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Pentair Reports Fourth Quarter 2001 Pre-Charge Continuing EPS of $0.27; Full-Year Cash Flow Increases 50% to $179 Million
02.07.2002

ST. PAUL, Minn., Feb 7, 2002 /PRNewswire-FirstCall via COMTEX/ --

$41 Million Enclosures Group Restructuring Expected to Deliver First-Year Benefit of $15 Million, $21 Million Annually Thereafter

Pentair, Inc. (NYSE: PNR) today reported fourth quarter 2001 pre-charge continuing EPS of $0.27, at the high end of the range provided in the Company's revised guidance issued December 11, 2001. This compares to ($0.02) in the fourth quarter 2000, which included a $25 million one-time charge. Pentair said fourth quarter net sales of $595.9 million declined 12 percent versus the same period in 2000.

A year-over-year working capital reduction of more than 18 percent drove Pentair's full-year free cash flow past its goal of $150 million to a record $179 million, up 50 percent from $117 million in 2000. This cash flow performance represents cash earnings per share (EPS) of $3.62.

"Pentair recorded concrete accomplishments in several important areas during 2001 -- among them strong cash flow, reduced debt, innovative product development, and the adoption of lean enterprise practices across the company. But our disappointing 2001 sales and earnings clearly illustrate the impact of the weak global economy and the fact that we have more work to do to return the Company to its previous levels of performance," said Randall J. Hogan, president and chief executive officer.

Pentair's full year 2001 sales and pre-restructuring charge operating income from continuing businesses totaled $2.6 billion and $198.8 million, respectively, representing a five percent decline in sales and a 12 percent decrease in pre-restructuring charge operating income. The declines were predominately in the Enclosure Group due to adverse market conditions throughout 2001. A pre-tax restructuring charge of $41.1 million was taken in the fourth quarter of 2001 to reduce capacity in the Enclosures Group and gain operational efficiencies. Pre-restructuring charge net income from continuing businesses in 2001 was $87.3 million, or $1.77 diluted EPS as compared to $97.2 million, or $1.99 diluted EPS in 2000, which included one-time charges of $30 million.

Sales in the Tools Group totaled $1.039 billion in 2001, a three percent decline from the previous year. Operating income for the segment was $63.2 million, up 117 percent from 2000. Fourth quarter 2001 sales in the Group totaled $261.6 million, a six percent decline from sales in the same period last year, due to soft retail and industrial sales late in the year. Operating income in the same period was $19.6 million, up 194 percent over the 2000 levels, driven principally by cost savings from supply chain management and lean enterprise initiatives. Excluding one-time charges taken in 2000, fourth quarter 2001 margins improved 600 basis points over year-ago levels, and margins in the Group improved for the fourth consecutive quarter.

Enclosure Group sales totaled $689.8 million in 2001, an 11 percent decline over 2000 levels, and pre-restructuring operating income totaled $41.2 million, a 56 percent decrease over the previous year. Full-year margins dropped from 12.2 percent in 2000 to 6.0 percent in 2001. Group sales totaled $140.2 million in the fourth quarter of 2001, a 30 percent decrease over 2000 levels, while pre-restructuring operating income dropped 94 percent from the previous year to $1.4 million. Fourth quarter margins dropped from 11.1 percent in 2000 to one percent in 2001 as further reductions in volume affected the Group's ability to absorb fixed costs despite significant cost cutting throughout the year. The decrease in volume is attributed to sharp declines in all Enclosures markets, with the industrial market at its lowest point in the last decade.

The $41.1 million pre-tax restructuring charge in the fourth quarter is to reduce manufacturing capacity in the Enclosures Group by approximately 20 percent, and reduce headcount by approximately 25 percent. Plant closures have been announced at locations in Pennsauken, New Jersey; Brooklyn Center, Minnesota; and Bonneuil-sur-Marne, France. In addition, several support facilities also will be closed. Pentair said that the Enclosures restructuring, which will be completed in the first half of 2002, will yield an estimated $15 million in cost savings during 2002, and $21 million of savings annually thereafter.

