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Pentair's Second Quarter EPS Meets Expectations, Rising 38% Above First Quarter 2001 EPS; Cash Flow at Record Levels in First Half of 2001
07.20.2001

ST. PAUL, Minn., July 20 /PRNewswire/ -- Pentair, Inc. (NYSE: PNR) announced today that increased cost controls and other operating efficiencies enabled the company to deliver second quarter 2001 earnings per share (EPS) of $0.58, in line with analysts' estimates and 38 percent above first quarter 2001 EPS of $0.42. Pentair's free cash flow for the second quarter totaled $106.4 million, bringing total free cash flow for the first half of 2001 to $53.4 million, a nearly $100 million improvement from the first six months last year and representing 109 percent conversion of year-to-date 2001 net income.

"We achieved these results in spite of sales pressures created by economic softness in the global marketplace," said Randall J. Hogan, president and chief executive officer. "Our Water Technologies segment performed as expected, Enclosures was disappointing, and Tools exceeded its recovery plan. In addition, our interest expense was lower, driven by our strong cash flow performance."

For the three months ended June 30, 2001, operating income was $60.3 million, compared to $79.4 million in the second quarter of 2000. Continuing EPS for the 2001 second quarter was $0.58, below the $0.79 in the year-earlier quarter. Net sales for the second quarter of 2001 were $702.1 million, versus $733.8 million in the second quarter of 2000.

For the six months ended June 30, 2001, operating income was $113.2 million, compared to $152.2 million (including restructuring charge income of $2.5 million) in the comparable 2000 period. Continuing EPS in the first half of 2001 was $1.00, versus $1.48 a year earlier, but in line with analysts' estimates. Net sales for the first six months of 2001 were $1.4 billion, flat when compared to the year-earlier period.

"Cash flow is a critical measurement of our progress in the prevailing economic conditions and we set ambitious goals for 2001," Hogan said. "We are ahead of our cash flow objectives, and on track to meet our full-year free cash flow target of $150 million."

In a review of second quarter 2001 highlights, Hogan singled out dramatic improvements at the Tool segment, sparked by cost reductions and strong sales of pressure washers and Porter-Cable branded tools; strength in the pool and spa markets, which compensated for softer pump sales in the Water Technologies segment; and cost reductions in all of Pentair's businesses, whose sales are depressed by economic softness.

"We don't see dramatic near-term improvements in the markets we serve," Hogan said, "but the diversity of Pentair's product groups and the company's improved cost efficiencies bolster confidence in our performance. Although there is no reliable timetable for a return to more favorable conditions in the global economy, the steps we have taken in the first half of 2001 have put Pentair back on track."

In the Tools segment, Pentair said the turnaround strategies it has implemented are taking hold. Economic pressures continue to affect sales growth, but revenues and operating income both improved from quarter-earlier levels as the refocused segment made strong inroads in most of its product lines and reinforced its traditionally high service levels. A highlight of the quarter was the success of the pressure washer line at DeVilbiss Air Power Company, largely due to the outstanding performance of its ExCell brand. Pentair has expanded its leading position in the pressure washer business with the introduction of units with oil-free radial pumps that provide added efficiencies and quality benefits at attractive price points. Delta renewed its focus on customer service and product development, and profit margins improved as the result of reduced discounting activities. Porter-Cable is introducing a host of new tools, which when combined with those of Delta and DeVilbiss, will total approximately 50 for the year.

In the Enclosures segment, second quarter sales and operating earnings declined from those of both the second quarter of 2000 and the first quarter of 2001. The downturn in industrial capital spending reduced Hoffman's sales, while the slowdown in electronics and telecom markets affected Pentair Electronic Packaging and Pentair Enclosures Europe, in particular. Operating income reflected weaker sales; a disproportionate decline in standard product business and fewer small, high-margin programs; and one-time costs to reduce capacity. In response, the business reduced headcount by 11 percent; idled one plant and reduced capacity at others; cut material costs and overhead; and reduced inventory $10 million. The Enclosures business continues to experience significant quoting activity and is increasing its percentage of contract wins; however, these wins have not translated to shipments as customers continue to deplete inventories and delay implementation of new projects. Given the uncertain outlook for this business, the Enclosures business is continuing to aggressively attack its cost structure.

In the Water Technologies segment, sales declined, due to sluggish water softener component sales and a decline in pump revenues. Operating income also was down for the quarter, but strong cost controls expanded operating margins 200 basis points over the first quarter. The pool and spa equipment business started the second quarter slowly, but record June sales brought the business back in line for the year. Sales of pumps to industrial customers have been particularly hard hit in the current economic slump. The pump business also was affected by decreased international sales due to the strong U.S. dollar, and timing of shipments for several large pump projects. Although sales were down, backlogs were up five percent over prior-year levels and orders remain solid. New product introductions in the quarter included a line of pressure tanks for the Home Center channel and heat pumps for pool and spa applications.

