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, 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 jurisdiction of (I.R.S. Employer 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 September 30, 1995 was 18,460,138.
<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 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
September 30 September 30
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net sales $1,025,377 $ 922,157 $ 353,338 $ 324,864
Operating costs:
Cost of goods sold 727,288 652,186 255,389 231,499
Selling, general
and administrative 214,047 194,954 69,750 65,718
Total operating costs 941,335 847,140 325,139 297,217
Operating income 84,042 75,017 28,199 27,647
Interest expense - net (12,530) (16,235) (2,687) (5,391)
Income from continuing
operations before
income taxes 71,512 58,782 25,512 22,256
Provision for
income taxes 29,012 23,281 10,212 8,618
Income from
continuing operations 42,500 35,501 15,300 13,638
Discontinued operations:
Income from operations
of discontinued Paper
Products and Joint Venture
segments (net of applicable
income taxes of $2,740 and
$719, and $0 and
$82, respectively) 4,566 1,199 0 137
Gain on sale of
discontinued operations
(less applicable income
taxes of $7,734) 12,134 0 0 0
Net income 59,200 36,700 15,300 13,775
Preferred dividend
requirements 3,981 4,094 1,324 1,363
Earnings applicable
to common stock $55,219 $32,606 $13,976 $12,412
Earnings per share:
Primary -
Income from:
continuing operations $2.07 $1.70 $.75 $.66
discontinued operations .90 .07 .00 .01
Net Income $2.97 $1.77 $.75 $.67
Diluted -
Income from:
continuing operations $1.98 $1.66 $.71 $.63
discontinued operations .79 .06 .00 .01
Net Income $2.77 $1.72 $.71 $.64
Weighted average
common and common
equivalent shares:
Primary 18,619 18,400 18,689 18,446
Diluted 21,173 21,023 21,199 21,059
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
Current assets
<S> <C> <C>
Cash and cash equivalents $26,623 $32,677
Accounts receivable - net 262,903 219,527
Notes receivable 101,526 0
Inventories
Finished goods 149,370 114,875
Work in process 40,843 41,283
Raw materials and supplies 35,819 36,929
Total inventory 226,032 193,087
Deferred income taxes 27,835 23,087
Other current assets 8,079 8,701
Net assets of discontinued operations 0 240,136
Total current assets 652,998 717,215
Property, plant and equipment 416,260 378,732
Less accumulated depreciation 176,324 147,581
Property, plant and
equipment - net 239,936 231,151
Marketable securities -
insurance subsidiary 29,130 23,655
Goodwill - net 173,517 170,965
Other assets 17,535 18,156
TOTAL ASSETS $1,113,116 $1,161,142
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $76,322 $78,065
Compensation and other
benefits accruals 55,509 48,657
Income taxes 9,647 2,708
Accrued product claims
and warranties 26,521 24,324
Accrued expenses and
other liabilities 77,597 61,277
Current maturities of debt 2,447 3,566
Total current liabilities 248,043 218,597
Long-term debt 242,398 408,503
Other liabilities 16,233 17,944
Deferred income taxes 8,600 366
Pensions and other
retirement compensation 35,072 21,796
Postretirement medical and
other benefits 46,268 40,878
Reserves - insurance subsidiary 25,772 21,084
Commitments and contingencies
Shareholders' equity
Preferred stock - at liquidation value
Authorized: 2,500,000 shares
Outstanding: 1995 - 1,882,236 66,014 68,444
1994 - 1,953,243
Unearned compensation
relating to ESOP (21,288) (27,528)
Common stock - par value, $.16 2/3
Authorized: 72,500,000 shares
Outstanding: 1995 - 18,460,138 3,077 3,041
1994 - 18,248,155
Additional paid-in capital 171,183 166,314
Cumulative translation
and pension adjustments 13,760 8,033
Retained earnings 257,984 213,670
Total shareholders' equity 490,730 431,974
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $1,113,116 $1,161,142
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30 September 30
1995 1994
Cash flows from operating activities
<S> <C> <C>
Net income $59,200 $36,700
Adjustment for discontinued operations (16,700) (1,199)
Adjustments to reconcile net income to cash
provided from operating activities
Depreciation 30,895 28,638
Amortization 4,914 4,379
Deferred income taxes 295 1,855
Changes in assets and liabilities, net of
effects of acquisitions and dispositions
Accounts receivable (46,976) (32,501)
Inventories (32,945) (26,392)
Accounts payable (1,743) (1,841)
Accrued compensation and benefits 5,288 9,466
Income taxes (2,798) 10,696
Pensions and other retirement 13,276 9,428
Reserves - insurance subsidiary 4,688 5,522
Other assets/liabilities - net 8,714 12,298
Cash from operations:
Continuing operations 26,108 43,274
Payments related to discontinued operations (21,812) (13,526)
Total cash from operations 4,296 29,748
Cash flows from investing activities
Capital expenditures (35,853) (35,008)
Purchase of marketable securities - net (5,475) (3,115)
Proceeds from sale of
discontinued operations 212,760 0
Acquisition - net of cash acquired 0 (140,116)
Cash provided by (used for)
investing activities 171,432 (178,239)
Cash flows from financing activities
Borrowings 24,762 167,832
Debt payments (198,364) (8,091)
Unearned ESOP compensation decrease 6,240 6,330
Employee stock plans and other 3,150 2,253
Dividends paid (15,561) (13,916)
Cash (used for) provided by
financing activities (179,773) 154,408
Effect of currency rate changes (2,009) 4,298
Increase (decrease)
in cash and cash equivalents (6,054) 10,215
Cash and cash equivalents
- beginning of period 32,677 10,327
- end of period $26,623 $20,542
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. Accounting Policies.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended September 30,1995 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1995.
