UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 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
(State or other jurisdiction of incorporation or organization)
41-0907434
(I.R.S. Employer Identification No.)
1500 County Road B2 West, Suite 400, Saint Paul,
Minnesota 55113-3105
(Address of principal executive offices)
(Zip Code)
(612) 636-7920
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
1) Common Stock, Par Value $.16 per share
2) Rights
(Title of Class)
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of voting stock held by
nonaffiliates of the Registrant on February 21, 1995 was
$730 million. For purposes of this calculation, all shares
held by officers and directors of the Registrant and by the
trustees of employee stock ownership plans (ESOPs) and
pension plans of the Registrant and subsidiaries were
deemed to be shares held by affiliates.
The number of shares outstanding of Registrant's only class
of common stock on February 21, 1995 was 18,316,470.
DOCUMENTS INCORPORATED BY REFERENCE
The following portions of the Annual Report to Shareholders
for the year ended December 31, 1994 and Proxy
Statement for the 1995 Annual Meeting of Shareholders are
incorporated by reference as the Item of this Form 10-K
indicated.
Part of Form 10-K Portion of Annual Report
Part I, Item 1. Business - Pages 29 and 53:
Financial information Business Segment
about industry segments, Information;
foreign operations, research Page 41: Research and
and development and Development;
environmental matters. Page 33: Environmental
Matters and Page 44:
Commitments and
Contingencies-(Note 9)
Part II, Item 5. Market for Page 54: Pentair Stock
Registrant's Common Equity Data, Price Range and
and Related Stockholder Dividends of
Matters. Common Stock.
Part II, Item 6. Selected Page 55: Selected
Financial Data. Financial Data - 10 Year
Summary.
Part II, Item 7. Management's Pages 26-33:
Discussion and Analysis of Management's
Financial Condition and Discussion and Analysis.
Results of Operations.
Part II, Item 8. Pages 34-53:
Financial Consolidated Statement
Statements and of Income, Balance
Supplementary Data. Sheet and Statement of
Cash Flows, related
Notes, Report of
Independent Auditors
and Quarterly Financial
Data.
Portion of Proxy Statement
Part III, Item 10. Directors Pages 2-5: Security
and Executive Officers Ownership of
of the Registrant. Management and
Beneficial Ownership;
Pages 5-7; Directors
Standing for Election.
Part III, Item 11. Pages 15-23: Executive
Executive Compensation. Compensation.
Part III, Item 12. Security Pages 2-5: Security
Ownership of Certain Beneficial Ownership of Management and
Owners and Management. Beneficial Ownership.
PART I
Item 1. Business
(a) General Development of the Business.
The Registrant was incorporated in 1966 under the laws of
Minnesota. In the past year, the Registrant has not changed
its form of organization or mode of conducting business.
The Registrant grows through internal development and
acquisitions. As in the past, periodic dispositions of assets
or business units are possible when they no longer fit with
the long-term strategies of the Registrant.
Effective January 1, 1994, the Registrant acquired the net
assets and the subsidiaries of Schroff GmbH (Schroff) from
Fried. Krupp AG Hoesch-Krupp for a cash purchase price
of approximately $140 million net of cash acquired. Schroff
manufactures and sells enclosures, cases, subracks and
accessories for commercial electronic and instrumentation
applications, with world-wide 1993 sales of approximately
$160 million. While Schroff faces significant competition in
each of its markets, it is the largest manufacturer of
electronic enclosures and 19 inch subracks in the European
market, in which the majority of Schroff sales are made.
The Registrant views Schroff as complementary to the
electrical enclosure business of Hoffman Engineering and
intends to develop these businesses using their respective
strengths in technology, manufacturing, marketing and
market position.
In September 1994, Pentair announced that it was exploring
strategic alternatives for its paper businesses, including their
possible sale. That course of action was chosen to achieve
several objectives. First, to permit Pentair to focus its
commitment and resources in the industrial products sector,
continuing the strong growth and leading market positions
these businesses have achieved. Second, to permit the
paper businesses to seek their own opportunities and long-term goals.
Third, to make Pentair a more understandable
company to the investment community and its shareholders.
That process is ongoing. In February 1995, Pentair
announced the sale of its uncoated paper business, Cross
Pointe Paper, to Noranda Forest for approximately $200
million. The sale is expected to close at the beginning of
April 1995. Efforts continue toward completing the
strategic alternatives for Niagara of Wisconsin and
for the joint venture interest in Lake Superior Paper
Industries, the company's other paper businesses.
Pentair expects that its strategic refocusing will be
completed in the course of 1995. Whatever the eventual
outcome, Pentair is poised to aggressively expand into its
chosen industrial markets.
(b) Financial Information about Industry Segments.
The Registrant's business is conducted in three industry
segments. The Specialty Products segment manufactures
woodworking machinery; portable power tools; and pumps
and pumping systems. The General Industrial Equipment
segment manufactures electrical and electronic enclosures
and wireways; industrial lubricating systems and material
dispensing equipment; automotive service equipment; and
sporting ammunition. The Paper Products segment
manufactures printing papers in a variety of types and
grades. Business segment financial information is found on
page 29 and pages 52-53 (Note 18) of the 1994 Annual
Report to Shareholders.
Narrative Description of Business.
Description of the Specialty Products Segment:
Products and marketing.
The following table sets forth, for each of the last three
years, the Specialty Products segment product class net
sales in excess of 10 percent of the Registrant's
consolidated net sales .
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Stationary and
Portable Power Tools 22% 24% 24%
Total Segment 28% 31% 31%
</TABLE>
Woodworking Machinery. The Registrant, through its
subsidiary Delta International Machinery Corp. (Delta),
manufactures, markets, and services a line of general-purpose woodworking
machinery, such as saws, planers,
joiners, grinders, drill presses, shapers, lathes, and other
quality machines. Delta sells its products in the United
States, Canada, and other foreign countries under its
"Delta" brand name through a network of independent and
mail order distributors, hardware stores and home centers.
Portable Electric Tools. The Registrant, through its
subsidiary Porter-Cable Corporation (Porter-Cable),
manufactures and markets a variety of portable electric
tools, such as saws, sanders, drills and routers, used in
woodworking, industrial maintenance, and construction
trades. Porter-Cable markets its products under the brand
name "Porter-Cable" through a network of independent,
specialty tool, and mail order distributors, hardware stores
and home centers.
Pumps and Pumping Systems. The Registrant, through its
F.E. Myers Co. Division of McNeil (Ohio) Corporation
(Myers), manufactures and markets a wide variety of pumps
for residential, environmental engineering, and industrial
use. Products are distributed through a network of
distributors, wholesalers, dealers, and installers. In addition,
Myers distributes products to the do-it-yourself market for
retail sale through home centers and hardware stores under
the names "Water Ace" and "Shur Dri".
Competitive conditions.
Delta participates in the middle range of the overall market
for general purpose woodworking machinery. The
addressed market is focused on high quality, feature
oriented products and value added services for the home
shop, contractor, and small shop markets. Delta markets
the industry's broadest line of products for its addressed
market. Delta's numerous competitors do have individual
products which compete with certain of Delta's products.
Competition in this market focuses on quality, features,
service and price.
Porter-Cable competes in the professional portable electric
tool market which is highly competitive. Porter-Cable faces
several major competitors across its addressed market.
Product innovation, features, performance, quality, service,
delivery and price are all competitive factors.
Myers addresses the water pump and system market.
Myers faces many competitors across its product lines.
Price, delivery, and quality are competitive factors.
Description of the General Industrial Equipment Segment:
Products and marketing.
The following table sets forth, for each of the last three
years, the General Industrial Equipment segment product
class net sales in excess of 10 percent of consolidated net
sales.
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Electrical and
Electronic Enclosures 28% 18% 17%
Sporting Ammunition 9 10 10
Total Segment 48% 40% 39%
</TABLE>
Electrical Enclosures. Through the Hoffman Engineering
Company division of Federal-Hoffman, Inc. (Hoffman
Engineering), the Registrant manufactures enclosures and
wireways for electrical and industrial instrumentation
applications and markets these products primarily through
independent manufacturer's representatives and electrical
and electronic equipment distributors throughout North
America and the United Kingdom.
Electronic Enclosures. Through Schroff GmbH and its
international subsidiaries (Schroff), the Registrant
manufactures enclosures and wireways for electronic
instrumentation applications. Schroff is a large European
manufacturer of cabinets, cases, subracks, microcomputer
packaging systems and accessories. Schroff serves the
worldwide industrial electronics industry including key
segments such as computers, test & measurement, private
LANs/data communication, industrial control and factory
automation, medical and telecommunications.
Sporting Ammunition. Through the Federal Cartridge
Company division of Federal-Hoffman, Inc. (Federal
Cartridge), the Registrant manufactures and markets
sporting and law enforcement ammunition, and
components. These products are distributed throughout the
United States through a network of distributors; directly to
large retail chains; and directly to law enforcement agencies
(governmental).
Industrial Lubricating Systems and Material Dispensing
Equipment. The Registrant, through its Lincoln Industrial
division of McNeil (Ohio) Corporation (Lincoln Industrial),
manufactures components and designs systems for manual
and automatic delivery of measured quantities of lubricants
for industrial applications. Lincoln Industrial also
manufactures components and designs, fabricates, and
installs high-volume liquid and semi-solid dispensing
systems. Both segments serve original equipment and
retrofit markets. Lubricating and materials dispensing
systems are marketed in the United States by approximately
100 specially qualified systems distributors with design,
installation, and service capability. Basic lubricating
equipment and accessories are marketed through industrial
supply and specialty distributors. A special direct sales
group markets a wide variety of Lincoln Industrial products
to original equipment manufacturers in a variety of
industries. Lincoln Industrial also manufactures lubricating
components and systems at its facility in Walldorf, Germany
for distribution to European, Middle East, Far East and
African markets, and to a lesser extent to the United States.
The remainder of the world market, including the Pacific
Rim, is served from Lincoln Industrial's St. Louis, Missouri
manufacturing facility.
Automotive Service Equipment. The Registrant, through its
Lincoln Automotive division of McNeil (Ohio) Corporation
(Lincoln Automotive), manufactures and markets
lubrication, repair, and service equipment for a broad range
of vehicles. Products are sold through a key group of
approximately 600 aftermarket wholesalers. Certain
products are sold to large auto parts chain stores. Certain
lubricating equipment, tools, and jacks and lifting equipment
are sold under private label programs. Garage, service
station, car dealership service department, and fast oil
change lubricating systems are marketed through
petroleum equipment and service distributors with design
and installation capability.
Competitive conditions.
Hoffman Engineering is the largest North American
manufacturer of electrical enclosures and wireways, having
a market share estimated to be about 25%. It is currently
the only manufacturer with national distribution and its
competitors are generally smaller, regional manufacturers.
Hoffman Engineering also participates in the North
American electronic enclosures market, facing competition
from a large number of firms, with three or four established
firms leading the market. In both markets, the most
significant competitive factors are price, product innovation,
service, quality, breadth of product line, and delivery.
Schroff is a large manufacturer in Europe's electronic
enclosure market and a technical leader. Schroff, like
Hoffman, has a comprehensive product range. Schroff
faces competition from a large number of firms, some very
large and some smaller. Significant competitive factors are
product innovation and quality.
Federal Cartridge and its two primary competitors,
Winchester and Remington, have a combined market share
of approximately 90% in the U.S. sporting ammunition
market, with the balance coming from smaller domestic
competitors and foreign ammunition manufacturers.
Quality, delivery, price and terms are significant competitive
factors.
Lincoln Industrial and Lincoln Automotive face three to five
major competitors and several smaller competitors across
their product lines. Competition involving industrial
lubricating systems and material dispensing equipment
tends to center around quality, systems capability, and
application knowledge. Price becomes a more significant
competitive factor for vehicle servicing equipment.
Description of the Paper Products and Joint Venture
Segments:
Products and marketing.
The following table sets forth, for each of the last three
years, the Registrant's net sales ($ millions), percent of
consolidated net sales and tons shipped (thousands) for
each paper product class.
<TABLE>
<CAPTION>
Years Ended December 31,
1994 1993 1992
$ % Tons $ % Tons $ % Tons
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Coated 150.8 9 236 147.8 11 227 143.7 11 237
Uncoated 236.7 15 234 233.8 18 227 231.0 19 223
Consolidated 387.5 24 470 381.6 29 454 374.7 30 460
Supercalendered1 76.1 121 71.5 116 75.1 111
Total 463.6 591 453.1 570 449.8 571
</TABLE>
fn1 Lake Superior Paper Industries is a joint venture in
Duluth, Minnesota; only 50% of the joint venture's sales
and tonnage are included. Since this joint venture is
accounted for on the equity method, its sales are not
included in consolidated sales.
Coated Paper. The Registrant, through its subsidiary
Niagara of Wisconsin Paper Corporation (Niagara),
manufactures coated groundwood publication-grade paper
(nos. 4 and 5) used for applications requiring high-resolution
printing and reproduction of color pictures, such as
magazines, periodicals, catalogs, and general commercial
printing.
Uncoated Papers. Cross Pointe Paper Corporation (Cross
Pointe), a subsidiary of the Registrant, through its
subsidiaries, Miami Paper Corporation, Dayton Paper Corp.
and Flambeau Paper Corp., manufactures a variety of
uncoated papers, primarily for commercial printing, text and
cover, and book publishing markets, and operates a
centralized converting and distribution operation (IDC) in
West Chicago, Illinois.
Supercalendered (SCA) Printing and Publication Grade
Papers. The Registrant has a 50% interest in a joint
venture, Lake Superior Paper Industries (Lake Superior),
which produces supercalendered paper known as SCA.
End use markets include magazine publication, catalogues
and advertising inserts. SCA is sold directly to printers and
end users through Lake Superior's own sales and
marketing personnel.
Adjacent to Lake Superior, is a recycled pulp mill facility, of
which 24% is owned by LSPI Fiber Co. Registrant owns
50% of LSPI Fiber Co. and accounts for it on the equity
method. LSPI Fiber Co. sells recycled pulp to LSPI and
other paper mills.
Competitive conditions.
The Paper Products segment output of Niagara and Cross
Pointe is sold in highly competitive markets with between 10
to 15 competitors in each. Many competitors have greater
production capacity and, in many cases, captive sources of
raw materials. Lake Superior is the largest North American
producer of SCA, but is subject to substantial competition
from European manufacturers, and makers of other grades
of printing and publication paper. Price, quality, innovation
and service are significant competitive factors in the markets
served by the Paper Products segment.
Raw materials.
The raw materials used in the manufacture of paper are
bleached kraft pulps, pulp substitutes, pulpwood,
groundwood pulp, waste paper, certain chemicals, clays,
starches, and additives. The Registrant does not own its
own timberlands or manufacture its own kraft pulp.
Purchases of kraft pulp and waste paper are significant
components of the Registrant's fiber needs. The raw
materials are supplied by several manufacturers, some
under long-term contracts. The balance of fiber needs,
comprised primarily of groundwood pulp, sulphite pulp and
secondary fiber (pulp recovered by recycling waste paper),
is produced at the various mills. The Registrant has
recently installed or expanded its recycled fiber capacity at
its Cross Pointe mills and has invested in a joint venture
recycled pulp facility in Duluth, Minnesota.
The Registrant also purchases chemicals, clays, logs for
pulp, waste paper, and other paper-making components
from various sources. Adequate supplies of these materials
are expected to be available to meet the Registrant's needs.
Backlog.
The following table shows backlog (in days) and
approximate sales value (at average selling price) at
December 31:
<TABLE>
<CAPTION>
1994 1993 1992
Days ($000) Days ($000) Days ($000)
<S> <C> <C> <C> <C> <C> <C>
Coated Paper 30 $14,308 8 $ 3,175 17 $ 6,808
Uncoated Paper 40 27,666 8 5,442 5 3,210
Supercalendered Paper 44 19,457 32 12,494 35 15,066
</TABLE>
A substantial portion of paper sales are produced to meet
specific customer orders. Although the level of backlogs
provides some indication of the strength of the paper
markets, other factors such as the trend of retail sales and
customer and printer inventory levels must be considered.
The current backlog is considered adequate. All backlogs
are expected to be filled within the current year.
Information Regarding All Segments:
Working capital items.
Federal Cartridge's working capital builds from January
through September as inventories are increased to meet
third quarter shipping schedules and receivables increase
due to fall dating for early order programs used in the
sporting ammunition business. Management continues to
focus on reducing working capital requirements through
management of receivable and inventory levels.
Status of new products.
The industries in which the segments participate are
essentially mature and do not experience the introduction of
many products that materially change the nature of the
industry. Individual manufacturers generally make
improvements or apply new technologies to existing
products.
Raw materials.
The raw materials used in the manufacturing process
include steel(bar and sheet) various metals including brass
and lead, gunpowder and plastic. Selected motors,
castings, plastic parts and components are also purchased.
The supply of all raw materials and components is currently
adequate.
Delta and Porter-Cable import select tools in their product
offerings. Design and engineering of these products is
performed primarily by Delta. The manufacturing process
is controlled and monitored for most of these products in
factories dedicated to Delta production. Supply of these
products is currently adequate and timely.
Patents, trademarks, licenses, franchises and
concessions.
The businesses own a number of U.S. and foreign patents
and trademarks. They were acquired over many years and
relate to many products and improvements. No one patent
or trademark is of material importance to the company as
a whole.
Seasonal aspects.
For the Registrant as a whole there is no strongly seasonal
aspect.
Backlog.
The Specialty Products and General Industrial Equipment
segments normally do not experience backlogs for
substantial periods of time. The nature of the businesses
emphasizes maintaining inventories sufficient to satisfy
customer needs on a timely basis, and production and
sourcing is geared towards providing adequate inventories
in order to minimize customer back orders. Accordingly,
backlogs are not material to understanding the sales trends
or manufacturing fluctuations of the segment.
Dependence on limited number of customers.
The Registrant as a whole is not dependent on a single
customer or on a few customers. The loss of a limited
number of customers would not have a material adverse
impact on the Registrant.
Government contracts.
The Registrant has no material portion of sales under
government contracts that may be subject to renegotiation
of profits or termination of contracts at the election of the
government.
Employees.
As of December 31, 1994, the Registrant and its
subsidiaries employed approximately 10,300 persons, of
which 2,475 were represented by unions having collective
bargaining agreements.
Labor contracts negotiated in 1994 were: Molders and
Allied Workers Local 45 - Ashland, Ohio (extended to May
1, 1997), 49 employees; Clerical Workers Local 47 -
Niagara, Wisconsin (extended to May 14, 1997), 25
employees; and Molders and Allied Workers Local 19 -
Guelph, Ontario, Canada (extended to July 1, 1997) 7
employees.
Contracts expiring in 1995: International Association of
Machinists Local 59 - Ashland, Ohio (expires April 6, 1995);
United Paperworkers International Union Local 1166 -
Niagara, Wisconsin (was extended from January 31, 1995
and now expires April 30, 1995); International Association
of Machinists Local 9 - St. Louis, Missouri (expires April 30,
1995); United Steel Workers of America Local 8630 -
Tupelo, Mississippi (expires May 1, 1995); Patternworkers
League - Ashland, Ohio (expires September 1, 1995); and
Teamsters Local 984 - Memphis, Tennessee (expires
December 15, 1995).
The Registrant considers its employee relations to be good
and feels future contracts can be negotiated for the benefit
of the business and the employees.
(d) Financial Information about Foreign Operations.
The Registrant operates primarily in North America and
Europe. See discussion of foreign operations incorporated
by reference.
Item 2. Properties
The Registrant's corporate offices, located at 1500 County
Road B2 West, St. Paul, Minnesota 55113-3105, are leased
and consist of approximately 22,000 square feet; the lease
expires in December 1999. The Registrant also has an
option to terminate the lease during the period December
1994 to June 1995. Information about the Registrant's
principal manufacturing facilities and other properties is
presented below by industry segment. These facilities are
adequate and suitable for the purposes they serve. Unless
noted all facilities are owned.
Specialty Products Segment
<TABLE>
<CAPTION>
SUBSIDIARY/ APPROXIMATE
DIVISION LOCATION PRIMARY USE SQUARE FEET
<S> <C> <C> <C>
Porter-Cable Jackson, Manufacturing, 357,000
Tennessee(1) Distribution,
and Office
Delta Pittsburgh, Office and 34,000
Pennsylvania(2) Product Development
Tupelo, Manufacturing 333,000
Mississippi and Office
Memphis, Distribution 245,000
Tennessee(3) and Office
Guelph, Distribution 57,000
Ontario(4) and Office
Taichung, Office and 1,000
Taiwan Product Development
F.E. Myers Ashland, Manufacturing, 412,000
Ohio Distribution,
and Office
Kitchener, Distribution 26,000
Ontario and Office
NOTES:
(1) Leased for a five-year term expiring in 1998.
(2) Currently leased under a month-to-month lease
while a longer term lease is negotiated.
(3) Leased for a five-year term expiring in 1996.
(4) Leased under a three-year lease which expired in 1991,
which is being renewed
under one-year options (limited to seven one-year periods).
General Industrial Equipment Segment
SUBSIDIARY/ APPROXIMATE
DIVISION LOCATION PRIMARY USE SQUARE FEET
Hoffman Anoka, Manufacturing 814,000
Engineering Minnesota and Office
Brooklyn Center, Manufacturing 128,000
Minnesota(1) and Office
Reynosa, Mexico Manufacturing 90,000
Hoffman U.K. Hemel , Manufacturing 37,000
Hempstead,
England(8)
Hoffman U.K. Hemel Manufacturing 22,000
Hempstead,
England(6)(8)
Federal Anoka, Manufacturing 679,000
Cartridge Minnesota and Office
Richmond, Manufacturing 41,000
Indiana and Office
Lincoln Industrial St. Louis, Manufacturing 565,000
Missouri and Office
Walldorf, Manufacturing 117,000
Germany and Office
Lincoln Automotive Jonesboro, Manufacturing 426,000
Arkansas(2) and Office
Nogales, Sonora Manufacturing 35,000
Mexico(3)
Mississauga, Distribution 30,000
Ontario and Office
Schroff GmbH Straubenhardt, Manufacturing 523,000
Germany(4)
Schroff S.A. Betschdorf, Manufacturing 210,000
France(5) and Warehouse
Schroff U.K. Hemel Manufacturing 37,000
Hempstead,
England(8)
Schroff U.K. Hemel Manufacturing 22,000
Hempstead,
England(6)(8)
Schroff, Inc. Warwick, Manufacturing 80,000
Rhode Island and Office
Warwick, Office and 18,000
Rhode Island(7) Assembly
Schroff K.K. Meiwa-Cho, Manufacturing 23,500
Japan
NOTES:
(1) Leased for a 25-year term expiring in 1996, with options
to renew for two ten-year terms.
(2) Includes approximately 51,000 sq. ft. warehouse and
3,000 sq. ft. office leased for a three-year term which
expires in 1995.
(3) Leased for a six-year term expiring in 1999.
(4) A small portion of this total facility has been leased
for a 30-year term expiring in 2011.
(5) Leased under two lease agreements expiring in 2002 and 2005.
Both leases include a purchase option.
(6) Leased for a twenty-year term expiring in 2011.
(7) Leased for a ten-year term expiring in 2000. This lease
includes a purchase option.
(8) Facilities are shared by Schroff U.K. & Hoffman U.K.
Total area is 59,000 square feet.
Paper Products Segment
ANNUAL
CAPACITY
SUBSIDIARY/ OF MILL
DIVISION LOCATION PRIMARY USE IN NET TONS
Niagara Niagara, Manufacturing 235,000
Wisconsin(1) and Office
Cross Pointe St. Paul, Office
Minnesota(2)
West Chicago, Distribution and
Illinois(3) Paper Converting
West Carrollton, Manufacturing 110,000
Ohio and Office
Park Falls, Manufacturing 125,000
Wisconsin(4) and Office
Dayton, Manufacturing 45,000
Ohio and Office
Lake Duluth, Manufacturing 240,000
Superior Minnesota(5) and Office
</TABLE>
NOTES:
(1) Certain pulp and paper production
equipment is leased. One lease expires in
1996 with options to renew for two terms of three years each.
Another lease expires in 1999 with options to renew for three terms of
two years each. The third lease expires in 2006 with an option to purchase
after seven years and options to renew for up to eight years . Under each
lease, Niagara has the option to purchase the equipment at the then-current
market value at the end of the initial term or at the end of each renewal
term.
(2) Consists of 10,700 square feet of space under a lease expiring in 1997.
(3) Consists of 202,000 square feet under a lease expiring in 1998 and
253,000 square feet under a lease expiring in 2001.
(4) The Flambeau mill power plant is leased until 2007 with options
to renew for three terms of five years each.
(5) The production equipment is leased under 25-year leases through 2012
with options to renew for periods of five to seven years and options
to purchase the equipment in 1997, and at the expiration of the lease
term and of any renewal term.
Item 3. Legal Proceedings.
