Investor Relations

News Release Details

Home Investor Relations News Releases News Release Details
//
Pentair's EPS Rises 14%, Free Cash Flow Exceeds $100 Million in Third Quarter 2002; Company Updates 2002 EPS Expectations
10.15.2002

ST. PAUL, Minn., Oct. 15 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR) today announced that it generated third quarter 2002 earnings per share (EPS) of $0.75, a 13.6 percent gain over EPS of $0.66 -- without goodwill amortization -- in the same period last year. The Company's third quarter free cash flow totaled $110.1 million or $197.2 million on a year-to-date basis. This represents an 80 percent increase over 2001 year-to-date cash flow, or 194 percent conversion of 2002 net income, and year-to-date cash EPS of $3.96.

"Supply management, lean enterprise, cash flow, and growth initiatives in our businesses offset the effects of a tough global economy in the third quarter," said Randall J. Hogan, Pentair chairman and CEO. "We're making good progress in gaining new customers, improving profits, and maintaining our cash flow discipline. We are particularly pleased with the latter, which has more than paid for the two complementary acquisitions we made in the fourth quarter."

Pentair's third quarter net sales totaled $629.3 million, down slightly compared to $636.2 million in the same period a year ago. Operating income for the third quarter 2002 totaled $61.6 million, 2.4 percent greater than the $60.1 million, before goodwill amortization, reported in the third quarter 2001. Despite slightly lower sales, operating income margins improved 30 basis points.

In the Tools Group, third quarter 2002 sales of $265.7 million were 10 percent higher than in the same period last year, while operating income of $26.0 million improved 31 percent on the same comparison. Third quarter operating income margins in the Group were 9.8 percent, representing an increase of 160 basis points over the third quarter 2001. Pentair attributed the improved sales results to significantly higher shipments of Delta products and pressure washers. Gains in operating income were due primarily to benefits generated by supply chain, lean enterprise, and cost reduction initiatives, offset by product mix and costs related to promotional activities.

In the Water Technologies Group, third quarter sales of $223.6 million declined three percent versus the same period last year, operating income of $30.0 million was nine percent lower, and margins declined 90 basis points to 13.4 percent. The Group's sales performance was adversely affected by fluctuations in the seasonality of pool and spa equipment sales. This was due primarily to timing of orders and was partially offset by strong pump sales during the quarter. The decline in operating income was due to lower pool product sales and unfavorable product mix, specifically significantly higher sales of retail pumps, which carry a lower margin, and lower productivity in the pump and tank businesses.

In the Enclosures segment, sales of $139.9 million and operating income of $8.9 million in the third quarter of 2002 were 15 and 18 percent lower, respectively, than year-ago levels due to continued slow capital spending and weak global technology markets. Enclosures Group sales have been essentially flat during this year, but margins improved sequentially by 90 basis points in the first quarter of 2002, 170 basis points in the second quarter, and another 130 basis points in the third quarter. Pentair expects its Enclosures Group to generate continued margin improvement in the fourth quarter.

"We are pleased that margins in Enclosures have continued to improve, that our Tools sales are growing, and that our ongoing cash flow discipline delivered excellent results in the quarter," Hogan said. "Despite these accomplishments, we face a constrained growth environment overall, more aggressive pricing pressures, and promotional activities in Tools, as well as slower cost productivity improvements in our Water Technologies Group.

"Given these conditions, and particularly the economic concerns that exist in many of our businesses, we are expecting to deliver 2002 EPS of between $2.60 and $2.65, versus previous guidance of between $2.80 and $2.90 per share," Hogan added. "Even if the current economic conditions continue and allow only modest sales growth in 2003, our initiatives will still drive EPS growth in the mid-teens."

