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Pentair's Second Quarter 2006 EPS Increases 12% to $0.67 on 9% Sales Gain
07.25.2006

GOLDEN VALLEY, Minn., Jul 25, 2006 (BUSINESS WIRE) -- Pentair (NYSE:PNR):

Second Quarter 2006 Highlights

-- Earnings per share of $0.67 from continuing operations was up 12%.

-- Net sales of $862.0 million increased 9%, of which 4% was organic and the remainder was from the impact of acquisitions.

-- Technical Products Group surpassed its 15 percent operating margin goal and achieved its 18th consecutive quarter of sequential margin improvement, excluding the impact of stock option expensing.

-- Sales in Asia grew approximately 30% in local currencies.

-- The FARADYNE pump motor joint venture is on-schedule to begin production of four-inch submersible pump motors in the third quarter of 2006.

-- Cash flow of $128.5 million brings YTD Free Cash Flow to $27.2 million.

Pentair (NYSE:PNR) today announced its second quarter 2006 results, highlighting earnings per share (EPS) from continuing operations of $0.67, an increase of 12 percent over the same period last year, on sales of $862.0 million, a gain of nine percent. Excluding the impact of acquisitions and negligible currency exchange, second quarter sales increased approximately four percent. Pentair realized a net EPS benefit of approximately five cents per share from the net impact of one-time tax-related items that were partially offset by one-time reorganization costs in the quarter.

Pentair Chairman and Chief Executive Officer, Randall J. Hogan, said: "We realized good growth in our residential, commercial and municipal pump markets; in Asian markets; and in the industrial and commercial markets of our Technical Products Group. Our Thermal Management acquisition has exceeded its sales, operating income and margin targets for the first six months of 2006, and the Technical Products Group, as a whole, has surpassed our 15 percent return on sales goal.

"Although our residential Water markets remained relatively strong, we did see some weakness in the Spa & Bath area due to softer housing markets, and sales of pool equipment were adversely affected by inventory adjustments at several large distributors. Growth in our European Water business slowed in the second quarter with good growth in pump sales being somewhat offset by lower pool equipment sales due to an unseasonably cool, wet European spring."

Hogan added: "We continue to build toward the promise of higher growth and higher performance in our two attractive business segments. Based upon our second quarter performance and not withstanding the mixed economic outlook, we are reiterating our previous EPS guidance of between $2.08 and $2.18 for the year and are initiating third quarter EPS guidance in a range between $0.46 and $0.50."

Pentair's full year 2005 EPS from continuing operations was $1.80 with EPS from continuing operations in the third quarter 2005 of $0.43, both reflecting the impact of stock option expensing per SFAS 123R.

Second Quarter 2006 Financial Comments

Earnings:

EPS from continuing operations of $0.67 was 12 percent higher than second quarter 2005 EPS from continuing operations of $0.60. Operating income totaled $108.0 million, approximately one percent higher than the $107.2 million reported in the same period last year. Return on sales of 12.5 percent in the second quarter was lower by 110 basis points than that of a year ago as higher Technical Products Group margins were offset by Water Group investments and higher corporate costs. Pentair realized a net EPS benefit of approximately five cents per share from the net impact of one-time tax-related items that were partially offset by one-time reorganization costs in the quarter.

Revenue:

Net sales totaled $862.0 million, up nine percent from $788.5 million in the same period a year ago. Sales growth, excluding the impact of acquisitions and negligible currency exchange, was approximately four percent.

Cash:

Cash flow totaled $128.5 million, bringing free cash flow for the first half of 2006 to $27.2 million. This compares favorably to the second quarter of 2005, when cash flow totaled $112.8 million, bringing free cash flow for the first half of 2005 to $11.4 million.

Water Group Second Quarter Comments

-- Water Group sales of $605.5 million increased 3.4 percent over the same period last year.

-- Pump growth included record sales of Aurora and Sta-Rite pumps and strong sales of water systems in commercial, municipal, and residential pump markets. Wet weather in the northeastern U.S. contributed to the strong quarter, as did new customers in several vertical markets including wastewater and fire protection systems, and new products, including control boxes, variable speed drive pumps, and end-suction pumps.

-- Pool sales were up from year-ago levels driven by new products including electronic control packages and high-efficiency variable speed pumps. This performance came despite a decline in Spa & Bath sales, and slower pool building markets in Florida and California.

-- Filtration growth reflected improved industrial sales that more than offset weaker sales in residential and original equipment manufacturer (OEM) markets. Filtration also saw stronger activity in its Ecolab partnership and in point-of-use residential filtration.

-- Efforts to capture additional share in global desalination projects produced another record quarter for our CodeLine pressure vessel business.