The Registrant or its subsidiaries have been made parties
to actions filed, or have been given notice of potential
claims, relating to the conduct of its business, including
those pertaining to product liability, environmental and
employment matters. Major matters which may have an
impact on the Registrant are discussed below. The
Registrant believes that it is remote that the outcome of
such matters will have a material adverse effect on the
Registrant's financial position or future results of operations,
based on current circumstances known to the Registrant.
Federal-Hoffman, Inc. Federal Cartridge, a division of
Federal-Hoffman, has been named by the EPA as a
Potentially Responsible Party (PRP) in connection with a
waste disposal site in Greer, South Carolina. The EPA
issued an administrative order effective April 29, 1992 to
Federal-Hoffman and 96 other entities to compel the
cleanup of the Aqua-Tech Environmental, Inc. site.
Federal-Hoffman is working with a group of other PRPs to
negotiate with the EPA regarding the cleanup of the site. A
surface cleanup of the site is complete. Under interim
allocations by the PRP group, Federal Cartridge paid
$442,000 toward the cost of the surface cleanup. Under
current final allocation proposals, Federal-Hoffman
anticipates no additional payout for the surface cleanup.
On March 16, 1995, the EPA notified Federal Cartridge that
it is a PRP related to the subsurface of the site. The PRP
group anticipates beginning a study of the soil and
groundwater to determine the extent of subsurface
contamination. The cost of such study, any necessary
remediation and the size of allocation, if any, to Federal-Hoffman is unknown to
the Registrant at this time. Federal-Hoffman however, anticipates its
allocation in the subsurface action to be positively impacted by the nature of
its waste and the fact that virtually all of its waste was
accounted for and removed during the surface remediation.
In October 1992, Hoffman Engineering, a division of
Federal-Hoffman was also named as a PRP in connection
with the Aqua-Tech site. Hoffman settled out of the surface
removal as a de minimis party, and anticipates doing the
same for the subsurface remediation. Based on current
information available to it, the Registrant believes that this
matter is unlikely to result in material future liability.
Porter-Cable Corporation. In November 1993, the
Tennessee Department of Environment and Conservation
(TDEC) issued to Porter-Cable Corporation (Porter-Cable)
and Rockwell International Corporation (Rockwell) an
administrative order requiring them to investigate, and if
necessary, clean up alleged groundwater contamination at
a manufacturing facility located in Madison County,
Tennessee. The facility was acquired by Porter Cable from
Rockwell in 1981. Porter Cable is currently engaged in
discussions with Rockwell to reach an agreement regarding
indemnification from or cost sharing with Rockwell, based
upon Tennessee and Federal law, for costs and expenses
related to investigation of the site. The Registrant believes
that this matter is unlikely to result in material liability or
material changes in operations. No estimate of the
projected response cost liability can be made based on
information currently known to the Company.
Cross Pointe Paper Corporation. In February 1994, the
Miami mill (Miami) of Cross Pointe Paper Corporation was
named a PRP in connection with the IWD/Cardington
landfill in Moraine, Ohio. Waste haulers with whom Miami
contracted to transport its flyash and paper and wood waste
allegedly took it to this landfill for some time prior to its
closure in 1980. The EPA has identified 22 other PRPs at
this time. The cost of remediation of the site is estimated to
be approximately $12 to $15 million. Miami is investigating
its alleged involvement at this site.
Niagara of Wisconsin Paper Corporation. In March
1994, Niagara of Wisconsin Paper Corporation (Niagara)
was notified by the Michigan Department of Natural
Resources (MDNR) that Niagara's sludge lagoons violate
MDNR regulations. Niagara is discussing with the MDNR
the closure schedule of the lagoons and the need for
expanded groundwater monitoring at the site. Monitoring
done to date indicates some groundwater contamination,
but at this time the extent is unknown. It is likely that some
remediation will be required; but the Registrant does not
anticipate that the cost of any such remediation will have a
material impact on Registrant's financial condition or
operations.
California Proposition 65 Notice. Two divisions of
Registrant's subsidiaries have received notices pursuant to
California Health and Safety Code Section 25249
(Proposition 65). In February 1994, F.E. Myers (Myers), a
division of McNeil (Ohio) Corporation, received a notice
regarding alleged violations arising from discharge of lead
from submersible water pumps into drinking water since
February 27, 1988. Two private environmental groups sent
the notice to and subsequently filed suit against Myers and
three other pump manufacturers and one pump distributor.
Under Proposition 65, the penalty for each violation is
$2,500 per day. Myers is responding to the claims raised in
the lawsuit. In light of a recent settlement proposal by
plaintiffs, Registrant believes that it is unlikely that this
matter will result in material liability.
In October 1994, Federal Cartridge (Federal), a division of
Federal-Hoffman, Inc. received a notice regarding alleged
violations of Proposition 65 arising from exposure of firearm
users to lead from ammunition. A private environmental
group sent the notice to Federal and 75 other ammunition
and firearms manufacturers and sellers. Federal is
currently investigating the claims set forth in this notice.
Product Liability Claims. As of March 4, 1995, the
Registrant or its subsidiaries are defendants in
approximately 177 product liability lawsuits and have been
notified of approximately 100 additional claims. The
Registrant has had and currently has in place insurance
coverage it deems adequate for its needs. A substantial
number of these lawsuits and claims are insured by
Penwald, a regulated insurance company wholly owned by
Registrant. See discussion in Item 7 (MD&A - Insurance
Subsidiary) and Item 8 (Note 1 to the Financial Statements).
Accounting reserves covering the deductible portion of
liability claims not covered by Penwald have been
established and are reviewed on a regular basis. The
Registrant has not experienced unfavorable trends in either
the severity or frequency of product liability claims.
Item 4. Submission of Matters to a Vote of Security
Holders.
During the fourth quarter, no matter was submitted to a vote
of security holders.
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters.
Item 6. Selected Financial Data.
Item 7.Management's Discussion and Analysis of
Financial Condition and Results of Operation.
Item 8. Financial Statements and Supplementary Data.
For information required under Items 5 through 8, see the
Registrant's Annual Report to Shareholders for the year
ended December 31, 1994, as referenced on page 2 of this
report.
Item 9.Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure.
No changes in accountants or disagreements between the
Registrant and its accountants regarding accounting
principles or financial statement disclosures have occurred
within the 24 months prior to the date of the Registrant's
most recent financial statements.
PART III
Item 10. Directors and Executive Officers of the Registrant.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following are the executive officers of the Registrant.
Their term of office extends until the next annual meeting of
the Board of Directors, scheduled for April 19, 1995, or until
their successors are elected and have qualified.
Winslow H. Buxton 55
Chairman since January
15, 1993; President and
Chief Executive Officer
since August 1992; Chief
Operating Officer, August
1990 - August 1992; Vice
President - Paper Group,
January 1989 - August
1990.
Wilson Blackburn 42
Vice President, Paper
Operations since
September 1994;
President, Cross Pointe
Paper Corporation
(subsidiary of Registrant)
since September 1994;
President, Lake Superior
Paper (joint venture of
Registrant), April 1993 -
September 1994;
President and CEO of
PWA Rolland Decor Inc.,
1990-1993; Vice
President, Operations,
Rolland Inc., 1989-1990.
(In connection with the
sale of Cross Pointe
Paper Corporation to
Noranda Forest, Mr.
Blackburn has resigned
effective April 1, 1995.)
Richard J. Cathcart 50
Executive Vice President,
Corporate Development
since March 6, 1995;
Vice President, Business
Development of
Honeywell, Inc. 1994 -
March 1995; Vice
President and General
Manager of Honeywell's
Worldwide Building
Control Division 1992 -
1994; Vice President and
General Manager,
Honeywell's U.S.
Operations of Building
Control Division, 1988-1991.
Joseph R. Collins 53
Senior Vice President -
Specialty Products since
August 1991; Acting
Chief Financial Officer,
June 1993 - March 1994;
President, Delta
International Machinery
Corporation (subsidiary of
the Registrant), October
1984 - August 1991.
David D. Harrison 47
Senior Vice President
and Chief Financial
Officer since March 1994;
Vice-President, Finance
and Information
Technology of the GE
Canada Appliance
Component subsidiary of
General Electric, August
1992 - March 1994; and
Vice President, Finance
and Deputy Executive
Officer of the GE Europe
Lighting Component
subsidiary of General
Electric, January 1990 -
July 1992.
Ronald V. Kelly 58
Senior Vice President -
Long Range Planning
since September 1994;
Senior Vice President -
Paper Products, August
1991 - September 1994;
Vice President - Specialty
Products, March 1989 -
August 1991.
Gerald C. Kitch 57
Senior Vice President -
General Industrial
Equipment since August
1991; Vice President -
General Industrial
Equipment, March 1989 -
August 1991.
Debby S. Knutson 40
Vice President, Human
Resources since
September 1994;
Assistant Vice President,
Human Resources ,
August 1993 -
September 1994; Vice
President, Human
Resources of Hoffman
Engineering (division of
Registrant) July 1990 -
August 1993; Director of
Human Resources at
Hoffman, December
1988 - July 1990.
Allan J. Kolles 63
Senior Vice President
and Assistant to the Chief
Executive Officer since
August 1994; Vice
President, Human
Resources, March 1985
- August 1994.
Roy T. Rueb 54
Vice President, Treasurer
since October 1986 and
Secretary since June
1994.
Mark T. Schroepfer 48
Vice President Finance
and MIS since June
1994; Vice President,
Controller, January 1990
- June 1994.
There is no family relationship between any of the executive
officers or directors.
Item 11. Executive Compensation.
Item 12. Security Ownership of Certain Beneficial
Owners and Management.
For information required under Items 11 and 12, see the
Registrant's Proxy Statement for the 1995 Annual Meeting
of Shareholders referenced on page 2 of this report.
Item 13. Certain Relationships and Related Transactions.
No relationships or transactions existed that require
disclosure under Item 13.
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.
(a) Financial Statements and Exhibits.
1. The following consolidated financial statements
of Pentair, Inc. and subsidiaries, together with the Report of
Independent Certified Public Accountants, found on pages
34 to 53 of the Registrant's Annual Report to Shareholders
for the year ended December 31, 1994, are hereby
incorporated by reference in this Form 10-K.
Page of Annual Report
Report of Independent Certified Public Accountants34
Consolidated Statements of Income
for Years Ended December 31, 1994,
1993 and 1992
35
Consolidated Balance Sheets as of
December 31, 1994 and 1993
36 - 37
Consolidated Statements of Cash Flows
for Years Ended December 31, 1994,
1993 and 1992
39
Notes to Consolidated Financial
Statements
40 - 53
2. The additional financial data listed below is
included as exhibits to this Form 10-K Report and should be
read in conjunction with the consolidated financial
statements presented in the 1994 Annual Report to
Shareholders.
Report of Independent Certified Public Accountants
Schedule for the years ended December 31, 1994, 1993
and 1992:
VIII- Valuation and Qualifying Accounts
3. The following exhibits are included with this Report on
Form 10-K (or incorporated by reference) as required by
Item 601 of Regulation S-K.
Exhibit
Number Description
(3.1) Restated Articles of Incorporation as
amended through April 25, 1989.
(3.2) Resolution Establishing and Designating
$7.50 Callable Cumulative Convertible
Preferred Stock, Series 1988, as a series
of Preferred Stock of Pentair, Inc.
(3.3) Resolution Establishing and Designating
8% Callable Cumulative Voting Convertible
Preferred Stock, Series 1990, as a series
of Preferred Stock of Pentair, Inc.
(3.4) Second Amended and Superseding By-Laws as amended through January 19,
1993.
(4.1) Restated Articles of Incorporation, as
amended, and Second Amended and
Superseding By-Laws, as amended (see
Exhibits 3.1 - 3.4 above).
(4.2) Rights Agreement dated December 26,
1986 between the Company and First
Trust Company, Inc.
(4.3) Amendment to Rights Agreement dated
July 22, 1988 between the Company and
Norwest Bank Minnesota, National
Association, as successor Rights Agent
(Amending Exhibit 4.2).
(4.4) Second Amendment to Rights Agreement
dated December 15, 1989 between the
Company and Norwest Bank Minnesota,
National Association, as successor Rights
Agent (Amending Exhibit 4.2).
(4.5) Bid Loan Agreement dated December 14,
1988 between the Company, Continental
Bank N.A. for itself and as Agent, Morgan
Guaranty Trust Company of New York,
Morgan Bank (Delaware), First Bank
National Association, Norwest Bank
Minnesota, N.A., and Mellon Bank, N.A.
(4.6) First Amendment to Bid Loan Agreement
dated January 1, 1991 between the
Company, Continental Bank N.A. for itself
and as Agent, Morgan Guaranty Trust
Company of New York, Morgan Bank
(Delaware), First Bank National
Association, Norwest Bank Minnesota,
N.A., and NBD Bank, N.A. (Amending
Exhibit 4.5).
(4.7) Second Amendment to Bid Loan
Agreement dated as of February 11, 1994
between Pentair, Inc., Continental Bank
N.A. for itself and as Agent, Morgan
Guaranty Trust Company of New York,
J.P. Morgan Delaware, First Bank National
Assocation, Norwest Bank Minnesota,
N.A., and NBD Bank, N.A. (Amending
Exhibit 4.5).
(4.8) $125,000,000 Facility Agreement dated as
of February 11, 1994 between Pentair, Inc.,
Continental Bank N.A. for itself and as
Agent, Morgan Guaranty Trust Company
of New York for itself and as Agent, NBD
Bank, N.A., and J. P. Morgan Delaware.
(4.9) Amendment Number One to Facility
Agreement dated as of November 1, 1994
between Pentair, Inc., Bank of America
Illinois (formerly known as Continental
Bank N.A.) for itself and as Agent, Morgan
Guaranty Trust Company of New York for
itself and as Agent, NBD Bank, N.A., and J.
P. Morgan Delaware. (Amending Exhibit
4.8)
(4.10) $45,000,000 Facility Agreement dated as
of February 11, 1994 between Pentair, Inc.,
First Bank National Association, for itself
and as Agent, and Norwest Bank
Minnesota N.A.
(4.11) Amendment Number One to Facility
Agreement dated as of November 1, 1994
between Pentair, Inc., First Bank National
Association, for itself and as Agent, and
Norwest Bank Minnesota N.A.(Amending
Exhibit 4.10)
(4.12) DM 115,000,000 Facility Agreement dated
as of February 11, 1994 between
EuroPentair, GmbH as Borrower, Pentair,
Inc., as Guarantor, Morgan Guaranty Trust
Company of New York for itself and as
Agent, Continental Bank N.A., for itself and
as Agent, NBD Bank, N.A. and Dresdner
Bank.
(4.13) Amendment Number One to Facility
Agreement dated as of November 1, 1994
between EuroPentair, GmbH as Borrower,
Pentair, Inc., as Guarantor, Morgan
Guaranty Trust Company of New York for
itself and as Agent, Bank of America
Illinois(formerly known as Continental Bank
N.A.), for itself and as Agent, NBD Bank,
N.A. and Dresdner Bank. (Amending
Exhibit 4.12)
(4.14) Amendment Number Two to Facility
Agreement dated as of February 15, 1995
between EuroPentair, GmbH as Borrower,
Pentair, Inc., as Guarantor, Morgan
Guaranty Trust Company of New York for
itself and as Agent, Bank of America
Illinois(formerly known as Continental Bank
N.A.), for itself and as Agent, NBD Bank,
N.A. and Dresdner Bank . (Amending
Exhibit 4.12)
(4.15) Restatement of Credit Agreement dated
July 11, 1989 between Federal-Hoffman,
Inc. and First Bank National Association.
(4.16) Second Amendment to Restatement of
Credit Agreement dated as of January 19,
1993 between Federal-Hoffman, Inc.,
Pentair, Inc., and First Bank National
Association (Amending Exhibit 4.15) .
(4.17) Third Amendment to Restatement of
Credit Agreement dated as of December
31, 1994 between Federal-Hoffman, Inc.,
Pentair, Inc., and First Bank National
Association (Amending Exhibit 4.15)
(4.18) $35,000,000 Note Purchase Agreement
dated March 25, 1991 between Pentair,
Inc. and Nationwide Life Insurance
Company.
(4.19) $25,000,000 Note Purchase Agreement
dated December 13, 1991 between
Pentair, Inc. and Principal Mutual Life
Insurance Company.
(4.20) $15,000,000 Note Purchase Agreement
dated November 1, 1992 between Pentair,
Inc. and Nationwide Life Insurance
Company.
(4.21) $15,000,000 Note Purchase Agreement
dated January 15, 1993 between Pentair,
Inc. and Principal Mutual Life Insurance
Company.
(4.22) $70,000,000 Senior Notes Purchase
Agreement dated as of April 30, 1993
between Pentair, Inc. and United of Omaha
Life Insurance Company, Companion Life
Insurance Company, Principal Mutual Life
Insurance Company, Nippon Life
Insurance Company of America, Lutheran
Brotherhood, American United Life
Insurance Company, Modern Woodmen of
America, The Franklin Life Insurance
Company and Ameritas Life Insurance
Corp.
(10.1) Agreements dated February 8, 1978 and
February 9, 1982 between the Company
and D. Eugene Nugent.
(10.2) Agreement dated February 8, 1984
(Amending Exhibit 10.1).
(10.3) Agreement dated December 17, 1985
(Amending Exhibit 10.1).
(10.4) Agreement dated May 7, 1990 (Amending
Exhibit 10.1).
(10.5) Company's Supplemental Employee
Retirement Plan effective June 16, 1988.
(10.6) Company's 1986 Nonqualified Stock
Option Plan.
(10.7) Company's 1990 Omnibus Stock Incentive
Plan.
(10.8) Company's Management Incentive Plan as
amended to January 12, 1990.
(10.9) Employee Stock Purchase and Bonus Plan
as amended and restated effective
January 1, 1992.
(10.10) Company's Flexible Perquisite Program as
amended to January 1, 1989.
(10.11) Form of 1986 Management Assurance
Agreement (Revised 1990) between the
Company and certain executive officers.
(10.12) Company's Third Amended and Restated
Compensation Plan for Non-Employee
Directors as amended to January 1, 1992.
(10.13) Company's Outside Directors Nonqualified
Stock Option Plan dated January 22, 1988.
(10.14) First Amendment to Outside Directors
Nonqualified Stock Option Plan (Amending
Exhibit 10.13).
(10.15) Second Amendment to Outside Directors
Nonqualified Stock Option Plan (Amending
Exhibit 10.13).
(10.16) Pentair, Inc. Deferred Compensation Plan
effective January 1, 1993.
(10.17) Lake Superior Paper Industries Venture
Council By-Laws and Management
Protocol.
(10.18) Second Amended and Restated Joint
Venture Agreement dated December 31,
1987 between Pentair Duluth Corp. and
Minnesota Paper, Incorporated.
(10.19) First Amendment to Second Restated Joint
Venture Agreement, First Amendment to
Venture Council By-Laws, and First
Amendment to Management Protocol, all
dated May 30, 1989, between Pentair
Duluth Corp. and Minnesota Paper,
Incorporated (Amending Exhibits 10.17 and
10.18).
(10.20) Cash Deficiency Agreement dated
December 31, 1987 among Pentair Duluth
Corp., as Joint Venturer, Associated
Southern Investment Company, as Owner
Participant, The Connecticut Bank and
Trust Company, National Association, as
Indenture Trustee, and First National Bank
of Minneapolis, as Owner Trustee. Cash
Deficiency Agreements also were entered
into with respect to each of the other four
Owner Participants: Dana Lease Finance
Corporation, NYNEX Credit Company,
Public Service Resources Corporation, and
Southern Indiana Properties, Inc.
(10.21) Keepwell Agreement and Assignment
dated December 31, 1987 among Pentair,
Inc., as Sponsor, Pentair Duluth Corp., as
Joint Venturer, and First National Bank of
Minneapolis, as Owner Trustee; although
First Minneapolis executed this filed
document as Owner Trustee for
Associated Southern Investment
Company, additional Keepwell
Agreements and Assignments were
entered into by First Minneapolis as Owner
Trustee for the other four Owner
Participants listed in the description of
Exhibit 10.20 above.
(10.22) Definition of Terms for Financing
Agreement dated December 31, 1987 and
the Transaction Documents Referred to
Therein: Sale and Leaseback of Undivided
Interest in Lake Superior Paper Industries'
Supercalendered Paper Mill; although this
filed document supplies the definitions
applicable to the agreements filed as
Exhibits 10.20 and 10.2 above, there were
four additional sets of definitions that
supply the definitions for the other sets of
agreements referred to in the descriptions
of those Exhibits with respect to the various
Owner Participants.
(10.23) Loan and Stock Purchase Agreement
dated March 7, 1990 between the
Company and the Pentair, Inc. Employee
Stock Ownership Plan Trust, acting
through State Street Bank and Trust
Company, as Trustee.
(10.24) $56,499,982 Promissory Note dated March
7, 1990 of the Pentair, Inc. Employee
Stock Ownership Plan Trust, acting
through State Street Bank and Trust
Company, as Trustee, to the Company.
(11) Statement regarding computation of
earnings per share.
(13) Annual Report to Shareholders for period
ended December 31, 1994.
(21) Subsidiaries of Registrant.
(24) Consent of Deloitte & Touche.
(b) Reports on Form 8-K.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PENTAIR, INC.
By /s/ David D. Harrison
David D. Harrison
Senior Vice President and
Chief Financial Officer
Dated: March 29, 1995
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has also been signed by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
By /s/ Winslow H. Buxton Dated: March 29, 1995
Winslow H. Buxton,
Chairman, President and
Chief Executive Officer, Director
By /s/ George N. Butzow Dated: March 29, 1995
George N. Butzow,
Director
By /s/ Charles A. Haggerty Dated: March 29, 1995
Charles A. Haggerty,
Director
By /s/ Harold V. Haverty Dated: March 29, 1995
Harold V. Haverty,
Director
By /s/ Quentin J. Hietpas Dated: March 29, 1995
Quentin J. Hietpas,
Director
By /s/ B. Kristine Johnson Dated: March 29, 1995
B. Kristine Johnson,
Director
By /s/ Walter Kissling Dated: March 29, 1995
Walter Kissling,
Director
By /s/ D. Eugene Nugent Dated: March 29, 1995
D. Eugene Nugent,
Director
By /s/ Richard M. Schulze Dated: March 29, 1995
Richard M. Schulze,
Director
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Pentair, Inc.:
We have audited the consolidated financial statements of
Pentair, Inc. and subsidiaries as of December 31, 1994 and
1993, and for each of the three years in the period ended
December 31, 1994, and have issued our report thereon
dated February 10, 1995, except for Note 4, as to which the
date is February 21, 1995; such financial statements and
report are included in your 1994 Annual Report to
Shareholders and are incorporated herein by reference.
Our audits also included the financial statement schedule of
Pentair, Inc. and subsidiaries listed in Item 14. This financial
statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion
based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
DELOITTE & TOUCHE
Minneapolis, Minnesota
February 10, 1995, except for Note 4, as to which the date
is February 21, 1995
<PAGE>
SCHEDULE VIII
PENTAIR, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND DEDUCTIONS- AT END OF
OF PERIOD EXPENSES WRITE-OFFS PERIOD
($THOUSANDS)
Allowance for
doubtful
accounts and
notes receivables
<C> <C> <C> <C> <C>
1992 $5,626 $2,549 $(2,635) $5,540
1993 5,540 1,514 (857) 6,197
1994 6,197 2,366 (883) 7,680
</TABLE>
EXHIBIT INDEX
Exhibit
Number Description
(3.1) Restated Articles of
Incorporation as amended
through April 25, 1989
(Incorporated by reference to
Exhibit 3.1 to the Company's
Form 10-Q for the quarter ended
March 31, 1989).
(3.2) Resolution Establishing and
Designating $7.50 Callable
Cumulative Convertible
Preferred Stock, Series 1988, as
a series of Preferred Stock of
Pentair, Inc. (Incorporated by
reference to Exhibit 4.1 to
Amendment No. 1 to the
Company's Current Report on
Form 8-K filed December 30,
1988).
(3.3) Resolution Establishing and
Designating 8% Callable
Cumulative Voting Convertible
Preferred Stock, Series 1990, as
a series of Preferred Stock of
Pentair, Inc. (Incorporated by
reference to Exhibit 4 to the
Company's Current Report on
Form 8-K filed March 21, 1990).
(3.4) Second Amended and
Superseding By-Laws as
amended through January 19,
1993 (Incorporated by reference
to Exhibit 3.16 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1992).
(4.1) Restated Articles of
Incorporation, as amended, and
Second Amended and
Superseding By-Laws, as
amended (see Exhibits 3.1 - 3.4
above).
(4.2) Rights Agreement dated
December 26, 1986 between the
Company and First Trust
Company, Inc. (Incorporated by
reference to Exhibit 1 to the
Company's Registration
Statement on Form 8-A filed
December 26, 1986).
(4.3) Amendment to Rights
Agreement dated July 22, 1988
between the Company and
Norwest Bank Minnesota,
National Association, as
successor Rights Agent
(Amending Exhibit 4.2)
(Incorporated by reference to
Exhibit 4.2 to the Company's
Current Report on Form 8-K filed
August 2, 1988).
