UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to _______
Commission File No. 001-11625
PENTAIR, INC.
(Exact name of Registrant as specified in its charter)
Minnesota 41-0907434
(State or other (IRS Employer
jurisdiction of Identification No.)
incorporation
or organization)
1500 County B2 West, Suite 400
St. Paul, Minnesota 55113-3105
(Address of principal
executive offices) (Zip Code)
(612) 636-7920
(Registrant's telephone number,
including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
The number of shares outstanding of Registrant's only class of common
stock on June 30, 1996 was 37,516,011.
<PAGE>
PENTAIR, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Consolidated Statement of Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of
Results of Operations and
Financial Condition
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Item 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended Quarter Ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 729,190 $ 672,039 $ 362,900 $ 338,216
Operating costs:
Cost of
goods sold 507,968 471,899 256,414 239,275
Selling, general
and
administrative 155,745 144,297 73,634 72,326
Total operating costs 663,713 616,196 330,048 311,601
Operating income 65,477 55,843 32,852 26,615
Interest expense
- net (9,274) (9,843) (4,649) (4,077)
Income from continuing
operations before
income taxes 56,203 46,000 28,203 22,538
Provision for
income taxes 22,594 18,800 11,094 9,189
Income from
continuing
operations 33,609 27,200 17,109 13,349
Discontinued operations:
Income from operations
of discontinued Paper
Products and Joint Venture
segments (net of
applicable income taxes
of $0 and $2,740, and $0
and $1,841, respectively) 0 4,566 0 3,067
Gain on sale of
discontinued
operations
(less applicable
income taxes of
$7,734) 0 12,134 0 12,134
Net income 33,609 43,900 17,109 28,550
Preferred dividend
requirements 2,548 2,657 1,273 1,327
Earnings applicable
to common stock $31,061 $41,243 $15,836 $27,223
Earnings per share:
Primary -
Income from:
continuing operations $.82 $.66 $.42 $.32
discontinued operations .00 .45 .00 .41
Net Income $.82 $1.11 $.42 $.73
Diluted -
Income from:
continuing operations $.78 $.63 $.40 $.31
discontinued operations .00 .40 .00 .36
Net Income $.78 $1.03 $.40 $.67
Weighted average
common and common
equivalent shares:
Primary 37,855 37,168 37,981 37,232
Diluted 42,722 42,320 42,791 42,352
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
Current assets
<S> <C> <C>
Cash and cash equivalents $23,042 $36,648
Accounts receivable - net 283,247 262,503
Note receivable 0 100,000
Inventories
Finished goods 188,837 134,456
Work in process 49,340 40,801
Raw materials and supplies 42,980 37,428
Total inventory 281,157 212,685
Deferred income taxes 26,743 26,017
Other current assets 15,375 9,391
Total current assets 629,564 647,244
Property, plant
and equipment 476,278 452,108
Accumulated depreciation 207,490 185,381
PP & E - net 268,788 266,727
Marketable securities -
insurance subsidiary 36,208 33,036
Goodwill - net 283,770 282,376
Other assets 33,017 23,110
TOTAL ASSETS $1,251,347 $1,252,493
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $98,613 $90,846
Notes payable 0 120,732
Compensation and other
benefits accruals 66,209 68,414
Income taxes 18,139 17,812
Accrued product claims
and warranties 23,581 21,684
Accrued expenses and
other liabilities 65,402 58,363
Current maturities of
long-term debt 12,495 18,950
Total current liabilities 284,439 396,801
Long-term debt 297,591 219,896
Deferred income taxes 1,081 68
Pensions and other
retirement compensation 41,443 38,220
Postretirement medical and
other benefits 46,267 46,158
Reserves -
insurance subsidiary 29,725 27,354
Other liabilities 21,745 21,141
Commitments and contingencies
Shareholders' equity
Preferred stock - at
liquidation value
Authorized: 2,500,000 shares
Outstanding:1996 - 1,795,376 63,152 65,656
1995 - 1,873,051
Unearned compensation
relating to ESOP (19,001) (21,074)
Common stock - par value, $.16 2/3
Authorized: 72,500,000 shares
Outstanding:1996 - 37,516,011 6,253 6,172
1995 - 37,035,082
Additional paid-in capital 176,402 169,832
Currency translation and
pension adjustments 8,819 11,020
Retained earnings 293,431 271,249
Total shareholders' equity 529,056 502,855
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $1,251,347 $1,252,493
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30 June 30