The Water Technologies Group reported 2001 sales of $887.5 million, a two percent decline from 2000. Operating income for the segment totaled $109.8 million, down nine percent from 2000. The weak economic environment, coupled with unfavorable sales mix within the pump business and investments in foreign manufacturing capacity, dampened the Water Technologies Group's fourth quarter results. The Group reported fourth quarter 2001 sales of $194.1 million, flat with 2000 levels. Operating income for the segment totaled $17.5 million, down 12.5 percent from the previous year. Return on sales for the segment was 9.0 percent for 2001 versus 10.2 percent for 2000.

In the fourth quarter, Pentair completed the sales of both Lincoln Industrial and the Service Equipment businesses. Estimated proceeds from the sale totaled $94 million and included cash of $75.5 million, of which the $70 million received to date was used to pay down debt. Included in the estimated proceeds is a $37.5 million equity position, recorded at $18.4 million current fair market value, in the new Lincoln Industrial, an indirect wholly-owned subsidiary of LN Holdings Corporation which is owned by management, various institutional investors, Pentair and affiliates of The Jordan Company. The $25 million recorded as loss from discontinued operations in the fourth quarter includes three items stated net of taxes: the $13 million adjustment to record the equity position at its current fair market value; changes in the value of retained pensions and retiree medical totaling $6 million; and an operating shortfall in the discontinued operations amounting to $6 million resulting from the economic downturn in the capital goods market and its effect on the equipment businesses' volumes and earnings.

"In 2002, we will work to reduce our overall cost structure by some $38 million by further simplifying and rationalizing our infrastructure, capturing supply management opportunities, and implementing lean enterprise practices throughout the organization," Hogan said, "Our efforts to strengthen our processes and systems capabilities, reinvigorate product development efforts, and develop stronger talent throughout the company will continue. Finally, we will maintain our momentum on cash flow and improving return on investment."

Pentair adopted accounting standard SFAS No. 142 "Goodwill and Other Intangible Assets" effective January 1, 2002. Accordingly, the Company will no longer amortize goodwill to earnings, resulting in an estimated increment of $0.65 to full-year 2002 EPS.

"Looking forward," Hogan added, "we expect to achieve full-year 2002 EPS between $2.70 and $2.80, including the effect of the change in goodwill accounting, and first quarter 2002 EPS in the range of $0.30 to $0.35. This assumes there will be no significant changes in prevailing economic conditions in our markets."

A Pentair conference call scheduled for 9:00 a.m. CST 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 11,500 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 and industrial 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)

                               Quarter ended               Year ended
                          December 31  December 31  December 31  December 31
     In thousands, except    2001          2000         2001        2000
      per-share data

     Net sales             $595,926      $674,777   $2,615,944   $2,748,013
     Cost of goods sold     442,223       523,187    1,967,945    2,051,515

     Gross profit           153,703       151,590      647,999      696,498
       % of net sales         25.8%         22.5%        24.8%        25.3%

     Selling, general and
      administrative        111,850       128,011      418,963      438,488
       % of net sales         18.8%         19.0%        16.0%        16.0%

     Research and
      development             8,377         7,831       31,171       31,191
       % of net sales          1.4%          1.2%         1.2%         1.1%

     Restructuring charge    40,105        27,257       40,105       24,789
       % of net sales          6.7%          4.0%         1.5%         0.9%

     Operating income
      (loss)                 (6,629)      (11,509)     157,760      202,030
       % of net sales         (1.1%)        (1.7%)        6.0%         7.4%

     Net interest expense    13,120        18,619       61,488       74,899
       % of net sales          2.2%          2.8%         2.4%         2.7%

     Other expense,
      write-off of
      investment                485            --        2,985           --
       % of net sales          0.1%            nm         0.1%           nm

     Income (loss)
      from continuing
      operations before
      income taxes          (20,234)      (30,128)      93,287      127,131
       % of net sales         (3.4%)        (4.5%)        3.6%         4.6%

     Provision for
      income taxes           (3,961)      (11,661)      35,771       45,263
       Effective tax rate     19.6%         38.7%        38.3%        35.6%