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 12,000 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. 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, Inc. and Subsidiaries
           Condensed Consolidated Statements of Income (Unaudited)

                            Three months ended           Nine months ended
                        September 28  September 29  September 28  September 29
                               2002          2001          2002           2001
    In thousands,
     except per-share
     data

    Net sales (B)         $ 629,301     $ 636,174   $ 1,940,480    $ 1,989,770
    Cost of goods sold      478,708       487,033     1,476,896      1,525,723
    Gross profit            150,593       149,141       463,584        464,047
     % of net sales           23.9%         23.4%         23.9%          23.3%
    Selling, general and
     administrative (A)(B)   80,074        90,152       255,361        276,864
     % of net sales           12.7%         14.2%         13.2%          13.9%
    Research and
     development              8,904         7,805        26,289         22,794
     % of net sales            1.4%          1.2%          1.4%           1.1%
    Operating income         61,615        51,184       181,934        164,389
     % of net sales            9.8%          8.0%          9.4%           8.3%
    Net interest expense      8,205        14,409        32,411         48,366
     % of net sales            1.3%          2.3%          1.7%           2.4%
    Other expense,
     write-off of
     investment                  --            --            --          2,500
     % of net sales             n/a           n/a           n/a           0.1%
    Income before income
     taxes                   53,410        36,775       149,523        113,523
     % of net sales            8.5%          5.8%          7.7%           5.7%
    Provision for income
     taxes                   16,148        12,104        47,847         39,733
     Effective tax rate       30.2%         32.9%         32.0%          35.0%
    Net income            $  37,262     $  24,671   $   101,676    $    73,790
     % of net sales            5.9%          3.9%          5.2%           3.7%

    Earnings per common
     share
     Basic                $    0.76     $    0.50   $      2.07    $      1.50
     Diluted              $    0.75     $    0.50   $      2.04    $      1.50

    Weighted average
     common shares
     outstanding
     Basic                   49,235        49,082        49,212         49,040
     Diluted                 49,804        49,410        49,809         49,270

    Cash dividends
     declared per common
     share                $    0.19     $    0.18   $      0.55    $      0.52

    Goodwill
     amortization
     disclosure
     Reported net income  $  37,262     $  24,671   $    101,676   $    73,790
     Add back goodwill
      amortization, net
      of tax                     --         7,953             --        24,153
     Adjusted net income  $  37,262     $  32,624   $     101,676  $    97,943

    Reported earnings per
     share - basic        $    0.76     $    0.50   $        2.07  $      1.50
    Goodwill amortization        --          0.16              --         0.49
    Adjusted net earnings
     per share - basic    $    0.76     $    0.66   $        2.07  $      1.99

    Reported earnings
     per share - diluted  $    0.75     $    0.50   $        2.04  $      1.50
    Goodwill amortization        --          0.16              --         0.49
    Adjusted net earnings
     per share - diluted  $    0.75     $    0.66   $        2.04  $      1.99

(A) During the first quarter of 2002, we adopted SFAS 142, which requires

        that goodwill no longer be amortized.  Selling, general and
        administrative (SG&A) expense for the three and nine month periods of
        2001 include $8,959 and $27,211 of goodwill amortization, respectively
        ($7,953 and $24,153 net of tax, or $0.16 and $0.49 per diluted share,
        respectively).  SG&A expense for the three and nine month periods of
        2001 excluding the impact of goodwill amortization was $81,193 and
        $249,653, or 12.8% and 12.5% of sales, respectively.

(B) We adopted Emerging Issues Task Force (EITF) Issue No. 01-9,

        Accounting for Consideration Given by a Vendor to a Customer or a
        Reseller of the Vendor's Products.  This new guidance was effective
        for Pentair beginning January 1, 2002.  EITF 01-9 requires that
        certain payments to our customers for cooperative advertising and
        certain sales incentive offers that were historically classified in
        selling, general and administrative expense be reclassified and shown
        as a reduction in net sales.  EITF 01-9 also requires the
        reclassification of previously reported results of operations for
        periods prior to the adoption to conform to the current presentation.