(4.4) Second Amendment to Rights
Agreement dated December 15,
1989 between the Company and
Norwest Bank Minnesota,
National Association, as
successor Rights Agent
(Amending Exhibit 4.2)
(Incorporated by reference to
Exhibit 4.3 to the Company's
Current Report on Form 8-K filed
December 28, 1989).
(4.5) Bid Loan Agreement dated
December 14, 1988 between the
Company, Continental Bank N.A.
for itself and as Agent, Morgan
Guaranty Trust Company of New
York, Morgan Bank (Delaware),
First Bank National Association,
Norwest Bank Minnesota, N.A.,
and Mellon Bank, N.A.
(Incorporated by reference to
Exhibit 4.2 to Amendment No. 1
to the Company's Current Report
on Form 8-K filed December 30,
1988).
(4.6) First Amendment to Bid Loan
Agreement dated January 1,
1991 between the Company,
Continental Bank N.A. for itself
and as Agent, Morgan Guaranty
Trust Company of New York,
Morgan Bank (Delaware), First
Bank National Association,
Norwest Bank Minnesota, N.A.,
and NBD Bank, N.A. (Amending
Exhibit 4.5) (Incorporated by
reference to Exhibit 4.9 to the
Company's Annual Report on
Form 10K for the year ended
December 31, 1990).
(4.7) Second Amendment to Bid Loan
Agreement dated as of February
11, 1994 between Pentair, Inc.,
Continental Bank N.A. for itself
and as Agent, Morgan Guaranty
Trust Company of New York,
J.P. Morgan Delaware, First
Bank National Assocation,
Norwest Bank Minnesota, N.A.,
and NBD Bank, N.A. (Amending
Exhibit 4.5) (Incorporated by
reference to Exhibit 4.3 to the
Company's Current Report on
Form 8-K filed March 14, 1994).
(4.8) $125,000,000 Facility Agreement
dated as of February 11, 1994
between Pentair, Inc.,
Continental Bank N.A. for itself
and as Agent, Morgan Guaranty
Trust Company of New York for
itself and as Agent, NBD Bank,
N.A., and J. P. Morgan Delaware
(Incorporated by reference to
Exhibit 4.1 to the Company's
Current Report on Form 8-K filed
March 14, 1994).
(4.9) Amendment Number One to
Facility Agreement dated as of
November 1, 1994 between
Pentair, Inc., Bank of America
Illinois (formerly known as
Continental Bank N.A.) for itself
and as Agent, Morgan Guaranty
Trust Company of New York for
itself and as Agent, NBD Bank,
N.A., and J. P. Morgan
Delaware. (Amending Exhibit
4.8)
(4.10) $45,000,000 Facility Agreement
dated as of February 11, 1994
between Pentair, Inc., First Bank
National Association, for itself
and as Agent, and Norwest Bank
Minnesota N.A. (Incorporated by
reference to Exhibit 4.2 to the
Company's Current Report on
Form 8-K filed March 14, 1994).
(4.11) Amendment Number One to
Facility Agreement dated as of
November 1, 1994 between
Pentair, Inc., First Bank National
Association, for itself and as
Agent, and Norwest Bank
Minnesota N.A.(Amending
Exhibit 4.10)
(4.12) DM 115,000,000 Facility
Agreement dated as of February
11, 1994 between EuroPentair,
GmbH as Borrower, Pentair, Inc.,
as Guarantor, Morgan Guaranty
Trust Company of New York for
itself and as Agent, Continental
Bank N.A., for itself and as
Agent, NBD Bank, N.A. and
Dresdner Bank (Incorporated by
reference to Exhibit 4.4 to the
Company's Current Report on
Form 8-K filed March 14, 1994).
(4.13) Amendment Number One to
Facility Agreement dated as of
November 1, 1994 between
EuroPentair, GmbH as Borrower,
Pentair, Inc., as Guarantor,
Morgan Guaranty Trust
Company of New York for itself
and as Agent, Bank of America
Illinois(formerly known as
Continental Bank N.A.), for itself
and as Agent, NBD Bank, N.A.
and Dresdner Bank. (Amending
Exhibit 4.12)
(4.14) Amendment Number Two to
Facility Agreement dated as of
February 15, 1995 between
EuroPentair, GmbH as Borrower,
Pentair, Inc., as Guarantor,
Morgan Guaranty Trust
Company of New York for itself
and as Agent, Bank of America
Illinois(formerly known as
Continental Bank N.A.), for itself
and as Agent, NBD Bank, N.A.
and Dresdner Bank . (Amending
Exhibit 4.12)
(4.15) Restatement of Credit
Agreement dated July 11, 1989
between Federal-Hoffman, Inc.
and First Bank National
Association (Incorporated by
reference to Exhibit 4.10 to the
Company's Form 10-K for the
year ended December 31,
1989).
(4.16) Second Amendment to
Restatement of Credit
Agreement dated as of January
19, 1993 between Federal-Hoffman, Inc., Pentair, Inc., and
First Bank National Association
(Amending Exhibit 4.15)
(Incorporated by reference to
Exhibit 4.13 to the Company's
Form 10-K for the year ended
December 31, 1992).
(4.17) Third Amendment to
Restatement of Credit
Agreement dated as of
December 31, 1994 between
Federal-Hoffman, Inc., Pentair,
Inc., and First Bank National
Association (Amending Exhibit
4.15).
(4.18) $35,000,000 Note Purchase
Agreement dated March 25,
1991 between Pentair, Inc. and
Nationwide Life Insurance
Company. (Incorporated by
reference to Exhibit 4.14 to the
Company's Registration
Statement on Form S-8 filed
August 6, 1991).
(4.19) $25,000,000 Note Purchase
Agreement dated December 13,
1991 between Pentair, Inc. and
Principal Mutual Life Insurance
Company. (Incorporated by
reference to Exhibit 4.15 to the
Company's Registration
Statement on Form S-8 filed
January 13, 1992).
(4.20) $15,000,000 Note Purchase
Agreement dated November 1,
1992 between Pentair, Inc. and
Nationwide Life Insurance
Company (Incorporated by
reference to Exhibit 4.16 to the
Company's Form 10-K for the
year ended December 31,
1992).
(4.21) $15,000,000 Note Purchase
Agreement dated January 15,
1993 between Pentair, Inc. and
Principal Mutual Life Insurance
Company (Incorporated by
reference to Exhibit 4.17 to the
Company's Form 10-K for the
year ended December 31,
1992).
(4.22) $70,000,000 Senior Notes
Purchase Agreement dated as of
April 30, 1993 between Pentair,
Inc. and United of Omaha Life
Insurance Company, Companion
Life Insurance Company,
Principal Mutual Life Insurance
Company, Nippon Life Insurance
Company of America, Lutheran
Brotherhood, American United
Life Insurance Company,
Modern Woodmen of America,
The Franklin Life Insurance
Company and Ameritas Life
Insurance Corp (Incorporated by
reference to Exhibit 4.17 to the
Company's Form 10-K for the
year ended December 31,
1993).
(10.1) Agreements dated February 8,
1978 and February 9, 1982
between the Company and D.
Eugene Nugent (Incorporated by
reference to Exhibit 10.2 to the
Company's Registration
Statement on Form S-2 filed
June 24, 1983).
(10.2) Agreement dated February 8,
1984 (Amending Exhibit 10.1)
(Incorporated by reference to
Exhibit 10.4 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1983).
(10.3) Agreement dated December 17,
1985 (Amending Exhibit 10.1)
(Incorporated by reference to
Exhibit 10.6 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1985).
(10.4) Agreement dated May 7, 1990
(Amending Exhibit 10.1).
(Incorporated by reference to
Exhibit 10.4 to the Company's
Annual Report on Form 10K for
the year ended December 31,
1990).
(10.5) Company's Supplemental
Employee Retirement Plan
effective June 16, 1988
(Incorporated by reference to
Exhibit 10.10 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1989).
(10.6) Company's 1986 Nonqualified
Stock Option Plan (Incorporated
by reference to Exhibit 10.14 to
the Company's Annual Report
on Form 10-K for the year ended
December 31, 1986).
(10.7) Company's 1990 Omnibus Stock
Incentive Plan (Incorporated by
reference to Exhibit 10.16 to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1989).
(10.8) Company's Management
Incentive Plan as amended to
January 12, 1990 (Incorporated
by reference to Exhibit 10.17 to
the Company's Annual Report
on Form 10-K for the year ended
December 31, 1989).
(10.9) Employee Stock Purchase and
Bonus Plan as amended and
restated effective January 1,
1992 (Incorporated by reference
to Exhibit 10.16 to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1991).
(10.10) Company's Flexible Perquisite
Program as amended to January
1, 1989 (Incorporated by
reference to Exhibit 10.20 to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1989).
(10.11) Form of 1986 Management
Assurance Agreement (Revised
1990) between the Company
and certain executive officers
(Incorporated by reference to
Exhibit 10.22 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1989).
(10.12) Company's Third Amended and
Restated Compensation Plan for
Non-Employee Directors as
amended to January 1, 1992.
(Incorporated by reference to
Exhibit 10.1 to the Company's
Registration Statement on Form
S-8 filed January 13, 1992).
(10.13) Company's Outside Directors
Nonqualified Stock Option Plan
dated January 22, 1988
(Incorporated by reference to
Exhibit 10.20 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1987).
(10.14) First Amendment to Outside
Directors Nonqualified Stock
Option Plan (Amending Exhibit
10.13) (Incorporated by
reference to Exhibit 10.22 to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1991).
(10.15) Second Amendment to Outside
Directors Nonqualified Stock
Option Plan (Amending Exhibit
10.13) (Incorporated by
reference to Exhibit 10.23 to the
Company's Annual Report on
Form 10-K for the year ended
December 31, 1991).
(10.16) Pentair, Inc. Deferred
Compensation Plan effective
January 1, 1993 (Incorporated by
reference to Exhibit 10.21 to the
Company's Form 10-K for the
year ended December 31,
1992).
(10.17) Lake Superior Paper Industries
Venture Council By-Laws and
Management Protocol
(Incorporated by reference to
Exhibit 10.16 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1985).
(10.18) Second Amended and Restated
Joint Venture Agreement dated
December 31, 1987 between
Pentair Duluth Corp. and
Minnesota Paper, Incorporated
(Incorporated by reference to
Exhibit 10.25 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1987).
(10.19) First Amendment to Second
Restated Joint Venture
Agreement, First Amendment to
Venture Council By-Laws, and
First Amendment to
Management Protocol, all dated
May 30, 1989, between Pentair
Duluth Corp. and Minnesota
Paper, Incorporated (Amending
Exhibits 10.17 and 10.18)
(Incorporated by reference to
Exhibit 10.28 to the Company's
Annual Report on Form 10-K for
the year ended December 31,
1989).
(10.20) Cash Deficiency Agreement
dated December 31, 1987
among Pentair Duluth Corp., as
Joint Venturer, Associated
Southern Investment Company,
as Owner Participant, The
Connecticut Bank and Trust
Company, National Association,
as Indenture Trustee, and First
National Bank of Minneapolis, as
Owner Trustee. Cash Deficiency
Agreements also were entered
into with respect to each of the
other four Owner Participants:
Dana Lease Finance
Corporation, NYNEX Credit
Company, Public Service
Resources Corporation, and
Southern Indiana Properties, Inc.
(Incorporated by reference to
Exhibit 10.1 to Amendment No. 1
to the Company's Current Report
on Form 8-K filed April 26,
1988).
(10.21) Keepwell Agreement and
Assignment dated December 31,
1987 among Pentair, Inc., as
Sponsor, Pentair Duluth Corp.,
as Joint Venturer, and First
National Bank of Minneapolis, as
Owner Trustee; although First
Minneapolis executed this filed
document as Owner Trustee for
Associated Southern Investment
Company, additional Keepwell
Agreements and Assignments
were entered into by First
Minneapolis as Owner Trustee
for the other four Owner
Participants listed in the
description of Exhibit 10.20
above (Incorporated by
reference to Exhibit 10.2 to
Amendment No. 1 to the
Company's Current Report on
Form 8-K filed April 26, 1988).
(10.22) Definition of Terms for Financing
Agreement dated December 31,
1987 and the Transaction
Documents Referred to Therein:
Sale and Leaseback of
Undivided Interest in Lake
Superior Paper Industries'
Supercalendered Paper Mill;
although this filed document
supplies the definitions
applicable to the agreements
filed as Exhibits 10.20 and 10.21
above, there were four additional
sets of definitions that supply the
definitions for the other sets of
agreements referred to in the
descriptions of those Exhibits
with respect to the various Owner
Participants (Incorporated by
reference to Exhibit 10.3 to
Amendment No. 1 to the
Company's Current Report on
Form 8-K filed April 26, 1988).
(10.23) Loan and Stock Purchase
Agreement dated March 7, 1990
between the Company and the
Pentair, Inc. Employee Stock
Ownership Plan Trust, acting
through State Street Bank and
Trust Company, as Trustee
(Incorporated by reference to
Exhibit 10.1 to the Company's
Current Report on Form 8-K filed
March 21, 1990).
(10.24) $56,499,982 Promissory Note
dated March 7, 1990 of the
Pentair, Inc. Employee Stock
Ownership Plan Trust, acting
through State Street Bank and
Trust Company, as Trustee, to
the Company (Incorporated by
reference to Exhibit 10.2 to the
Company's Current Report on
Form 8-K filed March 21, 1990).
(11) Statement regarding
computation of earnings per
share.
(13) Annual Report to Shareholders
for period ended December 31,
1994.
(21) Subsidiaries of Registrant.
(24) Consent of Deloitte & Touche.
EXHIBIT 11
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
1990 1991 1992 1993 1994
INCOME ($ THOUSANDS)1
<S> <C> <C> <C> <C> <C>
Income before cumulative effects
of accounting changes $33,012 $41,100 $42,800 $46,600 $53,600
Cumulative effects of accounting - - (41,625) - -
changes
Net Income 33,012 41,100 1,175 46,600 53,600
Preferred Dividend Requirements 2 5,914 6,358 8,545 6,114 5,416
Earnings Available to Common and
Common Equivalent Shares - Primary 27,098 34,742 (7,370) 40,486 48,184
Preferred dividends assuming
conversion of Preferred Stock:
Series 1987 3,000 3,000 3,000 620 0
Series 1988 2 685 658 1,065 1,044 1,016
Series 1990 2 2,229 2,700 4,480 4,450 4,440
Tax benefit on preferred
ESOP dividend
eliminated due to conversion
into common - - (700) (833) (1,046)
Tax benefit on ESOP dividend
assuming conversion to common
- at common dividend rate 547 690 215 276 366
Earnings available to Common
and Common Equivalent
shares - Diluted $33,559 $41,790 $690 $46,043 $52,920
SHARES (thousands)1
Weighted average number of shares
outstanding during the period 16,044 15,651 15,792 17,678 18,204
Shares issuable on exercise of stock
options less shares repurchaseable
from the proceeds 26 128 144 213 218
Common and Common Equivalent
Shares - Primary 16,070 15,779 15,936 17,891 18,422
Shares issuable on conversion of:
$1.50 Cumulative Convertible
Preferred Stock Series 1987 2,178 2,178 2,178 415 0
$7.50 Callable Cumulative
Convertible Preferred Stock
Series 1988 718 660 561 522 508
8% Callable Cumulative Voting
Convertible
Preferred Stock Series 1990 1,761 2,151 2,142 2,127 2,110
Common and Common Equivalent
Shares - Diluted 20,727 20,768 20,817 20,955 21,040
EARNINGS PER SHARE1
PRIMARY
Earnings before cumulative effects
of accounting changes $1.69 $2.20 $2.15 $2.26 $2.62
Cumulative effects
of accounting changes - - (2.61) - -
Net income (loss) $1.69 $2.20 $(.46) $2.26 $2.62
DILUTED
Earnings before cumulative effects
of accounting changes $1.62 $2.01 $2.03 $2.20 $2.52
</TABLE>
NOTES:
1 Adjusted for stock dividend of 50% in June 1993.
2 Net of tax benefit on shares held by an ESOP in 1991.
EXHIBIT 13
<PAGE>
PENTAIR ANNUAL REPORT FOR 1994
The Essential Facts 11
YESTERDAY, TODAY AND TOMORROW 12
Focus for the Future 15
STRATEGIC INSIGHTS 17
The Complete Financial Details 25
<PAGE>
PENTAIR -- FOCUSED ON WHAT CAN BE
TAKING GREAT PRIDE IN AN
ACCOMPLISHMENT-RICH PAST,
PENTAIR AND
PENTAIR PEOPLE
ARE FOCUSED ON MEETING
THE CHALLENGES
OF AN OPPORTUNITY-RICH
FUTURE.
1
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PNTA
<PAGE>
PENTAIR -- 1994
THROUGH A CAREFULLY
BALANCED COMBINATION
OF CREATIVE,
DISCIPLINED MANAGEMENT,
HIGH-QUALITY PRODUCTS
AND DEDICATED EMPLOYEES,
PENTAIR INC.
HAS ENHANCED VALUE
FOR ALL OF ITS STAKEHOLDERS.
10
----
PNTA
<PAGE>
FINANCIAL HIGHLIGHTS 1994
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE DATA AND PERCENTAGES 1994 1993 Change
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,649,170 $1,328,180 24.2%
EARNINGS $ 53,600 $ 46,600 15.0%
---------------------------------------------------------------------------------------------------------
Earnings per Share
PRIMARY $ 2.62 $ 2.26 15.9%
DILUTED $ 2.52 $ 2.20 14.5%
---------------------------------------------------------------------------------------------------------
CASH DIVIDENDS PER COMMON SHARE $ .72 $ .68 5.9%
COMMON SHAREHOLDERS' EQUITY PER SHARE $ 21.43 $ 18.58 15.3%
---------------------------------------------------------------------------------------------------------
PREFERRED SHAREHOLDERS' EQUITY $ 40,916 $ 33,927 --
COMMON SHAREHOLDERS' EQUITY $ 391,058 $ 336,922 --
RETURN ON AVERAGE COMMON SHAREHOLDERS' EQUITY 13.2% 13.6% --
---------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES $ 92,745 $ 73,421 26.3%
TOTAL ASSETS $1,281,496 $ 958,801 33.7%
LONG-TERM DEBT TO TOTAL CAPITAL 49% 39% --
---------------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING AT YEAR-END 18,248 18,135 --
AVERAGE COMMON AND COMMON EQUIVALENT SHARES 18,422 17,891 --
---------------------------------------------------------------------------------------------------------
NUMBER OF EMPLOYEES 10,300 8,300 --
---------------------------------------------------------------------------------------------------------
</TABLE>
SHARE AND PER SHARE DATA HAS BEEN RESTATED TO REFLECT A STOCK DIVIDEND IN
JUNE 1993.
[GRAPH]
II
----
PNTA
<PAGE>
A LETTER TO OUR SHAREHOLDERS: YESTERDAY, TODAY & TOMORROW
AS YOU READ THIS, LOOK AT OUR PAST AND FUTURE. AND AT OUR PRESENT:
* NET SALES FOR 1994 WERE $1.6 BILLION, VERSUS $1.3 BILLION IN 1993. NET
INCOME WAS $53.6 MILLION OR $2.52 PER FULLY DILUTED SHARE; A 15% INCREASE.
* OUR SPECIALTY PRODUCTS GROUP ACHIEVED AN OPERATING RETURN ON SALES OF
10.6% AND OPERATING INCOME WAS UP 18%. SALES INCREASED 13.1% IN MARKETS
WHOSE GROWTH RATES AVERAGED 3 TO 5%.
* OUR GENERAL INDUSTRIAL EQUIPMENT GROUP ACHIEVED AN OPERATING RETURN ON
SALES OF 9.5%. GROUP SALES, INCLUDING THE NEWLY ACQUIRED SCHROFF, INCREASED
48.8% AND OPERATING INCOME WAS UP 80.2%.
* 1994 SHAREHOLDER VALUE INCREASED BY 32%; DIVIDENDS GREW FOR THE 18TH
CONSECUTIVE YEAR.
As pleased as we are with our past, we are even more excited about our future.
Building on our strengths, we will accelerate our industrial growth
strategies. A single fact lies at the heart of these strategies: The
promise of Pentair is our industrial businesses. Pentair 1994 industrial
sales grew 33.3% and operating income increased 49%. The industrial
businesses accounted for about 77% of sales and 90% of operating income
with the balance coming from our paper businesses, which performed well in
difficult markets.
Pentair ranked 301st in sales in the 1993 Fortune 500 and 181st in ten-year
return to shareholders. Our goals of 10% earnings per share growth on a
ten-year trend and a 15% return on equity on a five-year average are
supported by a growth strategy composed of three essential parts:
* BUILD THE STRENGTHS OF OUR ESTABLISHED INDUSTRIAL BUSINESSES.
* CULTIVATE AND NURTURE OUR EMERGING INDUSTRIAL SUBSIDIARIES.
* ACQUIRE BUSINESSES THAT COMPLEMENT OUR SUBSIDIARIES OR PROVIDE NEW
OPPORTUNITIES.
12
----
PNTA
<PAGE>
Historically, growth has come from acquiring companies that we invigorated
through aggressive investment, improved productivity, new product
development, enhanced marketing and distribution, and subsidiary autonomy.
As a result, our premier businesses -- Porter-Cable, Delta, Hoffman, Schroff and
Federal Cartridge -- have become industry leaders with the strength to
enter new markets with new products.
We will capitalize on these opportunities through investment in product
development and synergistic acquisitions. In parallel, we will continue to
build the strengths of our emerging businesses -- Lincoln Industrial,
Lincoln Automotive and Myers -- by applying our proven renewal philosophy
internally. Externally, we will acquire product, manufacturing and
distribution strengths that will help them succeed.
To achieve these strategies, we will focus and concentrate our financial and
management resources on our industrial businesses, with the ultimate goal
of securing a leadership position in each of our respective markets. And,
finally, we will continue to consider alternatives for our paper
businesses, including sale.
Through these strategies, Pentair will become a synergistic organization,
focused on high-opportunity businesses and, as stated in our Code of
Business Conduct, "operated so that we are respected for our actions by
shareholders, employees, plant communities, customers, suppliers, investors
and all other stakeholders."
/s/ Winslow H. Buxton
-----------------------------------------------
WINSLOW H. BUXTON
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
13
----
PNTA
<PAGE>
COMMITMENT TO LEADERSHIP
PENTAIR IS COMMITTED TO
BUILDING A VIGOROUS AND
HIGHLY FOCUSED
INDUSTRIAL ORGANIZATION
UPON A STRONG FOUNDATION
OF PROFITABLE,
INNOVATIVE COMPANIES;
EACH THE QUALITY LEADER
IN ITS INDUSTRY SEGMENT.
14
----
PNTA
<PAGE>
FOCUS FOR THE FUTURE
Build the strengths of mature businesses. Nurture emerging subsidiaries. Acquire
businesses that complement existing subsidiaries or provide new
opportunities. Three major initiatives that will transform Pentair.
Exciting, but curiously, not new. Each is time-tested. All have been essential
to Pentair's history of steady growth and profitability.
What is new is how we will focus and concentrate these strategies on building
Pentair into a distinctly industrial organization.
Until now, we applied these management principles to build the individual
strengths of each Pentair company. It mattered little whether we were
dealing with power tools or paper, automotive products or sporting
ammunition. Now we will augment these concepts with four highly targeted
industrial strategies:
* PRODUCTS AND MARKETS * SYNERGIES
* EMERGING BUSINESSES * INDUSTRIAL ACQUISITIONS
Each is discussed in detail on the following pages. Importantly, however, none
of the four can be effective if applied in isolation. Indeed, it is the
very essence of the synergies strategy to integrate our individual efforts
and energies to invigorate and amplify the efforts of the whole.
Thus, as our established industrial companies explore new markets with new
products, they will seek needed technologies, distribution channels and
manufacturing power with access to all Pentair resources. And, as we
nurture emerging businesses, we will adopt product and market strategies
proven effective by our established companies.
Our goal is clear: transform Pentair from a company known for its paper
operations into one of the world's leading industrial companies. And, the
method is simple: accelerate growth and build market share for all
industrial subsidiaries by capitalizing on the strengths of the Pentair
family of companies.
15
----
PNTA
<PAGE>
PENTAIR COMPANIES WILL
GROW AND PROSPER
THROUGH A DYNAMIC
STRATEGY OF EXPLOITING
THE GROWTH POTENTIAL OF
NEW INDUSTRIAL MARKETS
WITH INNOVATIVE NEW
PRODUCTS.
16
----
PNTA
<PAGE>
STRATEGIC INSIGHTS: PRODUCTS AND MARKETS
One key to Pentair's success has been finding new opportunities by looking at
our businesses from new perspectives.