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.
Certain reclassifications have been made to prior year's financial statements to
conform to the current year presentation.
Note 2. Discontinued Operations.
On April 1, 1995 the company sold its Cross Pointe Paper Corporation subsidiary
for $203.3 million, of which $100 million was received in cash and a promissory
note due January 2, 1996 was given for the remainder. Effective May 1, 1995
the company decided to report its Paper Products and Joint Venture segments
as discontinued operations. On June 30, 1995 the company sold its Niagara of
Wisconsin Paper Corporation, its 50% share of Lake Superior Paper Industries
(LSPI) joint venture and its 12% share of Superior Recycled Fiber Industries
(SRFI) for approximately $103 million cash.
The gain on the sale was $12.1 million after income tax expense of $7.7
million. The transaction added 57 cents to earnings per share.
The prior year has been restated to include the company's former paper
businesses (Paper Products and Joint Venture segments) as discontinued
operations.
Summarized results of operations and financial position data of discontinued
operations were as follows:
Results of Operations
<TABLE>
<CAPTION>
Year-to-date through September 30
1995 1994
<S> <C> <C>
Net Sales $187.1 $285.1
Operating Income 27.2 23.7
Net Earnings 4.6 1.2
Gain on Sale 12.1 0.0
</TABLE>
Financial Position
<TABLE>
<CAPTION>
December 31, 1994
<S> <C>
Current assets $92.1
Net property, plant and equipment 179.8
Other assets 88.5
Current liabilities (67.1)
Other liabilities (53.2)
Net assets of discontinued operations $240.1
</TABLE>
Note 3. Long-Term Debt.
The long-term debt is summarized as follows ($ millions):
<TABLE>
<CAPTION>
9/30/95 12/31/94
Revolving credit facilities:
<S> <C> <C>
US $ revolvers $12 $157
DM revolvers 93 74
Private placement debt 125 160
Other 15 23
TOTAL 245 414
Current maturities (3) (6)
Total long-term debt $242 $408
</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, $150 million of the September 30, 1995 retained
earnings were unrestricted for such purposes.
Note 4. Statement of Cash Flows - supplemental information.
The following is supplemental information relating to the Statement of
Cash Flows ($000's):
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1995 1994
<S> <C> <C>
Interest paid (net of
capitalized interest) $21,304 $23,624
Income tax payments 50,183 17,892
</TABLE>
Non-cash Items:
Gross amounts to be realized from the sale of the Paper Products and Joint
Venture segments are approximately $316 million. Of this amount $213 million
was received in cash, a promissory note was received for $100 million which is
due January 2, 1996 and the remainder is recorded as a miscellaneous account
receivable.
Note 5. Acquisition of Assets/Subsequent Event
On November 1, 1995, the company acquired all of the outstanding stock of Fleck
Controls, Inc. ("Fleck") for a purchase price of approximately $130 million.
