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, 1995
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 (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 March 31, 1995 was 18,335,029.
<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 4. Results of Votes of
Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
<CAPTION>
Three Months Ended
March 31
1995 1994
<S> <C> <C>
Net sales $459,250 $389,252
Operating costs
Cost of goods sold 349,710 290,752
Selling, general and
administrative 77,905 72,143
Total operating costs 427,615 362,895
31,635 26,357
Equity in jt vent income 1,689 378
Operating income 33,324 26,735
Interest expense 8,461 8,424
Interest income 997 589
Income before income taxes 25,860 18,900
Provision for income taxes 10,510 7,800
Net income 15,350 11,100
Preferred dividend req 1,330 1,366
Earnings applicable
to common stock $14,020 $9,734
Earnings per share:
Primary $.76 $.53
Diluted $.72 $.52
Weighted average common and common equivalent shares:
Primary 18,551 18,372
Diluted 21,143 21,006
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
($ expressed in thousands)
<CAPTION>
March 31, December 31,
ASSETS 1995 1994
<S> <C> <C>
Current Assets
Cash and cash equiv $25,192 $32,677
Accts receivable - net 287,336 255,105
Inventories
Finished goods 170,073 139,066
Work in process 43,904 42,502
Raw materials
and supplies 66,211 62,083
Total inventory 280,188 243,651
Deferred income taxes 28,193 27,749
Other current assets 9,693 10,037
Total current assets 630,602 569,219
Property, plant and
equipment 784,882 764,408
Accumulated depreciation 366,840 353,422
PP & E - net 418,042 410,986
Marketable securities -
insurance subsidiary 24,641 23,655
Investment in jt ventures 78,023 81,102
Goodwill - net 180,248 170,965
Other assets 28,911 25,569
TOTAL ASSETS $1,360,467 $1,281,496
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $113,790 $115,962
Compensation and other
benefits accruals 60,277 58,297
Income taxes 13,126 7,570
Accrued product claims
and warranties 25,854 25,484
Accrued expenses and
other liabilities 85,551 72,612
Current maturities of
long-term debt 3,979 5,766
Total current liabilities 302,577 285,691
Long-term debt 438,851 408,503
Other liabilities 21,246 20,883
Deferred income taxes 22,341 22,706
Pensions and other
retirement compensation 35,204 29,521
Postretirement medical and
other benefits 61,594 61,134
Reserves - insurance
subsidiary 22,839 21,084
Commitments and contingencies
Shareholders' equity
Preferred stock - at
liquidation value
Authorized:
2,500,000 shares
Outstanding:
1995 - 1,941,292 68,008 68,444
1994 - 1,953,243
Unearned compensation
relating to ESOP (25,448) (27,528)
Common stock -
par value, $.16 2/3
Authorized:
72,500,000 shares
Outstanding:
1995 - 18,335,029 3,056 3,041
1994 - 18,248,155
Additional paid-in
capital 168,989 166,314
Currency translation and
pension adjustments 16,954 8,033
Retained earnings 224,256 213,670
Total shareholders'
equity 455,815 431,974
TOTAL LIABILITIES
AND SHAREHOLDERS'
EQUITY $1,360,467 $1,281,496
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ expressed in thousands)
<CAPTION>
Three Months Ended
March 31 March 31
1995 1994
<S> <C> <C>
Cash provided by (used for)
Operating activities
Net income $15,350 $11,100
Adjustments to reconcile
to cash flow:
Depreciation 16,960 16,335
Amortization 994 1,384
Deferred income taxes (809) (104)
Undistributed (earnings)
from joint venture (1,689) (378)
Changes in assets
and liabilities,
net of effects of
acquisition
Accounts receivable (32,231) (22,332)
Inventories (36,537) (15,419)
Accounts payable (2,172) (1,995)
Compensation and benefits 3,980 6,774
Income taxes 5,556 4,258
Pensions and other
retirement
compensation 5,683 6,395
Reserves -
insurance subsidiary 1,755 1,819
Other assets/
liabilities - net 9,181 (2,783)
Net cash from (used for)
operating activities (13,979) 5,054
Investing activities
Capital expenditures (16,266) (14,963)
Cash investment in joint
venture - net 4,768 (1,993)
Purchase of marketable
securities - net (986) 729
Acquisition -
net of cash acquired 0 (140,116)
Net cash (used) for
investing activities (12,484) (156,343)
Financing activities
Borrowings 24,500 175,384
Debt payments (6,770) (5,951)
Unearned ESOP
compensation decrease 2,080 1,110
Employee stock plans
and other 2,479 1,373
Dividends paid (4,989) (4,637)
Net cash provided for
financing activities 17,300 167,279
Effects of currency
exchange rate changes 1,678 1,127
Increase (decrease)
in cash and cash
equivalents (7,485) 17,117
Cash and cash equivalents
- beginning of period 32,677 10,327
- end of period $25,192 $27,444
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with
instructions for Form 10-Q and, accordingly, do not include
all information and footnotes required by generally
accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, considered
necessary for a fair presentation have been included.
