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, 1994
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
incorporation or organization) Identification No.)
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, 1994 was 18,181,570.
<PAGE>
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 4. Results of Votes of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
<CAPTION>
Three Months Ended
March 31
1994 1993
<S> <C> <C>
Net sales $389,252 $321,829
Operating costs
Cost of goods sold 290,752 244,909
Selling, general and administrative 72,143 54,960
Total operating costs 362,895 299,869
26,357 21,960
Equity in joint venture income (loss) 378 (817)
Operating income 26,735 21,143
Interest expense 8,424 5,591
Interest income 589 448
Income before income taxes 18,900 16,000
Provision for income taxes 7,800 6,500
Net income 11,100 9,500
Preferred dividend requirements 1,366 2,000
Earnings applicable to common stock $9,734 $7,500
Earnings per share:
Primary $.53 $.45
Diluted $.52 $.44
Weighted average common and common equivalent shares:
Primary 18,372 16,572
Diluted 21,006 20,895
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
($ expressed in thousands)
<CAPTION>
March 31, December 31,
ASSETS 1994 1993
<S> <C> <C>
Current assets
Cash and cash equivalents $27,444 $10,327
Accounts receivable - net 245,718 200,425
Inventories
Finished goods 141,959 122,712
Work in process 49,264 35,315
Raw materials 44,296 35,108
Supplies 5,734 5,691
Total inventory 241,253 198,826
Deferred income taxes 21,892 21,575
Other current assets 12,122 7,627
Total current assets 548,429 438,780
Property, plant and equipment 696,552 621,617
Less accumulated depreciation 322,237 305,751
Property, plant and equipment - net 374,315 315,866
Marketable securities -
insurance subsidiary 17,865 18,594
Investment in joint ventures 75,238 72,867
Goodwill - net 169,129 88,970
Other assets 24,759 23,724
TOTAL ASSETS $1,209,735 $958,801
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $97,619 $93,820
Compensation and other
benefits accruals 55,840 42,737
Income taxes 14,321 8,787
Accrued product claims
and warranties 23,351 22,256
Accrued expenses and
other liabilities 70,079 50,075
Current maturities of long-term debt 4,647 803
Total current liabilities 265,857 218,478
Long-term debt 420,926 238,856
Other liabilities 23,072 18,911
Deferred income taxes 7,731 7,518
Pensions and other
retirement compensation 36,082 29,687
Postretirement medical and
other benefits 60,837 60,637
Reserves - insurance subsidiary 15,684 13,865
Commitments and contingencies
Shareholders' equity
Preferred stock - at liquidation value
Authorized: 2,500,000 shares
Outstanding: 1994 - 1,973,135 69,224 69,380
1993 - 1,976,443
Unearned compensation
relating to ESOP (34,343) (35,453)
Common stock - par value, $.16 2/3
Authorized: 72,500,000 shares
Outstanding: 1994 - 18,181,570 3,030 3,022
1993 - 18,134,638
Additional paid-in capital 164,740 163,460
Foreign currency translation adjustment (550) (287)
Other - net (6,760) (6,760)
Retained earnings 184,205 177,487
Total shareholders' equity 379,546 370,849
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $1,209,735 $958,801
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ expressed in thousands)
<CAPTION>
Three Months Ended
March 31 March 31
1994 1993
<S> <C> <C>
Cash provided by (used for)
Operating activities
Net income $11,100 $9,500
Adjustments to reconcile to cash flow
Depreciation 16,335 12,163
Amortization 1,384 620
Deferred income taxes (104) 86
Undistributed loss (earnings)
from joint venture (378) 817
Changes in assets and liabilities,
net of effects of acquisition
Accounts receivable (22,332) (19,357)
Inventories (15,419) (3,218)
Accounts payable (1,995) (16,557)
Income taxes 4,258 (880)
Pensions and other
retirement compensation 6,395 3,248
Reserves - insurance subsidiary 1,819 2,068
Other assets/liabilities - net 5,118 4,349
Net cash from (used for)
operating activities 6,181 (7,161)
Investing activities
Capital expenditures (14,963) (12,841)
Cash investment in joint
venture - net (1,993) (1,500)
Purchase of marketable
securities - net 729 (2,069)
Acquisition - net of cash acquired (140,116) 0
Net cash (used) for
investing activities (156,343) (16,410)
Financing activities
Borrowings 175,384 24,853
Debt payments (5,951) (563)
Unearned ESOP
compensation decrease 1,110 1,125
Employee stock plans and other 1,373 1,359
Dividends paid (4,637) (4,706)
Net cash provided for
financing activities 167,279 22,068
Increase (decrease)
in cash and cash equivalents 17,117 (1,503)
Cash and cash equivalents
- beginning of period 10,327 8,392
- end of period $27,444 $6,889
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
instructions for Form 10-Q and, accordingly, do not include all
information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments, consisting only of
normal recurring accruals, considered necessary for a fair
presentation have been included.