Delta and Porter-Cable, for example, sensed contractors and professional
woodworkers were changing their buying habits. Lured by discount pricing
and new service capabilities, they were shifting their purchases away from
traditional distribution to home-improvement centers. We preserved
traditional markets and tapped the potential of a new segment -- serious
woodworking hobbyists and do-it-yourselfers -- by adding home-center
distribution. The result has been explosive growth. Porter-Cable alone
added more than 2,500 outlets, which include seven out of the top ten home
centers.
Equally important, we have reinforced and broadened appeal to both segments
through aggressive product development. In 1994, more than 50% of
Porter-Cable and Delta sales came from products introduced in the past five
years.
To broaden its already substantial market base, Hoffman Engineering has adopted
an aggressive new product strategy. The company introduced more new
products in 1994 alone than it launched in the five years prior to
acquisition, setting a pattern that will allow growth well into the future.
A new product strategy also invigorated Federal Cartridge. Through a tightly
focused strategy of creating precisely accurate competition loads for the
U.S. Shooting Team, Federal, which once competed primarily on price, has
taken the industry technical lead and repositioned its products as quality
leaders. The strategy yielded two 1992 Olympic medals and consistent
competitive success ever since, providing Federal with the opportunity to
build a premium position for its products. Even more important, Federal
sales -- 34% of which are derived from products introduced over the past
five years -- have increased 50% since acquisition.
17
----
PNTA
<PAGE>
SYNERGISTIC STRENGTH
OUR COMPANIES ARE FINDING
NEW EFFICIENCIES AND IMPRESSIVE
MARKET STRENGTHS BY HARNESSING THE
POTENTIAL OF SYNERGISTIC COOPERATION
THROUGHOUT PENTAIR, THROUGHOUT THE
WORLD.
18
----
PNTA
<PAGE>
STRATEGIC INSIGHTS: SYNERGY
Pentair is a family of companies on constant lookout for ways to help each
other. This synergistic orientation is at work throughout Pentair,
throughout the world.
Hoffman Engineering and Schroff serve the electrical and electronic segments of
the enclosure market, respectively. Hoffman, however, primarily serves the
North American market, while Schroff markets to the rest of the world.
Separately, neither had made a significant penetration of the other's
geography. Now they have combined forces. The two companies have
efficiently consolidated their U.K. operations into a single facility. And,
the catalogs of both now feature the products of both companies. Even more
exciting, Hoffman and Schroff offer the enclosures market the most complete
line of products anywhere in the world. A joint Singapore-based venture to
penetrate the exploding Asian market is a significant first step in
broadening both companies' markets.
European-North American market strength is also working in favor of Lincoln
Industrial U.S. and Lincoln Industrial GmbH. Lincoln GmbH, in Walldorf,
Germany, has pioneered an economical, virtually unbreakable and
easy-to-install resin-cast pump. Recognizing the product's universal
appeal, Lincoln Industrial U.S. added the pump to its line, giving it
instantaneous international presence.
Taking advantage of the fact that they share a market, Porter-Cable and Delta
co-sponsor THE NEW YANKEE WORKSHOP and AMERICAN WOODSHOP on PBS, and expose
a weekly audience of seven million to their high-quality products.
[GRAPH]
19
----
PNTA
<PAGE>
PENTAIR WILL
CONTINUE
ITS HISTORY OF PROFITABLE GROWTH
THROUGH A PROVEN STRATEGY
OF NURTURING BUSINESSES WITH
MANAGEMENT EXPERTISE,
INVESTMENT AND
PRODUCT DEVELOPMENT.
20
----
PNTA
<PAGE>
STRATEGIC INSIGHTS: EMERGING BUSINESSES
Essential to reaching our corporate objectives is nurturing our emerging
businesses through various combinations of manufacturing refinements,
marketing, investment, product development and acquisition strategies.
At first, we focus on the internal, building consistent product quality,
reorganizing manufacturing flow for more efficiency, and investing in the
most up-to-date manufacturing processes and equipment. We then work on
dominating traditional distribution channels. As these fundamental
strategies prove out, we move toward our new markets.
By 1992, for example, Lincoln Automotive had maximized its traditional channels
of distribution. To ignite the company's growth potential, we acquired the
Automotive Service Equipment Division of Hein-Werner, augmenting Lincoln's
product offerings with a number of established branded products including
the solid line of Marquette -TM- welding products.
Subsequently, Lincoln has developed a retail point-of-sale display that has
revitalized the Marquette brand in the consumer market. The results have
been very satisfying. In less than six months, Lincoln added 59 new points
of distribution, helping boost 1994 sales of this line 35% over the
previous year.
F.E. Myers pump company has added market share in its established markets while
entering new distribution channels and tapping developing markets with
innovative products. These strategies, in combination, have helped Myers
achieve rates of growth significantly greater than those of its industry
segment, surpassing its previous sales and operating income records.
21
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PNTA
<PAGE>
PENTAIR
IS ENTERING A NEW
ERA OF GROWTH
BASED ON A SOLID FOUNDATION
OF PERFORMANCE
AND FUELED BY AN AGGRESSIVE,
HIGHLY TARGETED
ACQUISITIONS STRATEGY.
22
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PNTA
<PAGE>
STRATEGIC INSIGHTS: ACQUISITIONS
Many know Pentair as an acquisitions company. Historically, we have been just
that. We have grown by acquiring basically sound but under-utilized
companies that we have revitalized through a variety of strategies.
The statistics demonstrate that it is an approach that has worked very well. As
of 1994, Pentair industrial acquisitions as a group have experienced
internal growth rates of 22%. They generated an 8% return on investment in
the year following their acquisition and collectively delivered a 23%
return on investment by the end of 1994. In the year after acquisition,
these same companies averaged a 5% return on sales and have doubled that to
10%. In the future, acquisitions will become even more important to
Pentair. In fact, we have mapped out an acquisitions plan for the next five
years that is so aggressive it could rival Pentair's past record.
We will continue our longstanding strategy of acquiring both under-utilized and
growth-oriented companies that can become premier businesses, returning
growth and building shareholder value through our management approach and
capital resources. Pentair will also seek companies with products,
manufacturing or distribution that will blend well and can accelerate or
reinforce the growth and market strengths of existing companies. Finally,
we seek to acquire substantial, established companies that can become
significant new Pentair businesses and generate above-average returns to
meet our goal of increasing shareholder value.
[GRAPH]
23
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PNTA
<PAGE>
PENTAIR WILL BECOME A
DYNAMIC, SYNERGISTIC
ORGANIZATION
THROUGH AGGRESSIVE
ACQUISITION, CAPITALIZING ON
INTERNAL STRENGTHS,
EXPLORING NEW MARKETS WITH
NEW PRODUCTS, AND NURTURING
EMERGING BUSINESSES.
24
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<PAGE>
Management's Discussion & Analysis 27
REPORT OF MANAGEMENT 34
Report of Independent Certified Public Accountants 34
FINANCIAL STATEMENTS 35
Notes to Consolidated Financial Statements 40
SELECTED FINANCIAL DATA -- TEN-YEAR SUMMARY 55
25
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PNTA
<PAGE>
FINANCIAL REVIEW PENTAIR, INC. AND SUBSIDIARIES
OVERVIEW The Pentair vision is to be a top-performing, consistently growing,
diversified industrial company composed of subsidiaries that are recognized
as leaders in their markets and whose combined performance maximizes
benefits to shareholders, employees, customers and other stakeholders.
Pentair is guided by its Business Code of Conduct and respected for and by
its people.
Pentair, Inc. has strategic and financial objectives that guide management
decision making in creating value for its shareholders.
Pentair achieved solid financial results in 1994. Sales of $1.6 billion
represented an increase of 24.2% (including the Schroff acquisition) over
the previous year. Despite a falloff in earnings in the Paper Products
segment, diluted earnings per share increased 14.5% to $2.52 per share in
1994.
TOTAL RETURN TO SHAREHOLDERS Pentair seeks to maximize value with strategic
planning for long-term performance. The company believes shareholder value
is best measured by dividend returns and equity value growth, which are
enhanced when EPS growth and ROE goals are achieved.
The company continued its strong track record, attaining a 20% return per year
and a 14% return per year in the five- and ten-year periods, respectively.
Pentair achieved a 32% return for the year ended December 31, 1994.
[GRAPH]
FINANCIAL GOALS The financial goals are to achieve: a 10% EPS growth -- annual
growth in earnings per share over any ten-year period; and a 15% ROE --
average return on common shareholders' equity over any five-year period.
The company approached its ROE objective for 1994, achieving a 12.8% ROE
for the five-year period ending with 1994. The company fell short of its
EPS objective achieving a 5.3% EPS growth rate over the ten-year period.
However, since 1990 the EPS growth has been approximately 12% per year. The
company continues to view its financial goals as realistic.
THE FOLLOWING CHART ILLUSTRATES THE PERFORMANCE OF PENTAIR STOCK COMPARED TO THE
S & P 500 DURING 1994.
[GRAPH]
26
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<PAGE>
MANAGEMENT'S DISCUSSION & ANALYSIS
RECENT DEVELOPMENTS In September 1994, Pentair announced that it was exploring
strategic alternatives for its paper businesses, including their possible
sale. That course of action was chosen to achieve many objectives. First,
to permit Pentair to focus its commitment and resources in the industrial
products sector, continuing the strong growth and leading market positions
these businesses have achieved. Second, to permit the paper businesses to
seek their own opportunities and long-term goals. Third, to make Pentair a
more understandable company to the investment community and its
shareholders.
That process is ongoing. In February 1995, Pentair announced the sale of its
uncoated paper business, Cross Pointe Paper, to Noranda Forest for
approximately $200 million. The sale is expected to close at the beginning
of April 1995. No determination has been made concerning potential
strategic alternatives for Niagara of Wisconsin and for the joint venture
interest in Lake Superior Paper Industries, the company's other paper
businesses.
Pentair expects that its strategic refocusing will be completed in the course of
1995. Whatever the eventual outcome, Pentair is poised to aggressively
expand into its chosen industrial markets.
FINANCIAL CONDITION Pentair's financial condition remained strong in 1994,
including the recent Schroff acquisition. The announced sale of Cross
Pointe in 1995 will improve the financial strength of the company. Cash
from operations in 1994 was sufficient to fund strong internal business
growth and the largest capital program in Pentair's history. In 1995, cash
from operating activities generated by the industrial businesses alone is
anticipated to cover Pentair's planned capital programs, dividends and
small product line acquisitions.
The company manages its financial resources to carry out its strategic plan,
focusing on its industrial businesses. Careful attention to efficient use
of its resources, e. g., close control over working capital, has resulted
in maximizing cash flow from operations and minimizing external borrowing
other than for large acquisitions.
Cash from operating activities reached $111.1 million in 1994 compared to $91.7
million in 1993 and $87.4 million in 1992. The company attained a positive
free cash flow of $6.8 million in 1994. This represents a significant
improvement in free cash flow over 1993. Free cash flow, a measure of the
internal financing of operational cash needs, is defined as cash from
operations, less net operating investments, excluding acquisitions or
dispositions of major business lines. Looking ahead to 1995, cash from
operations is expected to be greater than capital expenditures and other
investment activities.
Pentair invests capital to maintain existing businesses, introduce new products
and develop new businesses. In the last five years, $344 million has been
reinvested in its eleven businesses. In 1994, capital expenditures reached
$92.7 million, an increase of $19.3 million or 26.3% over 1993. Major 1994
projects included a wireway and enclosure manufacturing facility for
Hoffman, a finished goods warehouse for Federal Cartridge, a new coating
system at Niagara Paper and a variety of new product development programs.
[GRAPH]
27
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PNTA
<PAGE>
Pentair invested $57.6 million, $28.0 million and $27.7 million in the
businesses in the Specialty Products and General Industrial Equipment
segments for the fiscal years 1994, 1993 and 1992, respectively.
Investments in the Paper Products business segment were $34.9 million,
$45.3 million and $39.2 million for the corresponding periods.
In light of the announced sale of Cross Pointe and other potential strategic
changes involving the Paper Products segment, 1995 capital plans are
anticipated to reach $65 million for the industrial businesses. Future
projects include reconfiguration and expansion of manufacturing facilities
and distribution centers; upgrading of information technology systems; and
new product development.
Over the past few years, the company prepared for a major acquisition by
reducing its overall debt obligations. Since the last major acquisition,
the ratio of long-term debt to total capital decreased more than 10
percentage points, excluding the cumulative effects of accounting changes
recorded in 1992. Private placement intermediate-term debt totaling $100
million was funded in June 1993, the proceeds of which were used to reduce
revolving borrowings.
In 1994, the company acquired Schroff GmbH for approximately $140 million net of
cash acquired. Funds for the acquisition were provided by the company's
revolving credit facilities, which were modified to include U.S.$220
million and DM 115 million. See a further discussion in Note 2 of Notes to
the Consolidated Financial Statements.
As of December 31, 1994, the long-term debt to total capital ratio was 49
percent, up from 39 percent at the end of 1993, due to borrowings to fund
the Schroff acquisition. Upon completion of the sale of Cross Pointe,
pending other acquisitions, the proceeds will be used to repay borrowings
and fund other corporate activities. The company will be in a position to
finance other acquisitions without significantly affecting its financial
condition. Based upon current operating plans, credit available under the
company's revolving facilities is considered adequate to cover working
capital and other investments.
In January 1995, the company raised its quarterly dividend to $.20 per share, or
an estimated annual rate of $.80 per share, an 11% increase over 1994.
Pentair has increased its dividend payment each year since 1976. Since this
first cash dividend, dividends have increased on average 15.7% annually.
[GRAPH]
28
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PNTA
<PAGE>
Year-end advances are made to the company's LSPI joint venture to fund January
rent payments under its equipment leases; although these advances are
partially repaid during the year, cash needs of LSPI have exceeded
internally generated resources each year since inception. Net cash advances
in 1994 amounted to $6.5 million, compared to $16.5 million in 1993. Net
cash contributions are expected to be approximately $2.2 million in 1995.
LSPI's cash rent payments are highest on the front end (through 1998) of
its $382 million leveraged equipment leases.
<TABLE>
<CAPTION>
RESULTS OF OPERATIONS
General
Specialty Industrial Paper Joint
IN THOUSANDS Products Equipment Products Ventures Corporate Total
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sales
1994 $465,573 $796,132 $387,465 -- -- $1,649,170
1993 411,570 534,994 381,616 -- -- 1,328,180
1992 377,535 486,456 374,733 -- -- 1,238,724
Operating Income
1994 $ 49,518 $ 76,003 $ 13,028 $ 1,779 $(21,079) $ 119,249
1993 41,973 42,181 32,980 (1,920) (17,021) 98,193
1992 40,166 38,600 31,456 1,682 (17,865) 94,039
----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSOLIDATED
1994 VERSUS 1993 Consolidated net sales increased to $1,649.2 million in 1994,
or 24.2% including full-year results of the acquired Schroff businesses.
The stronger than expected worldwide economy, combined with new products
and new distribution channels, helped to drive sales and earnings in the
industrial business segments. In the Paper Products segment, rising raw
material prices throughout the year and pricing pressures on printing and
publication paper in the first three quarters depressed earnings.
Operating income increased to $119.3 million in 1994 compared to $98.2 million
in 1993, a 21.4% increase. Net income increased 15% to $53.6 million in
1994 from $46.6 million in 1993.
Gross profit margins improved to 24.8% of sales in 1994 as compared to 24.4% in
1993. A strong 1.5 percentage point improvement within the industrial
segments was offset by dramatic decreases in gross profit margins for the
Paper Products segment. Due to increased sales volume and productivity
improvements, existing businesses reduced their selling, general and
administrative (SG&A) costs, including research and development costs, as a
percent of sales in 1994. The newly acquired Schroff businesses typically
have a higher SG&A expense due to separate operations in several countries.
Overall, SG&A expense increased as a percent of sales to 17.7% from 16.8%
in 1993.
Operating income as a percent of net sales for wholly-owned businesses was 7.1%
in 1994 and 7.5% in 1993. Pentair industrial businesses increased their
operating margins during the year by 1.1 percentage points through a
combination of improved market conditions and greater operating efficiency.
These improvements were offset by external factors affecting the paper
businesses.
29
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PNTA
<PAGE>
Interest expense increased due to higher borrowings as a result of the Schroff
acquisition and higher overall interest rates, although the impact of this
was mitigated as a result of a favorable mix of borrowing rates. Effective
tax rates remained at 39.8% for 1994.
1993 VERSUS 1992 Consolidated net sales increased to $1,328.2 million in 1993.
Most of the $89.5 million or 7.2% sales increase resulted from general
improvements in market demand and full-year benefit of acquired product
lines (General Industrial Equipment segment) and from expansion into new
markets (Specialty Products segment).
Operating income as a percent of net sales for wholly-owned businesses was 7.5%
in 1993 and 1992. Two subsidiaries increased operating margins as a result
of improved market conditions and greater operating efficiency. These
improvements were offset by economy-related volume and cost problems in
Germany, some weakness in paper grades that had been more resilient in 1992
and the impact of a stronger dollar on various businesses.
Joint venture income decreased $3.6 million because of the substantial
oversupply of supercalendered (SCA) paper and light-weight coated (LWC)
grades, leading to lower prices and upgrades to LWC by SCA users.
Interest expense decreased slightly. The prior year included an additional
provision for interest on tax settlements. Average borrowings increased to
finance investments in joint ventures and working capital related to
increased sales. Lower floating interest rates helped; however, much of the
floating rate debt was fixed at higher rates with intermediate-term private
placements.
The effective income tax rate decreased from 41.1% to 39.8%. The U.S. statutory
rate increased 1% and the foreign tax component increased because certain
foreign operating losses were not fully deductible. Both years benefited
from tax refunds on repatriated earnings. These increases were offset by
the impact of the statutory rate change on net deferred tax assets and
favorable settlements of prior-year tax examinations.
[GRAPH]
30
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PNTA
<PAGE>
SEGMENT DISCUSSION
SPECIALTY PRODUCTS Businesses in this group manufacture products designed and
marketed for commercial, residential and municipal construction and a
variety of professional craftsmen and do-it-yourself applications. The
products include woodworking machinery (Delta), portable power tools
(Porter-Cable), residential water systems, sump pumps, environmental pumps
and grinders, and industrial pumps (Myers).
1994 VERSUS 1993 Specialty Products sales increased $54.0 million or 13.1%.
Growth at Delta and Porter-Cable was driven by expanded distribution in the
home center and hardware channels. Myers benefited from new channels of
distribution and strong market demand in water systems. All businesses
experienced growth due to new product improvements and strong market demand
due to positive housing starts and construction trends.
Operating income as a percent of sales increased to 10.6% from 10.2%,
attributable to productivity gains and capacity efficiencies.
1993 VERSUS 1992 Specialty Products sales increased $34.1 million or 9.0%. Each
business increased sales by $10 million or more, reflecting the benefits of
pursuing new distribution channels and markets, new product introductions
and new market penetration.
Operating income as a percent of sales declined to 10.2% from 10.6% because 1992
included a gain from sale of operating assets. In addition, the Canadian
operations of two subsidiaries felt the impact of the weak Canadian economy
and unfavorable currency exchange in 1993.
OUTLOOK Sales and operating income are anticipated to increase in 1995. The
group will continue to aggressively advertise to build brand name awareness
and continue its focus on broader distribution and market expansion, on
developing new and differentiated products and on maintaining excellent
customer service.
GENERAL INDUSTRIAL EQUIPMENT The products of this group include electrical
enclosures (Hoffman), electronic enclosures (Schroff) and lubrication
systems and material dispensing equipment (Lincoln Industrial). These
products are designed to facilitate industrial and commercial expansion and
efficiencies. Other businesses in this group include automotive service
equipment (Lincoln Automotive) and sporting and law enforcement ammunition
(Federal).
1994 VERSUS 1993 General Industrial sales increased $261.1 million or 48.8% over
1993. The existing businesses grew 15% with the acquisition of Schroff
contributing the balance. New products and strong market demand contributed
to the increase in sales for existing businesses. Strong durable goods
markets boosted orders at Hoffman (electrical enclosures) and Schroff
(electronic enclosures). The positive change in the European economy helped
drive sales at the German subsidiaries. Ammunition (Federal) orders were
unusually strong in 1994 as customers stockpiled inventories, which the
company believes was a reaction to pending legislation.
Operating income as a percent of sales increased to 9.5% from 7.9%. Although
margins of newly acquired businesses are often lower during the first year
of operation, overall the segment's operating margins improved during 1994,
resulting from volume efficiencies and productivity improvements.
1993 VERSUS 1992 General Industrial sales increased $48.5 million, or 10.0%.
Electrical enclosure volume increased substantially from lower recessionary
levels. The automotive service equipment sales increased more than 33%,
primarily due to the full-year benefit of mid-1992 acquisition of product lines.
Ammunition sales increased slightly. Increased sales of lubrication and material
dispensing equipment were offset by a substantial decline (22.6%) of sales in
[GRAPH]
28% SPECIALTY PRODUCTS % of Pentair Net Sales
[GRAPH]
48% GENERAL INDUSTRIAL EQUIPMENT % of Pentair Net Sales
31
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PNTA
<PAGE>
[GRAPH]
24% PAPER PRODUCTS SEGMENT % of Pentair Net Sales
Germany, which was in the midst of its worst recession in many decades.
Operating income as a percent of net sales remained at 7.9%. The electrical
enclosure margins increased substantially as a result of higher volumes and
the resolution of a 1992 mid-year shipping problem. Automotive service
equipment margins continued to increase as a result of productivity gains
and capacity efficiencies. The sporting ammunition business benefited from
lower raw material costs and improved operating efficiencies. A negative
margin impact was felt from the substantial sales decline at Lincoln GmbH
and related downsizing charges that were incurred late in 1993.
OUTLOOK General Industrial Equipment sales and operating income are anticipated
to increase again in 1995. A strong durable goods market, new products and
productivity improvements should continue to enhance performance. In 1995
and 1996, synergies created by the partnership of Schroff and Hoffman
product lines are anticipated to increase sales volume and earnings.
24% PAPER PRODUCTS SEGMENT % OF PENTAIR NET SALES
PAPER PRODUCTS (EXCLUDING LSPI)
Businesses in this group manufacture products sold to the publishing and
printing markets. These products primarily include coated groundwood paper
and uncoated printing and writing papers.
1994 VERSUS 1993 Paper sales increased $5.9 million or 1.5%. For the year,
coated groundwood paper volume increased 4.3%, while prices decreased 2.3%.
Uncoated printing and writing paper volume increased 3.3%, while prices
decreased 2.0%. However, during the fourth quarter of 1994, prices improved
dramatically, rising about 12% over third-quarter 1994 prices in the coated
paper market and about 9% over third-quarter 1994 prices in the uncoated
paper market.
Operating income as a percent of sales fell to 3.4% from 8.6%. Rising raw
material prices in the kraft pulp and waste paper markets squeezed margins.
1993 VERSUS 1992 Paper sales increased $6.9 million or 1.8%. Coated paper volume
decreased 4.1%, while average coated publication paper prices increased
7.0%. Uncoated paper volume increased 1.5%, while average specialty paper
prices showed a slight decline of 0.3%.
Operating income as a percent of sales increased slightly to 8.6% from 8.4%.
Coated paper margins improved substantially as selling prices increased and
operating costs were reduced. Uncoated paper margins were squeezed by the
higher cost of fiber and other raw materials needed to produce
higher-priced paper. Downtime created by short backlogs also reduced
margins.
OUTLOOK Significant paper price increases are expected to continue in 1995 at a
rate greater than the anticipated rate of increases in raw material prices,
thereby improving margins.
JOINT VENTURES The company's two joint ventures are: Lake Superior Paper
Industries (LSPI), which sells supercalendered (SCA) paper and, since 1993,
LSPI Fiber Co., which sells recycled pulp to LSPI and other paper mills.
The company's equity in joint venture income (loss) was $1.8 million,
($1.9) million and $1.7 million in 1994, 1993 and 1992, respectively.
1994 VERSUS 1993 LSPI volume increased 3.5% and selling prices increased 2.9%
over 1993. The equity in joint venture income increased by $3.7 million due
to higher SCA prices in the last quarter of 1994, following price increases
in light-weight coated papers. Production efficiencies on the paper machine
throughout the year also contributed to improved operating margins.
32
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PNTA
<PAGE>
1993 VERSUS 1992 The recession in Europe affected domestic paper markets. Late
1992 devaluations helped Scandinavian paper makers increase exports to the
already over-supplied U.S. market. LSPI selling prices declined 9.9% while
shipments increased 5.1%. The substantial price decline could not be fully
offset by material cost reductions or operating efficiencies, and resulted
in an operating loss.
Outlook SCA paper prices should continue to increase in 1995 as increases in raw
materials are passed on to customers.
INFLATION The rate of inflation remains at reasonable levels in the United
States and most of the foreign economies that affect Pentair results.
INSURANCE SUBSIDIARY The company's captive insurance subsidiary provides a
cost-effective means of obtaining insurance coverage for general and
product liability, workers' compensation and auto liability. The insurance
subsidiary insures directly and reinsures an admitted carrier. Loss
reserves are established based on actuarial projections of ultimate loss.
