Including Stock Option Expensing
Q4 2005 YTD 2005
Continuing Operations Amount Change Amount Change
Earnings per Share $0.38 15% $1.80 33%
Net Sales $ 732.1M 12.4% $2,946.6M 29.3%
Operating income $ 66.9M 7.8% $ 323.1M 30.7%
Operating margins 9.1% (40 bps) 11.0% 10 bps
Free cash flow $ 114.1M $ 201.3M
Excluding Stock Option Expensing
Q4 2005 YTD 2005
Continuing Operations Amount Change Amount Change
Earnings per Share $0.41 24% $1.92 42%
Net Sales $ 732.1M 12.4% $2,946.6M 29.3%
Operating income $ 70.8M 14.2% $ 339.5M 37.3%
Operating margins 9.7% 20 bps 11.5% 60 bps
Free cash flow $ 114.8M $ 210.0M
GOLDEN VALLEY, Minn., Feb. 2 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR)
today announced its fourth quarter 2005 results, highlighting earnings per
share (EPS) from continuing operations of $0.38, an increase of 15 percent, on
sales of $732.1 million, a gain of 12 percent. Excluding the impact of stock
options expensing (SOE), EPS of $0.41 gained 24 percent in the quarter.
Pentair's FY2005 EPS from continuing operations gained 33 percent on a sales
gain of 29 percent. Excluding the impact of SOE, EPS gained 42 percent in the
year.
Pentair announced on December 19, 2005, that it would early adopt SFAS
123R for Share-Based Payment, an accounting change requiring companies to
recognize an expense in the Income Statement for stock options. Pentair has
adopted using the modified retrospective approach, restating the first three
quarters of 2005 to reflect an impact of $9.1 million after tax expense or
($0.09) of EPS. In the fourth quarter 2005, the impact was $2.9 million after
tax expense or ($0.03) of EPS, for a full year EPS impact of ($0.12).
Pentair's reported fourth quarter 2005 and FY2005 results reflect the adoption
of SFAS 123R. The reconciliation of the reported GAAP financial information to
the non-GAAP financials excluding the adoption of SFAS 123R is provided on
pages seven through 11 of this fourth quarter earnings announcement.
According to Pentair Chairman and Chief Executive Officer, Randall J.
Hogan, "In our first full year after the transformation of Pentair into a
Water-led business, we met our strategic and financial goals of replacing the
earnings of our former Tools Group, and added an additional 14 percent to EPS
on top of that, excluding stock option expensing. In 2005, we achieved organic
growth of approximately six percent, while achieving the highest profitability
and return on invested capital in the last five years. We also met our Free
Cash Flow goal with $201 million and exceeded our 100% conversion of net
income goal for the fifth consecutive year.
"In addition to the operating and financial progress in the year, we
accelerated our investments to drive growth and instill operating excellence
throughout the Company," Hogan said. "These activities included increasing
R&D; adding international management, sales, engineering, sourcing and
manufacturing talent; starting the implementation of a unified business system
infrastructure in Europe; launching our Faradyne Motors joint venture with ITT
Industries; and continuing to strengthen our global sourcing and operating
competencies. In addition, through our disciplined M&A process, we examined a
number of opportunities and completed two acquisitions that are consistent
with our growth strategies. These actions lend confidence to our outlook for
2006 and, therefore, we are reaffirming our previous guidance for the full
year 2006 of between $2.08 and $2.18, which includes the expensing of stock
options. Further, we are expecting first quarter EPS of between $0.40 and
$0.42."
Water Group Fourth Quarter Comments
- Sales of $517.8 million were up 10 percent over the same period last
year, or approximately 11 percent excluding unfavorable foreign
exchange. Sales in all markets grew by at least mid-single digits in
local currencies, with the strongest growth occurring in pump and pool
markets.
- Pump sales grew in the high single digits, spurred by new products,
and strong municipal and industrial pump demand, as well as by
pricing actions. Water systems sales also gained in the mid-single
digits.
- Share gains, favorable weather conditions, and successful early buy
programs bolstered pool and spa equipment sales in the quarter.