These statements should be read in conjunction with the
financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31,
1993, previously filed with the Commission.
2. The results of operations for the three months ended March
31, 1994 are not necessarily indicative of the operating results
to be expected for the full year.
3. Income tax provisions for interim periods are based on the
current best estimate of the effective federal, state and foreign
income tax rates.
4. Earnings per common share are based on the weighted
average number of common and common equivalent shares
outstanding during each period. The tax benefits applicable to
preferred dividends paid to ESOPs are: for allocated shares,
credited to income tax expense; and for unallocated shares,
credited to retained earnings and are not considered earnings
applicable to common stock.
Fully diluted computations assume full conversion of each
series of preferred stock into common stock, the elimination of
preferred dividend requirements, and the recognition of the tax
benefit on deductible ESOP dividends applicable to allocated
shares payable based on the converted common dividend rate.
Conversion was assumed during the portion of each period
that the securities were outstanding.
5. The long-term debt is summarized as follows ($ millions):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
<S> <C> <C>
Revolving credit loans $174 $65
Private placement debt 160 160
Other 92 15
TOTAL 426 240
Current maturities (5) (1)
Total long-term debt $421 $239
</TABLE>
Debt agreements contain various restrictive covenants,
including a limitation on the payment of dividends and certain
other restricted payments. Under the most restrictive
covenants, $69 million of the March 31, 1994 retained earnings
were unrestricted for such purposes.
6. The Company uses the equity method of accounting for its
Joint Ventures, Lake Superior Paper Industries (LSPI) and LSPI
Fiber. First quarter operations are summarized as follows ($
millions):
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Net Sales $39.1 $34.2
Operating Income (Loss) 1.8 (.9)
Pre-Tax Income (Loss) .8 (1.6)
</TABLE>
7. Statement of Cash Flows
The following is supplemental information relating to the
Statement of Cash Flows ($000's):
<TABLE>
<CAPTION>
Three Months Ended March 31
1994 1993
<S> <C> <C>
Interest paid (net of capitalized interest) $8,992 $4,258
Income tax payments 3,241 6,396
</TABLE>
All outstanding shares of the Pentair, Inc. $1.50 Cumulative
Convertible Preferred Stock, Series 1987 were called for
redemption on March 15, 1993. In lieu of redemption,
substantially all of the preferred shares were converted into
approximately 1,450,780 shares of common stock. This
conversion is treated as a non-cash transaction.
8. Acquisition
On February 28, 1994, the Registrant completed the purchase
from Fried. Krupp Hoesch-Krupp of all of the net assets and
business of the Schroff Group (Schroff), including the stock of
its international subsidiaries, for $154 million paid in cash at
closing, which includes $1.7 million in interest accrued from
January 1, 1994, the economic transfer date.