-- New products contributed to sales gains, particularly in Pool and in Europe. Pool benefited from previously launched products including variable speed pumps, control systems, and robotic cleaners, while product launches in Europe included an energy-efficient variable speed pump for residential markets, a new in-ground fire suppression system, and a complete cabinet-sized water softener for point-of-use applications.

-- Operating income for the Group totaled $84.2 million, down nine percent over the same period last year. Return on sales was 13.9 percent, down 180 basis points compared to last year.

-- Margin gains in Pump operations - driven by sourcing activities, pricing, and volume - were offset by mix, material cost inflation, and plant consolidation-related inefficiencies in Pool and Filtration operations.

-- Planned investments for growth continued with approximately $7 million incurred in the quarter.

-- Operating income from international businesses was down from year-ago levels due primarily to reorganization costs and continuing investments in Asia and in Europe.

-- The FARADYNE joint venture is progressing well as field-testing is complete. Production of submersible motors is expected to begin shortly, and motors should be available in the third quarter, as anticipated.

Technical Products Group Second Quarter Comments

-- Sales of $256.5 million for the quarter increased $54 million or 26 percent over the same quarter last year. Excluding the impact of the newly acquired Thermal Management businesses and negligible foreign currency exchange, organic growth was approximately seven percent.

-- Excluding acquisitions, sales in North American markets grew in the mid-single digits, resulting from share gains in targeted petrochemical, food & beverage, and commercial construction markets driven by new products and focused vertical marketing efforts.

-- In Europe, growth in test & measurement and automation & control markets, and in ATCA was offset by several end-of-life telecom programs and transition of OEM business to our China operations. New products and an expanded customer base bolstered sales.

-- Strong growth in Asia benefited from continued market penetration in China, strong growth in Japan as those markets continued their recovery, and OEM program transitions from our North American and European operations.

-- Volume growth, supply management savings, cost reductions, and improved productivity combined to set new earnings records. Operating income of $39.7 million set a new record, breaking the previous $37.7 million record set in the first quarter of 2006.

-- Margins totaled 15.5 percent, up 70 basis points on a sequential quarter basis. The second quarter was the Group's 18th consecutive quarter of sequential margin improvement, excluding the impact of stock option expensing.

-- Increased sales together with the rapid implementation of lean and supply management practices drove significant profit improvements in the newly acquired Thermal Management business. The business exceeded its sales, operating income and margin targets for the first six months.

As announced in a June 29, 2006 news release, a jury verdict was rendered against Pentair for $193 million, exclusive of pre-judgment interest and attorney's fees, in the commercial damages portion of the previously disclosed Horizon litigation. Based on the information available to the Company at this time, no adjustment to previously established reserves was deemed necessary in the second quarter. Pentair's EPS guidance does not reflect any potential impact of this litigation.

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.

About Pentair, Inc.

Pentair, Inc. (NYSE: PNR) 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 Technical Products Group is a leader in global enclosures and thermal management markets, designing and manufacturing thermal management products and standard, modified, and custom enclosures that house and protect sensitive electronics and electrical components. With 2005 revenues of $2.95 billion, Pentair employs approximately 15,000 people worldwide.

Caution concerning forward-looking statements

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 successfully appeal and limit damages payable arising out of the Horizon litigation; 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.

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

                           Three months ended     Six months ended
                           ------------------- -----------------------
                            July 1    July 2     July 1      July 2
In thousands, except per-
 share data                  2006      2005       2006        2005
----------------------------------------------------------------------
Net sales                  $862,022  $788,523  $1,633,411  $1,498,158
Cost of goods sold          599,333   553,290   1,148,214   1,058,787
----------------------------------------------------------------------
Gross profit                262,689   235,233     485,197     439,371
  % of net sales               30.4%     29.8%       29.7%       29.3%
Selling, general and
 administrative             139,831   117,467     268,920     238,092
  % of net sales               16.2%     14.9%       16.5%       15.9%
Research and development     14,883    10,532      29,746      21,959
  % of net sales                1.7%      1.3%        1.8%        1.4%
----------------------------------------------------------------------
Operating income            107,975   107,234     186,531     179,320
  % of net sales               12.5%     13.6%       11.4%       12.0%
Gain on sale of investment       --     5,199          --       5,199
Net interest expense         12,553    11,696      25,837      22,972
  % of net sales                1.4%      1.5%        1.6%        1.5%
----------------------------------------------------------------------
Income from continuing
 operations before income
 taxes                       95,422   100,737     160,694     161,547
  % of net sales               11.1%     12.8%        9.8%       10.8%
Provision for income taxes   26,789    39,358      48,990      59,987
  Effective tax rate           28.1%     39.1%       30.5%       37.1%
----------------------------------------------------------------------
Income from continuing
 operations                  68,633    61,379     111,704     101,560
Loss on disposal of
 discontinued operations,
 net of tax                      --        --      (1,451)         --
----------------------------------------------------------------------
Net income                  $68,633   $61,379    $110,253    $101,560
======================================================================