"We are cautiously optimistic in our ability to meet third quarter earnings expectations in the current economic environment," Hogan said. "We continue to work on the recovery of our Tools segment, to pursue cost reductions in our Water Technologies and Enclosures segments and make certain they are sized appropriately for the markets they serve, to maintain our momentum on cash flow to pay down additional debt, and to capture every opportunity to add further value for shareholders."

A Pentair conference call scheduled for 9:00 a.m. CDT today will be webcast live via http://www.pentair.com . The conference call, which can be found on the site's "Financial Information" page, will be archived at the same location.

Pentair is a St. Paul-based manufacturer whose core businesses compete in tools, water technologies, and enclosures markets. The company employs 12,500 people in more than 50 locations around the world.

Any statements made about the company's anticipated financial results are forward-looking statements subject to risks and uncertainties such as continued economic growth, retail demand and other competitive pressures, the ability to successfully strengthen management, and other uncertainties as described in the company's Annual Report on Form 10K for the year ended December 31, 2000. Actual results could differ materially from anticipated results.

                        Pentair, Inc. and Subsidiaries
           Condensed Consolidated Statements of Income (Unaudited)

                             Three months ended          Six months ended
                           June 30        July 1      June 30        July 1
                              2001          2000         2001          2000

    In thousands, except per-share data

    Net sales             $702,076      $733,761   $1,373,459    $1,381,452
    Cost of goods sold     531,294       541,614    1,038,690     1,009,403

    Gross profit           170,782       192,147      334,769       372,049
    Selling, general
     and administrative    103,183       105,182      206,575       206,182
    Research
     and development         7,250         7,528       14,989        16,146
    Restructuring
     charge (income)             -             -            -        (2,468)

    Operating income        60,349        79,437      113,205       152,189
    Net interest expense    16,241        18,579       33,957        37,527
    Write-off of investment      -             -        2,500             -

    Income from continuing
     operations before
     income taxes           44,108        60,858       76,748       114,662
    Provision for
     income taxes           15,552        22,185       27,629        42,348

    Income from
     continuing operations  28,556        38,673       49,119        72,314
    Income (loss) from
     discontinued operations,
     net of tax                  -        (1,440)           -        (2,415)
    Cumulative effect
     of accounting change,
     net of tax                  -             -            -        (1,222)

    Net income             $28,556       $37,233      $49,119       $68,677

    Earnings per
     common share
     Basic
     Continuing operations   $0.58         $0.80        $1.00         $1.49
     Income (loss) from
      discontinued operations    -         (0.03)           -         (0.05)
     Cumulative effect
      of accounting change       -             -            -         (0.02)

     Basic earnings
      per common share       $0.58         $0.77        $1.00         $1.42

     Diluted
     Continuing operations   $0.58         $0.79        $1.00         $1.48
     Income (loss) from
      discontinued operations    -         (0.03)           -         (0.05)
     Cumulative effect
      of accounting change       -             -            -         (0.02)

     Diluted earnings
      per common share       $0.58         $0.76        $1.00         $1.41

    Weighted average
     common shares
     outstanding
      Basic                 49,032        48,517       49,019        48,485
      Diluted               49,274        48,742       49,200        48,658

    Cash dividends declared
     per common share        $0.17         $0.16        $0.34         $0.32


                        Pentair, Inc. and Subsidiaries
                    Condensed Consolidated Balance Sheets

                                    June 30     December 31        July 1
                                       2001            2000          2000
    In thousands                 (Unaudited)                   (Unaudited)

      Assets

    Current assets
    Cash and cash equivalents       $27,689         $34,944       $45,188
    Accounts and
     notes receivable, net          475,813         468,081       527,128
    Inventories                     345,097         392,495       421,586
    Other current assets             96,330          95,019        73,579
    Net assets of
     discontinued operations        109,060         101,263       153,397

      Total current assets        1,053,989       1,091,802     1,220,878

    Property, plant
     and equipment, net             341,037         352,984       355,637

    Goodwill, net                 1,114,115       1,141,102     1,135,810
    Other assets                     91,275          58,137        59,380
     Total assets                $2,600,416      $2,644,025    $2,771,705

      Liabilities and
       Shareholders' Equity

    Current liabilities
    Short-term borrowings           $98,828        $108,141      $195,964
    Current maturities of
     long-term debt                  21,605          23,999        21,341
    Accounts and notes payable      230,286         250,088       248,639
    Accrued expenses and
     other current liabilities      244,731         266,564       259,675

      Total current liabilities     595,450         648,792       725,619

    Long-term debt                  763,746         781,834       839,003
    Other noncurrent liabilities    199,343         202,808       170,459