These statements should be read in conjunction with the
financial statements and footnotes included in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994, previously filed with the Commission.
2. The results of operations for the three months ended
March 31, 1995 are not necessarily indicative of the
operating results to be expected for the full year.
3. Income tax provisions for interim periods are based on
the current best estimate of the effective federal, state
and foreign income tax rates.
4. Earnings per common share are based on the weighted
average number of common and common equivalent shares
outstanding during each period. The tax benefits applicable
to preferred dividends paid to ESOPs are: for allocated
shares credited to income tax expense and for unallocated
shares, credited to retained earnings and are not
considered earnings applicable to common stock.
Fully diluted computations assume full conversion of each
series of preferred stock into common stock, the
elimination of preferred dividend requirements, and the
recognition of the tax benefit on deductible ESOP dividends
applicable to allocated shares payable based on the
converted common dividend rate. Conversion was assumed
during the portion of each period that the securities were
outstanding.
5. The long-term debt is summarized as follows ($
millions):
<TABLE>
<CAPTION>
March 31,December 31,
1995 1994
<S> <C> <C>
Revolving credit facilities $266 $231
Private placement debt 160 160
Other 17 23
TOTAL 443 414
Current maturities (4) (5)
Total long-term debt $439 $409
</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, $148 million of the March 31, 1995
retained earnings were unrestricted for such purposes.
6. The Company uses the equity method of accounting for
its Joint Ventures, Lake Superior Paper Industries (LSPI)
and LSPI Fiber. First quarter operations are summarized as
follows ($ millions):
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net Sales $47.3 39.1
Operating Income 5.0 1.8
Pre-Tax Income 3.4 .8
</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
1995 1994
<S> <C> <C>
Interest paid
(net of capitalized interest) $8,227 $8,992
Income tax payments 4,158 3,241
</TABLE>
8. Acquisition
Effective January 1, 1994, the Company acquired Schroff
GmbH and its international subsidiaries, a manufacturer of
cabinets, cases, subracks and accessories for the
electronics industry, for $140 million. The acquisition
was accounted for by the purchase method, accordingly, the
purchase price was allocated to the assets acquired based
on their estimated fair values as follows: working
capital, $20.9 million; property, plant and equipment,
$57.8 million; other non-current liabilities, $17.9
million; and goodwill, $79.0 million. Goodwill is being
amortized on a straight line basis over 25 years.
The Schroff operating results are included in the company's
consolidated results from January 1, 1994.
9. Subsequent Event
The sale of Cross Pointe Paper Corporation was completed on
April 3, 1995. The definitive agreements regarding the
sale of Niagara of Wisconsin Paper Corporation, our 50%
share of Lake Superior Paper Industries (LSPI) joint
venture and our 12% share of Superior Recycled Fiber
Industries (SRFI) were signed on May 8, 1995.
<TABLE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
Selected information for business segments for the three months
ended March 31, 1995 and 1994 follows ($millions):
<CAPTION>
General
Specialty Industrial Paper Joint General
Products Equipment Products Ventures Corporate Total
<S> <C> <C> <C> <C> <C> <C>
1995
Net Sales $117.6 $219.8 $125.4 $0.0 $(3.5) $459.3
Operating Income 13.4 21.1 2.7 1.7 (5.6) 33.3
Identifiable Assets 240.7 677.0 294.5 78.0 70.3 1,360.5
Depreciation 2.5 7.8 6.7 0.0 0.0 17.0
Capital Expenditures 2.0 7.9 6.4 0.0 0.0 16.3
1994
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
</TABLE>
RESULTS OF OPERATIONS
Pentair reported net income of $15.4 million, or 72 cents
per fully diluted share, on consolidated net sales of
$459.3 million for the three months ended March 31, 1995.
This represented a 38.3 percent increase in net income and
an 18.0 percent increase in sales over the first quarter of
1994. The first quarter 1994 net income was $11.1 million,
or 52 cents per fully diluted share, on consolidated net
sales of $389.3 million.
Specialty Products Segment. Net sales increased $7.7
million or 7.0% and operating income increased $2.0 million
or 17.8% with Porter Cable contributing much of the
improvement. The increases reflect new product sales and
further expansion into major home center distribution
channels.
