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Pentair Reports Third Quarter 2004 EPS Gain of 19% in Debut Performance as a Water-led Diversified Company
10.26.2004

GOLDEN VALLEY, Minn., Oct. 26 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR) announced that its third quarter 2004 earnings per share (EPS) from continuing operations of $0.32 increased 19 percent over third quarter 2003 EPS from continuing operations of $0.27. Pentair's third quarter 2004 net sales totaled $607.8 million, up 46 percent from $417.0 million in the same period a year ago. Removing the effects of acquisitions, sales were up 11 percent over the third quarter 2003.

Operating income for the third quarter 2004 totaled $64.1 million, 42 percent greater than the $45.2 million reported in the third quarter of 2003. Excluding acquisitions, operating income increased 20 percent in the third quarter. Third quarter 2004 free cash flow was $74.4 million, bringing the year-to-date total to $169.2 million, a $20.6 million improvement compared to the first nine months of last year.

"We have completed the strategic repositioning of Pentair, exchanging the earnings of our Tools business, and the dynamics of the tools market, for the earnings of WICOR, and the brighter prospects of our water business, for a net cash outlay of about $100 million," said Randall J. Hogan, Pentair chairman and chief executive officer. "Now we are turning to the second phase of the transformation: improving the performance of the newly acquired businesses and attaining our growth and profit goals."

Hogan said that Pentair's growth initiatives are on-track, that margins in Pentair's existing businesses continue to improve, and that the integration of the former WICOR businesses is proceeding well, despite the fact that integration costs were higher than benefits in the quarter and that WICOR's starting margins were somewhat lower than expected. Hogan credited Pentair's productivity improvements, supply management activities, and ability to achieve price increases in offsetting the impact of higher material costs in the quarter.

In the Water Group, third quarter 2004 sales of $426.7 million were 58 percent higher than the $270.9 million recorded in the same period last year, reflecting the impact of the WICOR acquisition effective as of July 31, 2004. Organic sales increased in the upper single digits reflecting continued double-digit growth in our pump markets.

Third quarter 2004 operating income of $47.4 million in the Water Group reflected a 31 percent gain over the same period last year. As expected, operating income margins were 11.1 percent including the lower initial margins of the former WICOR businesses. Excluding the WICOR and Everpure businesses and about $1.0 million of post-acquisition integration expenses, operating margins were about 13.6 percent, comparable to the 13.4 percent in the same period in 2003.

Integration of the former WICOR businesses proceeded as expected during the quarter. The consolidations of three manufacturing facilities and six distribution or warehousing locations in the U.S. and Europe have been announced, with some already completed. Costs associated with the integration efforts, which are expected to total approximately $5 million in the fourth quarter of 2004, will continue to offset the benefits for the remainder of this year.

All Enclosures Group businesses had significantly higher sales in key sectors, resulting in organic sales growth of 24 percent for the quarter. Additional wins in high growth markets, continued market share gains, and new customers in European markets helped to boost third quarter 2004 sales to $181.1 million compared to a year-earlier total of $146.2 million.

Third quarter operating income in the Enclosures Group increased 71 percent from the same period last year, totaling $23.2 million in 2004 versus $13.6 million in 2003. Margins reached 12.8 percent, expanding by 350 basis points over the third quarter 2003 and by 70 basis points over the second quarter 2004, delivering the Enclosures Group's 11th consecutive quarter of sequential margin improvement. This performance was driven by higher volume and productivity gains from PIMS and supply management initiatives.

Pentair's third quarter Cost of Goods Sold increased, reducing EPS by approximately three cents per share, for the expensing of fair market value inventory adjustments related to inventory acquired in the Everpure and WICOR transactions. Excluding this adjustment, gross profit increased by 210 basis points over the same period.

Pentair's year-to-date 2004 effective income tax rate of 35.0 percent is 330 basis points higher than the 31.7 percent rate of the same period last year. The higher rate is due to the discontinued status of the Tools Group, the higher tax rate borne by the WICOR businesses, the anticipated higher level and mix of Pentair's 2004 U.S. and foreign earnings, and the fact that many of Pentair's tax saving programs are relatively fixed.

Pentair noted that the proceeds from the early fourth quarter sale of its Tools Group to Black & Decker yielded a total of $796 million. With the closing of the sale, Pentair immediately paid down the $850 bridge loan associated with its acquisition of WICOR. Today, Pentair's debt-to-total- capital ratio is less than 37 percent, equal to what it was in late 2003.

According to Hogan, Pentair is now focused on driving the Water Group's margins back toward the goal of 15 percent, and capturing growth opportunities in both water and enclosures.

"In the first half of this year, our Water Group reached its goal of 15 percent Return on Sales. As we combine WICOR's strong customer service orientation and Pentair's proven operating disciplines over the next two years, we expect that the expanded Water Group will regain that high level of performance," Hogan said. "Our fourth quarter will continue to reflect more integration costs than benefits but, despite this, we still expect to generate fourth quarter EPS of between $0.30 and $0.34, or full year EPS of between $1.32 and $1.36. This is in-line with our prior guidance and represents a year-over-year EPS growth of approximately 35 percent. We still expect 2005 EPS to be in the range of $1.95 to $2.10, an increase of approximately 50 percent over 2004."