1996 1995
Cash provided by (used for)
Operating activities
<S> <C> <C>
Net income $33,609 $43,900
Adjustment for discontinued operations 0 (16,700)
Adjustments to reconcile net
income to cash provided
from operating activities
Depreciation 23,892 20,508
Amortization 5,601 3,166
Deferred income taxes 503 (619)
Changes in assets and liabilities,
net of effects of acquisitions
and dispositions
Accounts receivable (17,917) (33,516)
Inventories (53,873) (51,654)
Accounts payable 6,401 (1,936)
Accrued compensation
and benefits (1,416) 4,819
Income taxes 539 (1,619)
Pensions and other
retirement compensation 2,821 10,770
Reserves - insurance subsidiary 2,371 3,360
Other assets/liabilities - net (8,090) 9,139
Cash from continuing operations (5,559) (10,382)
Cash from discontinued operations 0 (525)
Cash from operating activities (5,559) (10,907)
Cash flows from investing activities
Capital expenditures (22,483) (22,571)
Purchase of marketable
securities - net (3,172) (711)
Construction funds in escrow (10,262) 0
Proceeds from sale of
discontinued operations 0 206,459
Acquisitions - net of
cash acquired (47,977) 0
Cash (used for) provided by
investing activities (83,894) 183,177
Cash flows from financing activities
Borrowings 81,350 24,621
Debt payments (2,546) (196,863)
Unearned ESOP
compensation decrease 2,070 4,160
Employee stock plans and other 4,147 2,817
Dividends paid (11,877) (9,989)
Cash provided by (used for)
financing activities 73,144 (175,254)
Effect of currency
exchange rate changes 2,703 2,578
Increase (decrease)
in cash and cash equivalents (13,606) (406)
Cash and cash equivalents
- beginning of period 36,648 32,677
- end of period $23,042 $32,271
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with instructions for Form 10-Q and,
accordingly, do not include all information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments, consisting
only of normal recurring accruals, considered necessary for a fair
presentation have been included.
These statements should be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995, previously filed with the
Commission.
2. The results of operations for the three months ended June 30, 1996 are
not necessarily indicative of the operating results to be expected for the
full year.
3. Income tax provisions for interim periods are based on the current
best estimate of the effective federal, state and foreign income tax
rates.
4. Earnings per common share are based on the weighted average number of
common and common equivalent shares outstanding during each period. The
tax benefits applicable to preferred dividends paid to ESOPs are: for
allocated shares credited to income tax expense and for unallocated
shares, credited to retained earnings and are not considered earnings
applicable to common stock.
Fully diluted computations assume full conversion of each series of
preferred stock into common stock, the elimination of preferred dividend
requirements, and the recognition of the tax benefit on deductible ESOP
dividends applicable to allocated shares payable based on the converted
common dividend rate. Conversion was assumed during the portion of each
period that the securities were outstanding.
5. The long-term debt is summarized as follows ($ millions):
<TABLE>
<CAPTION>
June 30,December 31,
1996 1995
<S> <C> <C>
Revolving credit facilities $165 $93
Private placement debt 125 125
Other 20 21
TOTAL 310 239
Current maturities (12) (19)
Total long-term debt $298 $220
</TABLE>
Debt agreements contain various restrictive covenants, including a
limitation on the payment of dividends and certain other restricted
payments. Under the most restrictive covenants, $56 million of the June
30, 1996 retained earnings were unrestricted for such purposes.
6.Statement of Cash Flows
The following is supplemental information relating to the Statement of
Cash Flows ($000's):
<TABLE>
<CAPTION>
Six Months Ended June 30
1996 1995
<S> <C> <C>
Interest paid
(net of capitalized interest) $10,469 $16,615
Income tax payments 15,630 24,382
</TABLE>
7. Stock Split
On January 22, 1996 the board of directors approved a two-for-one stock
split in the form of a 100% stock dividend. The dividend was payable
February 16, 1996 to shareholders of record at the close of business on
February 2, 1996. All references in the financial statements to shares
outstanding and per share amounts have been restated to reflect this
split.
8. Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the current year presentation.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
Selected information for business segments for the six months ended June
30, 1996 and 1995 follows ($ millions):
<TABLE>
<CAPTION>
General
Specialty Industrial
Products Equipment Corporate Total
1996
<S> <C> <C> <C> <C>
Net Sales $303.7 $425.5 $0.0 $729.2
Operating Income 34.9 39.2 (8.6) 65.5
Identifiable Assets 453.4 732.0 65.9 1,251.3
Depreciation
and Amortization 9.5 20.0 0.0 29.5
Capital Expenditures 7.5 15.0 0.0 22.5
1995
Net Sales $228.3 $443.7 $ 0.0 $672.0
Operating Income 22.5 43.2 (9.9) 55.8
Identifiable Assets 237.0 703.4 188.2 1,128.6
Depreciation
and Amortization 6.2 17.5 0.0 23.7
Capital Expenditures 6.5 16.0 0.1 22.6
</TABLE>
RESULTS OF OPERATIONS
Pentair reported net income of $33.6 million, or 78 cents per fully
diluted share, on consolidated net sales of $729.2 million for the six
months ended June 30, 1996. This represented a 23.5% increase in net
income and an 8.5% increase in sales over the first half of 1995. The six
month 1995 income from continuing operations was $27.2 million, or 63
cents per fully diluted share, on consolidated net sales of $672.0
million.
Specialty Products Segment. Net sales increased $75.4 million or 33% and
operating income increased $12.3 million or 55%. The increases are
attributable to Fleck Controls, an acquisition made in November 1995, and
double digit sales growth over last year at Delta, Myers and Porter Cable.
The improvements reflect new product sales, contributions from smaller
acquisitions, and continued expansion into national distribution channels.
Results from the newly acquired Flex business will be included effective
July 1, 1996.
General Industrial Equipment Segment. Sales decreased $18.2 million or
4% and operating income decreased $3.9 million or 9%. Combined, Hoffman
and Schroff posted modest sales and earnings increases as compared to very
good 1995 results. Both Lincoln Industrial and Lincoln Automotive profits
increased due to cost reductions and improved productivity. Sales at
Federal Cartridge continued weak into the second quarter. The sales
shortfall is attributed to two factors: a shift in buying patterns by
distributors who are delaying purchases as a result of the elimination of
pre-season, quantity discounts, and high distributor inventories that were
built in response to proposed firearms legislation. Federal expects fall
stocking orders to be placed in the third quarter as the hunting season
approaches.
FINANCIAL CONDITION
In 1996 as in 1995, net income adjusted for non-cash items provided the
funds for seasonal working capital increases. Accounts receivable levels
increased due to dating programs and strong sales in the latter part of
the current quarter. Inventory levels have been built up in anticipation
of higher third and fourth quarter sales. Borrowings in the first half
of 1996 financed some operating needs, acquisition payments and capital
expenditures. The proceeds from the $100 million note receivable from the
sale of Cross Pointe Paper offset much of the $120 million notes payable
for the purchase of Fleck Controls. Capital expenditures were $22.5
million in 1996 as compared to $22.6 million in 1995. The percentage of
long-term debt to total capital was 36% at June 30, 1996 compared to 31%
at December 31, 1995.
Based upon current operating expectations, credit available under
revolving credit facilities is expected to be adequate to cover seasonal
working capital, long-term capital expenditure requirements and
acquisitions.
OUTLOOK
In general, the Company is well-positioned to continue its internal
growth. Recent acquisitions are expected to continue to contribute to
sales and earnings growth. The strong emphasis on product development and
aggressive efforts to expand distribution channels that helped during 1995
are expected to generate growth in market share, sales and profits. Sales
will continue to grow as a result of new products and enhanced customer
service. Pentair continues to search for strategic or synergistic
industrial acquisitions.
The full year 1996 cash flow from operations is expected to increase with
additional net income contributions as compared to last year. Working
capital needs are somewhat seasonal during the year and tend to grow over
time as sales increase. Capital expenditures are expected to be in the
range of $90 to $110 million in 1996 as compared to $63.8 million in 1995.
This increase is due primarily to the addition of a Hoffman manufacturing
facility in Mount Sterling, Kentucky and new product development
activities.