General Industrial Equipment Segment. Sales increased
$32.8 million or 17.5% and operating income increased $4.4
million or 26.6%. Schroff and Hoffman were the major
contributors to the increased sales and operating income
for the first three months of 1995. Electronic and
electrical enclosure sales continued strong for the first
quarter of 1995, assisted by the strength in durable goods
spending in the U.S. and Europe. Lubrication and material
dispensing sales and profits were up considerably from the
prior year. The strengthening of the European economy
continues to favorably impact the results of the Lincoln
GmbH business. Sporting ammunition sales and operating
margins were lower due to unfavorable product mix as
compared to 1994.
Paper Products Segment. Net sales increased $33.1 million
and operating income decreased $1.5 million, reflecting continuous margin
pressures in uncoated free sheet products. The
turnaround in the domestic paper market helped the
businesses greatly. Coated groundwood paper volume was up
10.8% and prices increased by $200 per ton above first
quarter 1994 prices. Uncoated paper volume was up 12.7%
and prices were up over $115 per ton over the same period
in 1994. Net paper segment results were flat. However,
within this segment a $6.5 million charge was recorded
based on senior management's decision to accelerate closure
of a sludge disposal facility in Dickinson County,
Michigan.
Joint Venture Segment. Tons shipped were flat but prices
were up 16.2% or over $100 per ton as compared to the first
quarter of 1994.
FINANCIAL CONDITION
In 1995 as in 1994, net income adjusted for non-cash items
provided much of the funds for seasonal working capital
increases. Accounts receivable levels increased due to
dating programs and increased sales. Some subsidiaries
were also re-building inventory levels. Borrowings
financed some operating needs along with capital
expenditures of $16.3 million in 1995 and $15.0 million in
1994. The percentage of long-term debt to total capital
was 49% at March 31, 1995 compared to 49% at December 31,
1994. In 1994, revolving credit facilities were used to
fund the acquisition of Schroff.
The full year 1995 cash flow from operations is expected to
increase with additional net income contributions. Working
capital needs will grow as total sales increase. Capital
expenditures are expected to be down from 1994 to about
$60-70 million in 1995 as compared to $92.7 million in 1994
due to the expected disposition of all of the paper
businesses.
Based upon current operating expectations, credit available
under revolving credit facilities is expected to be
adequate to cover seasonal working capital and long-term
capital expenditure requirements.
OUTLOOK
In general, the Company is well-positioned to continue its
internal growth. The strong emphasis on product development
and aggressive efforts to expand distribution channels that
helped during the recent year are expected to continue to
grow market share and sales and profit growth. In all
businesses, sales are expected to respond to new products
and enhanced customer service.
The sale of Cross Pointe Paper Corporation was completed on
April 3, 1995. The definitive agreements regarding the
sale of Niagara of Wisconsin Paper Corporation, our 50%
share of Lake Superior Paper Industries (LSPI) joint
venture and our 12% share of Superior Recycled Fiber
Industries (SRFI) were signed on May 8, 1995.
With the expected completion of the disposition of the
Paper Products and Joint Venture segments, Pentair will be
able to devote full financial and managerial resources to
growth and development of its industrial businesses. The
proceeds from the sales of the paper businesses will
strengthen our capital position and enable the company to
pursue industrial acquisitions. These resources also will
enable the company to make continued capital expenditures
for internal development of the existing industrial
businesses.
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 19, 1995, for the purpose of electing certain
members to the board of directors, approving the
appointment of auditors, and voting on the proposals
described below. Proxies for the meeting were solicited
pursuant to Section 14(a) of the Securities Exchange Act of
1934.
DIRECTORS
All of management's nominees for directors as listed in the
proxy statement were elected with the following vote:
<TABLE>
<CAPTION>
Shares Shares Broker
Voted "For" "Withheld" Non-Votes
<S> <C> <C> <C>
Q. Hietpas 17,395,504 165,925 0
R. Schulze 17,385,344 176,085 0
K. Welke 17,371,326 190,103 0
</TABLE>
AUDITORS
The appointment of Deloitte & Touche LLP as independent
auditors of the Company for 1995 was ratified by the
following vote:
<TABLE>
<CAPTION>
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
<C> <C> <C> <C>
17,322,488 61,084 177,857 0
</TABLE>
PROPOSAL 2
A proposal to amend the Restated Articles of Incorporation
increasing the total number of shares authorized to be
issued from 75,000,000 to 100,000,000 and increase from
10,000,000 to 15,000,000 the number of authorized shares
that the Board of Directors could designate as preferred
shares, and modify the power of the Board of Directors to
establish voting rights of unissued shares did not receive the required
60% approval. The vote tally was as follows:
<TABLE>
<CAPTION>
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
<C> <C> <C> <C>
10,973,651 5,274,835 166,329 1,146,614
</TABLE>
PROPOSAL 3
A proposal to amend the Restated Articles of Incorporation
increasing the total number of shares authorized to be
issued from 75,000,000 to 125,000,000 and increase from
10,000,000 to 15,000,000 the number of authorized shares
that the Board of Directors could designate as preferred
shares was passed with the following vote:
<TABLE>
<CAPTION>
Shares
Shares Voted Shares Broker
Voted "For" "Against" "Abstaining" Non-Votes
<C> <C> <C> <C>
13,824,183 2,321,552 269,080 1,146,614
</TABLE>
In order for either proposal regarding the amendment to the
Articles of Incorporation to pass, the proposal was
required to receive greater than 60% vote in favor and not
more than 25% vote against.
