UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 September 30, 1996 was 37,603,998.
<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 6. Exhibits and Reports on Form 8-K
Signature Page
Exhibit Index
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PENTAIR, INC.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
($ expressed in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Quarter Ended
September 30 September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $1,140,160 $ 1,025,377 $410,970 $353,338
Operating costs:
Cost of
goods sold 802,950 727,288 294,982 255,389
Selling, general
and
administrative 236,110 214,047 80,365 69,750
Total costs 1,039,060 941,335 375,347 325,139
Operating income 101,100 84,042 35,623 28,199
Interest expense
- net (13,829) (12,530) (4,555) (2,687)
Income from continuing
operations before
income taxes 87,271 71,512 31,068 25,512
Provision for
income taxes 35,084 29,012 12,490 10,212
Income from
continuing
operations 52,187 42,500 18,578 15,300
Discontinued operations:
Income from operations
of discontinued Paper
Products and Joint
Venture
segments (net of
applicable income taxes
of $2,740) 0 4,566 0 0
Gain on sale of
discontinued
operations
(less applicable
income taxes of
$7,734) 0 12,134 0 0
Net income 52,187 59,200 18,578 15,300
Preferred dividend
requirements 3,816 3,981 1,268 1,324
Earnings applicable
to common stock $48,371 $55,219 $17,310 $13,976
Earnings per share:
Primary -
Income from:
continuing
operations $1.28 $1.04 $.46 $.38
discontinued
operations .00 .45 .00 .00
Net Income $1.28 $1.49 $.46 $.38
Diluted -
Income from:
continuing
operations $1.21 $.99 $.43 $.36
discontinued
operations .00 .40 .00 .00
Net Income $1.21 $1.39 $.43 $.36
Weighted average
common and common
equivalent shares:
Primary 37,915 37,238 38,037 37,378
Diluted 42,745 42,346 42,793 42,398
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash and cash equivalents $34,629 $36,648
Accounts receivable - net 305,256 262,503
Note receivable 0 100,000
Inventories
Finished goods 172,142 134,456
Work in process 51,750 40,801
Raw materials and supplies 42,846 37,428
Total inventory 266,738 212,685
Deferred income taxes 26,625 26,017
Other current assets 21,198 9,391
Total current assets 654,446 647,244
Property, plant and equipment 492,511 452,108
Accumulated depreciation 218,077 185,381
PP & E - net 274,434 266,727
Marketable securities -
insurance subsidiary 38,810 33,036
Goodwill - net 280,226 282,376
Other assets 32,953 23,110
TOTAL ASSETS $1,280,869 $1,252,493
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $96,824 $90,846
Notes payable 0 120,732
Compensation and other
benefits accruals 61,804 68,414
Income taxes 20,751 17,812
Accrued product claims
and warranties 23,881 21,684
Accrued expenses and
other liabilities 71,519 58,363
Current maturities of
long-term debt 39,050 18,950
Total current liabilities 313,829 396,801
Long-term debt 276,520 219,896
Deferred income taxes 3,552 68
Pensions and other
retirement compensation 42,903 38,220
Postretirement medical and
other benefits 46,907 46,158
Reserves - insurance subsidiary 31,099 27,354
Other liabilities 21,723 21,141
Commitments and contingencies
Shareholders' equity
Preferred stock - at
liquidation value
Authorized: 2,500,000 shares
Outstanding:1996 - 1,778,652 62,466 65,656
1995 - 1,873,051
Unearned compensation
relating to ESOP (17,966) (21,074)
Common stock - par value, $.16 2/3
Authorized: 72,500,000 shares
Outstanding:1996 - 37,603,998 6,269 6,172
1995 - 37,035,082
Additional paid-in capital 177,336 169,832
Currency translation and
pension adjustments 9,964 11,020
Retained earnings 306,267 271,249
Total shareholders' equity 544,336 502,855
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $1,280,869 $1,252,493
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
($ expressed in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
1996 1995
<S> <C> <C>
Cash provided by (used for)
Operating activities
Net income $52,187 $59,200
Adjustment for discontinued operations 0 (16,700)
Adjustments to reconcile net
income to cash provided
from operating activities
Depreciation 35,802 30,895
Amortization 8,566 4,914
Deferred income taxes 3,230 295
Changes in assets and liabilities,
net of effects of acquisitions
and dispositions
Accounts receivable (39,935) (46,976)
Inventories (39,453) (32,945)
Accounts payable 2,506 (1,743)
Accrued compensation and benefits (5,949) 5,288
Income taxes 3,130 (2,798)
Pensions and other
retirement compensation 5,917 13,276
Reserves - insurance subsidiary 3,745 4,688
Other assets/liabilities - net (2,983) 8,714
Cash from continuing operations 26,763 26,108
Cash from discontinued operations 0 (21,812)
Cash from operating activities 26,763 4,296
Cash flows from investing activities
Capital expenditures (39,497) (35,853)
Purchase of marketable
securities - net (5,774) (5,475)
Construction funds in escrow (9,748) 0
Proceeds from sale of
discontinued operations 0 212,760
Acquisitions - net of
cash acquired (48,151) 0
Cash (used for) provided by
investing activities (103,170) 171,432
Cash flows from financing activities
Borrowings 80,350 24,762
Debt payments (1,227) (198,364)
Unearned ESOP
compensation decrease 3,105 6,240
Employee stock plans and other 4,410 3,150
Dividends paid (17,844) (15,561)
Cash provided by (used for)
financing activities 68,794 (179,773)
Effect of currency
exchange rate changes 5,594 (2,009)
Increase (decrease)
in cash and cash equivalents (2,019) (6,054)
Cash and cash equivalents
- beginning of period 36,648 32,677
- end of period $34,629 $26,623
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PENTAIR, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with instructions for Form
10-Q and, accordingly, do not include all information and footnotes
required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments,
consisting only of normal recurring accruals, considered necessary for
a fair presentation have been included.