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

                                       September 28  December 31  September 29
    In thousands                               2002         2001          2001
                        Assets
    Current assets
    Cash and cash equivalents           $    39,591  $    39,844   $    32,816
    Accounts and notes receivable, net      417,021      398,579       460,732
    Inventories                             291,308      300,923       343,127
    Deferred income taxes                    66,527       69,953        73,675
    Prepaid expenses and other current
     assets                                  20,735       20,979        28,551
    Net assets of discontinued
     operations                               1,771        5,325       106,683
    Total current assets                    836,953      835,603     1,045,584

    Property, plant and equipment, net      306,102      329,500       340,187

    Goodwill, net                         1,098,141    1,088,206     1,111,992
    Other assets                            115,704      118,889        93,814
    Total assets                        $ 2,356,900  $ 2,372,198   $ 2,591,577

             Liabilities and
           Shareholders' Equity

    Current liabilities
    Short-term borrowings               $        --  $        --   $    61,890
    Current maturities of long-term debt      7,284        8,729         4,371
    Accounts and notes payable              188,872      179,149       207,721
    Employee compensation and benefits       83,361       74,888        75,645
    Accrued product claims and warranties    37,632       37,590        40,221
    Income taxes                             30,724        6,252        16,066
    Other current liabilities               124,417      121,825       125,333
    Total current liabilities               472,290      428,433       531,247

    Long-term debt                          559,218      714,977       781,885
    Pension and other retirement
     compensation                            82,683       74,263        69,733
    Post-retirement medical and other
     benefits                                42,762       43,583        33,317
    Deferred income taxes                    35,390       34,128        41,956
    Other noncurrent liabilities             64,423       61,812        66,643
    Total liabilities                     1,256,766    1,357,196     1,524,781

    Shareholders' equity                  1,100,134    1,015,002     1,066,796
    Total liabilities and shareholders'
     equity                             $ 2,356,900  $ 2,372,198   $ 2,591,577

    Days sales in accounts receivable
     (13 month moving average)                   62           65            66
    Days inventory on hand
     (13 month moving average)                   66           75            77
    Days in accounts payable
     (13 month moving average)                   55           59            60
    Debt/total capital                        34.0%        41.6%         44.3%


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

                                                        Nine months ended
                                                   September 28  September 29
    In thousands                                           2002          2001
    Operating activities
    Net income                                      $   101,676    $   73,790
    Depreciation                                         44,499        48,662
    Amortization of intangibles and unearned
     compensation                                         2,592        30,966
    Deferred income taxes                                 4,263         3,843
    Other expense, write-off of investment                   --         2,500
    Changes in assets and liabilities, net of
     effects of business acquisitions
       Accounts and notes receivable                    (11,238)        4,723
       Inventories                                       11,777        47,976
       Prepaid expenses and other current assets          2,103       (11,273)
       Accounts payable                                   8,813       (40,417)
       Employee compensation and benefits                 8,061        (8,086)
       Accrued product claims and warranties               (601)       (1,887)
       Income taxes                                      24,038        10,922
       Other current liabilities                          4,565        (8,281)
       Pension and post-retirement benefits               5,664         7,561
       Other assets and liabilities (A)                  11,141        (4,798)
          Net cash provided by continuing operations    217,353       156,201
          Net cash provided by (used for)
           discontinued operations                        3,555        (8,944)
             Net cash provided by operating
             activities                                 220,908       147,257

    Investing activities
    Capital expenditures                                (23,674)      (37,639)
    Proceeds from sale of businesses                      1,744            --
    Acquisitions, net of cash acquired                       --        (1,937)
    Equity investments                                   (9,448)      (20,564)
    Other                                                  (165)           --
          Net cash used for investing activities        (31,543)      (60,140)

    Financing activities
    Net short-term borrowings (repayments)                   --       (46,937)
    Proceeds from long-term debt                            387         2,676
    Repayment of long-term debt                        (168,695)      (22,582)
    Proceeds from exercise of stock options               2,683         1,492
    Repurchases of common stock                              --        (1,458)
    Dividends paid                                      (27,067)      (25,499)

          Net cash used for financing activities       (192,692)      (92,308)