- Filtration grew in the mid-single digits, experiencing continued
strength in foodservice markets and strong sales related to
desalination projects.
- Pentair sales in Euros in European filtration markets were up in the
high teens, supported by strength in Food and Beverage markets,
while sales in European pool markets realized sales gains in the
high single digits benefiting from early buy programs. Asian sales
were up significantly as a result of the ramp-up of production at
the Pentair Suzhou manufacturing facility in China.
- New Water products were significant in driving sales. New pumps
included a bulk chemical transfer pump; a drainer pump; a gas engine
transfer pump; and new split case, solids handling, and centrifugal
pumps. Pool products included new heat pumps, automation controls,
lights, filters, chlorinators, pumps, and pool finishes. New
filtration products included a new modular filtration system and a
number of new OEM products.
- Excluding the impact of SOE, operating income of $56.8 million
increased 16 percent over the same period last year driven by higher
volumes, supply savings, and pricing, which were somewhat offset by
materials inflation and our accelerated investments focused on
growth, operating excellence, and international expansion. Excluding
the impact of SOE, operating margins of 11.0 percent for the quarter
expanded by 50 basis points over fourth quarter 2004 margins of 10.5
percent. Including the impact of SOE, operating income totaled $55.5
million, up 13 percent.
- The integration of the water businesses continued on-track with $36
million of savings realized net of integration costs during 2005
against a total year goal of $30 million. These savings were
somewhat offset by temporary operating inefficiencies related to
product moves and plant consolidations undertaken to achieve future
cost benefits, as well as investments made to support growth.
- Investments for growth during the quarter included low-cost country
engineering and sourcing, start-up of Eastern European manufacturing
capability, increased infrastructure in China and Europe to support
local market opportunities, filtration R&D innovation programs, and
the Faradyne Motor joint venture, announced December 15, 2005.
Enclosures Group Fourth Quarter Comments
- Sales of $214.3 million reflect an 18 percent gain over the same period
last year. Excluding the impact of acquisitions and unfavorable foreign
exchange, sales grew approximately 13 percent, significantly above the
growth rate of the addressed markets. Enclosure sales grew in all
markets in the fourth quarter, including Europe.
- The strong sales performance was driven by share gains and pricing
in the North American electrical market; new products and programs
at Pentair Electronic Packaging and in Europe; and new customers in
Asia.
- The Group's vertical market initiative drove growth in
petrochemical, food & beverage, water & wastewater, and
pharmaceutical markets.
- Electronics sales grew in the fourth quarter, with the new Advanced
Telecommunications Computing Architecture (ATCA) platform supporting
OEM customers worldwide. The Enclosures Group has secured a leading
market position in ATCA, and sales of this product family are
expected to accelerate throughout 2006.
- Excluding the impact of SOE, operating income of $30.7 million was 30
percent higher than the same period last year, setting a new record for
quarterly operating income in the Enclosures Group. This performance
resulted from higher volumes, supply savings, productivity
improvements, and pricing, which more than offset material inflation.
Including the impact of SOE, operating income totaled $30.0 million, up
26 percent.
- Excluding the impact of SOE, Enclosures margins were 14.3 percent for
the quarter, expanding by 130 basis points over the fourth quarter
2004. The fourth quarter 2005 represents the Group's 16th consecutive
quarter of sequential margin improvement. Including the impact of SOE,
margins were 14.0 percent, up 100 basis points.
- The Thermal Management businesses acquired on December 1, 2005 are
included in Pentair's financials for one month. Integration activities
are off to a fast start with supplier negotiations, lean enterprise
training, and kaizen events conducted in the first week after closing.
A Pentair conference call scheduled for 11:00 a.m. CST today will be
webcast live via http://www.pentair.com. A link to the conference call is
posted on the site's "Financial Information" page and will be archived at the
same location.
About Pentair, Inc.
Pentair (http://www.pentair.com) is a diversified operating company
headquartered in Minnesota. Its Water Group is a global leader in providing
innovative products and systems used worldwide in the movement, treatment,
storage and enjoyment of water. Pentair's Enclosures Group is a leader in the
global enclosures market, designing and manufacturing standard, modified, and
custom enclosures that house and protect sensitive electronics and electrical
components. With 2005 revenues of $2.95 billion, Pentair employs approximately
15,000 people worldwide.