Earnings (loss) per common
 share
Basic
Continuing operations         $0.68     $0.61       $1.11       $1.01
Discontinued operations          --        --       (0.01)         --
----------------------------------------------------------------------
Basic earnings per common
 share                        $0.68     $0.61       $1.10       $1.01
======================================================================

Diluted
Continuing operations         $0.67     $0.60       $1.09       $0.99
Discontinued operations          --        --       (0.01)         --
----------------------------------------------------------------------
Diluted earnings per
 common share                 $0.67     $0.60       $1.08       $0.99
======================================================================


Weighted average common
 shares outstanding
Basic                       100,509   100,769     100,498     100,566
Diluted                     102,429   102,967     102,457     102,645

Cash dividends declared
 per common share             $0.14     $0.13       $0.28       $0.26




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

                                     July 1    December 31   July 2
In thousands                          2006        2005        2005
----------------------------------------------------------------------
              Assets
Current assets
Cash and cash equivalents             $48,331     $48,500     $41,853
Accounts and notes receivable, net    502,982     423,847     457,878
Inventories                           380,219     349,312     339,460
Deferred tax assets                    45,922      48,971      49,077
Prepaid expenses and other current
 assets                                27,659      24,394      27,734
----------------------------------------------------------------------
Total current assets                1,005,113     895,024     916,002

Property, plant and equipment, net    312,146     311,839     324,477

Other assets
Goodwill                            1,729,179   1,718,207   1,614,248
Intangibles, net                      263,600     266,533     254,233
Other                                  80,167      62,152      60,538
----------------------------------------------------------------------
Total other assets                  2,072,946   2,046,892   1,929,019
----------------------------------------------------------------------
Total assets                       $3,390,205  $3,253,755  $3,169,498
======================================================================

  Liabilities and Shareholders'
              Equity
Current liabilities
Short-term borrowings                  $4,869         $--         $--
Current maturities of long-term
 debt                                   6,970       4,137       6,469
Accounts payable                      224,237     207,320     195,702
Employee compensation and benefits     83,071      95,552      80,584
Accrued product claims and
 warranties                            41,346      43,551      43,940
Current liabilities of
 discontinued operations                   --         192         192
Income taxes                           22,533      17,518      45,123
Accrued rebates and sales
 incentives                            35,723      45,374      38,177
Other current liabilities              83,937     111,026      97,367
----------------------------------------------------------------------
Total current liabilities             502,686     524,670     507,554

Long-term debt                        801,898     748,477     727,631
Pension and other retirement
 compensation                         164,480     152,780     138,830
Post-retirement medical and other
 benefits                              73,723      73,949      70,309
Deferred tax liabilities              125,418     125,785     143,377
Other non-current liabilities          79,838      70,455      67,576
Non-current liabilities of
 discontinued operations                   --       2,029       2,031
----------------------------------------------------------------------
Total liabilities                   1,748,043   1,698,145   1,657,308

Shareholders' equity                1,642,162   1,555,610   1,512,190
----------------------------------------------------------------------
Total liabilities and
 shareholders' equity              $3,390,205  $3,253,755  $3,169,498
======================================================================

Days sales in accounts receivable
 (13 month moving average)                 54          54          53
Days inventory on hand (13 month
 moving average)                           71          70          68
Days in accounts payable (13 month
 moving average)                           56          56          56
Debt/total capital                       33.1%       32.6%       32.7%




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

                                                    Six months ended
                                                   -------------------
                                                    July 1    July 2
In thousands                                         2006      2005
----------------------------------------------------------------------
Operating activities
Net income                                         $110,253  $101,560
Adjustments to reconcile net income to net cash
 used for operating activities
Loss on disposal of discontinued operations           1,451        --
Depreciation                                         30,386    28,962
Amortization                                          9,476     8,074
Deferred income taxes                                   181     2,572
Stock compensation                                   12,484    13,306
Excess tax benefits from stock-based compensation    (2,605)   (7,809)
Gain on sale of investment                               --    (5,199)
Changes in assets and liabilities, net of effects
 of business acquisitions and dispositions
  Accounts and notes receivable                     (74,193)  (72,729)
  Inventories                                       (28,032)  (22,340)
  Prepaid expenses and other current assets          (2,809)   (4,036)
  Accounts payable                                   12,382     4,590
  Employee compensation and benefits                (16,832)  (29,912)
  Accrued product claims and warranties              (1,793)    1,228
  Income taxes                                        6,443    18,285
  Other current liabilities                         (19,933)      787
  Pension and post-retirement benefits                8,722     7,370
  Other assets and liabilities                        1,565    (5,144)
----------------------------------------------------------------------
    Net cash provided by continuing operations       47,146    39,565
    Net cash provided by (used for) operating
     activities of discontinued operations               48      (630)
----------------------------------------------------------------------
      Net cash provided by operating activities      47,194    38,935