Except for historical information contained herein, certain statements are
forward-looking statements that involve risks and uncertainties,
including, but no limited to, product demand and market acceptance risks,
the effect of economic conditions, the impact of competitive products and
pricing, product development, commercialization and technological
difficulties, capacity and supply constraints or difficulties, the results
of financing efforts, actual purchases under agreements, the effect of the
Company's accounting policies, and other risks detailed in other SEC
filings.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Delta International Machinery. In July 1996, Rockwell International notified
Pentair that it would claim indemnification under a 1984 purchase agreement
with respect to property located in Guelph, Ontario, the former site of
operations for Rockwell Canada and a former subsidiary of Pentair, Beaver-
Delta Machinery Corp. The Ontario Ministry of Environment and Energy identified
the site as contaminated by TCE from operations of Rockwell Canada. This site
is the same as that involved in an earlier suit by a subsequent owner against
Beaver-Delta which had been dismissed; for basic information about the site,
see the discussion in Pentair's Form 10-K for the year ending December 31, 1993.
Pentair believes that it has no liability to Rockwell under the purchase
agreement or otherwise. No estimate of the projected response cost liability
at this site can be made based on information currently known to Pentair.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included with this Form 10-Q
Report as required by Item 601 of Regulation S-K.
Exhibit Description
Number
11 Calculation of Earnings per Common and Common
Equivalent Share
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
/s/ Richard W. Ingman
Executive Vice President and
Chief Financial Officer
August 9, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Number
11 Calculation of Earnings per Common and
Common Equivalent Share
27 Financial Data Schedule
EXHIBIT 11
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Six Months Quarter Ended
June 30 June 30
1996 1995 1996 1995
INCOME ($ thousands)
<S> <C> <C> <C> <C>
Net income $33,609 $43,900 $17,109 $28,550
Preferred dividend requirements 2,548 2,657 1,273 1,327
Earnings available to common and common
equivalent shares - Primary 31,061 41,243 15,836 27,223
Preferred dividends assuming conversion
of Preferred Stock:
Series 1988 478 497 238 247
Series 1990 2,070 2,160 1,035 1,080
Tax benefit on preferred ESOP dividend
eliminated due to conversion into common (683) (646) (333) (314)
Tax benefit on ESOP dividend assuming con-
version to common,
at common dividend rate 330 250 161 122
Earnings available for
common and common equivalent
shares - Diluted $33,256 $43,504 $16,937 $28,358
SHARES (thousands)
Weighted average number
of shares outstanding
during the period 37,364 36,680 37,471 36,754
Shares issuable on exercise of stock options
less shares repurchaseable from proceed 491 488 510 478
Common and Common Equivalent Shares -
Primary 37,855 37,168 37,981 37,232
Shares issuable on conversion of:
$7.50 Callable Cumulative Convertible
Preferred Stock, Series 1988 956 992 950 988
8% Callable Cumulative Voting Convertible
Preferred Stock, Series 1990 3,911 4,160 3,860 4,132
Common and Common Equivalent Shares -
Diluted 42,722 42,320 42,791 42,352
Earnings per Share:
Primary
Income from continuing operations $.82 $.66 $.42 $.32
Income from discontinued operations .00 .45 .00 .41
Net income $.82 $1.11 $.42 $.73
Diluted
Income from continuing operations $.78 $.63 $.40 $.31
Income from discontinued operations .00 .40 .00 .36
Net income $.78 $1.03 $.40 $.67
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 23042000
<SECURITIES> 0
<RECEIVABLES> 283247000
<ALLOWANCES> 0
<INVENTORY> 281157000
<CURRENT-ASSETS> 629564000
<PP&E> 476278000
<DEPRECIATION> 207490000
<TOTAL-ASSETS> 1251347000
<CURRENT-LIABILITIES> 284439000
<BONDS> 0
<COMMON> 484905000
0
44151000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1251347000
<SALES> 362900000
<TOTAL-REVENUES> 362900000
<CGS> 256414000
<TOTAL-COSTS> 330048000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4649000
<INCOME-PRETAX> 28203000
<INCOME-TAX> 11094000
<INCOME-CONTINUING> 17107000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17109000
<EPS-PRIMARY> .42
<EPS-DILUTED> .40
</TABLE>