These statements should be read in conjunction with the financial
statements and footnotes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995, previously filed with the
Commission.
2. The results of operations for the nine months ended September 30,
1996 are not necessarily indicative of the operating results to be
expected for the full year.
3. Income tax provisions for interim periods are based on the current
best estimate of the effective federal, state and foreign income tax
rates.
4. Earnings per common share are based on the weighted average number of
common and common equivalent shares outstanding during each period. The
tax benefits applicable to preferred dividends paid to ESOPs are: for
allocated shares, credited to income tax expense and, for unallocated
shares, credited to retained earnings and not considered earnings
applicable to common stock.
Fully diluted computations assume full conversion of each series of
preferred stock into common stock, the elimination of preferred dividend
requirements, and the recognition of the tax benefit on deductible ESOP
dividends applicable to allocated shares payable based on the converted
common dividend rate. Conversion was assumed during the portion of each
period that the securities were outstanding.
5. The long-term debt is summarized as follows ($ millions):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
<S> <C> <C>
Revolving credit facilities $164 $93
Private placement debt 125 125
Other 27 21
TOTAL 316 239
Current maturities (39) (19)
Total long-term debt $277 $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, $77 million of the
September 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>
Nine Months Ended September 30
1996 1995
<C> <C> <C>
Interest paid
(net of capitalized interest) $12,374 $21,304
Income tax payments 21,863 50,183
</TABLE>
7. Stock Split
On January 22, 1996 the board of directors approved a two-for-one stock
split in the form of a 100% stock dividend. The dividend was payable
February 16, 1996 to shareholders of record at the close of business on
February 2, 1996. All references in the financial statements to shares
outstanding and per share amounts have been restated to reflect this
split.
8. Reclassifications
Certain reclassifications have been made to prior years' financial
statements to conform to the current year presentation.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
BUSINESS SEGMENT INFORMATION
Selected information for business segments for the nine months ended
September 30, 1996 and 1995 follows ($ millions):
<TABLE>
<CAPTION>
General
Specialty Industrial
Products Equipment Corporate Total
<S> <C> <C> <C> <C>
1996
Net Sales $476.4 $663.8 $0.0 $1,140.2
Operating Income 55.2 61.5 (15.6) 101.1
Identifiable Assets 468.3 734.8 77.8 1,280.9
Depreciation
and Amortization 13.9 30.4 0.1 44.4
Capital Expenditures 12.5 26.9 0.1 39.5
1995
Net Sales $353.4 $671.9 $ 0.0 $1,025.3
Operating Income 35.2 63.2 (14.4) 84.0
Identifiable Assets 241.7 692.1 179.3 1,113.1
Depreciation
and Amortization 7.3 28.5 0.0 35.8
Capital Expenditures 8.3 27.5 0.1 35.9
</TABLE>
RESULTS OF OPERATIONS
Pentair reported net income of $52.2 million, or $1.21 per fully diluted
share, on consolidated net sales of $1,140.2 million for the nine month
period ended September 30, 1996. This represented a 23% increase in net
income from continuing operations and an 11% increase in sales over the
comparable period in 1995. The nine month 1995 income from continuing
operations was $42.5 million, or 99 cents per fully diluted share, on
consolidated net sales of $1,025.3 million. Net sales for the three month
period ended September 30, 1996 increased 16% over the same period of the
prior year and net income increased 21%.
Specialty Products Segment. For the nine month period ended September
30, 1996, net sales increased $123.0 million or 35%
and operating income increased $20.0 million or 57%. The increases are
attributable to Fleck Controls, an acquisition made in November 1995,
and FLEX, a recent Porter Cable acquisition. Double digit growth over
last year at Myers and Porter Cable reflected new
product sales, contributions from smaller acquisitions, and continued
expansion and increased penetration into national distribution channels
and home centers. Results from the newly acquired Flex business have
been included since July 1, 1996.