Non-GAAP Financial Measures
In addition to the results reported in accordance with accounting
principles generally accepted in the United States ("GAAP") included
throughout this news release, the Company has provided information as if it
had not adopted SFAS 123R during 2005 on a modified retrospective basis back
to January 1, 2005 (non-GAAP financial measures). The adoption of SFAS 123R
requires companies to recognize an expense in the Income Statement for stock
options. Management believes presenting its financial information excluding
stock option expensing is useful to both management and investors in comparing
2004 to 2005 because the GAAP results for 2005 include stock option expense
on a fair value basis, but the results for 2004 do not. The financial
information excluding stock option expensing should not be considered in
isolation or as a substitute for financial information prepared in accordance
with GAAP, or as a measure of profitability or liquidity. Also, financial
information excluding stock option expensing, as determined and presented by
the Company, may not be comparable to related or similarly titled measures
reported by other companies.
Caution concerning forward-looking statements
Any statements made about the company's anticipated financial results are
forward-looking statements subject to risks and uncertainties such as
continued economic growth; the ability to integrate acquisitions successfully
and the risk that expected synergies may not be fully realized or may take
longer to realize than expected; foreign currency effects; retail and
industrial demand; product introductions; and pricing and other competitive
pressures. Forward-looking statements included herein are made as of the date
hereof, and the company undertakes no obligation to update publicly such
statements to reflect subsequent events or circumstances. Actual results could
differ materially from anticipated results.
Pentair Contacts:
Rachael Jarosh Mark Cain
Communications Investor Relations
Tel.: (763) 656-5280 Tel.: (763) 656-5278
E-mail: [email protected] E-mail: [email protected]
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three months ended Year ended
December 31 December 31 December 31 December 31
In thousands, 2005 2004 2005 2004
except per-share data
Net sales $732,113 $651,476 $2,946,579 $2,278,129
Cost of goods sold 524,304 468,274 2,098,558 1,623,419
Gross profit 207,809 183,202 848,021 654,710
% of net sales 28.4% 28.1% 28.8% 28.7%
Selling, general and
administrative 128,002 111,221 478,907 376,015
% of net sales 17.5% 17.1% 16.2% 16.5%
Research and
development 12,935 9,932 46,042 31,453
% of net sales 1.8% 1.5% 1.6% 1.4%
Operating income 66,872 62,049 323,072 247,242
% of net sales 9.1% 9.5% 11.0% 10.9%
Gain on sale of
investment 236 - 5,435 -
Net interest expense 11,263 10,892 44,989 37,210
% of net sales 1.5% 1.7% 1.5% 1.6%
Income from continuing
operations before
income taxes 55,845 51,157 283,518 210,032
% of net sales 7.6% 7.9% 9.6% 9.2%
Provision for income
taxes 16,889 17,460 98,469 73,008
Effective tax rate 30.2% 34.1% 34.7% 34.8%
Income from continuing
operations 38,956 33,697 185,049 137,024
Income from
discontinued
operations, net of tax - - - 40,248
Loss on disposal of
discontinued operations,
net of tax - (6,047) - (6,047)
Net income $38,956 $27,650 $185,049 $171,225
Earnings per common share
Basic
Continuing operations $0.39 $0.34 $1.84 $1.38
Discontinued operations - (0.07) - 0.34
Basic earnings per
common share $0.39 $0.27 $1.84 $1.72
Diluted
Continuing operations $0.38 $0.33 $1.80 $1.35
Discontinued operations - (0.07) - 0.33
Diluted earnings per