A Pentair conference call scheduled for 11:00 a.m. CDT 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.

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

                                 Three months ended      Nine months ended
    In thousands, except      October 2  September 27  October 2  September 27
     per-share data              2004        2003         2004        2003

    Net sales                   $607,767   $416,986    $1,626,653 $1,238,310
    Cost of goods sold           437,983    306,571     1,155,145    905,573

    Gross profit                 169,784    110,415       471,508    332,737
        % of net sales              27.9 %     26.5 %        29.0 %     26.9 %
    Selling, general and
     administrative               96,882     59,471       264,795    187,998
        % of net sales              15.9 %     14.3 %        16.3 %     15.2 %
    Research and development       8,803      5,752        21,521     16,705
        % of net sales               1.4 %      1.4 %         1.3 %      1.3 %

    Operating income              64,099     45,192       185,192    128,034
        % of net sales              10.5 %     10.8 %        11.4 %     10.3 %
    Net interest expense          11,172      5,530        26,317     18,571
        % of net sales               1.8 %      1.3 %         1.6 %      1.5 %

    Income before income taxes    52,927     39,662       158,875    109,463
        % of net sales               8.7 %      9.5 %         9.8 %      8.8 %
    Provision for income taxes    19,835     12,687        55,549     34,739
        Effective tax rate          37.5 %     32.0 %        35.0 %     31.7 %

    Income from continuing
     operations                   33,092     26,975       103,326     74,724
    Income from discontinued
     operations, net of tax       14,810     11,400        40,247     35,387

    Net income                   $47,902    $38,375      $143,573   $110,111

    Earnings per common share
    Basic
    Continuing operations          $0.33      $0.27         $1.04      $0.76
    Discontinued operations         0.15       0.12          0.41       0.36
    Basic earnings per common
     share                         $0.48      $0.39         $1.45      $1.11

    Diluted
    Continuing operations          $0.32      $0.27         $1.02      $0.75
    Discontinued operations         0.15       0.11          0.40       0.36
    Diluted earnings per common
     share                         $0.47      $0.38         $1.42      $1.10

    Weighted average common
     shares outstanding
    Basic                         99,502     98,868        99,083     98,809
    Diluted                      102,059    100,086       101,428     99,649

    Cash dividends declared per
     common share                 $0.105     $0.105        $0.320     $0.305


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

                                        October 2    December 31  September 27
    In thousands                           2004          2003         2003

                 Assets
    Current assets
    Cash and cash equivalents             $78,794       $47,989      $50,381
    Accounts and notes receivable,
     net                                  397,098       251,475      232,018
    Inventories                           315,414       166,862      161,415
    Current assets of discontinued
     operations                           394,937       313,399      360,606
    Deferred tax assets                    45,304        30,871       38,367
    Prepaid expenses and other
     current assets                        30,967        18,854       17,330
    Total current assets                1,262,514       829,450      860,117

    Property, plant and equipment, net    335,976       233,106      228,314

    Other assets
    Assets of discontinued operations     565,071       539,892      540,398
    Goodwill                            1,619,635       997,183      875,197
    Intangibles, net                      259,770        98,490        7,545
    Other                                  83,839        82,556       75,918
    Total other assets                  2,528,315     1,718,121    1,499,058
    Total assets                       $4,126,805    $2,780,677   $2,587,489

     Liabilities and Shareholders' Equity
    Current liabilities
    Short-term borrowings                $850,000          $ --         $102
    Current maturities of long-term
     debt                                   9,865        73,631      103,308
    Accounts payable                      184,741        93,043       95,721
    Employee compensation and
     benefits                              88,779        61,213       59,888
    Accrued product claims and
     warranties                            35,200        24,427       24,865
    Current liabilities of
     discontinued operations              209,339       156,004      167,396
    Income taxes                           49,697        14,912       12,876
    Other current liabilities             136,873        74,221       80,754
    Total current liabilities           1,564,494       497,451      544,910

    Long-term debt                        737,719       732,862      558,610
    Pension and other retirement
     compensation                         129,779       101,704      135,313
    Post-retirement medical and other
     benefits                              58,007        26,227       26,387
    Deferred tax liabilities              140,656        60,636       30,446
    Other noncurrent liabilities           61,861        62,208       62,863
    Liabilities of discontinued
     operations                            41,598        38,111       32,656
    Total liabilities                   2,734,114     1,519,199    1,391,185

    Minority interest                       2,672            --           --

    Shareholders' equity                1,390,019     1,261,478    1,196,304
    Total liabilities and
     shareholders' equity              $4,126,805    $2,780,677   $2,587,489