The operating assets of the Schroff manufacturing facilities in
Germany were acquired by a new indirect German subsidiary
of the Registrant, Schroff GmbH, subject to normal payables
and accruals of the business. These assets were used by
Schroff in the manufacture of cabinets, cases, subracks and
accessories for the electronics industry. Schroff GmbH is
continuing its predecessor's business and will use the assets
in the same manner as before.
The outstanding stock of all of the European subsidiaries of
Schroff was acquired by a new wholly-owned subsidiary of the
Registrant, EuroPentair GmbH, which also owns the stock of
the new Schroff GmbH. The outstanding stock of the
non-European subsidiaries of Schroff, which includes its U.S.
subsidiary Schroff, Inc., was acquired by FC Holdings Inc., a
wholly-owned U.S. subsidiary of the Registrant.
Pro Forma Financial Information
The Schroff operating results are included in the company's
consolidated results from January 1, 1994. The following pro
forma financial information assumes the acquisition occurred
at the beginning of 1993. These results have been prepared
for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition
been made at the beginning of 1993, or of the results which
may occur in the future.
(Unaudited)
<TABLE>
<CAPTION>
Year Ended
December 31, 1993
<S> <C>
Net Sales $1,480.2 million
Net Income $46.8 million
Earnings Per Share
Primary $2.27
Diluted $2.21
</TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
<TABLE>
Selected information for business segments for the three months ended
March 31, 1994 and 1993
follows ($ millions):
<CAPTION>
General
Specialty Industrial Paper Joint General
Products Equipment Products Ventures Corporate Total
1994
<S> <C> <C> <C> <C> <C> <C>
Net Sales $109.9 $187.1 $ 92.3 $0.0 $0.0 $389.3
Operating Income 11.4 16.7 4.2 0.4 (6.0) 26.7
Identifiable Assets 216.3 597.4 261.1 73.6 61.3 1,209.7
Depreciation 2.2 7.6 6.5 0.0 0.0 16.3
Capital Expenditures 2.4 6.2 6.4 0.0 0.0 15.0
1993
Net Sales $ 95.9 $128.2 $ 97.7 $0.0 $0.0 $321.8
Operating Income 9.6 9.5 6.7 (0.8) (3.9) 21.1
Identifiable Assets 192.1 379.7 235.3 59.0 29.9 896.0
Depreciation 1.9 4.1 6.1 0.0 0.1 12.2
Capital Expenditures 1.1 2.4 9.3 0.0 0.0 12.8
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Pentair reported net income of $11.1 million, or 52 cents per
fully diluted share, on consolidated net sales of $389.3 million
for the three months ended March 31, 1994. This represented
a 16.8 percent increase in net income and a 20.9 percent
increase in sales over the first quarter of 1993. The first quarter
1993 net income was $9.5 million, or 44 cents per fully diluted
share, on consolidated net sales of $321.8 million.
Specialty Products Segment. Net sales increased $14.0 million
and operating income increased $1.8 million with each
company in the segment contributing to the improvement. The
increases reflect new products and further expansion into major
home center distribution channels. The poor Canadian
economy and the effect of falling Canadian foreign exchange
rates had a negative impact on Specialty Products results.
General Industrial Equipment Segment. Sales increased $58.8
million and operating income increased $7.1 million. Schroff
was a major contributor to the increased sales and operating
income for the first three months of 1994. Electrical enclosure
sales continued strong for the first quarter of 1994, assisted by
the strength in durable goods spending in the U.S. Sporting
ammunition sales were also higher and margins improved with
lower raw material costs. Lubrication and material dispensing
sales and profits were comparable to the prior year. The
weakness of the European economy continues to impact the
results of the Lincoln business.
Paper Products Segment. Net sales decreased $5.4 million
and operating income decreased $2.7 million. Coated
groundwood paper volume was down 5.2% and prices were
down 1.6% over the first quarter of 1993. Uncoated paper
volume was down 3.9% and prices were down only .8%.
Although prices in the market were down, lower raw material
costs for the first two months of 1994 and operating efficiencies
helped to offset the decrease.