Investing activities
Capital expenditures                                (20,217)  (39,077)
Proceeds from sale of property and equipment            221    11,553
Acquisitions, net of cash acquired                  (19,694)  (10,513)
Divestitures                                        (24,007)     (190)
Other                                                (4,273)   23,596
----------------------------------------------------------------------
      Net cash used for investing activities        (67,970)  (14,631)

Financing activities
Net short-term borrowings                             4,763        --
Proceeds from long-term debt                        414,233   186,610
Repayment of long-term debt                        (358,141) (186,993)
Proceeds from exercise of stock options               2,939     6,355
Repurchases of common stock                         (18,330)       --
Excess tax benefits from stock-based compensation     2,605     7,809
Dividends paid                                      (28,458)  (26,648)
----------------------------------------------------------------------
      Net cash provided by (used for) financing
       activities                                    19,611   (12,867)

Effect of exchange rate changes on cash and cash
 equivalents                                            996    (1,079)
----------------------------------------------------------------------
Change in cash and cash equivalents                    (169)   10,358
Cash and cash equivalents, beginning of period       48,500    31,495
----------------------------------------------------------------------
Cash and cash equivalents, end of period            $48,331   $41,853
======================================================================

Free cash flow
Net cash provided by operating activities           $47,194   $38,935
Less capital expenditures                           (20,217)  (39,077)
Proceeds from sale of property and equipment            221    11,553
----------------------------------------------------------------------
Free cash flow                                      $27,198   $11,411
======================================================================




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

                                     First Qtr  Second Qtr Six Months
In thousands                            2006       2006       2006
----------------------------------------------------------------------

Net sales to external customers
Water                                 $517,169   $605,516  $1,122,685
Technical Products                     254,220    256,506     510,726
----------------------------------------------------------------------
Consolidated                          $771,389   $862,022  $1,633,411
======================================================================

Intersegment sales
Water                                      $50        $55        $105
Technical Products                         889      1,312       2,201
Other                                     (939)    (1,367)     (2,306)
----------------------------------------------------------------------
Consolidated                               $--        $--         $--
======================================================================

Operating income (loss)
Water                                  $55,587    $84,191    $139,778
Technical Products                      37,704     39,678      77,382
Other                                  (14,735)   (15,894)    (30,629)
----------------------------------------------------------------------
Consolidated                           $78,556   $107,975    $186,531
======================================================================

Operating income as a percent of net
 sales
Water                                     10.8%      13.9%       12.5%
Technical Products                        14.8%      15.5%       15.2%
Consolidated                              10.2%      12.5%       11.4%


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

                                     First Qtr  Second Qtr Six Months
In thousands                            2005       2005       2005
----------------------------------------------------------------------

Net sales to external customers
Water                                 $512,088   $585,657  $1,097,745
Technical Products                     197,547    202,866     400,413
----------------------------------------------------------------------
Consolidated                          $709,635   $788,523  $1,498,158
======================================================================

Intersegment sales
Water                                      $22       $187         209
Technical Products                         402        630       1,032
Other                                     (424)      (817)     (1,241)
----------------------------------------------------------------------
Consolidated                               $--        $--         $--
======================================================================

Operating income (loss)
Water                                  $60,489    $92,167    $152,656
Technical Products                      25,172     26,325      51,497
Other                                  (13,575)   (11,258)    (24,833)
----------------------------------------------------------------------
Consolidated                           $72,086   $107,234    $179,320
======================================================================

Operating income as a percent of net
 sales
Water                                     11.8%      15.7%       13.9%
Technical Products                        12.7%      13.0%       12.9%
Consolidated                              10.2%      13.6%       12.0%

SOURCE: Pentair, Inc.

Pentair, Inc., Golden Valley
Communications:
Rachael Jarosh, 763-656-5280
E-mail: rachael.jarosh@pentair.com
or
Investor Relations:
Mark Cain, 763-656-5278
E-mail: mark.cain@pentair.com

Categories: Press Releases