Fleck designs, manufactures and markets control valves which are major
components in residential water softeners, and commercial and industrial
water conditioning systems. Fleck employs approximately 260 people at its
main manufacturing facility near Milwaukee, Wisconsin, and about 50 at its
facility near Paris, France. Revolving borrowings and notes due in January
1996 were used to fund the acquisition. The remining proceeds from the
disposition of the paper businesses, which are due in early January 1996,
and revolving borrowings will be used to pay the notes at maturity.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
Selected information for business segments for the nine months ended September
30, 1995 and 1994 follows ($ millions):
<TABLE>
<CAPTION>
General
Specialty Industrial General
Products Equipment Corporate Total
<S> <C> <C> <C> <C>
1995
Net Sales $353.4 $671.9 $0.0 $1,025.3
Operating Income 35.2 63.2 (14.4) 84.0
Identifiable Assets 241.7 692.1 179.3 1,113.1
Depreciation 7.3 23.6 0.0 30.9
Capital Expenditures 8.3 27.5 0.1 35.9
1994
Net Sales $327.2 $595.0 $0.0 $922.2
Operating Income 32.2 57.1 (14.3) 75.0
Identifiable Assets 219.6 635.9 297.0 1,152.5
Depreciation 6.6 21.9 0.1 28.6
Capital Expenditures 7.5 27.3 0.2 35.0
</TABLE>
<PAGE>
RESULTS OF OPERATIONS
Consolidated Continuing Operations. Pentair reported income from continuing
operations of $42.5 million, or $1.98 per fully diluted share, on consolidated
net sales from continuing operations of $1,025.4 million for the nine months
ended September 30, 1995. This represented a 12 percent increase in income
from continuing operations and an 11 percent increase in sales from continuing
operations over the corresponding period in 1994. The nine month 1994 income
from continuing operations was $35.5 million, or $1.66 per fully diluted share,
on consolidated net sales from continuing operations of $922.2 million.
Specialty Products Segment. Net sales increased $26.2 million or 8% and
operating income increased $3.1 million or 9 percent. The increases reflect
successful new product introductions and continued growth in home center
distribution channels. Order rates, supported by new product introductions,
remain strong in this segment.
General Industrial Equipment Segment. Sales increased $77.0 million or 13% and
operating income increased $6.1 million or 11%. Hoffman, Schroff and Lincoln
Industrial continued to be major contributors to the increased sales and
operating income. Strong international durable goods markets continue to boost
sales volume and earnings at these companies. Sporting ammunition sales and
margins were down due to high dealer inventories resulting from a build-up in
1994, a less favorable product mix, competitive pricing pressures, and higher
raw material costs for copper and lead.
Discontinued Operations. Results from the Paper Products and Joint Venture
segments have been restated as discontinued operations. See Note 2 to the
financial statements for details of these discontinued operations.
Interest Expense. Interest expense for continuing operations was $3.7 million
lower than the same period in the prior year. The reduction in interest
expense was primarily the result of less outstanding borrowings due to paying
down debt with the proceeds from the disposition of the Paper Products segment
companies.
FINANCIAL CONDITION
Cash from continuing operations was $26.1 million, compared to cash from
continuing operations of $43.3 million in the same period of the prior year.
Strong earnings more than offset working capital usage in 1995. Throughout
1995, accounts receivable increased due to increased sales volume, and
inventories increased due to seasonal and temporary build-ups of finished
goods. However, inventory levels were reduced in the third quarter as
compared to the second quarter as sales volume increased. As a result,
accounts receivable levels increased substantially in the third quarter.
Capital expenditures of continuing operations for nine months were $35.9
million in 1995 and $35.0 million in 1994.
The percentage of long-term debt to total capital was reduced to 33% at
September 30, 1995 compared to 49% at December 31, 1994, largely due to the
use of proceeds from the disposition of the paper businesses to pay down
outstanding debt. As a result, substantially all of the US$ revolving credit
facilities and the $35 million portion of the private placement debt that was
to mature in June 1996 was paid. The average interest rate on the redeemed
debt was 8.81%. A make-whole premium of approximately $950,000 was required
to be paid to redeem the private placement debt. The average interest rate on
the remaining private placement debt of $125 million is 7.31%.
Management believes that cash flows from continuing operations will remain
positive throughout the remainder of 1995. The company's continuing operations
should generate sufficient cash from operations to provide its their recurring
capital investment needs. Capital expenditures for continuing operations are
expected to be about $60 million in 1995 as compared to $57.8 million in 1994.
Credit available under revolving credit facilities is adequate to provide for
working capital, capital expenditure, and acquisition requirements.
ACQUISISTIONS AND DIVESTITURES
On April 3, 1995, the company sold its Cross Pointe Paper Corporation subsidiary
to Noranda Forest, Inc. for approximately $200 million. On June 30, 1995, the
company sold its remaining paper businesses, Niagara of Wisconsin Paper
Corporation, its 50 percent interest in Lake Superior Paper Industries and
its 12 percent share in Superior Recycled Fiber Industries to Consolidated
Papers, Inc. for approximately $109 million.
On November 1, 1995, the company acquired all of the outstanding stock of Fleck
Controls, Inc. ("Fleck") for a purchase price of approximately $130 million.
Fleck designs, manufactures and markets control valves which are major
components in residential water softeners, and commercial and industrial
water conditioning systems. Fleck employs approximately 260 people at its
main manufacturing facility near Milwaukee, Wisconsin, and about 50 at its
facility near Paris, France. Revolving borrowings and notes due in January
1996 were used to fund the acquisition. The remining proceeds from the
disposition of the paper businesses, which are due in early January 1996,
and revolving borrowings will be used to pay the notes at maturity.