ITEM 5 - Other Information
The Registrant announced on May 8, 1995 that is has signed
a definitive agreement to sell its remaining paper
businesses to Consolidated Papers, Inc. of Wisconsin for
approximately $103 million cash, plus assumed debt and
lease obligations. The sale includes Niagara of Wisconsin
Paper Corporation, our 50% share of Lake Superior Paper
Industries (LSPI) joint venture and our 12% share of
Superior Recycled Fiber Industries (SRFI). The transaction
is expected to close in late June 1995, subject to
regulatory clearance and further due diligence.
In connection with the completed sale of Cross Pointe and
the expected sale of the remaining assets, the Company has
decided to report its Paper Products segment and Joint
Ventures segment as discontinued operations, effective May
1, 1995. The consolidated financial statements will be
reclassified to report separately the net assets and
operating results of the discontinued operations. The
company's prior year operating results will also be
restated to reflect continuing operations.
The continuing operations will consist of the Specialty
Products, General Industrial Equipment, and General
Corporate segment. Comparative sales and operating income
figures can be found in Part 1 Item 2 Business Segment
Information. The results of 1994 and first quarter of 1995
will be restated on a discontinued operations basis on Form
8-K/A to be filed in early June.
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.
A report on Form 8K was filed on April 17, 1995 disclosing
the closing of the sale of Cross Pointe Paper Corporation
to Noranda Forest, Inc.
<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 15, 1995
<PAGE>
EXHIBIT INDEX
Exhibit Number
11 Calculation of Earnings per Common and
Common Equivalent Share
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<CASH> 25192000
<SECURITIES> 0
<RECEIVABLES> 287336000
<ALLOWANCES> 0
<INVENTORY> 280188000
<CURRENT-ASSETS> 630602000
<PP&E> 784882000
<DEPRECIATION> 366840000
<TOTAL-ASSETS> 1360467000
<CURRENT-LIABILITIES> 302577000
<BONDS> 0
<COMMON> 413255000
0
42560000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1360467000
<SALES> 459250000
<TOTAL-REVENUES> 459250000
<CGS> 349710000
<TOTAL-COSTS> 427615000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8461000
<INCOME-PRETAX> 25860000
<INCOME-TAX> 10510000
<INCOME-CONTINUING> 15350000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15350000
<EPS-PRIMARY> .76
<EPS-DILUTED> .72
</TABLE>
EXHIBIT 11
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Quarter Ended
March 31
1995 1994
<S> <C> <C>
INCOME ($ thousands)
Net income $15,350 $11,100
Preferred dividend requirements 1,330 1,366
Earnings available to common and common
equivalent shares - Primary 14,020 9,734
Preferred dividends assuming conversion
of Preferred Stock:
Series 1988 250 256
Series 1990 1,080 1,110
Tax benefit on preferred ESOP dividend
eliminated due to conversion into common (332) (264)
Tax benefit on ESOP dividend assuming con-
version to common, at common dividend rate 128 92
Earnings available for common and common equivalent
shares - Diluted $15,147 $10,928
SHARES (thousands)
Weighted average number of shares outstanding
during the period 18,302 18,169
Shares issuable on exercise of stock options
less shares repurchaseable from proceeds 249 203
Common and Common Equivalent Shares -
Primary 18,551 18,372
Shares issuable on conversion of:
$7.50 Callable Cumulative Convertible
Preferred Stock, Series 1988 499 513
8% Callable Cumulative Voting Convertible
Preferred Stock, Series 1990 2,093 2,121
Common and Common Equivalent Shares -
Diluted 21,143 21,006
Earnings per Share:
Primary $.76 $.53
Diluted .72 .52
</TABLE>