ENVIRONMENTAL MATTERS Pentair's Paper Products segment, like other paper
producers, has ongoing programs designed to deal with various environmental
operating issues such as water treatment, solid waste disposal and the
cleanup of sites attributable to past industry practices that have resulted
in impacts upon the environment. Pentair believes that under current laws
and regulations the environmental problems are manageable in the ordinary
course of the operations of the affected businesses. Other subsidiaries
also face some remediation of soil and groundwater as a result of
predecessors or their own previous disposal practices. In addition, Pentair
subsidiaries have been named as potentially responsible parties at a small
number of Superfund or other sites being studied or remediated. In all
cases to date, the affected business has been deemed to be a DE MINIMIS
defendant or the business's share of remediation costs has not been
material to the company.
For purposes of maintaining appropriate reserves against liabilities associated
with environmental issues, whether involving on- or off-site locations,
Pentair management reviews each individual site, taking into consideration
the number of parties involved with the site, the joint and several
liability imposed by certain environmental laws, the expected level of
contributions of the other parties, the nature and quantities of wastes
involved, the expected method and extent of remediation, the estimated
professional expenses involved and the time period over which any costs
would be incurred. Based on this evaluation, reserves are established when
loss amounts are probable and reasonably estimable. Insurance recoveries
are recorded only when claims for recovery are settled.
The company also engages environmental professionals to perform periodic audits
of its facilities to assist Pentair in complying with the various
environmental laws and regulations faced by its businesses. Capital
expenditures necessary for compliance with environmental regulations were
not material for fiscal years 1994 or 1993, nor are they anticipated to be
material in the foreseeable future.
33
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PNTA
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
The consolidated financial statements of Pentair, Inc. have been prepared by
company management which is responsible for their integrity and
objectivity. These statements have been prepared in accordance with
generally accepted accounting principles and, where appropriate, reflect
estimates based on judgments of management.
Pentair maintains a system of internal controls. Our systems provide reasonable
assurance that assets are protected, that transactions are appropriately
reported and established procedures are followed.
The financial statements have been audited by Deloitte & Touche LLP, independent
certified public accountants, whose report appears on this page.
The Audit Committee of the Board of Directors, comprised of outside directors,
meets periodically with the independent certified public accountants and
management to monitor activities and to ensure that each is properly
discharging its responsibilities. The independent certified public
accountants have free access to the Audit Committee, without management
present, to discuss the results of their audit, the adequacy of internal
accounting controls, and the quality of financial reports.
/s/ Winslow H. Buxton /s/ David D. Harrison
--------------------------- ----------------------------------------
Winslow H. Buxton, CHAIRMAN, David D. Harrison, SENIOR VICE PRESIDENT
PRESIDENT AND CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
TO THE DIRECTORS AND SHAREHOLDERS OF PENTAIR, INC.:
We have audited the accompanying consolidated balance sheets of Pentair, Inc.
and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of income, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Pentair, Inc. and subsidiaries
at December 31, 1994 and 1993, and the results of their operations and
their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, effective
January 1, 1992, the company changed its method of accounting for
postretirement benefits other than pensions to conform with Statement of
Financial Accounting Standards No. 106 and its method of accounting for
income taxes to conform with Statement of Financial Accounting Standards
No. 109.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
MINNEAPOLIS, MINNESOTA
FEBRUARY 10, 1995, EXCEPT NOTE 4, AS TO WHICH THE DATE IS FEBRUARY 21, 1995
34
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<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PENTAIR, INC. AND SUBSIDIARIES
------------------------------
YEARS ENDED DECEMBER 31
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $1,649,170 $1,328,180 $1,238,724
--------------------------------------------------------------------------------------------------------------
OPERATING COSTS
COST OF GOODS SOLD 1,240,262 1,004,471 937,232
SELLING, GENERAL AND ADMINISTRATIVE 279,313 214,274 199,761
RESEARCH AND DEVELOPMENT 12,125 9,322 9,374
--------------------------------------------------------------------------------------------------------------
TOTAL OPERATING COSTS 1,531,700 1,228,067 1,146,367
--------------------------------------------------------------------------------------------------------------
117,470 100,113 92,357
EQUITY IN JOINT VENTURE INCOME (LOSS) 1,779 (1,920) 1,682
--------------------------------------------------------------------------------------------------------------
OPERATING INCOME 119,249 98,193 94,039
INTEREST EXPENSE (33,367) (22,640) (22,771)
INTEREST INCOME 3,218 1,847 1,432
--------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
CHANGES IN ACCOUNTING 89,100 77,400 72,700
PROVISION FOR INCOME TAXES 35,500 30,800 29,900
--------------------------------------------------------------------------------------------------------------
INCOME BEFORE CHANGES IN ACCOUNTING 53,600 46,600 42,800
CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING -- -- (41,625)
--------------------------------------------------------------------------------------------------------------
NET INCOME 53,600 46,600 1,175
PREFERRED DIVIDEND REQUIREMENTS 5,416 6,114 8,545
--------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE
TO COMMON STOCK $ 48,184 $ 40,486 $ (7,370)
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER COMMON SHARE
Primary:
BEFORE CHANGES IN ACCOUNTING $ 2.62 $ 2.26 $ 2.15
CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING -- -- (2.61)
--------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 2.62 $ 2.26 $ (0.46)
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
Fully Diluted:
BEFORE CHANGES IN ACCOUNTING $ 2.52 $ 2.20 $ 2.03
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING
PRIMARY 18,422 17,891 15,936
DILUTED 21,040 20,955 20,817
--------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
35
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<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
----------------------------------------------------------
PENTAIR, INC. AND SUBSIDIARIES DECEMBER 31
IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
CASH AND CASH EQUIVALENTS $ 32,677 $ 10,327
ACCOUNTS RECEIVABLE -- TRADE (NET) 255,105 200,425
INVENTORIES 243,651 198,826
DEFERRED INCOME TAXES 27,749 21,575
OTHER CURRENT ASSETS 10,037 7,627
--------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 569,219 438,780
-------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT
LAND AND LAND IMPROVEMENTS 25,261 14,857
BUILDINGS 124,491 74,074
MACHINERY AND EQUIPMENT 599,298 506,566
CONSTRUCTION IN PROGRESS 15,358 26,120
-------------------------------------------------------------------------------
TOTAL 764,408 621,617
LESS ACCUMULATED DEPRECIATION 353,422 305,751
-------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT 410,986 315,866
-------------------------------------------------------------------------------
MARKETABLE SECURITIES -- INSURANCE SUBSIDIARY 23,655 18,594
INVESTMENT IN JOINT VENTURES 81,102 72,867
GOODWILL -- NET 170,965 88,970
OTHER ASSETS 25,569 23,724
-------------------------------------------------------------------------------
TOTAL ASSETS $1,281,496 $958,801
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
36
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<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
In Thousands 1994 1993
--------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 115,962 $ 93,820
Compensation and Other Benefits Accruals 58,297 42,737
Income Taxes 7,570 8,787
Accrued Product Claims and Warranties 25,484 22,256
Accrued Expenses and Other Liabilities 72,612 50,075
Current Maturities of Long-term Debt 5,766 803
--------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 285,691 218,478
--------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT 408,503 238,856
OTHER LIABILITIES 20,883 18,911
DEFERRED INCOME TAXES 22,706 7,518
PENSIONS AND OTHER RETIREMENT COMPENSATION 29,521 29,687
POSTRETIREMENT MEDICAL AND OTHER BENEFITS 61,134 60,637
RESERVES -- INSURANCE SUBSIDIARY 21,084 13,865
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY
Preferred Stock -- at Liquidation Value
Outstanding: 1,953,243 Shares in 1994 and 1,976,443 in 1993 68,444 69,380
Unearned ESOP Compensation (27,528) (35,453)
Common Stock -- Par Value, $.16 2/3
Outstanding: 18,248,155 Shares in 1994
and 18,134,638 in 1993 3,041 3,022
Additional Paid-in Capital 166,314 163,460
Currency Translation and Pension Adjustments 8,033 (7,047)
Retained Earnings 213,670 177,487
--------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 431,974 370,849
--------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,281,496 $ 958,801
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
37
----
PNTA
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PENTAIR, INC. AND SUBSIDIARIES
------------------------------
YEARS ENDED DECEMBER 31
In Thousands 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREFERRED STOCK
Beginning Balance $ 69,380 $ 120,137 $ 120,868
Conversions into Common (936) (50,757) (731)
--------------------------------------------------------------------------------------------------------------
Ending Balance 68,444 69,380 120,137
--------------------------------------------------------------------------------------------------------------
UNEARNED ESOP COMPENSATION (27,528) (35,453) (42,755)
--------------------------------------------------------------------------------------------------------------
COMMON STOCK
Beginning Balance 3,022 1,758 1,743
Employee Stock Plans -- Net 13 15 12
Stock Dividend -- 1,004 --
Conversions into Common 6 245 3
--------------------------------------------------------------------------------------------------------------
Ending Balance 3,041 3,022 1,758
--------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID IN CAPITAL
Beginning Balance 163,460 112,125 109,000
Employee Stock Plans -- Net 1,939 1,934 2,412
Stock Dividend -- (1,048) --
Conversions into Common 915 50,449 713
--------------------------------------------------------------------------------------------------------------
Ending Balance 166,314 163,460 112,125
--------------------------------------------------------------------------------------------------------------
CURRENCY TRANSLATION AND PENSION ADJUSTMENTS
Beginning Balance (7,047) (1,483) 1,131
Currency Translation 11,414 (709) (1,369)
Pension Adjustments 3,666 (4,855) (1,245)
--------------------------------------------------------------------------------------------------------------
Ending Balance 8,033 (7,047) (1,483)
--------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Beginning Balance 177,487 147,612 163,837
Net Income 53,600 46,600 1,175
Dividends:
Common (13,105) (11,931) (10,318)
Preferred (5,416) (6,114) (8,545)
Tax Benefit of Preferred Dividends 1,104 1,320 1,463
--------------------------------------------------------------------------------------------------------------
Ending Balance 213,670 177,487 147,612
--------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 431,974 $ 370,849 $ 337,394
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
38
----
PNTA
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PENTAIR, INC. AND SUBSIDIARIES
------------------------------
YEARS ENDED DECEMBER 31
In Thousands 1994 1993 1992
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net Income $ 53,600 $ 46,600 $ 1,175
Adjustments to Reconcile to Cash Flow:
Depreciation 58,322 47,657 45,454
Amortization of Intangible Assets 5,815 2,469 2,447
Deferred Income Taxes 9,026 3,357 (614)
Undistributed Loss (Earnings) from Joint Ventures (1,779) 1,920 (1,682)
Cumulative Effects of Changes in Accounting -- -- 41,625
Changes in Assets and Liabilities,
Net of Effects of Acquisition:
Receivables (31,734) (16,339) (15,454)
Inventories (19,685) (15,940) (10,393)
Other Assets (5,930) (5,486) (3,568)
Accounts Payable 16,352 5,410 21,201
Income Taxes (2,493) (1,157) (831)
Pensions and Other Retirement Compensation (10,249) 7,968 105
Reserves -- Insurance Subsidiary 7,219 8,279 5,586
Other Liabilities 32,633 6,972 2,309
--------------------------------------------------------------------------------------------------------------
Cash Provided by Operating Activities 111,097 91,710 87,360
--------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Capital Expenditures (92,745) (73,421) (67,235)
Cash Investment in Joint Ventures -- Net (6,456) (16,522) (9,000)
Acquisition of Business -- Net of Cash Acquired (139,750) -- --
Purchase of Operating Assets -- -- (9,419)
Sale of Operating Assets -- -- 4,000
Purchase of Marketable Securities (9,598) (13,513) (8,076)
Proceeds from Sale of Marketable Securities 4,537 2,976 19
--------------------------------------------------------------------------------------------------------------
Cash Used for Investing Activities (244,012) (100,480) (89,711)
--------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Long-term Borrowings 171,528 128,853 21,524
Payments of Long-term Debt (19,231) (109,741) (4,369)
Unearned ESOP Compensation Decrease 7,925 7,302 4,047
Employee Stock Plans and Other 3,041 3,164 3,872
Dividends (18,521) (18,045) (18,863)
--------------------------------------------------------------------------------------------------------------
Cash Provided by Financing Activities 144,742 11,533 6,211
--------------------------------------------------------------------------------------------------------------
EFFECTS OF CURRENCY EXCHANGE RATE CHANGES 10,523 (828) (1,595)
INCREASE IN CASH AND CASH EQUIVALENTS 22,350 1,935 2,265
CASH AND CASH EQUIVALENTS -- BEGINNING OF PERIOD 10,327 8,392 6,127
--------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS -- END OF PERIOD $ 32,677 $ 10,327 $ 8,392
--------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash Payments for:
Interest, Net of Amount Capitalized $ 31,638 $ 20,907 $ 18,926
Income Taxes $ 29,250 $ 31,016 $ 32,700
--------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
39
----
PNTA
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The consolidated financial statements include
Pentair, Inc. and its wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. The equity
method of accounting is used for the joint ventures (See Note 16).
CASH EQUIVALENTS The company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents.
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost.
Depreciation is computed using the straight-line method. Estimated useful
lives are:
Land Improvements: 5 years
Buildings: 6 to 33 years
Machinery and Equipment: 3 to 16 years
INSURANCE SUBSIDIARY The company's wholly-owned insurance subsidiary,
established in June 1992, insures general and product liability, workers'
compensation, and auto liability risks. The insurance subsidiary invests in
marketable securities including debt and equity securities classified,
effective January 1, 1994, as available-for-sale in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities." Debt and equity
securities are carried at fair value on the balance sheet with unrealized
gains and losses reported in a component of shareholders' equity. The
adoption of this Statement did not have a material effect on the company's
financial position or results of operations.
These investments are treated as operating assets of the insurance subsidiary
and the related earnings ($1,108,000, $775,000 and $163,000 in 1994, 1993
and 1992, respectively) are recorded as a reduction of the insurance
component of cost of sales. Reserves for policy claims ($26,355,000 in
1994 and $17,332,000 in 1993) are established based on actuarial
projections of ultimate loss.
THE COST AND MARKET VALUE OF DEBT AND EQUITY SECURITIES OF THE INSURANCE
SUBSIDIARY AT DECEMBER 31, BY CONTRACTUAL MATURITY, ARE SHOWN BELOW:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993
---------------------------------------------------------------------------------------------------------------
Debt Securities: Cost Market Cost Market
------------------------------------------------------
<S> <C> <C> <C> <C>
DUE DURING THE NEXT YEAR $ 1,828 $ 1,839 $ 75 $ 75
DUE AFTER ONE YEAR THROUGH FIVE YEARS 17,458 16,532 11,727 11,853
DUE AFTER FIVE YEARS THROUGH TEN YEARS 1,625 1,538 4,593 4,642
--------------------------------------------------------------------------------------------------------------
20,911 19,909 16,395 16,570
--------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES: 3,640 3,746 2,139 2,024
--------------------------------------------------------------------------------------------------------------
TOTAL $ 24,551 $ 23,655 $ 18,534 $ 18,594
--------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------
</TABLE>
GOODWILL The excess purchase price paid over net assets of businesses acquired
is amortized on a straight-line basis over periods ranging from 25 to 40
years. The amortization recorded for 1994, 1993 and 1992 was $5,895,000,
$2,542,000 and $2,543,000, respectively. Accumulated amortization was
$18,607,000 and $12,712,000 at December 31, 1994 and 1993, respectively.
The company periodically reviews goodwill to assess recoverability, based
on projected income and related cash flow. Impairments would be recognized
in operating results if a permanent diminution in value were to occur.
40
----
PNTA
<PAGE>
FOREIGN CURRENCY TRANSLATION Translation gains or losses resulting from
translating foreign currency financial statements are reported in a
separate component of shareholders' equity. Foreign currency transaction
gains and losses are included in earnings as incurred.
REVENUE RECOGNITION Revenue from sales is recognized at the time the product is
shipped.
PRODUCT WARRANTY COSTS Provision for estimated warranty costs is recorded at the
time of sale and periodically adjusted to reflect actual experience.
RESEARCH AND DEVELOPMENT Research and development expenditures are expensed
as incurred.
EARNINGS PER COMMON SHARE 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. No fully dilutive data is
shown for the cumulative effects of accounting changes and 1992 net income
because conversion of preferred shares would be anti-dilutive.
On April 21, 1993 the board of directors approved a three-for-two stock split in
the form of a 50% stock dividend. The dividend was payable June 11, 1993 to
shareholders of record at the close of business on May 14, 1993. All
references in the financial statements to average number of shares
outstanding and related prices, per share amounts, and the stock plan data
have been restated to reflect this split.
INTEREST CAPITALIZATION The following implied interest costs applicable to
capital projects have been excluded from interest expense: 1994,
$1,066,000; 1993, $735,000; and 1992, $788,000.
RECENT ACCOUNTING STANDARDS Effective January 1, 1994, the company adopted
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The adoption of this statement did not have a material
effect on the company's financial position or results of operations.
RECLASSIFICATIONS Certain reclassifications have been made to prior years'
financial statements to conform to the current year presentation.
2. ACQUISITION Effective January 1, 1994, the company acquired Schroff GmbH and
its international subsidiaries, manufacturers of cabinets, cases, subracks
and accessories for the electronics industry, for $139.8 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 will be 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. Had the acquisition occurred at January 1, 1993,
unaudited pro forma results for 1993 are: net sales $1,480.2 million; net
income, $46.8 million and primary and diluted earnings per share, $2.27 and
$2.21, respectively.
41
----
PNTA
<PAGE>
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.
3. CUMULATIVE EFFECTS OF CHANGES IN ACCOUNTING Effective January 1, 1992,
Pentair adopted Financial Accounting Standard (FAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions" and Financial
Accounting Standard (FAS) No. 109, "Accounting for Income Taxes." The
combined effect of these accounting changes was to decrease 1992 net income
by $42,237,000 ($41,625,000 cumulative effect and $612,000 operations) or
$2.78 per share. As to FAS 106, the cumulative effect recorded as of
January 1, 1992 was $36,891,000 or $2.32 per primary share. This represents
the January 1, 1992 projected benefit obligation for prior service cost
($59,504,000) less taxes (a $22,613,000 reduction in net deferred taxes).
As to FAS 109, the cumulative effect recorded as of January 1, 1992 was to
decrease net income by $4,734,000, or $.29 per primary share.
4. PENDING DIVESTITURE In February 1995, an agreement was signed for the sale of
Cross Pointe Paper, to be completed in April 1995, subject to certain
conditions. The aggregate sales price of $200 million exceeds its book
value. Cross Pointe's operations had revenues of $249.3 million, $233.8
million and $231.0 million for the years ending December 31, 1994, 1993 and
1992, respectively.
5. BALANCE SHEET INFORMATION Accounts receivable are stated net of allowances
for doubtful accounts of $7,680,000 in 1994 and $6,197,000 in 1993.
Inventories are stated at the lower of cost or market. The Paper segment and
all foreign companies use the first-in, first-out (FIFO) and moving
average cost basis. The domestic Specialty Products and General Industrial
segments use the last-in, first-out (LIFO) cost basis.
INVENTORIES ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993
----------------------------------------------------------------------
<S> <C> <C>
FINISHED GOODS $ 139,066 $ 122,712
WORK IN PROCESS 42,502 35,315
RAW MATERIALS
AND SUPPLIES 62,083 40,799
----------------------------------------------------------------------
TOTAL $ 243,651 $ 198,826
----------------------------------------------------------------------
----------------------------------------------------------------------
</TABLE>
If all LIFO inventories were valued at FIFO, aggregate inventory would have been
$250,020,000 and $204,108,000 at December 31, 1994 and 1993, respectively.
6. LONG-TERM DEBT AND CREDIT FACILITIES Revolving credit agreements are with six
banks providing credit facilities of U.S.$220 million and Deutsche Mark
(DM) 115 million. The company pays a commitment fee at the rate of .150 of
1% per annum on the total amount of the credit facility. The revolving
credit facilities are committed through January 1, 1997 (term-out date). If
not renewed prior to that date, outstanding loans at the term-out date are
payable in 16 quarterly installments through January, 2001. In the past,
the company has consistently renewed its revolving credit agreements prior
to the term-out date.
42
----
PNTA
<PAGE>
DEBT IS SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVOLVING CREDIT FACILITIES: U.S.$ REVOLVERS $ 157,000 $ 65,000
DM REVOLVER 74,242 0
PRIVATE PLACEMENT DEBT, DUE 1996 TO 2003, AVERAGE INTEREST RATE 7.64% 160,000 160,000
OTHER, DUE PERIODICALLY TO 2005, AVERAGE INTEREST RATE 7.1% 23,027 14,659
-------------------------------------------------------------------------------------------------------------------
TOTAL 414,269 239,659
-------------------------------------------------------------------------------------------------------------------
CURRENT MATURITIES 5,766 803
-------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 408,503 $ 238,856
-------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, the company had U.S.$157 million and DM 115 million
(U.S.$ 74.2 million) borrowed under the credit facilities at an average
interest rate of 6.05%. The average credit facilities borrowing rates were
5.2% in 1994 and 3.7% in 1993. See also interest rate swap agreements at
Note 7.
Various debt agreements require the company to maintain minimum levels of
earnings, tangible net worth and certain financial ratios. The agreements
also contain various restrictive limitations on the payment of dividends
and certain other restricted payments. Under the most restrictive
covenants, $135,000,000 of the December 31, 1994 retained earnings were
unrestricted for such purposes. The company has remained in compliance
with these covenants.
Total long-term debt maturities, excluding revolving credit facilities, are
$5,766,000, $51,844,000, $16,377,000, $15,811,000 and $38,406,000 for the
years 1995 through 1999, respectively.
If revolving credit facilities are not renewed, the payouts would be $43,296,000
in 1997, $57,810,000 in 1998 through 2000, and $14,516,000 in 2001.
7. FINANCIAL INSTRUMENTS The company has interest rate swap agreements with
major financial institutions. In order to manage interest rate exposures,
swaps are used to change variable rate interest obligations under revolving
credit facilities to fixed-rate obligations without the exchange of the
underlying principal amounts. Net payments or receipts under the agreements
are recorded as adjustments to interest expense and credit risk is
considered remote.
As of December 31, 1994, the company had swap agreements outstanding with an
aggregate notional amount of $100,000,000. The swap agreements have
maturities of $20,000,000 and $80,000,000 in 1995 and 1996, respectively.
The average interest rate fixed under the swap agreements is 9.35%. Under
the interest rate environment existing as of December 31, 1994, the net
fair value of the company's swap agreements, based on market prices quoted
by dealers, was a net liability of $2,570,000.
Long-term debt, including current maturities, has a carrying value of
$414,269,000 and a fair value of $406,123,000. The estimated fair value
represents the present value of debt service at rates currently available
to the company for issuance of debt with similar terms. Except for the
above, all financial instruments are carried at amounts that approximate
estimated fair value.
43
----
PNTA
<PAGE>
8. LEASE COMMITMENTS At December 31, 1994, major operating lease commitments
include: paper production equipment (expiring in 1996, 1999 and 2006) and
a power plant (expiring in 2007).
FUTURE MINIMUM RENTAL PAYMENTS UNDER ALL OPERATING LEASES ARE:
<TABLE>
<CAPTION>
IN THOUSANDS
--------------------------------------------------------
<S> <C>
YEAR
1995 $ 23,471
1996 15,727
1997 13,266
1998 10,956
1999 9,498
THEREAFTER 41,082
--------------------------------------------------------
TOTAL $ 114,000
--------------------------------------------------------
--------------------------------------------------------
</TABLE>
Rent expense related to operating leases amounted to $25,417,000, $20,542,000
and $19,638,000 in 1994, 1993 and 1992, respectively.
9. COMMITMENTS AND CONTINGENCIES Various lawsuits, claims and proceedings have
been or may be instituted or asserted against the company relating to the
conduct of its businesses, including those pertaining to product liability,
environmental, safety and health, and employment matters. The company
records liabilities when loss amounts are determined to be probable and
reasonably estimable. Insurance recoveries are recorded only when claims
for recovery are settled. Although the outcome of litigation cannot be
predicted with certainty and some lawsuits, claims or proceedings may be
disposed of unfavorably to the company, management believes, based on facts
presently known, that the outcome of such legal proceedings and claims will
not have a material adverse effect on the company's financial position or
future results of operations.
Under a $382,000,000 LSPI leveraged-lease financing, the company is committed to
provide up to $90,000,000 additional cash to LSPI if needed to meet its
lease obligation. Advances represented by subordinated notes have been made
to fund prepaid rent payments made at year end.
10. CAPITAL STOCK
PREFERRED STOCK The two classes of preferred stock (par value -- $0.10) are:
$7.50 Callable Cumulative Convertible Preferred Stock, Series 1988; and 8%
Callable Cumulative Voting Convertible Preferred Stock, Series 1990. Both
issues are held by ESOPs (see Note 12). The preferred shares are
convertible into common stock and are redeemable, in whole or in part, at
the option of the company on or after the dates indicated below, and at
redemption prices declining to the original price per share after ten
years.