    Effect of exchange rate changes on cash               3,074         3,063
    Change in cash and cash equivalents                    (253)       (2,128)
    Cash and cash equivalents, beginning of period       39,844        34,944
    Cash and cash equivalents, end of period        $    39,591    $   32,816

    Free cash flow
    Net cash provided by operating activities       $   220,908    $  147,257
    Less capital expenditures                           (23,674)      (37,639)
    Free cash flow                                  $   197,234    $  109,618

    Weighted average common shares outstanding
     - diluted                                           49,809        49,270
    Free cash flow per share                        $      3.96    $     2.22

(A) Includes $8.2 million cash received in September 2002 for the

        monetization of an interest rate swap agreement.


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

                               First    Second     Third    Fourth       Year
                                 Qtr       Qtr       Qtr       Qtr       2001
    In thousands, except        2001      2001      2001      2001
     per-share data

    Net sales (A)          $ 664,169 $ 689,427 $ 636,174 $ 584,310 $ 2,574,080
    Cost of goods sold       507,396   531,294   487,033   442,222   1,967,945
    Gross profit             156,773   158,133   149,141   142,088     606,135
     % of net sales            23.6%     22.9%     23.4%     24.3%       23.5%
    Selling, general and
     administrative (A)       96,178    90,534    90,152   100,234     377,098
     % of net sales            14.5%     13.1%     14.2%     17.2%       14.6%
    Research and development   7,739     7,250     7,805     8,377      31,171
     % of net sales             1.2%      1.1%      1.2%      1.4%        1.2%
    Restructuring charge          --        --        --    40,105      40,105
     % of net sales              n/a       n/a       n/a      6.9%        1.6%
    Operating income (loss)   52,856    60,349    51,184    (6,628)    157,761
     % of net sales             8.0%      8.8%      8.0%     (1.1%)       6.1%
    Net interest expense      17,716    16,241    14,409    13,122      61,488
     % of net sales             2.7%      2.4%      2.3%      2.2%        2.4%
    Other expense, write-off
     of investment             2,500        --        --       485       2,985
     % of net sales             0.4%       n/a       n/a      0.1%        0.1%
    Income (loss) from
     continuing operations
     before income taxes      32,640    44,108    36,775   (20,235)     93,288
     % of net sales             4.9%      6.4%      5.8%     (3.5%)       3.6%
    Provision for income
     taxes                    12,077    15,552    12,104    (3,961)     35,772
     Effective tax rate        37.0%     35.3%     32.9%     19.6%       38.3%
    Income (loss) from
     continuing operations    20,563    28,556    24,671   (16,274)     57,516
     % of net sales             3.1%      4.1%      3.9%     (2.8%)       2.2%
    Loss on disposal of
     discontinued
     operations, net of tax       --        --        --   (24,647)   (24,647)
    Net income (loss)      $  20,563 $  28,556 $  24,671 $ (40,921)$   32,869

    Earnings per common share
    Basic
    Continuing operations  $    0.42 $    0.58 $    0.50 $   (0.33)$      1.17
    Discontinued
     operations                  --         --        --     (0.50)$    (0.50)
    Basic earnings per
     common share          $    0.42 $    0.58 $    0.50 $   (0.83)$      0.67

    Diluted
    Continuing operations  $    0.42 $    0.58 $    0.50 $   (0.33)$      1.17
    Discontinued
     operations                   --        --        --     (0.50)$    (0.50)
    Diluted earnings per
     common share          $    0.42 $    0.58 $    0.50 $   (0.83)$      0.67

    Weighted average
     common shares
     outstanding
     Basic                    49,006    49,032    49,082    49,070      49,047
     Diluted                  49,127    49,274    49,410    49,376      49,297

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

    Goodwill amortization
     disclosure (continuing
     operations)
    Reported net income    $  20,563 $  28,556 $  24,671 $ (16,274)$    57,516
    Add back goodwill
     amortization,
     net of tax                8,000     8,200     7,953     7,890      32,043
    Adjusted net income    $  28,563 $  36,756 $  32,624 $  (8,384)$    89,559