    Days sales in accounts receivable
     (13 month moving average)                 52            54           54
    Days inventory on hand
     (13 month moving average)                 58            59           60
    Days in accounts payable
     (13 month moving average)                 56            54           53
    Debt/total capital                       53.5 %        39.0 %       35.6 %


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

                                                        Nine months ended
                                                      October 2   September 27
    In thousands                                         2004         2003
    Operating activities
    Net income                                         $143,575     $110,111
    Adjustments to reconcile net income to
     net cash provided by
     operation activities:
    Net income from discontinued operations             (40,247)     (35,387)
    Depreciation                                         34,946       32,132
    Other amortization                                   10,310        3,578
    Deferred income taxes                                  (449)      10,766
    Stock compensation                                       --          306
    Changes in assets and liabilities, net of
     effects of business acquisitions and dispositions
         Accounts and notes receivable                   13,611       (1,601)
         Inventories                                    (46,043)       9,016
         Prepaid expenses and other current assets      (13,835)      (4,690)
         Accounts payable                                14,090       (1,205)
         Employee compensation and benefits               6,127        7,724
         Accrued product claims and warranties            2,009       (1,073)
         Income taxes                                    24,602          902
         Other current liabilities                       28,914        4,467
         Pension and post-retirement benefits             7,121        7,514
         Other assets and liabilities                    (1,059)       1,878
            Net cash provided by continuing
             operations                                 183,672      144,438
            Net cash provided by discontinued
             operations                                  14,031       33,891
              Net cash provided by operating
               activities                               197,703      178,329

    Investing activities
    Capital expenditures                                (28,553)     (29,720)
    Acquisitions, net of cash acquired                 (877,717)     (19,409)
    Payments from sale of businesses                         --       (2,400)
    Equity investments                                       --       (5,426)
    Other                                                    --           48
              Net cash used for investing activities   (906,270)     (56,907)

    Financing activities
    Net short-term (repayments) borrowings              845,838         (771)
    Proceeds from long-term debt                        231,516      486,657
    Repayment of long-term debt                        (317,152)    (558,816)
    Proceeds from exercise of stock options              10,225          510
    Dividends paid                                      (32,042)     (30,106)
              Net cash provided by (used for)
               financing activities                     738,385     (102,526)

    Effect of exchange rate changes on cash                 987       (8,163)
    Change in cash and cash equivalents                  30,805       10,733
    Cash and cash equivalents, beginning of period       47,989       39,648
    Cash and cash equivalents, end of period            $78,794      $50,381

    Free cash flow
    Net cash provided by operating activities          $197,703     $178,329
    Less capital expenditures continuing operations     (22,793)     (18,369)
    Less capital expenditures discontinued
     operations                                          (5,760)     (11,351)
    Free cash flow                                     $169,150     $148,609


                        Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment (Unaudited)
                          First Qtr   Second Qtr   Third Qtr   Nine Months
    In thousands            2004         2004         2004        2004

    Net sales to
     external customers
    Water                 $314,002     $353,345     $426,696   $1,094,043
    Enclosures             174,803      178,103      181,100      534,006
    Intersegment sales
     elimination              (352)      (1,015)         (29)      (1,396)
    Consolidated          $488,453     $530,433     $607,767   $1,626,653

    Operating income (loss)
    Water                  $41,547      $59,253      $47,410     $148,210
    Enclosures              19,354       21,590       23,211       64,155
    Other                  (10,791)      (9,860)      (6,522)     (27,173)
    Consolidated           $50,110      $70,983      $64,099     $185,192

    Operating income as
     a percent of net sales
    Water                    13.2%        16.8%        11.1%        13.5%
    Enclosures               11.1%        12.1%        12.8%        12.0%
    Consolidated             10.3%        13.4%        10.5%        11.4%


                         First Qtr    Second Qtr   Third Qtr   Nine Months
    In thousands            2003         2003         2003        2003

    Net sales to
     external customers
    Water                 $246,440     $290,692     $270,901     $808,033
    Enclosures             139,453      145,236      146,232      430,921
    Intersegment sales
     elimination              (142)        (355)        (147)        (644)
    Consolidated          $385,751     $435,573     $416,986   $1,238,310

    Operating income (loss)
    Water                  $29,504      $46,002      $36,197     $111,703
    Enclosures               9,865       11,703       13,555       35,123
    Other                   (7,217)      (7,015)      (4,560)     (18,792)
    Consolidated           $32,152      $50,690      $45,192     $128,034

    Operating income as
     a percent of net sales
    Water                    12.0%        15.8%        13.4%        13.8%
    Enclosures                7.1%         8.1%         9.3%         8.2%
    Consolidated              8.3%        11.6%        10.8%        10.3%

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 2003 revenues of $2.7 billion, Pentair has approximately 13,000 employees worldwide.

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 the WICOR acquisition 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.

Contact:
Pentair: Mark Cain
Tel. (763) 656-5278
E-mail: mark.cain@pentair.com

SOURCE Pentair

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