common share $0.38 $0.26 $1.80 $1.68
Weighted average common
shares outstanding
Basic 100,605 100,014 100,665 99,316
Diluted 102,314 102,541 102,618 101,706
Cash dividends declared
per common share $0.13 $0.11 $0.52 $0.43
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
December 31 December 31
In thousands 2005 2004
Assets
Current assets
Cash and cash equivalents $48,500 $31,495
Accounts and notes receivable, net 423,847 396,459
Inventories 349,312 323,676
Deferred tax assets 49,933 49,074
Prepaid expenses and other current assets 24,394 24,433
Total current assets 895,986 825,137
Property, plant and equipment, net 311,839 336,302
Other assets
Non-current assets of discontinued operations - 393
Goodwill 1,718,207 1,620,404
Intangibles, net 266,533 258,126
Other 62,152 80,213
Total other assets 2,046,892 1,959,136
Total assets $3,254,717 $3,120,575
Liabilities and Shareholders' Equity
Current liabilities
Current maturities of long-term debt $4,137 $11,957
Accounts payable 207,320 195,289
Employee compensation and benefits 95,552 104,821
Accrued product claims and warranties 43,551 42,524
Current liabilities of discontinued operations 192 192
Income taxes 18,464 27,395
Accrued rebates and sales incentives 45,374 41,618
Other current liabilities 111,026 103,083
Total current liabilities 525,616 526,879
Long-term debt 748,477 724,148
Pension and other retirement compensation 152,780 135,356
Post-retirement medical and other benefits 73,949 69,667
Deferred tax liabilities 125,801 142,873
Other non-current liabilities 70,455 70,804
Non-current liabilities of discontinued
operations 2,029 3,054
Total liabilities 1,699,107 1,672,781
Shareholders' equity 1,555,610 1,447,794
Total liabilities and shareholders' equity $3,254,717 $3,120,575
Days sales in accounts receivable
(13 month moving average) 54 52
Days inventory on hand (13 month moving average) 70 62
Days in accounts payable (13 month moving average) 56 57
Debt/total capital 32.6% 33.7%
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Year ended
December 31 December 31
In thousands 2005 2004
Operating activities
Net income $ 185,049 $ 171,225
Adjustments to reconcile net income to
net cash provided by operating activities
Net income from discontinued operations - (40,248)
Loss on disposal of discontinued operations 6,047
Depreciation 56,565 47,063
Amortization 15,995 7,501
Deferred income taxes 5,360 16,736
Stock compensation 24,186 6,345
Excess tax benefits from stock-based compensation (8,676) -
Gain on sale of investment (5,435) -
Changes in assets and liabilities, net of
effects of business acquisitions
and Dispositions
Accounts and notes receivable (20,527) 26,918
Inventories (19,201) (51,996)
Prepaid expenses and other current assets (452) 2,176
Accounts payable 6,629 17,274
Employee compensation and benefits (21,394) 4,596
Accrued product claims and warranties (1,099) 2,993
Income taxes 11,302 6,352
Other current liabilities 4,609 8,879
Pension and post-retirement benefits 16,512 11,508
Other assets and liabilities (2,114) 6,794
Net cash provided by continuing operations 247,309 250,163
Net cash (used for) provided by operating
activities of discontinued operations (632) 13,928
Net cash provided by operating activities 246,677 264,091
Investing activities
Capital expenditures (62,471) (48,867)
Proceeds from sale of property and equipment 17,111 -
Acquisitions, net of cash acquired (150,534) (869,155)
Divestitures (10,155) 773,399
Proceeds from sale of investment 23,835 -
Other (2,071) 60
Net cash used for investing activities (184,285) (144,563)
Financing activities
Net short-term borrowings - (4,162)