Joint Venture. Tons shipped were up 6.0% and prices were up
2.2%. This business continues to be influenced by worldwide
industry overcapacity in both the lightweight coated and SCA
markets.
FINANCIAL CONDITION
In 1994 as in 1993, net income adjusted for non-cash items
provided much of the funds for seasonal working capital
increases which consisted of accounts receivable dating
programs and building of inventory levels. Borrowings financed
some operating needs along with capital expenditures of $15.0
million in 1994 and $12.8 million in 1993. The percentage of
long-term debt to total capital was 53% at March 31, 1994
compared to 39% at December 31, 1993, substantially all of
which was due to the acquisition of Schroff during the first
quarter of 1994. Revolving credit facilities were used to fund
the acquisition of Schroff.
The full year 1994 cash flow from operations is expected to be
comparable to 1993. Working capital needs will grow as total
sales increase. Capital expenditures are expected to be about
$80-90 million in 1994 as compared to $73.4 million in 1993.
Effective as of February 11, 1994, Pentair entered into revolving
credit facilities with a group of six banks, Continental Bank
N.A., Morgan Guaranty Trust Company of New York, J.P.
Morgan Delaware, First Bank National Association, Norwest
Bank Minnesota, N.A. and NBD Bank, N.A. Two parallel facility
agreements provide for aggregate credit lines of $170 million
divided among two bank groups. Pentair's outstanding Bid
Loan Agreement with certain of these banks was amended in
a related transaction. The facility agreements provide for
revolving credits for a three-year period, unless extended, at
the expiration of which period the outstanding loans are
converted into a term loan having a four-year repayment
period. The credit facilities are unsecured and include certain
financial and other covenants on the part of Pentair.
In addition, Pentair and its new subsidiary formed in connection
with the Schroff acquisition, EuroPentair GmbH, entered into a
115 million Deutschmark (approximately US $65 million) facility
agreement as of February 11, 1994 with Morgan Guaranty Trust
Company of New York, Continental Bank N.A., NBD Bank N.A.,
and Dresdner Bank AG. EuroPentair's obligations under the
Deutschmark agreement are guaranteed by the Registrant.
This facility is similar to the two other domestic credit
agreements, but provides for borrowings and repayments in
German marks or certain other European currencies. This
facility also provides for unsecured revolving loans for a
three-year period with a similar term loan conversion and
four-year repayment period. Substantially all of the available
credit under this agreement was borrowed at the closing of the
Schroff acquisition.
The three revolving credit facilities discussed above replace
previous credit agreements between Pentair and these banks
for revolving credit in the aggregate amount of $225 million.
Based upon current operating expectations, credit available
under revolving credit facilities and private placements is
adequate to cover seasonal working capital and long-term
capital expenditure requirements.
OUTLOOK
In general, the Company is strong and well-positioned to
continue its growth. The strong emphasis on product
development and aggressive efforts at expanding distribution
channels that helped during the recent weak economic cycle
are expected to continue to grow market share and sales and
profit growth. The company does not foresee a significant
recovery in the European and Canadian economies in the short
term. Such a recovery would have a favorable impact to some
degree on future results.
In all businesses, sales are expected to respond to new
products and enhanced customer service. In particular, sales
in the Specialty Products segment should benefit from a
continued focus on market expansion through new distribution
channels such as homecenter chains and lumberyards.
Certain businesses have reduced product and operating costs
over the last few years, so profitability should respond
positively to increased sales. In the paper industry, some
paper manufacturers have taken downtime to cut inventories.
This may reduce domestic industry capacity, helping to correct
the current supply-demand imbalance. In the premium paper
industry, marketing and distribution strategies emphasizing
high demand recycle specialty grades and prompt delivery of
value-added product have been put in place and continue to
contribute to profitability. Signs of price increases in Europe
may help the SCA and LWC markets, if the European
manufacturers withdraw tonnage from the U.S. markets and
redirect it to their home markets.