<TABLE>
<CAPTION>
PREFERRED STOCK SERIES 1988 SERIES 1990
-----------------------------------------------------------------------------
<S> <C> <C>
Shares
AUTHORIZED 300,000 2,500,000
ISSUED AND OUTSTANDING 134,165 1,819,078
Liquidation Value $100.00 $ 30.25
Conversion
PRICE OF COMMON $ 21.33 to 26.67 $ 26.217
SHARES OF COMMON 4.6875 to 3.75 1.1538
Early Redemption Date JANUARY 1991 MARCH 1994
-----------------------------------------------------------------------------
</TABLE>
44
----
PNTA
<PAGE>
Upon the retirement or other termination of an ESOP participant, the shares of
preferred stock (Series 1988 and 1990) in which he or she is vested are
automatically converted into common shares and distributed in that form,
with fractional shares paid in cash.
All outstanding shares of its $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
1,450,780 shares of common stock.
COMMON STOCK The authorized stock of the company also consists of 72,200,000
shares of common stock with a par value of $0.16 2/3. On April 21, 1993 the
board of directors approved a three-for-two stock split in the form of a
50% stock dividend. The dividend was payable June 11, 1993 to shareholders
of record at the close of business on May 14, 1993.
CHANGES IN OUTSTANDING COMMON SHARES ARE SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C>
BEGINNING BALANCE 18,135 10,548 10,456
EMPLOYEE STOCK PLANS -- NET 78 87 73
CONVERSION OF PREFERRED STOCK 35 1,474 19
STOCK DIVIDEND 0 6,026 0
-----------------------------------------------------------------------------------
ENDING BALANCE 18,248 18,135 10,548
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
</TABLE>
11. OMNIBUS STOCK INCENTIVE PLAN In April 1990, shareholders approved the 1990
Omnibus Stock Incentive Plan (the Plan), which authorizes the issuance of
up to 1,634,176 shares of the company's common stock. The Plan extends to
January 11, 2000. At December 31, 1994, there were 471,537 shares available
for grant under the Plan.
The Plan allows for the granting of non-qualified stock options, incentive stock
options, restricted stock and incentive compensation units (ICUs). Although
none has been issued, the Plan also allows for granting of stock
appreciation rights, performance shares and performance units.
RESTRICTED SHARES AND ICUS Restrictions on the restricted shares and ICUs
generally expire in the third, fourth and fifth years after issuance.
Beginning with 1993 grants, ICU restrictions will expire at the end of
three years. The value of each ICU is based on the increase in book value
of common stock during the restriction period and is payable when the
restrictions lift. Compensation expense consists of (a) amortization of the
market value of the stock on the date of award over the period in which the
restrictions lapse, and (b) the annual increase in ICU value. Compensation
expense was $3,050,000 in 1994, $2,491,000 in 1993 and $2,800,000 in 1992.
The company records incremental tax benefits resulting from the program as
additional paid-in capital.
OPTIONS Options are granted to purchase shares at not less than fair market
value of shares on date of grant. Options generally expire after five years
but may expire up to ten years from date of grant.
45
----
PNTA
<PAGE>
DETAILS OF OPTIONS ARE AS FOLLOWS:
<TABLE>
<CAPTION>
NUMBER OF SHARES OPTION PRICE
-------------------------------------------------------------------------------
<S> <C> <C>
1992
GRANTED 224,977 $24.55 -- $29.4167
EXERCISED (98,719) $13.6365 -- $21.3333
FORFEITED (14,064) $16.3333 -- $29.4167
---------
OUTSTANDING, END OF YEAR 601,158 $13.6365 -- $29.4167
---------
EXERCISABLE, END OF YEAR 187,707 $13.6365 -- $21.3333
---------
1993
GRANTED 196,499 $27.00
EXERCISED (158,652) $13.6365 -- $29.4167
FORFEITED (11,134) $16.3333 -- $29.4167
---------
OUTSTANDING, END OF YEAR 627,871 $16.3333 -- $29.4167
---------
EXERCISABLE, END OF YEAR 245,577 $16.3333 -- $29.4167
---------
1994
GRANTED 197,948 $35.50
EXERCISED (81,151) $16.3333 -- $29.4167
FORFEITED (8,206) $21.3333 -- $35.50
---------
OUTSTANDING, END OF YEAR 736,462 $16.3333 -- $35.50
---------
EXERCISABLE, END OF YEAR 354,785 $16.3333 -- $29.4167
---------
</TABLE>
12. EMPLOYEE STOCK OWNERSHIP PLAN (ESOP) The company has an Employee Stock
Ownership Plan (ESOP) covering some U.S. employees. The employees receive
Series 1990 Preferred Stock in lieu of cash 401(k) matching contributions
and other cash compensation.
To finance the plan, the ESOP borrowed $56,500,000 from the company and
exchanged it for 1,867,768 shares of Callable Cumulative Voting Convertible
Preferred Stock, Series 1990 at $30.25 per share. The unpaid balance of the
twenty-year, 8.75% loan with interest only for the first four years is
included in the company's balance sheet as unearned ESOP compensation.
Gross compensation expense (i.e. the value of shares allocated to participant
accounts) was $6,894,000, $6,512,000, and $4,745,000 in 1994, 1993 and
1992, respectively. The stock held by the ESOP is released for allocation
to the participants' accounts as principal and interest is paid from
dividends on unallocated shares ($2,831,000, $3,418,000, and $3,848,000 in
1994, 1993 and 1992, respectively) and company contributions. Through
December 31, 1994, the loan has been reduced by $40,777,000; of this,
$28,972,000 (958,000 shares) has been allocated to participants' accounts
as compensation and dividends; and the difference is included in unearned
compensation.
A separate frozen ESOP holds the Series 1988 Preferred Stock.
46
----
PNTA
<PAGE>
13. PROVISION FOR INCOME TAXES The components of earnings before income taxes
were as follows:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
---------------------------------------------------------------------------
<S> <C> <C> <C>
DOMESTIC $ 76,831 $ 79,251 $ 66,840
FOREIGN 12,269 (1,851) 5,860
---------------------------------------------------------------------------
$ 89,100 $ 77,400 $ 72,700
-------------------------------------------------
-------------------------------------------------
</TABLE>
THE PROVISIONS FOR INCOME TAXES, EXCLUDING TAX BENEFITS CREDITED DIRECTLY TO
SHAREHOLDERS' EQUITY, WERE AS FOLLOWS:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
CURRENT
FEDERAL (LESS FOREIGN TAX CREDITS) $ 21,445 $ 23,396 $ 24,239
STATE 4,196 4,075 4,206
FOREIGN 833 (28) 2,069
------------------------------------------------------------------------------
CURRENT PROVISION 26,474 27,443 30,514
DEFERRED PROVISION 9,026 3,357 (614)
------------------------------------------------------------------------------
TOTAL PROVISION $ 35,500 $ 30,800 $ 29,900
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
A RECONCILIATION OF THE STATUTORY FEDERAL TAX RATE TO THE EFFECTIVE RATE
FOLLOWS:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
STATUTORY FEDERAL INCOME TAX RATE 35.0% 35.0% 34.0%
STATE AND LOCAL INCOME TAXES,
NET OF FEDERAL INCOME TAX BENEFIT 3.1 3.5 3.8
ESOP DIVIDEND BENEFIT (1.1) (1.0) (.9)
INCREMENTAL FOREIGN TAX RATE 2.0 0.9 0.1
GOODWILL 1.1 1.3 1.3
PRIOR YEAR ADJUSTMENT -- (1.0) --
OTHER (0.3) 1.1 2.8
------------------------------------------------------------------------------
EFFECTIVE TAX RATE 39.8% 39.8% 41.1%
------------------------------------------------------------------------------
------------------------------------------------------------------------------
</TABLE>
47
----
PNTA
<PAGE>
THE TAX EFFECT OF THE PRIMARY TEMPORARY DIFFERENCES GIVING RISE TO THE COMPANY'S
DEFERRED TAX ASSETS AND LIABILITIES AT DECEMBER 31, 1994 AND 1993 IS AS FOLLOWS:
<TABLE>
<CAPTION>
Current Long-term
IN THOUSANDS, December 31, 1994 Asset (Liability) Liability (Asset)
--------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNTS RECEIVABLE ALLOWANCES $ 4,576 --
INVENTORY ALLOWANCES (7,286) --
RETIREE MEDICAL LIABILITY 1,338 $ (23,841)
ACCELERATED DEPRECIATION -- 50,646
WARRANTY/PRODUCT LIABILITY ACCRUALS 11,613 (1,386)
EMPLOYEE BENEFIT ACCRUALS 8,904 (10,690)
OTHER 8,604 7,977
-------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAXES $ 27,749 $ 22,706
-------------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Current Long-term
IN THOUSANDS, December 31, 1993 Asset (Liability) Liability (Asset)
-------------------------------------------------------------------------------
<S> <C> <C>
ACCOUNTS RECEIVABLE ALLOWANCES $ 4,692 --
INVENTORY ALLOWANCES (9,124) --
RETIREE MEDICAL LIABILITY 1,170 $ (24,820)
ACCELERATED DEPRECIATION -- 45,475
WARRANTY/PRODUCT LIABILITY ACCRUALS 11,471 (2,196)
EMPLOYEE BENEFIT ACCRUALS 8,089 (11,111)
OTHER 5,277 170
-------------------------------------------------------------------------------
TOTAL DEFERRED INCOME TAXES $ 21,575 $ 7,518
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
14. RETIREMENT PLANS The company has several non-contributory defined benefit
employee pension plans covering substantially all employees of its U.S. and
certain non-U.S. subsidiaries. Employees covered under the bargaining plans
are eligible to participate at the time of employment and the benefits are
based on a fixed amount for each year of service. Employees covered under
the non-bargaining pension plans are eligible to participate upon the
attainment of age 21 and the completion of one year of service; and
benefits are based upon final average salary and years of service. All
employees are fully vested in the plans after 5-7 years of service. The
company's funding policy is to make quarterly contributions as required by
applicable regulations.
ASSUMPTIONS USED TO DEVELOP PENSION DATA WERE:
<TABLE>
<CAPTION>
1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C>
EXPENSE:
DISCOUNT RATE 7.0% 8.0% 8.5%
LONG-TERM RATE OF RETURN ON ASSETS 8.5% 9.0% 9.0%
RATE OF INCREASE IN COMPENSATION 5.0% 6.0% 6.0%
----------------------------------------------------------------------------
PBO Discount Rate Year-End 8.5% 7.0% 8.0%
----------------------------------------------------------------------------
</TABLE>
48
----
PNTA
<PAGE>
THE FUNDED STATUS AND ACCRUED PENSION COST AT DECEMBER 31 ARE AS FOLLOWS:
<TABLE>
<CAPTION>
PLANS WHOSE PLANS WHOSE
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-----------------------------------------------------------------------------------------------------------------------
IN THOUSANDS 1994 1993 1994 1993
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Plan Assets at Fair Value $ 201,553 $ 182,528 $ 19,915 $ 30,965
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Accumulated Benefit
Obligation (ABO):
VESTED BENEFITS $ 142,928 $ 147,665 $ 37,752 $ 47,303
NON-VESTED BENEFITS 2,527 2,316 6,977 3,666
-----------------------------------------------------------------------------------------------------------------------
TOTAL ABO 145,455 149,981 44,729 50,969
PROVISION FOR SALARY INCREASES 49,348 41,898 2,603 615
-----------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT
OBLIGATION (PBO) $ 194,803 $ 191,879 $ 47,332 $ 51,584
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
PLAN ASSETS (IN EXCESS OF)
LESS THAN PBO $ (6,750) $ 9,351 $ 27,417 $ 20,619
NET TRANSITION (LIABILITY) ASSET 1,033 729 (3,056) (3,028)
UNRECOGNIZED PRIOR SERVICE COST (3,426) (3,420) (1,526) (2,555)
UNRECOGNIZED NET GAINS (LOSSES) 10,263 (1,828) (2,952) (12,030)
MINIMUM LIABILITY ADJUSTMENT -- -- 9,453 16,998
-----------------------------------------------------------------------------------------------------------------------
ACCRUED PENSION LIABILITY $ 1,120 $ 4,832 $ 29,336 $ 20,004
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
IN GERMAN PRACTICE, IT IS UNCOMM0N TO FUND PENSION PLANS. APPROXIMATELY $12
MILLION OF THE $27.4 MILLION UNDERFUNDING SHOWN ABOVE (PLAN ASSETS LESS THAN
PBO) RELATES TO THE GERMAN PENSION PLANS.
THE COMPONENTS OF PENSION COST ARE AS FOLLOWS:
<TABLE>
<CAPTION>
In Thousands 1994 1993 1992
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST $ 11,712 $ 8,582 $ 7,707
INTEREST COST ON PROJECTED BENEFIT OBLIGATION 17,433 15,295 14,469
ACTUAL RETURN ON ASSETS (7,450) (23,150) (13,706)
NET AMORTIZATION AND DEFERRAL (8,522) 7,475 (2,106)
----------------------------------------------------------------------------------------------------------
NET PERIODIC PENSION COST $ 13,173 $ 8,202 $ 6,364
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1994, approximately 78% of the plan assets are invested in
listed stocks and bonds or cash and short-term investments. The rest of the
plan assets are invested primarily in fixed-rate guaranteed investment type
contracts purchased from insurance companies. The company's own common
stock accounted for 10% of plan assets.
49
----
PNTA
<PAGE>
15. POSTRETIREMENT MEDICAL AND OTHER BENEFITS The company provides certain
health care and life insurance benefits for retired employees. Employees
become eligible for these benefits if they meet minimum age and service
requirements and are eligible for retirement benefits.
THE ACCRUED POSTRETIREMENT MEDICAL AND OTHER BENEFITS COST THAT ARE NOT FUNDED
WERE AS FOLLOWS AT DECEMBER 31:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993
-------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION (APBO):
<S> <C> <C>
RETIREES $ 35,843 $ 36,566
FULLY ELIGIBLE ACTIVE PLAN PARTICIPANTS 10,498 11,660
OTHER ACTIVE PLAN PARTICIPANTS 10,964 12,221
-------------------------------------------------------------------------------
TOTAL APBO $ 57,305 $ 60,447
UNRECOGNIZED PRIOR SERVICE COST 6,739 7,454
UNRECOGNIZED NET GAINS (LOSSES) 556 (4,264)
-------------------------------------------------------------------------------
ACCRUED POSTRETIREMENT MEDICAL
AND OTHER BENEFITS LIABILITY $ 64,600 $ 63,637
--------------------------------------------------------------------------------
------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
THE COMPONENTS OF THE NET PERIODIC COST ARE AS FOLLOWS:
<TABLE>
<CAPTION>
IN THOUSANDS 1994 1993 1992
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SERVICE COST $ 878 $ 754 $ 1,013
INTEREST COST ON PROJECTED BENEFIT OBLIGATION 4,111 4,039 4,375
AMORTIZATION OF PLAN AMENDMENT (716) (789) (395)
----------------------------------------------------------------------------------------------------
NET PERIODIC POSTRETIREMENT COST $ 4,273 $ 4,004 $ 4,993
----------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
The discount rate used in determining actuarial present value of the benefit
obligations was 8.5% and 7.0% in 1994 and 1993, respectively. The assumed
health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 10.8% in 1994, declining to 6.5% by
the year 2016. If the health care cost trend rate assumptions were
increased by 1%, the accumulated postretirement benefit obligation as of
December 31, 1994 would be increased by 11.0%. The effect of this change on
the sum of the service cost and interest cost would be an increase of
13.9%.
50
----
PNTA
<PAGE>
16. JOINT VENTURES Lake Superior Paper Industries (LSPI) is a 50/50 joint
venture that manufactures paper in Duluth, Minnesota. LSPI Fiber Co. is a
50/50 joint venture that owns 24% of a recycled pulp mill adjacent to the
LSPI facility. For federal income tax purposes, one-half of LSPI and LSPI
Fiber Co. taxable income and tax credits are included in the company's
consolidated tax return.
THE COMBINED FINANCIAL DATA IS SUMMARIZED AS FOLLOWS:
<TABLE>
<CAPTION>
IN THOUSANDS, YEARS ENDED DECEMBER 31 1994 1993 1992
------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
NET SALES $ 164,356 $ 143,837 $ 150,251
OPERATING INCOME 7,346 (892) 5,434
PRETAX INCOME 3,639 (3,837) 3,363
-------------------------------------------------------------------------------
IN THOUSANDS, DECEMBER 31 1994 1993
-------------------------------------------------------------------------------
BALANCE SHEET
CURRENT ASSETS $ 53,144 $ 54,765
PROPERTY -- NET 81,393 81,855
OTHER ASSETS 91,605 78,191
-------------------------------------------------------------------------------
TOTAL ASSETS $ 226,142 $ 214,811
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
LIABILITIES $ 33,165 $ 36,594
DEFERRED GAIN 30,776 32,486
JOINT VENTURE INVESTMENT
SUBORDINATED NOTES 69,237 61,000
CAPITAL CONTRIBUTION 49,719 45,042
UNDISTRIBUTED EARNINGS 43,245 39,689
-------------------------------------------------------------------------------
TOTAL LIABILITIES AND EQUITY $ 226,142 $ 214,811
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
51
----
PNTA
<PAGE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
IN THOUSANDS, EXCEPT PER SHARE AMOUNTS
1994 1st 2nd 3rd 4th Total
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET SALES $389,252 $391,937 $426,070 $441,911 $1,649,170
GROSS PROFIT 98,500 97,495 101,033 111,880 408,908
OPERATING INCOME 26,735 26,454 29,298 36,762 119,249
NET INCOME 11,100 11,825 13,775 16,900 53,600
EARNINGS PER SHARE: PRIMARY .53 .57 .67 .85 2.62
DILUTED .52 .56 .64 .80 2.52
-----------------------------------------------------------------------------------------------------------------------------
1993 1ST 2ND 3RD 4TH TOTAL
-----------------------------------------------------------------------------------------------------------------------------
NET SALES $321,829 $320,283 $345,506 $340,562 $1,328,180
GROSS PROFIT 76,920 76,205 85,754 84,830 323,709
OPERATING INCOME 21,143 21,261 27,470 28,319 98,193
NET INCOME 9,500 9,782 13,295 14,023 46,600
EARNINGS PER SHARE: PRIMARY .45 .46 .66 .69 2.26
DILUTED .44 .46 .63 .67 2.20
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
ALL PER SHARE DATA HAS BEEN ADJUSTED FOR THE THREE-FOR-TWO STOCK SPLIT IN THE
FORM OF A 50% STOCK DIVIDEND IN JUNE 1993.
18. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION (UNAUDITED) Businesses in the
SPECIALTY PRODUCTS SEGMENT manufacture products designed and marketed for
commercial, residential and municipal construction and a variety of
professional craftsmen and do-it-yourself applications. The products
include woodworking machinery (Delta), portable power tools (Porter-Cable),
residential water systems, sump pumps, environmental pumps and grinders,
and industrial pumps (Myers).
Businesses in the GENERAL INDUSTRIAL EQUIPMENT SEGMENT manufacture products
designed to facilitate industrial and commercial expansion and
efficiencies. The products include electrical enclosures (Hoffman),
electronic enclosures (Schroff) and lubrication systems and material
dispensing equipment (Lincoln Industrial). Other businesses include
automotive service equipment (Lincoln Automotive) and sporting and law
enforcement ammunition (Federal).
Businesses in the PAPER PRODUCTS SEGMENT manufacture products sold to the
publishing and printing markets. These products primarily include coated
groundwood paper and uncoated printing and writing papers.
the JOINT VENTURES SEGMENT includes two 50/50 joint ventures accounted for on
the equity method: Lake Superior Paper Industries (LSPI), a producer of
supercalendered paper, and in 1993, LSPI Fiber Co., which owns 24% of an
adjacent recycled pulp mill.
Corporate expense includes administrative costs, charges that do not relate to
current operations and captive insurance activities. Corporate assets
include all cash and cash equivalents.
52
----
PNTA
<PAGE>
SALES AND OPERATING INCOME BY BUSINESS SEGMENT ARE INCLUDED IN THE TABLE ON PAGE
29. THE FOLLOWING TABLES PROVIDE ADDITIONAL SEGMENT INFORMATION.
<TABLE>
<CAPTION>
GENERAL
SPECIALTY INDUSTRIAL PAPER JOINT
IN THOUSANDS PRODUCTS EQUIPMENT PRODUCTS VENTURES CORPORATE TOTAL
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IDENTIFIABLE ASSETS
1994 $ 227,764 $ 618,265 $ 279,388 $ 81,102 $ 74,977 $ 1,281,496
1993 205,737 384,656 254,042 72,867 41,499 958,801
1992 188,393 366,231 229,362 58,265 27,191 869,442
-----------------------------------------------------------------------------------------------------------------------------
DEPRECIATION AND AMORTIZATION
1994 $ 8,036 $ 32,667 $ 23,318 -- $ 116 $ 64,137
1993 7,565 18,870 23,595 -- 96 50,126
1992 8,136 17,489 22,134 -- 142 47,901
-----------------------------------------------------------------------------------------------------------------------------
CAPITAL EXPENDITURES
1994 $ 12,238 $ 45,400 $ 34,884 -- $ 223 $ 92,745
1993 9,860 18,158 45,347 -- 56 73,421
1992 6,712 20,964 39,240 -- 319 67,235
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INFORMATION BY GEOGRAPHIC AREA FOLLOWS:
IN THOUSANDS UNITED STATES EUROPE OTHER TOTAL
<S> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
SALES
1994 $ 1,397,396 $ 180,464 $ 71,310 $ 1,649,170
1993 1,241,089 34,402 52,689 1,328,180
1992 1,138,479 44,190 56,055 1,238,724
----------------------------------------------------------------------------------------------
OPERATING INCOME
1994 $ 101,126 $ 12,054 $ 6,069 $ 119,249
1993 98,641 (4,134) 3,686 98,193
1992 85,837 2,232 5,970 94,039
----------------------------------------------------------------------------------------------
ASSETS
1994 $ 1,034,372 $ 205,559 $ 41,565 $ 1,281,496
1993 910,132 23,077 25,592 958,801
1992 815,863 27,284 26,295 869,442
----------------------------------------------------------------------------------------------
</TABLE>
THE COMPONENTS OF THIS TABLE ARE ACCUMULATED BASED UPON THE LOCATION OF THE
SUBSIDIARY OR COMPANY.
53
----
PNTA
<PAGE>
INVESTOR INFORMATION
PENTAIR STOCK DATA The common stock of Pentair (Symbol: PNTA) is quoted on the
NASDAQ National Market System. The price information below represents
closing sale prices reported in the NASDAQ/NMS Monthly Statistical Report.
There were 3,070 shareholder accounts on December 31, 1994.
PRICE RANGE AND DIVIDENDS OF COMMON STOCK
<TABLE>
<CAPTION>
DIVIDENDS LAST DIVIDENDS LAST
1994 HIGH LOW PAID PRICE 1993 HIGH LOW PAID PRICE
-------------------------------------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $37 1/2 $32 3/4 $.18 $36 1/4 First Quarter $32 5/8 $26 1/2 $.17 $32 5/8
Second Quarter $38 1/4 $32 3/4 $.18 $35 3/4 Second Quarter $38 1/4 $32 1/2 $.17 $38 1/4
Third Quarter $42 3/4 $36 1/4 $.18 $39 1/2 Third Quarter $40 1/4 $34 1/4 $.17 $34 3/4
Fourth Quarter $44 1/2 $38 1/2 $.18 $42 3/4 Fourth Quarter $35 1/2 $31 $.17 $33
-------------------------------------------------------- -----------------------------------------------------------
</TABLE>
SECURITIES MARKET MAKERS The following firms make markets for Pentair, Inc.
stock: Dain Bosworth, Inc., Minneapolis, MN; Kirkpatrick, Pettis, Smith,
Polian Inc., Omaha, NE; C.J. Lawrence/Deutsche Bank Securities Corp., New
York, NY; Lehman Bros., New York, NY; Mayer & Schweitzer, Inc., Jersey
City, NJ; Merrill Lynch Pierce Fenner & Smith, Inc., New York, NY; Piper
Jaffray & Hopwood, Minneapolis, MN; Prudential Securities, New York, NY;
Sherwood Securities Corp., New York, NY; Troster Singer CP, Jersey City,
NJ; Weeden & Co., New York, NY
COMMON DIVIDENDS In the first quarter of 1995, the board of directors increased
the cash dividend to $.20 per share quarterly for an indicated annual rate
of $.80 per share. Pentair has now paid 76 consecutive quarterly dividends.
See Note (6) of Notes to Consolidated Financial Statements for certain
dividend restrictions.
ANNUAL MEETING The annual meeting of shareholders will be held at the Northland
Inn, 7101 Northland Circle, Brooklyn Park, Minnesota, at 10:00 a.m. on
April 19, 1995. Management and directors encourage all shareholders to
attend the annual meeting.
