48853000 0 1609357000 1315533000 1315533000 918341000 1196729000 0 0 16146000 102658000 40550000 62108000 0 0 0 62108000 1.52 1.43
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