General Industrial Equipment Segment. For the nine month period ended
September 30, 1996, net sales decreased $8.1 million or
1% and operating income decreased $1.7 million or 3%. Combined, Hoffman
and Schroff posted moderate 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 were up in the third quarter. Federal's sales
shortfall in the first half was somewhat made up by the anticipated peak
in the third quarter demand which did fully not meet expectations. Sales in
the sporting ammunition industry are expected to remain relatively soft in
the fourth quarter.
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 decreased during the current
quarter and are expected to decrease in the fourth quarter also due to
seasonal sales. Borrowings in the 1996 nine month period 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 $39.5 million in
1996 as compared to $35.9 million in 1995. The percentage of long-term
debt to total capital was 34% at September 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 and the current year are expected to continue 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 $80 to $90 million in 1996 as compared to $63.8 million in 1995.
This increase is due primarily to the addition of a Hoffman manufacturing
facility in Mount Sterling, Kentucky and new product development
activities.
Except for historical information contained herein, certain statements
are forward-looking statements that involve risks and uncertainties,
including, but not limited to, product demand and market acceptance risks,
the effect of economic conditions, the impact of competitive products and
pricing, product development, commercialization and technological
difficulties, capacity and supply constraints or difficulties, the
results of financing efforts, actual purchases under agreements, the
effect of the Company's accounting policies, and other risks detailed in
other SEC filings.
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are included with this Form 10-Q
Report as required by Item 601 of Regulation S-K.
Exhibit Description
Number
11 Calculation of Earnings per Common and Common
Equivalent Share
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
/s/ Richard W. Ingman
Executive Vice President and
Chief Financial Officer
October 30, 1996
<PAGE>
EXHIBIT INDEX
Exhibit Number
11 Calculation of Earnings per Common and
Common Equivalent Share
27 Financial Data Schedule
EXHIBIT 11
PENTAIR, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON
AND COMMON EQUIVALENT SHARE
<TABLE>
<CAPTION>
Nine Months Quarter Ended
September 30 September 30
1996 1995 1996 1995
INCOME ($ thousands)
<S> <C> <C> <C> <C>
Net income $52,187 $59,200 $18,578 $15,300
Preferred dividend requirements 3,816 3,981 1,268 1,324
Earnings available to common and common
equivalent shares - Primary 48,371 55,219 17,310 13,976
Preferred dividends assuming conversion
of Preferred Stock:
Series 1988 711 741 233 244
Series 1990 3,105 3,240 1,035 1,080
Tax benefit on preferred ESOP dividend
eliminated due to conversion into common (1,010) (947) (327) (301)
Tax benefit on ESOP dividend assuming con-
version to common, at common dividend rate 488 366 158 116
Earnings available for common and
common equivalent shares - Diluted $51,665 $58,619 $18,409 $15,115
SHARES (thousands)
Weighted average number of shares
outstanding during the period 37,433 36,754 37,573 36,902
Shares issuable on exercise of stock options
less shares repurchaseable from proceeds 482 484 464 476
Common and Common Equivalent Shares -
Primary 37,915 37,238 38,037 37,378
Shares issuable on conversion of:
$7.50 Callable Cumulative Convertible
Preferred Stock, Series 1988 948 988 931 976
8% Callable Cumulative Voting Convertible
Preferred Stock, Series 1990 3,882 4,120 3,825 4,044
Common and Common Equivalent Shares -
Diluted 42,745 42,346 42,793 42,398
Earnings per Share:
Primary
Income from continuing operations $1.28 $1.04 $.46 $.38
Income from discontinued operations .00 .45 .00 .00
Net income $1.28 $1.49 $.46 $.38
Diluted
Income from continuing operations $1.21 $.99 $.43 $.36
Income from discontinued operations .00 .40 .00 .00
Net income $1.21 $1.39 $.43 $.36
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 34629000
<SECURITIES> 0
<RECEIVABLES> 305256000
<ALLOWANCES> 0
<INVENTORY> 266738000
<CURRENT-ASSETS> 654446000
<PP&E> 492511000
<DEPRECIATION> 218077000
<TOTAL-ASSETS> 1280869000
<CURRENT-LIABILITIES> 313829000
<BONDS> 0
<COMMON> 499836000
0
44500000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1280869000
<SALES> 1140160000
<TOTAL-REVENUES> 1140160000
<CGS> 805950000
<TOTAL-COSTS> 1039060000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13829000
<INCOME-PRETAX> 87271000
<INCOME-TAX> 35084000
<INCOME-CONTINUING> 52187000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52187000
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.21
</TABLE>