FORM 10-K AVAILABLE A copy of the company annual report on Form 10-K, as filed
with the Securities and Exchange Commission, will be provided on request to
shareholders. Written requests should be directed to Investor Relations,
Pentair, Inc., Waters Edge Plaza, 1500 County Road B2 West, Suite 400, St.
Paul, Minnesota 55113.
DIVIDEND REINVESTMENT PLAN Pentair has established a Dividend Reinvestment Plan.
This plan enables shareholders to automatically reinvest Pentair dividends
and to invest up to an additional $3,000 per quarter in Pentair common
stock, with any costs of purchasing the shares paid by the company. The
plan brochure and enrollment cards are available from the company or
Norwest Bank Minnesota, N.A.
TAKEOVER DEFENSE Pentair is committed to protecting its stakeholders from harm
by corporate raiders and unfriendly takeover actions. Information on our
position may be obtained by writing to the Pentair, Inc. corporate
secretary at the corporate office.
REGISTRAR AND TRANSFER AGENT Norwest Bank Minnesota, N.A., South St. Paul, MN
55075
CERTIFIED PUBLIC ACCOUNTANTS Deloitte & Touche LLP, Minneapolis, MN 55402
GENERAL COUNSEL Henson & Efron, P.A., Minneapolis, MN 55401
54
----
PNTA
<PAGE>
SELECTED FINANCIAL DATA 10-YEAR SUMMARY PINTAIR, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
IN MILLIONS,
EXCEPT PER SHARE DATA 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Net Sales
SPECIALTY PRODUCTS 465.6 411.6 377.5 344.6 344.9 337.5 317.1 289.7 207.7 170.6
GENERAL INDUSTRIAL 796.1 535.0 486.5 458.3 460.3 460.9 127.9 112.5 38.4 --
PAPER PRODUCTS 387.5 381.6 374.7 366.2 370.7 365.2 378.3 387.0 377.8 363.6
---------------------------------------------------------------------------------------------------------------------------------
TOTAL 1,649.2 1,328.2 1,238.7 1,169.1 1,175.9 1,163.6 823.3 789.2 623.9 534.2
---------------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Operating Income
SPECIALTY PRODUCTS 49.5 42.0 40.2 33.6 28.1 29.5 30.6 31.2 20.1 16.9
GENERAL INDUSTRIAL 76.0 42.2 38.6 35.9 34.5 32.6 9.9 11.1 2.7 --
PAPER PRODUCTS* 14.8 31.0 33.1 43.0 33.7 36.0 50.5 9.0 18.4 22.8
CORPORATE (21.0) (17.0) (17.9) (17.4) (15.7) (11.0) (12.3) (8.7) (7.4) (5.9)
----------------------------------------------------------------------------------------------------------------------------------
Total 119.3 98.2 94.0 95.1 80.6 87.1 78.7 42.6 33.8 33.8
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
NET INCOME (A) 53.6 46.6 42.8 41.1 33.0 36.4 39.8 21.9 15.2 20.1
---------------------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
EPS -- DILUTED (A) 2.52 2.20 2.03 2.01 1.62 1.90 2.23 1.30 1.03 1.35
CASH DIVIDENDS .72 .68 .65 .61 .59 .53 .45 .42 .40 .37
STOCK DIVIDENDS -- 50 -- -- -- -- 10 -- 10 25
BOOK VALUE 21.43 18.58 16.43 17.58 15.94 14.85 13.35 11.06 10.19 9.49
STOCK PRICE 42 3/4 33 26 3/8 26 7/8 16 1/2 18 3/8 20 7/8 12 1/2 15 1/2 17 1/8
---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
PREFERRED EQUITY (NET) 40.9 33.9 77.4 74.1 68.4 65.9 67.6 50.0 -- --
COMMON EQUITY 391.1 336.9 260.0 275.7 247.8 241.0 214.2 158.6 145.4 134.6
COMMON SHARES 18.2 18.1 15.9 15.7 15.6 16.2 16.1 13.1 12.9 11.7
ROE %(A) 13.2 13.6 12.8 13.3 11.1 14.1 19.8 12.9 10.9 15.8
OPERATING CASH 125.0 102.0 88.4 79.4 72.0 71.2 65.6 50.8 44.4 43.2
CAPITAL EXPENDITURES 92.7 73.4 67.2 49.4 61.3 83.4 45.7 53.9 45.1 61.6
TOTAL ASSETS 1,281.5 958.8 869.4 790.6 768.9 781.4 744.7 440.4 445.0 305.8
LONG--TERM DEBT 408.5 238.9 211.5 198.4 224.7 251.1 252.1 90.7 142.7 75.0
DEBT TO CAPITAL % 49 39 39 36 42 45 47 30 50 36
---------------------------------------------------------------------------------------------------------------------------------
<FN>
* INCLUDES JOINT VENTURES
ALL SHARE AND PER SHARE DATA ADJUSTED FOR STOCK DIVIDENDS.
(A) 1992 NET INCOME AND EARNINGS PER SHARE ARE BEFORE THE CUMULATIVE EFFECTS OF
ACCOUNTING CHANGES. SEE NOTE 3 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
THIS DATA INCLUDES THE RESULTS OF OPERATIONS OF THE FOLLOWING BUSINESSES FROM
THE DATE OF ACQUISITION OR TO THE DATE OF SALE: LINCOLN AND F.E. MYERS
DIVISIONS OF MCNEIL (OHIO) CORPORATION, ACQUIRED AUGUST 1986; PORT HURON
PAPER CORPORATION -- PORT HURON MILL, SOLD SEPTEMBER 1987, AND DETROIT
MILL, SOLD IN EARLY 1988; THE FEDERAL CARTRIDGE AND HOFFMAN ENGINEERING
BUSINESSES OF FC HOLDINGS, INC., ACQUIRED IN DECEMBER 1988, INCLUDED IN
OPERATIONS COMMENCING JANUARY 1, 1989; AND SCHROFF GMBH AND ITS
INTERNATIONAL SUBSIDIARIES, ACQUIRED JANUARY 1, 1994.
FOR RECENT DEVELOPMENTS -- SEE MANAGEMENT'S DISCUSSION & ANALYSIS -- RECENT
DEVELOPMENTS.
</TABLE>
55
----
PNTA
<PAGE>
PENTAIR, INC. & SUBSIDIARIES
PENTAIR, INC. Pentair, Inc. is a diversified manufacturer that grows value for
stakeholders by acquiring, renewing and developing manufacturing companies.
Pentair businesses are organized into three segments: SPECIALTY PRODUCTS,
GENERAL INDUSTRIAL EQUIPMENT AND PAPER. Our 10,300 employees provide
construction, woodworking, recreation, electronics, law enforcement,
automotive, industrial and printing markets with high-quality products. The
eleven autonomously operated businesses have 32 locations worldwide.
Pentair common shares are quoted on the NASDAQ National Market System under
the symbol: PNTA. WATERS EDGE PLAZA, 1500 COUNTY ROAD B2 WEST, SUITE 400,
ST. PAUL, MN 55113-3105, 612/636-7920
CROSS POINTE PAPER CORPORATION PRODUCTS Premium uncoated text and cover,
commercial printing, writing, book publishing and technical papers. MARKETS
General printing markets, including paper merchants, commercial printers,
graphic design firms and paper converters. PRESIDENT Wilson Blackburn
EMPLOYEES 1,200 LOCATIONS St. Paul, Minnesota; West Carrollton, Ohio;
Dayton, Ohio; Park Falls, Wisconsin; and West Chicago, Illinois. 1295
BANDANA BOULEVARD NORTH, SUITE 335, ST. PAUL, MN 55108, 612/644-3644
DELTA INTERNATIONAL MACHINERY CORP. Products General-purpose woodworking
machinery, including table saws, band saws, planers, jointers, grinders,
drill presses, shapers, lathes, other tools, and accessories. MARKETS
Do-it-yourself/homeshop craftsmen; commercial, residential and industrial
construction; remodeling; and cabinet manufacturers, case goods, and
furniture makers. PRESIDENT Nevin J. Craig EMPLOYEES 700 LOCATIONS
Pittsburgh, Pennsylvania; Tupelo, Mississippi; Memphis, Tennessee; Guelph,
Ontario, Canada; and Taichung, Taiwan. 246 ALPHA DRIVE, PITTSBURGH, PA
15238, 412/963-2400
FEDERAL CARTRIDGE COMPANY PRODUCTS Shotshell, centerfire and rimfire cartridges,
ammunition components and clay targets. MARKETS Over 16 million licensed
hunters; trap, skeet, sporting clay and target shooters; the U.S.
government; and law enforcement agencies. PRESIDENT Ronald V. Mason
EMPLOYEES 1,200 LOCATIONS Anoka, Minnesota; and Richmond, Indiana. 900
EHLEN DRIVE, ANOKA, MN 55303, 612/421-7100
HOFFMAN ENGINEERING COMPANY PRODUCTS Metal and composite enclosures for
electrical and electronic controls, instruments and components. MARKETS
Original equipment manufacturers; plant maintenance and repair; and
construction. PRESIDENT Richard W. Ingman EMPLOYEES 2,250 LOCATIONS Anoka,
Minnesota; Brooklyn Center, Minnesota; and Reynosa, Mexico. 900 EHLEN
DRIVE, ANOKA, MN 55303, 612/421-2240
LAKE SUPERIOR PAPER INDUSTRIES PRODUCTS Supercalendered publication and printing
papers. MARKETS General printing markets, especially catalogs, newspaper
supplements, magazines, advertising inserts and other commercial printing.
INTERIM PRESIDENT John Hosler EMPLOYEES 330 LOCATIONS Duluth, Minnesota.
100 NORTH CENTRAL AVENUE, DULUTH, MN 55807, 218/628-5100
56
----
PNTA
<PAGE>
LINCOLN AUTOMOTIVE PRODUCTS Vehicle service equipment, including lubricating
tools, hydraulic jacks and specialty products for the repair and service of
automobiles, trucks, buses, and construction and agricultural equipment.
MARKETS Products are marketed through a distributor network to professional
mechanics and vehicle maintenance facilities. PRESIDENT Barry J. Wetzel
EMPLOYEES 560 LOCATIONS St. Louis, Missouri; Jonesboro, Arkansas; Nogales,
Mexico; and Mississauga, Ontario, Canada. ONE LINCOLN WAY, ST. LOUIS, MO
63120-1576, 314/679-4300
LINCOLN INDUSTRIAL PRODUCTS Automated and manual lubrication systems and
equipment. Pumps and pump stations for thick fluids and viscous materials.
MARKETS Manufacturers, process plants, mining, printers and general
lubrication markets. PRESIDENT John Little, Lincoln Industrial USA; Werner
Brauer, Lincoln Industrial GmbH EMPLOYEES 770 LOCATIONS St. Louis,
Missouri; and Walldorf, Germany. ONE LINCOLN WAY, ST. LOUIS, MO
63120-1576, 314/679-4200
F.E.MYERS CO. PRODUCTS Pumps for domestic and commercial wells, residential and
commercial sump and sewage systems, pumps and pumping systems for municipal
and industrial services MARKETS Wholesale, retail and national catalog
distribution to residential, commercial and industrial users; pump
specialty distribution for municipal, government and OEM markets. PRESIDENT
Fred C. Lavender EMPLOYEES 600 LOCATIONS Ashland, Ohio; and Kitchener,
Ontario, Canada. 1101 MYERS PARKWAY, ASHLAND, OH 44805-2285, 419/289-1144
NIAGARA OF WISCONSIN PAPER CORPORATION PRODUCTS Coated groundwood publication
grade papers. MARKETS General printing markets, especially magazines,
catalogs, periodicals, advertising literature, trade books and general
commercial printing. PRESIDENT G. Robert Gey EMPLOYEES 600 LOCATIONS
Niagara, Wisconsin. 1101 MILL STREET, NIAGARA, WI 54151, 715/251-3151
PORTER-CABLE CORPORATION PRODUCTS Portable electric tools, including circular
saws, reciprocating saws, band saws, sanders, drills and routers. MARKETS
Woodworking, residential and industrial construction; industrial
fabrication and maintenance; and home craftsmen. PRESIDENT James A. White
EMPLOYEES 950 LOCATIONS Jackson, Tennessee. POST OFFICE BOX 2468, JACKSON,
TN 38302-2468, 901/668-8600
SCHROFF PRODUCTS Schroff is the largest manufacturer in Europe's electronic
enclosure market and a world technical leader. Schroff's comprehensive
product range includes cabinets, cases, subracks, microcomputer packaging
systems and a full line of accessories including backplanes, power
supplies and technical workstations. MARKETS Schroff serves the worldwide
industrial electronics industry including key segments such as computers,
test & measurement, private LANs/data communication, industrial control
and factory automation, medical and telecommunications. CO-PRESIDENTS
James H. Frank, Benno Gengenbach EMPLOYEES 1,450 LOCATIONS Straubenhardt,
Germany; Betschdorf, France; Hemel Hempstead, Hertfordshire, United
Kingdom; Warwick, Rhode Island; Yokohama and Meiwa-Cho, Japan; Skarpneck,
Sweden; and Gallarate (Varese), Italy. LANGENALBER STR. 96-100, D-75334
STRAUBENHARDT, GERMANY, (7082) 794-0
57
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PNTA
<PAGE>
BOARD OF DIRECTORS & PENTAIR OFFICERS
(left to right)
GEORGE N. BUTZOW (1,4,6), 65, is the former Chairman of MTS Systems Corporation.
He has over 30 years of experience in purchasing, quality control,
advertising, marketing and general management with MTS Systems and its
predecessor company.
CHARLES A. HAGGERTY (1,6), 52, Chairman, President and Chief Executive Officer
of Western Digital. His 30 years of manufacturing experience include a
variety of executive posts with IBM.
B. KRISTINE JOHNSON (1,7), 43, is Vice President and General Manager of the
Tachyarrhythmia Management Business of Medtronic, Inc. Harold V. Haverty
(2,3,7), 64, is President and Chief Executive Officer of Deluxe
Corporation.
HAROLD V. HAVERTY (2,3,7), 64, is President and Chief Executive Officer of
Deluxe Corporation.
D. EUGENE NUGENT (2,3,4,5), 67, was Chairman and Chief Executive Officer of
Pentair, Inc. until his retirement December 31, 1992. He joined the company
in 1975.
RICHARD M. SCHULZE (2,4), 54, is Founder, Chairman, and Chief Executive Officer
of Best Buy Company Inc. His 34 years in consumer electronics includes
distributor sales experience as a Vice President of Northern States
Distributing.
WINSLOW H. BUXTON (3,4,5,7), 55, is Chairman, President and Chief Executive
Officer of Pentair, Inc. He joined the company in 1986 as President of
Niagara of Wisconsin Paper Corporation. Previous experience includes
operating and senior management positions at Willamette Industries, Boise
Cascade and Publisher's Paper.
WALTER KISSLING (3,6), 63, is President and Chief Operating Officer of H. B.
Fuller Company, a manufacturer and marketer of specialty chemical products.
He is a Director of H. B. Fuller Company and Chairman and Director of one
of its subsidiaries, Kativo Chemical Industries, S.A.
QUENTIN J. HIETPAS (2,5), 64, is Senior Vice President of External Affairs at
the University of St. Thomas. An attorney, he has 30 years' experience in
communications management with companies such as Control Data, Pillsbury
and International Multifoods.
(1) Audit Committee, (2) Compensation Committee, (3) Executive Committee, (4)
Shareholder Affairs Committee, (5) Nominating Committee, (6) Share Rights
Committee, (7) Public Policy Committee
(left to right)
MARK T. SCHROEPFER Vice President, Finance and MIS
JOSEPH R. COLLINS Group President, Specialty Products
DAVID D. HARRISON Senior Vice President and Chief Financial Officer
GERALD C. KITCH Group President, General Industrial Equipment
(left to right)
WILSON BLACKBURN Vice President, Paper Operations
DEB S. KNUTSON Vice President, Human Resources
ROY T. RUEB Vice President, Treasurer and Corporate Secretary
RONALD V. KELLY Senior Vice President, Long-Range Planning
ALLAN J. KOLLES Senior Vice President and Assistant to the Chief Executive
Officer
58
----
PNTA
<PAGE>
PENTAIR'S SUCCESSES
THROUGHOUT 1994 WERE THE
RESULT OF THE
COMBINED
EFFORTS
OF A TEAM OF HIGHLY SKILLED,
DEDICATED PEOPLE AND INVESTORS
WHO SHARE OUR BELIEF IN WHAT CAN BE.
60
----
PNTA
<PAGE>
PENTAIR CODE OF BUSINESS CONDUCT
Pentair, Inc. chooses to be an independent,
publicly owned company, and this statement is to guide the
development of its organization and the conduct of its business affairs.
OUR BUSINESSES ARE TO BE MANAGED IN KEEPING WITH
THE HIGHEST BUSINESS, ETHICAL, MORAL AND PATRIOTIC STANDARDS APPLICABLE
TO A PUBLICLY OWNED CORPORATION.
Our businesses are to be operated so that we are respected
for our actions by shareholders, employees, plant communities, customers,
suppliers, investors and all other stakeholders.
OUR APPROACH TO BUSINESS IS INTENDED TO MAKE PENTAIR, INC.
A TOP-PERFORMING COMPANY MANAGED AND OPERATED TO PROVIDE LONG-TERM
BENEFITS TO ALL CONSTITUENTS.
OPERATING GUIDELINES
Balanced consideration will be given to the interests of shareholders
and employees in managing the corporation.
THE CORPORATE STAFF WILL BE KEPT TO MINIMUM SIZE, AND SUBSIDIARY
OPERATIONS WILL BE AS AUTONOMOUS AS PRACTICABLE.
A strong work ethic is expected of all constituents. Good performance will be
freely recognized. Poor performance will not be condoned.
WE WILL STRIVE TO: OPERATE WITH THE HIGHEST REGARD FOR THE ENVIRONMENT;
ELIMINATE ENVIRONMENTAL RISKS FROM THE WORKPLACE;
AND MINIMIZE EMISSIONS AND WASTE.
The dignity and self-worth of all persons involved with
the Company will be respected.
SAFETY IN THE WORKPLACE AND IN WORK PRACTICES SHALL BE MAXIMIZED.
We will encourage, aid and promote the physical and mental
health, and wellness of employees and their families.
QUALIFED EMPLOYEES WILL BE GIVEN PRIORITY FOR INTERNAL
EMPLOYMENT OPPORTUNITIES.
Standards of ethics, integrity and work practices
shall apply equally to all employees.
WE WILL HONOR AGREEMENTS, MEET OBLIGATIONS TIMELY, MAINTAIN THE SPIRIT
AND INTENT OF OUR COMMITMENTS, AND VALUE GOOD RELATIONSHIPS.
Hiring emphasis will recognize ability, compatibility and integrity,
and will not discriminate on the basis of sex, religion, race or age.
WE WILL PROMOTE OPEN AND CANDID COMMUNICATIONS WITH EMPHASIS
ON INFORMALITY AND ON CONVERSATIONAL EXCHANGES.
<PAGE>
PENTAIR, INC.
WATERS EDGE PLAZA
1500 County Road B2 West
ST. PAUL, MN 55113-3105
612*636*7920
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
As of December 31, 1994, the following are wholly-owned
subsidiaries of the Registrant except as noted:
State or Other
Jurisdiction of
Incorporation
Subsidiary or Organization
Specialty Products
Delta International Machinery Corp. Minnesota
Pentair Canada, Inc. 1 Ontario, Canada
Porter-Cable Corporation Minnesota
McNeil (Ohio) Corporation Minnesota
F. E. Myers Co., Division of
McNeil (Ohio) Corporation -
Pentair Canada, Inc. 1 Ontario, Canada
General Industrial Equipment
McNeil (Ohio) Corporation Minnesota
Lincoln Industrial, Division of
McNeil (Ohio) Corporation -
Lincoln Automotive, Division of
McNeil (Ohio) Corporation -
Pentair Canada, Inc. 1 Ontario, Canada
APNO, S.A. de C.V. 2 Mexico
Telestack Company 2 Ohio
FC Holdings Inc. Delaware
Federal-Hoffman, Inc. 3 Minnesota
Federal Cartridge Company, Division
of Federal-Hoffman, Inc. -
Hoffman Engineering Company,
Division of Federal-Hoffman, Inc. -
Hoffman Engineering Company
Limited 4 United Kingdom
Hoffman Engineering, S.A. de C.V.4 Mexico
Schroff Inc. 3 Rhode Island
Schroff Co. Ltd. 3 Taiwan
Schroff K.K. 3 Japan
EuroPentair, GmbH Germany
Schroff, GmbH 5 Germany
Schroff U.K. Ltd. 5 United Kingdom
Schroff S.A. 5 France
Schroff S.r.L. 5 Italy
Schroff Scandinavia AB 5 Sweden
Lincoln GmbH 6 Germany
Lincoln Belgium N.V. Belgium
Paper Products
Cross Pointe Paper Corporation Minnesota
Flambeau Paper Corp. 7 Wisconsin
Miami Paper Corporation 7 Minnesota
Dayton Paper Corporation 7 Minnesota
Niagara of Wisconsin Paper
Corporation Wisconsin
Pentair Duluth Corp. 8 Minnesota
Pentair Duluth Pulp Corp.9 Minnesota
Duluth Holdings (Paper) Corp. Minnesota
General Corporate
Federal-Hoffman International, Inc. 4 Guam
Pentair FSC Corporation 2 U.S. Virgin Islands
Penwald Insurance Company Vermont
FOOTNOTES:
1 Wholly-owned by Delta International Machinery Corp. and
McNeil (Ohio) Corporation, having the following divisions: Delta
International Machinery, F. E. Myers Company, and Lincoln
Canada.
2 A wholly-owned subsidiary of McNeil (Ohio) Corporation.
3 A wholly-owned subsidiary of FC Holdings Inc.
4 A wholly-owned subsidiary of Federal-Hoffman, Inc.
5 A wholly-owned subsidiary of EuroPentair, GmbH.
6 Wholly-owned by EuroPentair GmbH and Telestack Company,
a subsidiary of McNeil (Ohio) Corporation.
7 A wholly-owned subsidiary of Cross Pointe Paper Corporation.
8 Pentair Duluth has a 50% interest in Lake Superior Paper
Industries, a joint venture with Minnesota Paper Incorporated.
9 Pentair Duluth Pulp, a wholly-owned subsidiary of Duluth
Holdings (Paper) Corp., has a 50% interest in LSPI Fiber Co., a
joint venture with Minnesota Pulp Incorporated, which has a 24%
interest in Superior Recycled Fiber Industries, a Minnesota joint
venture of which the 76% owner is Superior Recycled Fiber
Corporation.
EXHIBIT 23
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
CONSENT
We consent to the incorporation by reference in Registration
Statements No. 2-83635, No. 2-88670, No. 33-36256, No. 33-38534, No. 33-42057,
No. 33-42268, and No. 33-45012 of
Pentair, Inc. on Form S-8 of our reports dated February 10, 1995,
except Note 4, as to which the date is February 21, 1995, appearing in
and incorporated by reference in this Annual Report on Form 10-K
of Pentair, Inc. for the year ended December 31, 1994.
DELOITTE & TOUCHE
Saint Paul, Minnesota
March 29, 1995
EXHIBIT 4.9
AMENDMENT NUMBER ONE TO FACILITY
AGREEMENT
THIS FIRST AMENDMENT to Facility
Agreement ("First Amendment") dated as of
November 1, 1994, among PENTAIR, INC., BANK
OF AMERICA ILLINOIS (formerly known
as Continental Bank N.A.) AND MORGAN
GUARANTY TRUST COMPANY OF NEW YORK,
for themselves and as agents, and NBD BANK,
N.A. and J. P. MORGAN DELAWARE.
WHEREAS, the parties entered into a $125
Million Facility Agreement dated as of February
11, 1994 (the "Facility Agreement"); and
WHEREAS, the parties desire to amend the
Facility Agreement as set forth below;
NOW, THEREFORE, The parties hereto agree
as follows:
1. Definitions. The definition of "Sale of
Receivables" set forth in Article I, Section 1.01 is
hereby amended in its entirety to read as follows:
"Sale of Receivables" means a sale by the
Borrower or a Consolidated Subsidiary,
with or without recourse or discount, of an
interest in trade receivables (including
certain rights related thereto and the proceeds
thereof) of the Borrower or
Consolidated Subsidiary pursuant to a
receivables purchase program or a loan
secured by such receivables, provided that the
outstanding principal amount secured
by such receivables or the outstanding
investment in such receivables, as the case
may be, shall not exceed $75,000,000 in the
aggregate at any one time.
