Pentair Generates Record Free Cash Flow of $219 Million
GOLDEN VALLEY, Minn., Feb. 4 /PRNewswire-FirstCall/ -- Pentair (NYSE: PNR)
reported earnings per share (EPS) from continuing operations of $0.69 for the
fourth quarter 2003, a 21 percent gain over fourth quarter 2002 EPS of $0.57.
Sales for the fourth quarter totaled $682.8 million, a seven percent gain over
sales of $640.3 million in the same period in 2002. Operating income for the
fourth quarter totaled $63.3 million, up 18 percent compared to $53.9 million
in the same period last year.
Pentair's net sales for 2003 totaled $2,724.4 million, up from the
$2,580.8 million recorded in 2002. Operating income for the year totaled
$259.6 million, versus $236.0 million in 2002. EPS from continuing operations
in 2003 was $2.90, an 11 percent gain over 2002 EPS of $2.61. Full year free
cash flow totaled $219.3 million, representing a 155 percent conversion of
2003 net income.
"Pentair's fourth quarter 2003 performance reflected continued benefits
flowing from our five operating initiatives together with an improving
economic environment," said Randall J. Hogan, Pentair chairman and CEO. "The
Water Technologies Group turned in a tremendous quarter with solid organic
sales growth and a 39 percent profit gain over the fourth quarter of 2002. Our
Enclosures Group delivered an outstanding performance with margins of
10.5 percent in the fourth quarter -- the Group's eighth consecutive quarter
of margin improvement. Coupled with six percent organic sales growth, the
margin gain resulted in the strongest Enclosures Group performance since the
first quarter of 2001. Our Tools Group continued to battle through competitive
market conditions, and it too realized a fourth quarter sales gain of nearly
three percent."
In the Water Technologies Group, fourth quarter 2003 sales of
$252.3 million increased nine percent versus the same period last year, driven
principally by pool equipment, residential and commercial pumps, filtration,
and the European water business. Excluding the impact of currency translation,
sales were up seven percent. Operating income of $32.3 million increased
39 percent over the same period last year, with pump margins increasing due to
productivity improvements and material savings. The European water business
also contributed stronger profits resulting from productivity improvements and
the effects of currency translation. Margins in the Group were 12.8 percent,
up 280 basis points from those of the same period last year.
In the Enclosures Group, fourth quarter 2003 sales of $152.5 million were
up 11 percent over the same period in 2002, or six percent excluding the
impact of currency translation. The improved volume was driven by increased
demand broadly spread across all electrical and electronic markets. Fourth
quarter operating income of $16.0 million gained 69 percent over that of the
previous year's fourth quarter, while margins increased 360 basis points to
10.5 percent. The Group's profit performance was driven by volume-related
efficiencies and continued productivity improvements.
In the Tools Group, the fourth quarter was the first quarter in 2003 in
which sales, excluding the effect of acquisitions, improved year-over-year.
Sales of $278.2 million in the quarter were up 3 percent compared to the
fourth quarter of last year. Operating income for the Group totaled
$19.5 million, 21 percent below that of the same period last year due to
competitive marketplace pricing, expenses related to capacity reductions, and
other one-time costs. The Group expects to improve sales and margins in 2004
by leveraging its brand strength, introducing innovative products, and
improving cost productivity.
Pentair reported a loss from discontinued operations of $0.06 per share
for the fourth quarter and full year of 2003 due to a reduction in estimated
proceeds related to exiting two remaining facilities associated with the
fourth quarter 2001 disposal of Pentair's Equipment segment. There was no
income or loss from discontinued operations in 2002.
In a separate announcement, Pentair said it has entered into an agreement
to acquire WICOR Industries, a subsidiary of Wisconsin Energy Corporation
(NYSE: WEC) of Milwaukee, Wisconsin. WICOR, which manufactures water system,
filtration, and pool equipment products under the Sta-Rite, SHURflo, and Hypro
brands, is expected to generate sales of approximately $750 million in 2003
and employs 3,500 people in 24 locations worldwide. Pentair expects the WICOR
acquisition to be accretive to earnings in the first 12 months of ownership.
Pentair also announced that it is exploring strategic alternatives for its
Tools Group businesses.
"Our Water Technologies and Enclosures groups are performing well in an
economy that seems to be gaining momentum," Hogan said. "Our acquisition of
Everpure on December 31, 2003, has already reinforced our water filtration
platform, and our planned acquisition of WICOR Industries will take Pentair's
Water Technologies Group to an entirely new level of performance and
profitability. Enclosures will continue to make the most of the sales gains it
is capturing and this is expected to further enhance profitability. Meanwhile,
the Tools Group is pursuing cost and productivity steps to strengthen its
margins in 2004.