Proceeds from long-term debt 875,746 343,316
Repayment of long-term debt (856,845) (440,518)
Excess tax benefits from stock-based
compensation 8,676 -
Proceeds from exercise of stock options 8,380 10,862
Repurchases of common stock (25,000) (4,200)
Dividends paid (53,134) (43,128)
Net cash used for financing activities (42,177) (137,830)
Effect of exchange rate changes on cash (3,210) 1,808
Change in cash and cash equivalents 17,005 (16,494)
Cash and cash equivalents, beginning of period 31,495 47,989
Cash and cash equivalents, end of period $48,500 $31,495
Free cash flow
Net cash provided by operating activities $ 246,677 $ 264,091
Less capital expenditures (62,471) (48,867)
Proceeds from sale of property and equipment 17,111 -
Free cash flow $ 201,317 $ 215,224
Excess tax benefits from stock-based
compensation 8,676 -
Free cash flow excluding stock option
expensing $209,993 $215,224
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment for 2005
(Unaudited)
First Qtr Second Qtr Third Qtr Fourth Qtr Year
In thousands 2005 2005 2005 2005 2005
Net sales to external customers
Water $512,088 $585,657 $515,945 $517,815 $2,131,505
Enclosures 197,547 202,866 200,363 214,298 815,074
Consolidated $709,635 $788,523 $716,308 $732,113 $2,946,579
Intersegment sales
Water $ 22 $187 $280 $(341) $ 148
Enclosures 402 630 407 770 2,209
Other (424) (817) (687) (429) (2,357)
Consolidated $ - $ - $ - $ - $ -
Operating income (loss)
Water $60,487 $92,167 $58,964 $55,520 $267,138
Enclosures 25,172 26,325 27,778 29,954 109,229
Other (13,573) (11,258) (9,862) (18,602) (53,295)
Consolidated $72,086 $107,234 $76,880 $66,872 $323,072
Operating income as a percent of net sales
Water 11.8% 15.7% 11.4% 10.7% 12.5%
Enclosures 12.7% 13.0% 13.9% 14.0% 13.4%
Consolidated 10.2% 13.6% 10.7% 9.1% 11.0%
Operating income (loss) excluding impact of SFAS 123R adoption(a)
Water $61,803 $93,481 $60,278 $56,834 $272,396
Enclosures 25,926 27,078 28,531 30,707 112,242
Other (11,356) (9,082) (8,033) (16,707) (45,178)
Consolidated $76,373 $111,477 $80,776 $70,834 $339,460
Operating income as a percent of net sales excluding impact of SFAS 123R
adoption(a)
Water 12.1% 16.0% 11.7% 11.0% 12.8%
Enclosures 13.1% 13.3% 14.2% 14.3% 13.8%
Consolidated 10.8% 14.1% 11.3% 9.7% 11.5%
(a) The Company adopted SFAS 123R in December 2005 using the modified
retrospective method back to January 1, 2005. In connection with the
adoption, the expense as disclosed in the first three quarters related
to stock-based compensation was corrected for immaterial errors.
The corrections resulted in no change to the quarterly EPS impact of
stock option expensing.
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment for 2004
(Unaudited)
First Qtr Second Qtr Third Qtr Fourth Qtr Year
In thousands 2004 2004 2004 2004 2004
Net sales to external customers
Water $313,981 $353,316 $426,670 $469,427 $1,563,394
Enclosures 174,472 177,117 181,097 182,049 714,735
Consolidated $488,453 $530,433 $607,767 $651,476 $2,278,129
Intersegment sales
Water $ 21 $ 29 $ 26 $ 42 $ 118
Enclosures 332 986 3 140 1,461
Other (353) (1,015) (29) (182) (1,579)
Consolidated $ - $ - $ - $ - $ -
Operating income (loss)
Water $41,547 $59,253 $47,410 $49,100 $197,310
Enclosures 19,354 21,590 23,211 23,689 87,844
Other (10,791) (9,860) (6,521) (10,740) (37,912)
Consolidated $50,110 $70,983 $64,100 $62,049 $247,242
Operating income as a percent of net sales
Water 13.2% 16.8% 11.1% 10.5% 12.6%
Enclosures 11.1% 12.2% 12.8% 13.0% 12.3%
Consolidated 10.3% 13.4% 10.5% 9.5% 10.9%
Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" three months ended December 31,
2005 to the "Adjusted" non-GAAP excluding the effect of SFAS 123R adoption