     Total liabilities            1,558,539       1,633,434     1,735,081

    Shareholders' equity          1,041,877       1,010,591     1,036,624
     Total liabilities and
      shareholders' equity       $2,600,416      $2,644,025    $2,771,705


                        Pentair, Inc. and Subsidiaries
         Condensed Consolidated Statements of Cash Flows (Unaudited)

                                                        Six months ended
                                                     June 30         July 1
    In thousands                                        2001           2000

    Operating activities
    Net income                                       $49,119        $68,677
    Depreciation                                      32,830         32,366
    Amortization                                      20,565         19,893
    Deferred income taxes                                264            335
    Restructuring charge (income)                          -         (2,468)
    Other expense, write-off of investment             2,500              -
    Cumulative effect of accounting change                 -          1,222

Changes in assets and liabilities,

net of effects of business acquisitions

       Accounts and notes receivable                 (16,233)       (40,088)
       Inventories                                    42,753        (67,222)
       Prepaid expenses and other current assets      (7,462)       (11,309)
       Accounts payable                              (15,222)        31,070
       Employee compensation and benefits            (16,600)        (8,017)
       Accrued product claims and warranties            (563)        (1,394)
       Income taxes                                    7,000         24,492
       Other current liabilities                      (5,754)       (33,250)
       Pension and post-retirement benefits            3,499            193
       Other assets and liabilities                   (5,784)       (12,705)

         Net cash used for continuing operations      90,912          1,795
         Net cash used for discontinued operations   (12,387)        (8,697)
         Net cash used for operating activities       78,525         (6,902)

    Investing activities
    Capital expenditures                             (25,131)       (28,449)
    Acquisitions, net of cash acquired                (1,937)             -
    Equity investments                               (16,698)             -
      Net cash used for investing activities         (43,766)       (28,449)

    Financing activities
    Net short-term borrowings                         (8,586)        45,352
    Proceeds from long-term debt                       2,413          4,968
    Repayment of long-term debt                      (21,683)       (26,036)
    Proceeds from exercise of stock options            1,648          1,558
    Dividends paid                                   (16,665)       (15,517)
      Net cash provided by financing activities      (42,873)        10,325

    Effect of exchange rate changes on cash              859          7,199

    Change in cash and cash equivalents               (7,255)       (17,827)
    Cash and cash equivalents, beginning of period    34,944         63,015

    Cash and cash equivalents, end of period         $27,689        $45,188


                        Pentair, Inc. and Subsidiaries
       Financial Information by Reportable Business Segment (Unaudited)

                             Three months ended          Six months ended
                           June 30        July 1      June 30        July 1
    In thousands              2001          2000         2001          2000

    Net sales to ?
     external customers
    Tools                $ 285,905     $ 275,375    $ 526,297     $ 506,985
    Water                  241,017       261,727      461,869       493,694
    Enclosures             175,154       196,659      385,293       380,773
    Corporate/other              -             -            -             -

    Consolidated         $ 702,076     $ 733,761   $1,373,459    $1,381,452

    Operating income
     (loss) before
     restructuring charge
    Tools                  $18,218       $17,235      $26,081       $39,240
    Water                   35,650        41,448       63,843        72,197
    Enclosures               9,834        24,542       31,071        47,691
    Other                   (3,353)       (3,788)      (7,790)       (9,407)

    Consolidated           $60,349       $79,437    $ 113,205     $ 149,721

    Operating income (loss)
     before restructuring
     charge as a percent of
     net sales
    Tools (1)                  6.4%          6.3%         5.0%          7.7%
    Water                     14.8%         15.8%        13.8%         14.6%
    Enclosures                 5.6%         12.5%         8.1%         12.5%

    Consolidated               8.6%         10.8%         8.2%         10.8%

    Restructuring charge (income)
    Tools                     $  -          $  -         $  -       $(1,171)
    Water                        -             -            -             -
    Enclosures                   -             -            -        (1,297)
    Other                        -             -            -             -
    Consolidated              $  -          $  -         $  -       $(2,468)

    Operating Income (Loss)
     After Restructuring Charge
    Tools (1)              $18,218       $17,235      $26,081       $40,411
    Water                   35,650        41,448       63,843        72,197
    Enclosures               9,834        24,542       31,071        48,988
    Other                   (3,353)       (3,788)      (7,790)       (9,407)

    Consolidated           $60,349       $79,437    $ 113,205     $ 152,189

(1) Second quarter 2000 Tools segment operating income reflects one-time

        pre-tax costs to establish an additional $5.0 million in accounts
        receivable reserves.

Contact: Mark Cain of Pentair, (651) 639-5278

SOURCE Pentair, Inc.

CONTACT: Mark Cain of Pentair, +1-651-639-5278

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