    Reported earnings per
     share - basic         $    0.42 $    0.58 $    0.50 $   (0.33)$      1.17
    Goodwill amortization       0.16      0.17      0.16      0.16        0.65
    Adjusted net earnings
     per share - basic     $    0.58 $    0.75 $    0.66 $   (0.17)$      1.82

    Reported earnings per
     share - diluted       $    0.42 $    0.58 $    0.50 $   (0.33)$      1.17
    Goodwill amortization       0.16      0.17      0.16      0.16        0.65
    Adjusted net earnings
     per share - diluted   $    0.58 $    0.75 $    0.66 $   (0.17)$      1.82

(A) Adjusted to give effect to the adoption of EITF 01-9.

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

                               First       Second        Third         Nine
                                 Qtr          Qtr          Qtr        Months
    In thousands                2002         2002         2002         2002

    Net sales to external
     customers (A)
    Tools                  $ 252,092    $ 303,771    $ 265,732   $   821,595
    Water                    211,411      265,531      223,637       700,579
    Enclosures               139,560      138,814      139,932       418,306
    Consolidated           $ 603,063    $ 708,116    $ 629,301   $ 1,940,480

    Operating income
     (loss) as reported
    Tools                  $  16,686    $  30,837    $  25,972   $    73,495
    Water                     29,747       43,708       29,969       103,424
    Enclosures                 4,608        6,995        8,884        20,487
    Other                     (5,314)      (6,948)      (3,210)      (15,472)
    Consolidated           $  45,727    $  74,592    $  61,615   $   181,934

    Restructuring charge
     (income)
    Tools                  $      --    $      --    $      --   $        --
    Water                         --           --           --            --
    Enclosures                    --           --           --            --
    Other                         --           --           --            --
    Consolidated (B)       $      --    $      --    $      --   $        --

    Goodwill amortization
    Tools                  $      --    $      --    $      --   $        --
    Water                         --           --           --            --
    Enclosures                    --           --           --            --
    Total goodwill
     amortization                 --           --           --            --
    Amortization of
     unearned                    864          864          864         2,592
     compensation
    Total amortization     $     864    $     864    $     864   $     2,592

    Operating income (loss)
     excluding
     restructuring charge
     and goodwill
     amortization
    Tools                  $  16,686    $  30,837    $  25,972   $    73,495
    Water                     29,747       43,708       29,969       103,424
    Enclosures                 4,608        6,995        8,884        20,487
    Other                     (5,314)      (6,948)      (3,210)      (15,472)
    Consolidated           $  45,727    $  74,592    $  61,615   $   181,934

    Operating income
     (loss) before
     restructuring charge
     and goodwill
     amortization as a
     percent of net sales
    Tools                       6.6%        10.2%         9.8%          8.9%
    Water                      14.1%        16.5%        13.4%         14.8%
    Enclosures                  3.3%         5.0%         6.3%          4.9%
    Consolidated                7.6%        10.5%         9.8%          9.4%

(A) Adjusted to give effect to the adoption of EITF 01-9.

Pentair, Inc. and Subsidiaries

Supplemental Financial Information by Reportable Business Segment

(Unaudited)

                   First    Second     Third      Nine    Fourth      Year
                     Qtr       Qtr       Qtr    Months       Qtr      2001
    In thousands    2001      2001      2001      2001      2001

    Net sales to
     external
     customers (A)
    Tools      $  234,404 $ 274,419 $ 241,487 $ 750,310 $ 251,335 $ 1,001,645
    Water         219,626   239,854   230,370   689,850   192,765     882,615
    Enclosures    210,139   175,154   164,317   549,610   140,210     689,820
    Corporate/
     other             --        --        --        --        --          --
    Consol-
    idated     $  664,169 $ 689,427 $ 636,174 1,989,770 $ 584,310 $ 2,574,080