"Before any impact from WICOR, we expect to continue driving earnings
growth and forecast EPS in the range of $3.15 to $3.30 for 2004," Hogan added.
"We expect an increase of about 15 percent in the first quarter 2004."
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, Inc. and Subsidiaries
Condensed Consolidated Statements of Income (Unaudited)
Three months ended Year ended
December 31 December 31 December 31 December 31
In thousands, 2003 2002 2003 2002
except per-share data
Net sales $682,846 $640,303 $2,724,365 $2,580,783
Cost of goods sold 509,594 486,556 2,045,327 1,965,076
Gross profit 173,252 153,747 679,038 615,707
% of net sales 25.4% 24.0% 24.9% 23.9%
Selling, general
and administrative 98,405 89,276 375,586 342,806
% of net sales 14.4% 13.9% 13.8% 13.3%
Research and
development 11,558 10,620 43,898 36,909
% of net sales 1.7% 1.7% 1.6% 1.4%
Operating income 63,289 53,851 259,554 235,992
% of net sales 9.3% 8.4% 9.5% 9.1%
Net interest expense 11,506 11,134 40,936 43,545
% of net sales 1.7% 1.7% 1.5% 1.7%
Income from continuing
operations before
income taxes 51,783 42,717 218,618 192,447
% of net sales 7.6% 6.7% 8.0% 7.5%
Provision for
income taxes 17,606 14,632 74,330 62,545
Effective tax rate 34.0% 34.3% 34.0% 32.5%
Income from continuing
operations 34,177 28,085 144,288 129,902
Loss from discontinued
operations, net of
tax (2,936) - (2,936) -
Net income $31,241 $28,085 $141,352 $129,902
Earnings per common share
Basic
Continuing operations $0.70 $0.57 $2.95 $2.64
Discontinued operations (0.06) - (0.06) -
Basic earnings per
common share $0.64 $0.57 $2.89 $2.64
Diluted
Continuing operations $0.69 $0.57 $2.90 $2.61
Discontinued operations (0.06) - (0.06) -
Diluted earnings per
common share $0.63 $0.57 $2.84 $2.61
Weighted average common
shares outstanding
Basic 48,963 49,305 48,938 49,235
Diluted 49,766 49,552 49,810 49,744
Cash dividends declared
per common share $0.21 $0.19 $0.82 $0.74
Pentair, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
December 31 December 31
In thousands 2003 2002
Assets
Current assets
Cash and cash equivalents $47,989 $39,648
Accounts and notes receivable, net 420,403 403,793
Inventories 285,577 293,202
Deferred income taxes 50,989 55,234
Prepaid expenses and other current assets 26,205 18,931
Total current assets 831,163 810,808
Property, plant and equipment, net 343,550 351,316
Goodwill 1,373,549 1,218,341
Other assets 235,113 133,985
Total assets $2,783,375 $2,514,450
Liabilities and Shareholders' Equity
Current liabilities
Short-term borrowings $- $686
Current maturities of long-term debt 73,631 60,488
Accounts and notes payable 170,077 171,709
Employee compensation and benefits 84,587 84,965
Accrued product claims and warranties 37,148 36,855
Income taxes 13,198 12,071
Other current liabilities 120,521 109,426
Total current liabilities 499,162 476,200
Long-term debt 734,836 673,911
Pension and other retirement compensation 101,704 124,301
Post-retirement medical and other benefits 42,134 42,815
Deferred income taxes 78,532 31,728
Other noncurrent liabilities 65,529 59,771
Total liabilities 1,521,897 1,408,726
Shareholders' equity 1,261,478 1,105,724
Total liabilities and shareholders' equity $2,783,375 $2,514,450
Days sales in accounts receivable
(13 month moving average) 56 59
Days inventory on hand (13 month moving average) 63 63
Days in accounts payable (13 month moving average) 51 53
Debt/total capital 39.1% 39.9%
Pentair, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
Year ended
December 31 December 31
In thousands 2003 2002
Operating activities
Net income $141,352 $129,902
Depreciation 61,129 58,833
Other amortization 4,514 5,869
Deferred income taxes 33,134 29,677
Stock compensation 306 -
Loss from discontinued operations 2,936 -
Changes in assets and liabilities,
net of effects of business acquisitions
Accounts and notes receivable 9,400 25,535
Inventories 25,782 29,717
Prepaid expenses and other current assets (4,491) 8,147