PART II - OTHER INFORMATION
ITEM 1 -Legal Proceedings
McNeil (Ohio) Corporation. F.E. Myers (Myers), a division of
McNeil (Ohio) Corporation, three other pump manufacturers
and a distributor were sued on April 18, 1994 by two
environmental groups pursuant to California Health and Safety
Code Section 25249 (Proposition 65) and the Unfair Practices
Act, Business and Professions Code Section 17200. Basic
information concerning this matter was previously reported in
the Company's Form 10-K for the year ending December 31,
1993. The lawsuit alleges violations of California law arising
from discharge of lead from submersible water pumps into
drinking water. Claims have been made for injunctive relief,
statutory penalties and damages. Myers was not sued in a
separate Proposition 65 suit filed by the State of California
against the three other pump manufacturers. Based on the
information currently known, the Registrant believes that this
matter is unlikely to result in material liability.
ITEM 4 -Results of Votes of Security Holders
(a)The annual meeting of shareholders was held on April 20,
1994.
(c)The only matters voted upon at the annual meeting were the
election of directors and the approval of auditors. The vote
tallies are as follows:
DIRECTORS:
C. A. Haggerty H. V. Haverty D. E. Nugent
FOR 17,674,305 17,676,382 17,652,285
WITHHELD 134,456 132,379 156,476
AUDITORS: Deloitte & Touche
FOR 17,568,967
AGAINST 92,616
ABSTAIN 147,718
BROKER
NON-VOTES 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
(b) Reports on Form 8-K.
A report on Form 8K was filed on January 4, 1994 disclosing
the definitive agreement to acquire the Schroff Group from
Fried. Krupp AG Hoesch-Krupp of Germany.
A Form 8K/A (Amendment to Form 8K which was filed on
January 4, 1994) was filed on January 10, 1994 disclosing the
purchase agreement for the transaction.
A report on Form 8K was filed on March 14, 1994 reporting the
completion of the acquisition.
A Form 8K/A (Amendment to Form 8K which was filed on
March 14, 1994) was filed on May 13, 1994 disclosing the
financial statements of the business acquired (Schroff) and the
pro forma financial information for Pentair and Schroff.
<PAGE>
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
Senior Vice President and
Chief Financial Officer
May 13, 1994
<PAGE>
EXHIBIT INDEX
Exhibit Number
11 Calculation of Earnings per Common and
Common Equivalent Share
EXHIBIT 11
<TABLE>
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<CAPTION>
Quarter Ended
March 31
1994 1993
INCOME ($ thousands)
<S> <C> <C>
Net income $11,100 $9,500
Preferred dividend requirements 1,366 2,000
Earnings available to common and common
equivalent shares - Primary 9,734 7,500
Preferred dividends assuming conversion
of Preferred Stock:
Series 1987 0 620
Series 1988 256 255
Series 1990 1,110 1,125
Tax benefit on preferred ESOP dividend
eliminated due to conversion into common (264) (212)
Tax benefit on ESOP dividend assuming con-
version to common, at common dividend rate 92 71
Earnings available for common and common equivalent
shares - Diluted $10,928 $9,359
SHARES (thousands)
Weighted average number of shares outstanding
during the period 18,169 16,394
Shares issuable on exercise of stock options
less shares repurchaseable from proceeds 203 178
Common and Common Equivalent Shares -
Primary 18,372 16,572
Shares issuable on conversion of:
$1.50 Cumulative Convertible Preferred Stock,
Series 1987 0 1,660
$7.50 Callable Cumulative Convertible
Preferred Stock, Series 1988 513 530
8% Callable Cumulative Voting Convertible
Preferred Stock, Series 1990 2,121 2,133
Common and Common Equivalent Shares -
Diluted 21,006 20,895
EARNINGS PER SHARE:
PRIMARY $.53 $.45
DILUTED .52 .44
</TABLE>
All share and per share data adjusted for 50% stock dividend in June 1993.