2. CD Loans. The third paragraph of Article II,
Section 2.06 (b) is hereby amended in its
entirety to read as follows:
"CD Margin" means:
Leverage Ratio: CD Margin:
0.8:1 or less .375 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .425 of 1%
more than 1.2:1 .575 of 1%
3. Eurodollar Loans. The fifth paragraph of
Article II, Section 2.06 (c) is hereby amended in
its entirety to read as follows:
The "Eurodollar Margin" means
Eurodollar
Leverage Ratio: Margin :
0.8:1 or less .250 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .300 of 1%
more than 1.2:1 .450 of 1%
4. Facility Fees. Article II, Section 2.07(a) is
hereby amended in its entirety to read as follows:
During the Revolving Credit Period, the
Borrower shall pay to the Agent for the
account of each Bank in ratable shares a
facility fee at the rate of .150 of 1% per
annum on the Total Commitment. Such facility
fees shall accrue from and including
the date of this Agreement to but excluding the
last day of the Revolving Credit
Period and shall be payable quarterly in arrears
on the last day of each calendar
quarter during the Revolving Credit Period.
5. Effectiveness. The amendments set forth
herein shall be effective with respect to all loans
made under the Facility Agreement on or after
November 1, 1994.
6. No Other Amendment. Except as specifically
amended in this First Amendment, but all
of the terms and provisions of the Facility
Agreement shall remain in full force and effect.
7. Counterparts. This First Amendment may be
executed in any number of counterparts, each
of which shall be deemed an original, all of which
when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto
have caused this First Amendment to be duly
executed by their respective authorized officers as
of the date first above written.
PENTAIR, INC.
By________________________________
Title:________________________
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial
Officer
Telephone: (612) 636-7920
Telecopy: (612) 639-5209
BANK OF AMERICA ILLINOIS,
(formerly known as Continental Bank N.A.)
for itself and as Agent
By_________________________________
Title:_________________________
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Barry Watters
Telephone: (312) 828-6307
Telecopy: (312) 987-1276
Person to whom Loan correspondence
should be addressed:
Angelina Monarrez
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: (312) 828-3879
Telecopy: (312) 974-9102
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, for itself and
as Agent
By_________________________________
Title:_________________________
60 Wall Street
New York, New York 10260
Attn: William J. Stevenson
Telephone: (212) 648-6839
Telecopy: (212) 648-5336
J. P. MORGAN DELAWARE
By_________________________________
Title:_________________________
902 Market Street
Wilmington, Delaware 19801
Attn: David J. Morris
Telephone: (302) 651-3788
Telecopy: (302) 654-5336
NBD BANK, N.A.
By_________________________________
Title:_________________________
611 Woodward Avenue
Detroit, Michigan 48226
Attn: Patrick P. Skiles
Telephone: (313) 225-1798
Telecopy: (313) 225-1671
EXHIBIT 4.11
AMENDMENT NUMBER ONE TO FACILITY
AGREEMENT
THIS FIRST AMENDMENT to Facility
Agreement ("First Amendment") dated as of
November 1, 1994, among PENTAIR, INC., and
FIRST BANK NATIONAL ASSOCIATION, for
itself and as Agent, and NORWEST BANK
MINNESOTA, N.A..
WHEREAS, the parties entered into a $45
Million Facility Agreement dated as of February
11, 1994 (the "Facility Agreement"); and
WHEREAS, the parties desire to amend the
Facility Agreement as set forth below;
NOW, THEREFORE, The parties hereto agree
as follows:
1. Definitions. The definition of "Sale of
Receivables" set forth in Article I, Section 1.01 is
hereby amended in its entirety to read as follows:
"Sale of Receivables" means a sale by the
Borrower or a Consolidated Subsidiary,
with or without recourse or discount, of an
interest in trade receivables (including
certain rights related thereto and the proceeds
thereof) of the Borrower or
Consolidated Subsidiary pursuant to a
receivables purchase program or a loan
secured by such receivables, provided that the
outstanding principal amount secured
by such receivables or the outstanding
investment in such receivables, as the case
may be, shall not exceed $75,000,000 in the
aggregate at any one time.
2. CD Loans. The third paragraph of Article II,
Section 2.06 (b) is hereby amended in its
entirety to read as follows:
"CD Margin" means:
Leverage Ratio: CD Margin:
0.8:1 or less .375 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .425 of 1%
more than 1.2:1 .575 of 1%
3. Eurodollar Loans. The fifth paragraph of
Article II, Section 2.06 (c) is hereby amended in
its entirety to read as follows:
The "Eurodollar Margin" means
Eurodollar
Leverage Ratio: Margin :
0.8:1 or less .250 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .300 of 1%
more than 1.2:1 .450 of 1%
4. Facility Fees. Article II, Section 2.07(a) is
hereby amended in its entirety to read as follows:
During the Revolving Credit Period, the
Borrower shall pay to the Agent for the
account of each Bank in ratable shares a
facility fee at the rate of .150 of 1% per
annum on the Total Commitment. Such facility
fees shall accrue from and including
the date of this Agreement to but excluding the
last day of the Revolving Credit
Period and shall be payable quarterly in arrears
on the last day of each calendar
quarter during the Revolving Credit Period.
5. Effectiveness. The amendments set forth
herein shall be effective with respect to all loans
made under the Facility Agreement on or after
November 1, 1994.
6. No Other Amendment. Except as specifically
amended in this First Amendment, but all
of the terms and provisions of the Facility
Agreement shall remain in full force and effect.
7. Counterparts. This First Amendment may be
executed in any number of counterparts, each
of which shall be deemed an original, all of which
when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto
have caused this First Amendment to be duly
executed by their respective authorized officers as
of the date first above written.
PENTAIR, INC.
By________________________________
Title:________________________
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial
Officer
Telephone: (612) 636-7920
Telecopy: (612) 639-5209
FIRST BANK NATIONAL ASSOCIATION,
for itself and as Agent
By_________________________________
Title:_________________________
First Bank Place
601 Second Avenue South
Minneapolis, Minnesota
55402-4302
Attn: Deborah O. Hall
Telephone: (612) 973-0543
Telecopy: (612) 973-0824
NORWEST BANK MINNESOTA, N.A.
By_________________________________
Title:_________________________
Norwest Center
6th and Marquette
Minneapolis, Minnesota
55479-0085
Attn: National Division
Gloria J. Charley
Telex Number: 290734
Answerback: NORWEST BK
MPS
Telephone: (612) 667-8219
Telecopy: (612) 667-4145
EXHIBIT 4.13
AMENDMENT NUMBER ONE TO FACILITY
AGREEMENT
THIS FIRST AMENDMENT to Facility
Agreement ("First Amendment") dated as of
November 1, 1994, among EuroPentair GmbH,
PENTAIR, INC., MORGAN GUARANTY TRUST
COMPANY OF NEW YORK and BANK OF
AMERICA ILLINOIS (formerly known as
Continental Bank N.A.), for themselves and as
agents, NBD BANK, N.A. and DRESDNER BANK
AG.
WHEREAS, the parties entered into a DM115
Million Facility Agreement dated as of
February 11, 1994 (the "Facility Agreement"); and
WHEREAS, the parties desire to amend the
Facility Agreement as set forth below;
NOW, THEREFORE, The parties hereto agree
as follows:
1. Definitions. The definition of "Sale of
Receivables" set forth in Article I, Section 1.01 is
hereby amended in its entirety to read as follows:
"Sale of Receivables" means a sale by the
Guarantor or a Consolidated Subsidiary,
with or without recourse or discount, of an
interest in trade receivables (including
certain rights related thereto and the proceeds
thereof) of the Guarantor or
Consolidated Subsidiary pursuant to a
receivables purchase program or a loan
secured by such receivables, provided that the
outstanding principal amount secured
by such receivables or the outstanding
investment in such receivables, as the case
may be, shall not exceed $75,000,000 in the
aggregate at any one time.
2. Margin. The fifth paragraph of Article II,
Section 2.06 is hereby amended in its entirety to
read as follows:
The "Margin" means:
Leverage Ratio: Margin :
0.8:1 or less .250 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .300 of 1%
more than 1.2:1 .450 of 1%
3. Facility Fees. Article II, Section 2.07(a) is
hereby amended in its entirety to read as follows:
During the Revolving Credit Period, the
Borrower shall pay to the Agent for the
account of each Bank in ratable shares a
facility fee at the rate of .150 of 1% per
annum on the Total Commitment. Such facility
fees shall accrue from and including
the date of this Agreement to but excluding the
last day of the Revolving Credit
Period and shall be payable quarterly in arrears
on the last day of each calendar
quarter during the Revolving Credit Period.
4. Effectiveness. The amendments set forth
herein shall be effective with respect to all loans
made under the Facility Agreement on or after
November 1, 1994.
5. No Other Amendment. Except as specifically
amended in this First Amendment, but all
of the terms and provisions of the Facility
Agreement shall remain in full force and effect.
6. Counterparts. This First Amendment may be
executed in any number of counterparts, each
of which shall be deemed an original, all of which
when taken together shall constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto
have caused this First Amendment to be duly
executed by their respective authorized officers as
of the date first above written.
EUROPENTAIR GmbH
By________________________________
Title:________________________
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial
Officer
Telephone: (612) 636-7920
Telecopy: (612) 639-5209
PENTAIR, Inc.
By________________________________
Title:________________________
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial
Officer
Telephone: (612) 636-7920
Telecopy: (612) 639-5209
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, for itself
and as Agent
By_________________________________
Title:_________________________
60 Victoria Embankment
London EC4Y OJP
Attn: Credit Operations
Telex Number: 896631 MGT
Telecopy: (071) 325-8114
Telephone: (071) 325-1484
with a copy to:
60 Wall Street
New York, New York 10260
Attn: John M. Mikolay
Telex number: 177615 MGT
UT
Telecopy: (212) 837-5022
Telephone: (212) 648-6988
BANK OF AMERICA ILLINOIS,
(formerly known as Continental Bank N.A.),
for itself and as Agent
By_________________________________
Title:_________________________
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Barry Watters
Telephone: (312) 828-6307
Telecopy: (312) 987-1276
Person to whom Loan correspondence should be
addressed:
Beverly Boone
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: (312) 828-1295
Telecopy: (312) 765-2080
NBD BANK, N.A.
By_________________________________
Title:_________________________
611 Woodward Avenue
Detroit, Michigan 48226
Attn: Patrick P. Skiles
Telephone: (313) 225-1798
Telecopy: (313) 225-1671
DRESDNER BANK AG CHICAGO
AND GRAND CAYMAN BRANCHES
By_________________________________
Title:_________________________
By_________________________________
Title:_________________________
190 South LaSalle Street
Chicago, Illinois 60603
Attn: William J. Murray
Telephone: (312) 444-1318
Telecopy: (312) 444-1305
Operations Contact:
Ms. Feixiao Dai
Dresdner Bank AG
75 Wall Street
New York, New York 10005
Telephone: (212) 574-0269
Telecopy: (212) 574-0130
EXHIBIT 4.14
AMENDMENT NUMBER TWO TO FACILITY
AGREEMENT
THIS SECOND AMENDMENT to Facility
Agreement ("Second Amendment") dated as
of February 15, 1995, among EUROPENTAIR
GMBH, PENTAIR, INC., MORGAN GUARANTY
TRUST COMPANY OF NEW YORK and BANK OF
AMERICA ILLINOIS (formerly known as
Continental Bank N.A.), for themselves and as
agents, NBD BANK, N.A. and DRESDNER BANK
AG.
WHEREAS, the parties entered into a DM115
Million Facility Agreement dated as of
February 11, 1994; which agreement was
amended by Amendment Number One to Facility
Agreement dated November 1, 1994 (as amended,
the "Facility Agreement"); and
WHEREAS, the parties desire to amend the
Facility Agreement as set forth below;
NOW, THEREFORE, The parties hereto agree
as follows:
1. Commitment. The definition of "Commitment"
set forth in Article I, Section 1.01 is hereby
amended in its entirety to read as follows:
"Commitment" means at any date, with respect
to each Bank, the amount set forth
below opposite such Bank's name, as such
amount may be reduced from time to time
pursuant to Section 2.09, or increased from
time to time pursuant to Section
2.01(c)(iii):
Morgan Guaranty Trust Company of New York
DM40,000,000
Bank of America Illinois DM40,000,000
NBD Bank, N.A. DM17,500,000
Dresdner Bank AG DM35,000,000
Total Commitments = DM132,500,000
2. Effectiveness. The amendment set forth
herein shall be effective with respect to all loans
made under the Facility Agreement on or after
February 15, 1995.
3. No Other Amendment. Except as specifically
amended in this Second Amendment, all
of the terms and provisions of the Facility
Agreement shall remain in full force and effect.
4. Counterparts. This Second Amendment may
be executed in any number of
counterparts, each of which shall be deemed an
original, all of which when taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto
have caused this Second Amendment to
be duly executed by their respective authorized
officers as of the date first above written.
EUROPENTAIR GmbH
By________________________________
Title:________________________
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial
Officer
Telephone: (612) 636-7920
Telecopy: (612) 639-5209
PENTAIR, Inc.
By________________________________
Title:________________________
Waters Edge Plaza
1500 County Road B2 West
St. Paul, Minnesota 55113
Attention: Chief Financial
Officer
Telephone: (612) 636-7920
Telecopy: (612) 639-5209
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, for itself
and as Agent
By_________________________________
Title:_________________________
60 Victoria Embankment
London EC4Y OJP
Attn: Credit Operations
Telex Number: 896631 MGT
Telecopy: (071) 325-8114
Telephone: (071) 325-1484
with a copy to:
60 Wall Street
New York, New York 10260
Attn: John M. Mikolay
Telex number: 177615 MGT
UT
Telecopy: (212) 837-5022
Telephone: (212) 648-6988
BANK OF AMERICA ILLINOIS,
(formerly known as
Continental Bank N.A.),
for itself and as Agent
By_________________________________
Title:_________________________
231 South LaSalle Street
Chicago, Illinois 60697
Attn: Barry Watters
Telephone: (312) 828-6307
Telecopy: (312) 987-1276
Person to whom Loan correspondence should be
addressed:
Beverly Boone
231 South LaSalle Street
Chicago, Illinois 60697
Telephone: (312) 828-1295
Telecopy: (312) 765-2080
NBD BANK, N.A.
By_________________________________
Title:_________________________
611 Woodward Avenue
Detroit, Michigan 48226
Attn: Thomas H. Gordy
Telephone: (313) 225-1798
Telecopy: (313) 225-1671
DRESDNER BANK AG CHICAGO
AND GRAND CAYMAN BRANCHES
By_________________________________
Title:_________________________
By_________________________________
Title:_________________________
190 South LaSalle Street
Chicago, Illinois 60603
Attn: William J. Murray
Telephone: (312) 444-1318
Telecopy: (312) 444-1305
Operations Contact:
Ms. Feixiao Dai
Dresdner Bank AG
75 Wall Street
New York, New York 10005
Telephone: (212) 574-0269
Telecopy: (212) 574-0130
EXHIBIT 4.17
THIRD AMENDMENT TO RESTATEMENT OF
CREDIT AGREEMENT
THIS THIRD AMENDMENT, dated as of
December 31, 1994, amends and modifies a
certain Restatement of Credit Agreement, dated as
of July 11, 1989, as amended pursuant to a First
Amendment to Restatement of Credit Agreement,
dated as of September 1, 1991, and a Second
Amendment to Restatement of Credit Agreement,
dated as of January 19, 1993 (as so amended, the
"Credit Agreement"), between PENTAIR, INC., a
Minnesota corporation (the "Borrower") and
FIRST BANK NATIONAL ASSOCIATION (the
"Bank"). Capitalized terms not otherwise
expressly defined herein shall have the meanings
set forth in the Credit Agreement.
PRELIMINARY STATEMENT
The Borrower and the Bank desire to amend
the Credit Agreement to extend the
Commitment Termination Date and to amend other
provisions of the Credit Agreement as
hereinafter set forth.
NOW, THEREFORE, for value received, the
Borrower and the Bank agree as follows:
ARTICLE 1 - AMENDMENTS TO THE
CREDIT AGREEMENT
1.1 Definitions. The following definitions set
forth in Article 1 of the Credit Agreement
are hereby amended as of the date hereof:
(a) Commitment Termination Date. The
definition of the term "Commitment
Termination Date" is hereby amended to read
in its entirety as follows:
" Commitment Termination Date' means
January 1, 2001 (or if such date is
not a Business Day, the next succeeding
day which is a Business Day), as the same
may be extended pursuant to Section
2.01(c) hereof."
(b) Revolving Credit Period. The definition
of the term "Revolving Credit
Period" is hereby amended to read in its
entirety as follows:
" Revolving Credit Period' means the
period from the date hereof to and
including January 1, 1997 (or if such day is
not a Business Day, the next succeeding
day which is a Business Day), as such
Period may be extended in accordance with
Section 2.01(c) hereof."
(c) Revolving Credit Termination Date. The
definition of the term "Revolving
Credit Termination Date" is hereby amended to
read in its entirety as follows:
" Revolving Credit Termination Date'
means January 1, 1997, (or if such day
is not a Business Day, the next succeeding
day which is a Business Day), as such
Date may be extended in accordance with
Section 2.01(c) hereof."
(d) Sale of Receivables. The definition of
the term "Sale of Receivables" as
added in the Second Amendment is hereby
amended to read in its entirety as follows:
" Sale of Receivables' means a sale by
the Borrower or a Consolidated
Subsidiary, with or without recourse or
discount, of an interest in trade receivables
(including certain rights related thereto and
the proceeds thereof) of the Borrower or
Consolidated Subsidiary pursuant to a
receivables purchase program or a loan
secured by such receivables, provided that
the outstanding principal amount secured
by such receivables or the outstanding
investment in such receivables, as the case
may be, shall not exceed $75,000,000 in the
aggregate at any one time."
1.2 Section 2.01(c). Section 2.01(c)
(Extension of Commitment Termination Date) of
the Credit Agreement is hereby amended as of the
date hereof to read in its entirety as follows:
"(c) Extension of Commitment
Termination Date. On or before October 1,
1995, and on or before October 1 of every
second year thereafter, the Borrower may,
by written notice to the Bank, request that
both the Revolving Credit Termination
Date and the Commitment Termination Date
be extended for two years, effective as
of the following January 1, provided,
however, that no such request will be
considered if the Revolving Credit
Termination Date and the Commitment
Termination Date were not extended upon
any previous request. The Bank will
indicate its acceptance or rejection of any
requested extension within 30 days after
its receipt of notice of a requested
extension."
1.3 Section 2.06(b). The definition of "CD
Margin" in Section 2.06(b) of the Credit
Agreement is amended to read as follows:
" CD Margin' means:
Leverage Ratio: CD Margin:
0.8:1 or less .375 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .425 of 1%
more than 1.2:1 .575 of 1%"
1.4 Section 2.06(c). The definition of
"Eurodollar Margin" in Section 2.06(c) of the
Credit Agreement is amended to read as follows:
"The Eurodollar Margin' means:
Leverage Ratio: CD Margin:
0.8:1 or less .250 of 1%
equal to or less than 1.2:1
but more than 0.8:1 .300 of 1%
more than 1.2:1 .450 of 1%"
1.5 Section 2.06(d). The first paragraph of
Section 2.06(d) is retained, but the paragraphs
following the first paragraph are hereby amended
as of the date hereof to read in their entirety as
follows:
"The Daily Pricing Rate' means for any day
a rate per annum (rounded upward, if
necessary, to the nearest 1/16 of 1%)
determined pursuant to the following formula,
which
rate shall continue in effect until the next
succeeding Business Day:
{ LIBO Rate }
Daily Pricing Rate =
{-----------------------------------} plus 0.50%
{1.00 - Eurocurrency Reserve}
Percentage
In such formula, (i) Eurocurrency Reserve
Percentage' means the percentage (expressed as
a decimal) for such day prescribed by the
Board of Governors of the Federal Reserve
System
(or any successor) for determining reserve
requirements applicable to Eurocurrency
liabilities' pursuant to Regulation D or any other
applicable regulation of the Board of
Governors which prescribes such reserve
requirements, and (ii) LIBO Rate' means the
offered rate for deposits in United States
Dollars (rounded upwards, if necessary, to the
nearest 1/16 of 1%), for delivery of such
deposits on such day, for an interest period of one
month, which appears on the Reuters Screen
LIBO Page as of the time selected by the Bank
on such day. If at least two rates appear on the
Reuters Screen LIBO Page, the rate shall be
the arithmetic mean of such rates (rounded as
provided above). If fewer than two rates
appear, the rate may be determined by the
Bank based on other services selected for such
purpose by the Bank or based on rates offered
to the Bank for United States Dollar deposits
in the interbank Eurodollar market. Reuters
Screen LIBO Page' means the display
designated as page LIBO' on the Reuter
Monitor Money Rates Service (or such other page
as may replace the LIBO Page on that service
for the purpose of displaying London interbank
offered rates of major banks for United States
Dollar deposits)."
1.6 Construction. All references in the Credit
Agreement to "this Agreement," "herein"
and similar references shall be deemed to refer to
the Credit Agreement as amended by this
Amendment.
ARTICLE II - REPRESENTATIONS AND
WARRANTIES
To induce the Bank to enter into this
Amendment and to make and maintain the Loans
under
the Credit Agreement as amended hereby, the
Borrower hereby warrants and represents to the
Bank
that it is duly authorized to execute and deliver this
Amendment, and to perform its obligations under
the Credit Agreement as amended hereby, and
that this Amendment constitutes the legal, valid
and
binding obligation of the Borrower, enforceable in
accordance with its terms.
ARTICLE III - CONDITIONS
PRECEDENT
This Amendment shall become effective on the
date first set forth above; provided, however,
that the effectiveness of this Amendment is subject
to the satisfaction of each of the following
conditions precedent:
3.1 Warranties. Before and after giving effect
to this Amendment, the representations
and warranties in Article IV of the Credit
Agreement shall be true and correct as though
made on
the date hereof, except for changes that are
permitted by the terms of the Credit Agreement.
The
execution by the Borrower of this Amendment shall
be deemed a representation that the Borrower
has complied with the foregoing condition.
3.2 Defaults. Before and after giving effect to
this Amendment, no Default and no Event
of Default shall have occurred and be continuing
under the Credit Agreement. The execution by the
Borrower of this Amendment shall be deemed a
representation that the Borrower has complied with
the foregoing condition.
3.3 Documents. The following shall have been
delivered to the Bank, each duly
executed and dated, or certified, as of the date
hereof, as the case may be:
(a) Resolutions. Certified copies of
resolutions of the Board of Directors of the
Borrower authorizing or ratifying the execution,
delivery and performance, respectively, of
this Amendment and other documents provided
for in this Amendment.
(b) Incumbency and Signatures. A
certificate of the Secretary or an Assistant
Secretary of the Borrower certifying the names
of the officer or officers of the Borrower
authorized to sign this Amendment and other
documents provided for in this Amendment,
together with a sample of the true signature of
each such officer.
ARTICLE IV - GENERAL
4.1 Expenses. The Borrower agrees to
reimburse the Bank upon demand for all
reasonable expenses, including reasonable fees of
attorneys (who may be employees of the Bank)
and legal expenses, incurred by the Bank in
enforcing the obligations of the Borrower
hereunder, and
to pay and save the Bank harmless from all liability
for, any stamp or other taxes which may be
payable with respect to the execution or delivery of
this Amendment, which obligations of the
Borrower shall survive any termination of the
Credit Agreement.
4.2 Counterparts. This Amendment may be
executed in as many counterparts as may
be deemed necessary or convenient, and by the
different parties hereto on separate counterparts,
each
of which, when so executed, shall be deemed an
original but all such counterparts shall constitute
but one and the same instrument.
4.3 Severability. Any provision of this
Amendment which is prohibited or unenforceable
in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining
portions hereof or affecting the validity or
enforceability of such provisions in any other
jurisdiction.
4.4 Law. This Amendment shall be a contract
made under the laws of the State of
Minnesota, which laws shall govern all the rights
and duties hereunder.
4.5 Successors; Enforceability. This
Amendment shall be binding upon the Borrower
and the Bank and their respective successors and
assigns, and shall inure to the benefit of the
Borrower and the Bank and the successors and
assigns of the Bank. Except as hereby amended,
the
Credit Agreement shall remain in full force and
effect and is hereby ratified and confirmed in all
respects.
IN WITNESS WHEREOF, the parties hereto
have caused this Amendment to be executed
at Minneapolis, Minnesota by their respective
officers thereunto duly authorized as of the date
first
written above.
PENTAIR, INC.
By:__________________________________
Title: Chief Financial
Officer
FIRST BANK NATIONAL ASSOCIATION
By:__________________________________
Title: Vice President
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<PERIOD-END> DEC-31-1994
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<RECEIVABLES> 255105000
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<INVENTORY> 243651000
<CURRENT-ASSETS> 569219000
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<DEPRECIATION> 353422000
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<COMMON> 391058000
0
40916000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1281496000
<SALES> 1649170000
<TOTAL-REVENUES> 1649170000
<CGS> 1240262000
<TOTAL-COSTS> 1531700000
<OTHER-EXPENSES> 0
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<INTEREST-EXPENSE> 33367000
<INCOME-PRETAX> 89100000
<INCOME-TAX> 35500000
<INCOME-CONTINUING> 53600000
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