(Unaudited)
Three months ended
As Reported Adjusted As Reported
December 31 SFAS 123R December 31 December 31
In thousands, 2005 2005 2004
except per-share
data
Net sales $732,113 $ - $732,113 $651,476
Cost of goods sold 524,304 - 524,304 468,274
Gross profit 207,809 - 207,809 183,202
% of net sales 28.4% 28.4% 28.1%
Selling, general and
administrative 128,002 (3,962) 124,040 111,221
% of net sales 17.5% 16.9% 17.1%
Research and
development 12,935 - 12,935 9,932
% of net sales 1.8% 1.8% 1.5%
Operating income 66,872 3,962 70,834 62,049
% of net sales 9.1% 9.7% 9.5%
Gain on sale of
investment 236 - 236 -
Net interest expense 11,263 - 11,263 10,892
% of net sales 1.5% 1.5% 1.7%
Income from continuing
operations before
income taxes 55,845 3,962 59,807 51,157
% of net sales 7.6% 8.2% 7.9%
Provision for income
taxes 16,889 1,073 17,962 17,460
Effective tax rate 30.2% 27.1% 30.0% 34.1%
Income from continuing
operations 38,956 2,889 41,845 33,697
Income from
discontinued
operations, net of tax - - - -
Loss on disposal of
discontinued operations,
net of tax - - - (6,047)
Net income $38,956 $2,889 $ 41,845 $27,650
Earnings per common share
Basic
Continuing operations $0.39 $0.03 $0.42 $0.34
Discontinued operations - - - (0.07)
Basic earnings per
common share $0.39 $0.03 $0.42 $0.27
Diluted
Continuing operations $0.38 $0.03 $0.41 $0.33
Discontinued operations - - - (0.07)
Diluted earnings per
common share $0.38 $0.03 $0.41 $0.26
Weighted average common shares outstanding
Basic 100,605 - 100,605 100,014
Diluted 102,314 52 102,366 102,541
Cash dividends declared
per common share $0.13 $ - $ 0.13 $ 0.11
Pentair, Inc. and Subsidiaries
Reconciliation of the GAAP "As Reported" year ended December 31, 2005 to the
"Adjusted" non-GAAP excluding the effect of SFAS 123R adoption (Unaudited)
Year ended
As Reported Adjusted As Reported
December 31 SFAS 123R December 31 December 31
In thousands, 2005 2005 2004
except per-share
data
Net sales $2,946,579 $ - $2,946,579 $2,278,129
Cost of goods sold 2,098,558 - 2,098,558 1,623,419
Gross profit 848,021 - 848,021 654,710
% of net sales 28.8% 28.8% 28.7%
Selling, general
and administrative 478,907 (16,388) 462,519 376,015
% of net sales 16.2% 15.7% 16.5%
Research and
development 46,042 - 46,042 31,453
% of net sales 1.6% 1.6% 1.4%
Operating income 323,072 16,388 339,460 247,242
% of net sales 11.0% 11.5% 10.9%
Gain on sale of
investment 5,435 - 5,435 -
Net interest expense 44,989 - 44,989 37,210
% of net sales 1.5% 1.5% 1.6%
Income from continuing
operations before
income taxes 283,518 16,387 299,906 210,032
% of net sales 9.6% 10.2% 9.2%
Provision for income
taxes 98,469 4,389 102,949 73,008
Effective tax rate 34.7% 26.8% 34.3% 34.8%
Income from continuing
operations 185,049 11,999 196,957 137,024
Income from
discontinued
operations, net of tax - - - 40,248
Loss on disposal of
discontinued operations,
net of tax - - - (6,047)
Net income $185,049 $ 11,999 $196,957 $171,225
Earnings per common share
Basic
Continuing operations $1.84 $0.12 $1.96 $1.38
Discontinued operations - - - 0.34
Basic earnings per
common share $1.84 $0.12 $1.96 $1.72
Diluted
Continuing operations $1.80 $0.12 $1.92 $1.35
Discontinued operations - - - 0.33
Diluted earnings per
common share $1.80 $0.12 $1.92 $1.68
Weighted average common
shares outstanding
Basic 100,665 - 100,665 99,316
Diluted 102,618 144 102,762 101,706
Cash dividends declared
per common share $0.52 $ - $0.52 $0.43
SOURCE Pentair, Inc.
CONTACT: Rachael Jarosh, Communications, +1-763-656-5280,
[email protected], or Mark Cain, Investor Relations, +1-763-656-5278,
[email protected], both of Pentair