Accounts payable (15,530) (18,356)
Employee compensation and benefits (6,423) 6,289
Accrued product claims and warranties (1,012) (1,704)
Income taxes 2,349 5,863
Other current liabilities 4,845 (18,384)
Pension and post-retirement benefits 5,621 (4,787)
Other assets and liabilities (178) 10,667
Net cash provided by continuing operations 263,734 267,268
Net cash provided by (used for)
discontinued operations (796) 3,526
Net cash provided by operating activities 262,938 270,794
Investing activities
Capital expenditures (43,622) (33,744)
Acquisition of previously leased facility - (22,952)
Proceeds (payments) from sale of businesses (2,400) 1,744
Acquisitions, net of cash acquired (229,094) (170,270)
Equity investments (5,294) (9,383)
Other 48 (7)
Net cash used for investing activities (280,362) (234,612)
Financing activities
Net short-term (repayments) borrowings (873) 665
Proceeds from long-term debt 780,857 462,599
Repayment of long-term debt (709,886) (468,161)
Proceeds from exercise of stock options 5,795 2,730
Repurchases of common stock (1,589) -
Dividends paid (40,494) (36,420)
Net cash provided by (used for)
financing activities 33,810 (38,587)
Effect of exchange rate changes on cash (8,045) 2,209
Change in cash and cash equivalents 8,341 (196)
Cash and cash equivalents, beginning of period 39,648 39,844
Cash and cash equivalents, end of period $47,989 $39,648
Free cash flow
Net cash provided by operating activities $262,938 $270,794
Less capital expenditures (including buyout
of synthetic lease) (43,622) (56,696)
Free cash flow $219,316 $214,098
Pentair, Inc. and Subsidiaries
Supplemental Financial Information by Reportable Business Segment
(Unaudited)
First Qtr Second Qtr Third Qtr Fourth Qtr Year
In thousands 2003 2003 2003 2003 2003
Net sales to
external
customers
Water $246,440 $290,692 $270,901 $252,332 $1,060,365
Enclosures 139,453 145,236 146,233 152,494 583,416
Tools 251,765 283,416 268,028 278,169 1,081,378
Intersegment
sales
elimination (142) (355) (148) (149) (794)
Consolidated $637,516 $718,989 $685,014 $682,846 $2,724,365
Operating
income (loss)
Water $29,504 $46,002 $36,197 $32,259 $143,962
Enclosures 9,865 11,703 13,555 15,971 51,094
Tools 17,686 23,148 21,440 19,500 81,774
Other (4,867) (4,521) (3,447) (4,441) (17,276)
Consolidated $52,188 $76,332 $67,745 $63,289 $259,554
Operating income
as a percent
of net sales
Water 12.0% 15.8% 13.4% 12.8% 13.6%
Enclosures 7.1% 8.1% 9.3% 10.5% 8.8%
Tools 7.0% 8.2% 8.0% 7.0% 7.6%
Consolidated 8.2% 10.6% 9.9% 9.3% 9.5%
First Qtr Second Qtr Third Qtr Fourth Qtr Year
In thousands 2002 2002 2002 2002 2002
Net sales to
external
customers
Water $211,411 $265,531 $223,637 $231,841 $932,420
Enclosures 139,560 138,814 139,932 137,726 556,032
Tools 252,092 303,771 265,732 270,736 1,092,331
Intersegment
sales
elimination - - - - -
Consolidated $603,063 $708,116 $629,301 $640,303 $2,580,783
Operating
income (loss)
Water $29,747 $43,708 $29,969 $23,135 $126,559
Enclosures 4,608 6,995 8,884 9,455 29,942
Tools 16,686 30,837 25,479 24,596 97,598
Other (5,314) (6,948) (2,510) (3,335) (18,107)
Consolidated $45,727 $74,592 $61,822 $53,851 $235,992
Operating income
as a percent
of net sales
Water 14.1% 16.5% 13.4% 10.0% 13.6%
Enclosures 3.3% 5.0% 6.3% 6.9% 5.4%
Tools 6.6% 10.2% 9.6% 9.1% 8.9%
Consolidated 7.6% 10.5% 9.8% 8.4% 9.1%
About Pentair, Inc.
Pentair is a diversified operating company headquartered in Minnesota. Its
Water Technologies 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, serving industrial and electronic customers, and its Tools Group
markets innovative products under established brand names to professionals and
do-it-yourself users. Pentair's 2003 revenues totaled $2.7 billion. 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 such as
continued economic growth; 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.
Contacts:
Pentair: Mark Cain
Tel. (763) 656-5278
E-mail: mark.cain@pentair.com
SOURCE Pentair, Inc.