OUTLOOK
In general, Pentair is strong and well-positioned to continue its growth.
Given a continued steady GNP growth in the United States and Europe, the
company expects to continue to grow sales and earnings of its continuing
businesses in 1996.
With the completion of the paper business sales on June 30, 1995, the company
became entirely a diversified manufacturer of industrial products.
Management expects that the performance of the company will be less influenced
by economic cycles, and capable of returning consistent shareholder value in
both the near and long term.
With its strengthened capital structure, the company has sufficient resources
to pursue both internal and external expansion into profitable industrial
business segment opportunities. With the acquisition of Fleck Controls, Inc.
on November 1, 1995 the company continues to focus on industrial concerns and
growth opportunities.
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings
McNeil (Ohio) Corporation. F.E. Myers (Myers) a division of McNeil (Ohio)
Corporation, and three other pump manufacturers and one distributor were sued
in April 1994 by a private environmental group pursuant to California Health
and Safety Code Section 25249 (Proposition 65) and the Business and Professions
Code Section 17200. Basic information concerning this matter was previously
reported in the Company's Form 10-K for the year ended December 31, 1994.
Myers settled this matter for a payment of $26,000.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included with this Form 10-Q
Report as required by Item 601 of Regulation S-K.
Exhibit Description
No.
11 Calculation of Earnings per Common and Common Equivalent Share
27 Financial Data Schedules
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
/s/ David D. Harrison
Executive Vice President and
Chief Financial Officer
November 10, 1995
<PAGE>
EXHIBIT INDEX
11 Calculation of Earnings per Common and Common Equivalent Share
27 Financial Data Schedule
EXHIBIT 11
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
September 30 September 30
1995 1994 1995 1994
INCOME ($ thousands)
<S> <C> <C> <C> <C>
Net income $59,200 $36,700 $15,300 $13,775
Preferred dividend requirements 3,981 4,094 1,324 1,363
Earnings available
to common and common
equivalent shares - Primary 55,219 32,606 13,976 12,412
Preferred dividends
assuming conversion
of Preferred Stock:
Series 1988 741 764 244 253
Series 1990 3,240 3,330 1,080 1,110
Tax benefit on preferred
ESOP dividend
eliminated due to
conversion into common (947) (787) (301) (260)
Tax benefit on ESOP dividend
assuming conversion to common,
at common dividend rate 366 276 116 92
Earnings for
fully diluted computation $58,619 $36,188 $15,115 $13,607
SHARES (thousands)
Weighted average number
of shares outstanding
during the period 18,377 18,193 18,451 18,214
Shares issuable on exercise
of stock options less shares
repurchaseable from proceeds 242 207 238 232
Common and Common
Equivalent Shares -
Primary 18,619 18,400 18,689 18,446
Shares issuable on conversion of:
$7.50 Callable Cumulative
Convertible
Preferred Stock, Series 1988 494 510 488 507
8% Callable Cumulative
Voting Convertible
Preferred Stock, Series 1990 2,060 2,113 2,022 2,106
Common and Common
Equivalent Shares -
Fully Diluted 21,173 21,023 21,199 21,059
Earnings per share:
Primary -
Income from
continuing operations $2.07 $1.70 $.75 $.66
discontinued operations .90 .07 .00 .01
Net Income $2.97 $1.77 $.75 $.67
Diluted -
Income from
continuing operations $1.98 $1.66 $.71 $.63
discontinued operations .79 .06 .00 .01
Net Income $2.77 $1.72 $.71 $.64
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS QTR-3
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> SEP-30-1995 SEP-30-1995
<CASH> 26623000 0
<SECURITIES> 0 0
<RECEIVABLES> 364429000 0
<ALLOWANCES> 0 0
<INVENTORY> 226032000 0
<CURRENT-ASSETS> 652998000 0
<PP&E> 416260000 0
<DEPRECIATION> 176324000 0
<TOTAL-ASSETS> 1113116000 0
<CURRENT-LIABILITIES> 248043000 0
<BONDS> 0 0
<COMMON> 446004000 0
0 0
44726000 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1113116000 0
<SALES> 1025377000 353338000
<TOTAL-REVENUES> 1025377000 353338000
<CGS> 727288000 255389000
<TOTAL-COSTS> 941335000 325139000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12530000 2687000
<INCOME-PRETAX> 71512000 25512000
<INCOME-TAX> 29012000 10212000
<INCOME-CONTINUING> 42500000 15300000
<DISCONTINUED> 16700000 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 59200000 15300000
<EPS-PRIMARY> 2.07 .75
<EPS-DILUTED> 1.98 .71
</TABLE>