    Operating
     income
     (loss) as
     reported
    Tools      $    7,863 $  18,218 $  17,524 $  43,605 $  19,627 $    63,232
    Water          28,193    35,650    28,427    92,270    17,522     109,792
    Enclosures     21,237     9,834     8,740    39,811   (37,954)      1,857
    Other          (4,437)   (3,353)   (3,507)  (11,297)   (5,823)    (17,120)

    Consol-
    idated     $   52,856 $  60,349 $  51,184 $ 164,389 $  (6,628)$   157,761

    Restructuring
     charge (income)
    Tools      $       -- $      -- $      -- $      -- $      -- $        --
    Water              --        --        --        --        --          --
    Enclosures         --        --        --        --    39,382      39,382
    Other              --        --        --        --     1,678       1,678
    Consol-
    idated(B)  $       -- $      -- $      -- $      -- $  41,060 $    41,060

    Goodwill
     amortiz-
     ation
    Tools      $    2,319 $   2,319 $   2,318 $   6,956 $   2,318 $     9,274
    Water           4,549     4,859     4,575    13,983     4,577      18,560
    Enclosures      2,146     2,060     2,066     6,272     2,001       8,273
    Total
     goodwill
     amortization   9,014     9,238     8,959    27,211     8,896      36,107
    Amortization
     of unearned      870     1,443     1,442     3,755     1,813       5,568
     compensation
    Total
     amortiz-
     ation     $    9,884 $  10,681 $  10,401 $  30,966 $  10,709 $    41,675

    Operating
     income
     (loss)
     excluding
     restructuring
     charge and
     goodwill
     amortiz-
     ation
    Tools      $   10,182 $  20,537 $  19,842 $  50,561 $  21,945 $    72,506
    Water          32,742    40,509    33,002   106,253    22,099     128,352
    Enclosures     23,383    11,894    10,806    46,083     3,429      49,512
    Other          (4,437)   (3,353)   (3,507)  (11,297)   (4,145)    (15,442)

    Consol-
    idated     $   61,870 $  69,587 $  60,143 $ 191,600 $  43,328 $   234,928

    Operating
     income
     (loss)
     before
     restructuring
     charge and
     goodwill
     amortization
     as a percent
     of net sales
    Tools            4.3%      7.5%      8.2%      6.7%      8.7%        7.2%
    Water           14.9%     16.9%     14.3%     15.4%     11.5%       14.5%
    Enclosures      11.1%      6.8%      6.6%      8.4%      2.4%        7.2%
    Consolidated     9.3%     10.1%      9.5%      9.6%      7.4%        9.1%

(A) Adjusted to give effect to the adoption of EITF 01-9.

(B) $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.

                        Pentair, Inc. and Subsidiaries
          Additional Supplemental Financial Information (Unaudited)

    In thousands   2000          1999        1998        1997        1996

    Net sales to
     external
     customers (A)
    Tools        $ 1,029,658 $   850,327 $   644,226 $   559,907 $   467,464
    Water            898,247     579,236     438,810     304,647     216,769
    Enclosures       777,725     657,500     586,829     600,491     566,919
    Other                 --          --          --     128,136     133,360
    Consolidated $ 2,705,630 $ 2,087,063 $ 1,669,865 $ 1,593,181 $ 1,384,512

    Goodwill
     amortization
    Tools        $     9,285 $     3,282 $       287 $       214 $       306
    Water             18,074      12,714       7,793       7,363       4,920
    Enclosures         9,097       8,413       5,832       5,576       5,667
    Other                 --          --          --         418         502
    Total
     goodwill
     amortization     36,456      24,409      13,912      13,571      11,395
    Amortization
     of unearned
     compensation      2,675       1,578       1,571       1,669       1,400
    Total
    amortization $    39,131      25,987      15,483      15,240      12,795

    SG&A (A)     $   396,105 $   310,700 $   261,302 $   241,062 $   216,775

(A) Adjusted to give effect to the adoption of EITF 01-9.

SOURCE Pentair

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

Categories: Press Releases