     Income (loss) from
      continuing
      operations            (16,273)      (18,467)      57,516       81,868
       % of net sales         (2.7%)        (2.7%)        2.2%         3.0%
     Loss from
      discontinued
      operations,
      net of tax                 --        (7,962)          --      (24,759)
     Loss on sale of
      discontinued
      operations,
      net of tax            (24,647)           --      (24,647)          --
     Cumulative effect
      of accounting
      change, net of tax         --            --           --       (1,222)
     Net income (loss)     $(40,920)     $(26,429)     $32,869      $55,887

     Earnings per common
      share
       Basic
       Continuing
        operations          $(0.33)        $(0.38)       $1.17        $1.68
       Discontinued
        operations           (0.50)         (0.16)       (0.50)       (0.51)
       Cumulative effect
        of accounting
        change                   --            --           --        (0.02)
       Basic earnings
        per common share    $(0.83)        $(0.54)       $0.67        $1.15

       Diluted
       Continuing
        operations          $(0.33)        $(0.38)       $1.17        $1.68
       Discontinued
        operations           (0.50)         (0.16)      (0.50)        (0.51)
       Cumulative effect
        of accounting
        change                   --            --           --        (0.02)
       Diluted earnings
        per common share    $(0.83)        $(0.54)       $0.67        $1.15

     Weighted average
      common shares
      outstanding
       Basic                 49,070        48,682       49,047       48,544
       Diluted               49,376        48,696       49,297       48,645

     Cash dividends
      declared per
      common share            $0.18         $0.17        $0.70        $0.66


                          Pentair, Inc. and Subsidiaries
                Condensed Consolidated Balance Sheets (Unaudited)

                                                   December 31    December 31
     In thousands                                     2001           2000
                            Assets
     Current assets
     Cash and cash equivalents                       $39,844        $34,944
     Accounts and notes receivable, net              398,579        468,081
     Inventories                                     300,923        392,495
     Other current assets                             90,932         95,019
     Net assets of discontinued operations             5,325        101,263
     Total current assets                            835,603      1,091,802

     Property, plant and equipment, net              329,500        352,984

     Goodwill, net                                 1,088,206      1,141,102
     Other assets                                    118,889         58,137
     Total assets                                 $2,372,198     $2,644,025

               Liabilities and Shareholders' Equity
     Current liabilities
     Short-term borrowings                               $--       $108,141
     Current maturities of long-term debt              8,729         23,999
     Accounts and notes payable                      179,149        250,088
     Accrued expenses and other
      current liabilities                            240,555        266,564
     Total current liabilities                       428,433        648,792

     Long-term debt                                  714,977        781,834
     Other noncurrent liabilities                    213,786        202,808
     Total liabilities                             1,357,196      1,633,434

     Shareholders' equity                          1,015,002      1,010,591
     Total liabilities and shareholders' equity   $2,372,198     $2,644,025


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

                                                         Year ended
                                                   December 31   December 31
     In thousands                                     2001           2000
     Operating activities
     Net income                                      $32,869        $55,887
     Depreciation                                     62,674         59,897
     Amortization                                     41,675         39,131
     Deferred income taxes                            (5,315)         9,735
     Restructuring charge                             41,060         24,789
     Other expense, write-off of investment            2,985             --
     Loss on sale of discontinued operations          24,647             --
     Cumulative effect of accounting change               --          1,222
     Changes in assets and liabilities,
      net of effects of business acquisitions
        Accounts and notes receivable                 70,890         17,908
        Inventories                                   87,840        (45,893)
        Prepaid expenses and other current assets        653         (9,588)
        Accounts payable                             (69,321)        32,973
        Employee compensation and benefits           (13,185)       (10,810)
        Accrued product claims and warranties         (4,468)        (6,318)
        Income taxes                                   9,942         (8,467)
        Other current liabilities                    (50,758)       (17,715)
        Pension and post-retirement benefits          17,199          5,353
        Other assets and liabilities                  (7,205)        (7,296)
          Net cash provided by
           continuing operations                     242,182        140,808
          Net cash provided by (used for)
           discontinued operations                    (9,848)        44,139
             Net cash provided by
              operating activities                   232,334        184,947

     Investing activities
     Capital expenditures                            (53,668)       (68,041)
     Proceeds from sale of businesses                 70,100             --
     Acquisitions, net of cash acquired               (1,937)            --
     Equity investments                              (25,438)            --
     Other                                              (186)           (32)
             Net cash used for
              investing activities                   (11,129)       (68,073)

     Financing activities
     Net short-term borrowings (repayments)         (108,336)       (42,471)
     Proceeds from long-term debt                      2,811          8,108
     Repayment of long-term debt                     (84,525)       (82,271)
     Proceeds from exercise of stock options           2,913          3,100
     Proceeds from issuance of common stock, net          --            774
     Repurchases of common stock                      (1,458)          (410)
     Dividends paid                                  (34,327)       (32,038)
             Net cash used for
              financing activities                  (222,922)      (145,208)

     Effect of exchange rate changes on cash           6,617            263
     Change in cash and cash equivalents               4,900        (28,071)
     Cash and cash equivalents, beginning of period   34,944         63,015
     Cash and cash equivalents, end of period        $39,844        $34,944

     Free cash flow
     Net cash provided by operating activities      $232,334       $184,947
     Less capital expenditures                       (53,668)       (68,041)
     Free cash flow                                 $178,666       $116,906

     Weighted average common shares
      outstanding - Diluted                           49,297         48,645
     Free cash flow per share                          $3.62          $2.40


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

                               Quarter ended               Year ended
                         December 31   December 31  December 31   December 31
     In thousands           2001          2000          2001         2000

     Net sales to
      external customers
     Tools                $261,632      $279,428   $1,038,606    $1,066,616
     Water                 194,084       195,859      887,518       903,672
     Enclosures            140,210       199,490      689,820       777,725
     Consolidated         $595,926      $674,777   $2,615,944    $2,748,013

     Operating income
      (loss) before
      restructuring charge
     Tools (2)             $19,627      $(20,865)     $63,232       $29,147
     Water                  17,522        20,023      109,792       120,732
     Enclosures              1,429        22,166       41,240        94,643
     Other                  (4,147)       (5,576)     (15,444)      (17,703)
     Consolidated          $34,431       $15,748     $198,820      $226,819

     Operating income (loss)
      before restructuring
      charge as a percent
      of net sales
     Tools (2)                7.5%         (7.5%)        6.1%          2.7%
     Water                    9.0%         10.2%        12.4%         13.4%
     Enclosures               1.0%         11.1%         6.0%         12.2%
     Consolidated             5.8%          2.3%         7.6%          8.3%

     Restructuring charge
      (income)
     Tools                     $--        $6,567          $--        $5,396
     Water                      --            --           --            --
     Enclosures             39,383          (328)      39,383        (1,625)
     Other                   1,677        21,018        1,677        21,018
     Consolidated (1)      $41,060       $27,257      $41,060       $24,789

     Operating Income (Loss)
      After Restructuring
      Charge
     Tools (2)             $19,627      $(27,432)     $63,232       $23,751
     Water                  17,522        20,023      109,792       120,732
     Enclosures            (37,954)       22,494        1,857        96,268
     Other                  (5,824)      (26,594)     (17,121)      (38,721)
     Consolidated          $(6,629)     $(11,509)    $157,760      $202,030

    (1) $955 thousand of the fourth quarter 2001 restructuring charge is
        included in cost of goods sold on the consolidated income statements
        for the write-down of inventory on certain product lines that were
        discontinued as a result of plant closures.

    (2) Tools segment operating income reflects one-time pre-tax costs to
        establish an additional $30.0 million in accounts receivable
        ($5.0 million in the second quarter of 2000 and $17.0 million in the
        fourth quarter of 2000) and inventory ($8.0 million in the fourth
        quarter of 2000) reserves.
For further information, please contact Mark Cain of Pentair, Inc., +1-651-639-5278.

SOURCE Pentair, Inc.

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